Commissioner of Taxation v Dulux Holdings Pty Ltd &

[2001] FCA 1344

FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Dulux Holdings Pty Ltd &
Orica Ltd [2001] FCA 1344

CAPITAL GAINS TAX – time of deemed disposal – “Assumption Agreement” under which company already liable to make stream of future payments under debentures pays another entity to assume that liability – consideration payable by company to the entity calculated as discounted present day value of the stream of future payments – parties at arm’s length – previously held by High Court in Federal Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 that payments made by the entity which assumed the liability to the trustee for debenture-holders effected pro tanto discharges of the company’s chose in action against the entity, with result that upon making of each payment there was a deemed change in ownership of the chose in action and a deemed disposal of an asset by that company for purposes of Pt IIIA of the Income Tax Assessment Act 1936 (Cth) (“the Act”) by reason of s 160M of that Act – the payments were made under the “Assumption Agreement”, but question whether the deemed change in ownership and deemed disposal were “under” that contract for purposes of subs 160U(3) of the Act – whether deemed disposal taken to have been made at time of making of contract or at later times of making of payments by the entity to trustee for debenture-holders – relevance of indexation of cost base – scope, purpose and object of subs 160U(3)

WORDS AND PHRASES –  “disposal” – “change in ownership”

Income Tax Assessment Act 1936 (Cth) Pt IIIA, ss 160M, 160U

Federal Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 discussed
Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 distinguished
Caffoor v Commissioner of Income Tax Colombo [1961] AC 584 cited
Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 cited
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 cited
Kiwi Brands Pty Ltd v Commissioner of Taxation (1998) 90 FCR 64 cited

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH
OF AUSTRALIA v DULUX HOLDINGS PTY LIMITED

V 147 OF 2001

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH
OF AUSTRALIA v ORICA LIMITED

V 148 OF 2001

BEAUMONT, LINDGREN AND KENNY JJ
2 NOVEMBER 2001
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 147 OF 2001

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA APPELLANT
AND:	DULUX HOLDINGS PTY LIMITED RESPONDENT
JUDGES:	BEAUMONT, LINDGREN AND KENNY JJ
DATE OF ORDER:	2 NOVEMBER 2001
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.        The appeal be allowed.

2.        The respondent pay the appellant’s costs of the appeal.

3.The orders made on 2 February 2001 in proceeding VG 439 of 1999 be set aside.

4.In lieu of those orders:

(a)the application in proceeding VG 439 of 1999 be dismissed;

(b)the objection decision made on or about 8 June 1999 be confirmed; and

(c)the present respondent pay the present appellant’s costs of that proceeding.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 148 OF 2001

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA APPELLANT
AND:	ORICA LIMITED RESPONDENT
JUDGES:	BEAUMONT, LINDGREN AND KENNY JJ
DATE OF ORDER:	2 NOVEMBER 2001
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.        The appeal be allowed.

2.        The respondent pay the appellant’s costs of the appeal.

3.The orders made on 2 February 2001 in proceedings VG 440, 441, 442, 443 and 444 of 1999 be set aside.

4.In lieu of those orders:

(a)the applications in proceedings VG 440, 441, 442, 443 and 444 of 1999 be dismissed;

(b)the objection decisions made on or about 8 June 1999 be confirmed; and

(c)the present respondent pay the present appellant’s costs of those proceedings.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 147 OF 2001

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA APPELLANT
AND:	DULUX HOLDINGS PTY LIMITED RESPONDENT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY		V 148 OF 2001
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:	THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA APPELLANT
AND:	ORICA LIMITED RESPONDENT

JUDGES:	BEAUMONT, LINDGREN AND KENNY JJ
DATE:	2 NOVEMBER 2001
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

BEAUMONT J:

1. I agree with Lindgren J and with Kenny J.  I agree with the orders proposed by Lindgren J.

I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont.

Associate:

Dated:             2 November 2001

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 147 OF 2001

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA APPELLANT
AND:	DULUX HOLDINGS PTY LIMITED RESPONDENT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY		V 148 OF 2001
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:	THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA APPELLANT
AND:	ORICA LIMITED RESPONDENT

JUDGES:	BEAUMONT, LINDGREN AND KENNY JJ
DATE:	2 NOVEMBER 2001
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

LINDGREN J:

INTRODUCTION

1. These are appeals brought by the Commissioner of Taxation from orders of a Judge of the Court setting aside decisions of the Commissioner that the respondents’ objections to assessments be disallowed.  In the case of Dulux Holdings Pty Limited (“Dulux”) the assessment was in respect of the year of income ended 30 September 1987.  In the case of Orica Limited (“Orica”) the assessments were in respect of the years of income ended 30 September 1988, 1989, 1990, 1994 and 1995.  The assessments included as assessable income, a net capital gain pursuant to Pt IIIA of the Income Tax Assessment Act 1936 (Cth) (“the Act”) (see subs 160ZO(1) of the Act).

2. The issue for the primary Judge in each case was the date upon which there had been, for the purposes of Pt IIIA, a “disposal” of a chose in action, which was said to have given rise to the capital gain.

   THE PRIMARY JUDGE’S REASONS

   (a)        Background - Orica

3. The background to Orica’s matter was generally as follows.  (The following is based largely on the account of the primary Judge – Orica Ltd v Federal Commissioner of Taxation (2001) 182 ALR 77.)

   ·In 1966 and 1970, pursuant to two debenture trust deeds (“the Orica debentures”) entered into with a trustee (“the Trustee”), Orica issued debentures to members of the public.  By 1986, the borrowing restrictions imposed under the Orica debentures were seen by Orica as unduly burdensome.  In order to obtain a release from the restrictions, on 6 June 1986, Orica, the Melbourne Metropolitan Board of Works (“MMBW”) and the Trustee entered into a “Principal Assumption Agreement” (“the Orica Assumption Agreement”).

   ·Pursuant to the Orica Assumption Agreement:

   (1)MMBW agreed to assume, in the manner provided for in that agreement, Orica’s contractual obligation to make payments of principal which it was required to make under the Orica debentures as and when they fell due for payment on a succession of nineteen dates between (and including) 30 November 1986 and 31 January 2000, in consideration of Orica paying the Trustee on 6 June 1986 (on account of the MMBW), an “assumption payment” of $62,309,546; and

   (2)the Trustee agreed that payments made by MMBW to its nominated bank account would be in pro tanto satisfaction of Orica’s obligation.

   ·The assumption payment of $62,309,546 was calculated as being equal to the aggregate of the “Present Value” of the future payments of principal Orica was obliged to make.  Those present values were calculated by applying a discount rate from the maturity of the debentures back to 1 July 1986.  The rate was equal to the relevant Commonwealth Government “Bond Rate” less 0.03 per cent per annum, calculated semi-annually in arrears.  As at 6 June 1986, the aggregate of the future payments of principal to be made under the Orica debentures was $98,662,800.

   ·On 6 June 1986 Orica paid $62,309,546 to the Trustee and on 1 July 1986 the Trustee paid that sum to MMBW.  Pursuant to the Orica Assumption Agreement, MMBW made the required payments to the Trustee.  In the five years of income in dispute in the Orica proceeding, the payments made by MMBW, their respective present values as at 1 July 1986, the net capital gains as assessed by the Commissioner, and the amounts of tax assessed by him on those net capital gains, were as follows:

Year of Income	Payment made by MMBW to Trustee	Present Value (1.7.1986)	Net Capital Gain Assessed (Payment made by MMBW less indexed cost base)	Tax Assessed on Net Capital Gain
1988	$20,000,000	$16,253,551	$1,302,225	$638,090.25
1989	$17,403,500	$12,478,712	$1,962,209	$765,261.51
1990	$11,930,350	$7,291,447	$2,017,317	$786,753.63
1994	$1,199,850	$446,056	$543,652	$179,405.16
1995	$22,200,900	$7,583,305	$10,545,360	$3,479,968.80
TOTAL	$72,734,600	$44,053,071	$16,370,763	$5,849,479.35

·A dispute arose between Orica and the Commissioner in relation to the application of subs 25(1), s 25A and Pt IIIA of the Act to the payments made by MMBW. The dispute related to the 1986 and 1987 years of income (preceding, it will be noted, the years with which the present litigation is concerned). That dispute was resolved by the decision of the High Court in Federal Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 (“Orica”).  That decision concerned, inter alia, the payment made by MMBW in the 1987 year of income which discharged Orica’s liability under the Orica debentures to make payments of principal during that year (no such payment was to be made in the 1986 year).  The High Court decided that the chose in action consisting of MMBW’s promise to Orica in the Orica Assumption Agreement was an “asset” of Orica’s and that the payment made by MMBW from time to time in performance of that promise constituted pro tanto discharge of that chose in action, and therefore pro tanto “disposal” of that asset, in each case for Pt IIIA purposes.  In the result, there was a possibility of a capital gain.  The Court directed the Commissioner to amend the 1987 assessment “in accordance with law”.

·Relying upon Orica, the Commissioner amended Orica’s assessments to include Orica’s net capital gains, not only in respect of the year of income ended 30 September 1987, but also in respect of the years of income ending 30 September 1988, 1989, 1990, 1994 and 1995, after applying, in the case of the latter five years, indexation to the cost base as from 6 June 1986 calculated according to the formula provided in s 160ZJ of the Act. The amended assessments were made on the footing that the disposals which gave rise to the capital gains in the respective years of income took place at the times when Orica’s obligations under the debentures were progressively discharged by MMBW’s payments made to the Trustee.

·The Court was informed that Orica paid the amount of the amended assessment for the 1987 year but it objected to the amended assessments in relation to the 1988, 1989, 1990, 1994 and 1995 years, claiming that the disposals by it deemed to have occurred upon the making of the payments in those years, were, by subs 160U(3) of the Act, deemed to have taken place earlier on 6 June 1986, the date of the Orica Assumption Agreement. Orica contended that in Orica, the High Court determined only that, for the purposes of Pt IIIA, Orica’s asset, namely its chose in action against MMBW, was progressively disposed of by the payments made by MMBW to the Trustee.  Orica accepted, as it was bound by the High Court decision to do, that each time such a payment was made, MMBW’s obligation to Orica was pro tanto discharged. However, Orica contended that the asset (the chose in action) was “disposed of under a contract” for the purposes of subs 160U(3) of the Act, with the consequence that the time of the disposal was deemed by that provision to be “the time of the making of the contract”.

·The Commissioner disputed Orica’s contention, claiming that it was inconsistent with the decision in Orica. The Commissioner contended that there was a disposal “otherwise than under a contract” within subs 160U(4), with the consequence that, by the operation of that subsection, the disposals were deemed to have occurred on the various occasions, during the respective years of income, when MMBW’s contractual obligation to Orica (and Orica’s debt under the debentures) was pro tanto discharged by the payments made by MMBW to the Trustee.

(b)       Background - Dulux

1. The background to Dulux’s case was generally as follows.  (The following is also based largely on the account of the primary Judge.)

   ·    Dulux also entered into a transaction with MMBW in respect of its liability to members of the public under debentures issued by it pursuant to a debenture trust deed dated 16 March 1965 as amended in April 1968 (“the Dulux debentures”).  Dulux also entered into a “Principal Assumption Agreement” with MMBW on 6 June 1986 (“the Dulux Assumption Agreement”).  Under the Dulux Assumption Agreement, MMBW undertook to pay the amounts of principal payable by Dulux from time to time under the Dulux debentures in consideration of Dulux paying the present (1 July 1986) value of those amounts to MMBW.  The amounts payable by Dulux under the debentures totalled $7,000,000 and were payable on three dates between (and including) 30 September 1986 and 31 March 1988.  The consideration paid by Dulux to the Trustee on 6 June 1986, and by the Trustee to MMBW on 1 July 1986, was $6,173,502.

   ·    The present dispute relates to Dulux’s 1987 year of income in which the amount payable by it under the debentures was $2,000,000.  The part of the total consideration of $6,173,502 paid by Dulux on 6 June 1986 under the Dulux Assumption Agreement for MMBW’s undertaking to pay the sum of $2,000,000 in 1987, was $1,818,675.  Following the High Court’s decision in Orica, the Commissioner issued an amended assessment for the 1987 income year which included a net capital gain of $181,325 in Dulux’s taxable income for that year. It will be noted that this amount represented the difference between $2,000,000 and $1,818,675. Apparently the amount of $2,000,000 was payable within twelve months of 6 June 1986, and therefore, unlike the position noted above in relation to Orica, there was no occasion to increase the cost base, and, consequentially, to reduce the amount of the capital gain, by the process of indexation of the cost base (see par 160Z(1)(a) and subs 160Z(3) of the Act, the effect of which is that indexation, and therefore reduction in the amount of a capital gain, are not available where disposal occurs within twelve months of acquisition). Dulux objected to the amended assessment on the same grounds as Orica.

   ·    The following table shows the payment made by MMBW to the Trustee pursuant to the Dulux Assumption Agreement;  the present (1 July 1986) value of that amount; the net capital gain which the Commissioner included in Dulux’s amended assessment and the amount of tax assessed on that net capital gain.

Year of Income	Payment made by MMBW to Trustee	Present Value (1.7.1986)	Net Capital Gain Assessed (Payment made by MMBW less cost base)	Tax Assessed on Net Capital Gain
1987	$2,000,000	$1,818,675	$181,325	$88,849.25

(c)       The legislative context described by the primary Judge

1. Having noted (at [21]) that by virtue of the provisions of par 160L(1)(b) of the Act, any capital gain accrued because there had been a disposal of an asset (s 160A defined “asset” to include a “chose in action”) which had been acquired after 20 September 1985, the primary Judge referred (at [22]) to the definitions of “disposal” and “acquisition” in s 160M, which were, relevantly, as follows:

   “(1)Subject to this Part [ie Pt IIIA], where a change has occurred in the ownership of an asset, the change shall be deemed, for the purposes of this Part, to have effected a disposal of the asset by the person who owned it immediately before the change and an acquisition of the asset by the person who owned it immediately after the change.

   (2)A reference in sub-section (1) to a change in the ownership of an asset is a reference to a change that has occurred in any way, including any of the following ways:

   …

   (3)Without limiting the generality of sub-section (2), a change shall be taken to have occurred in the ownership of an asset by:

   (a)…

   (b)in the case of an asset being a debt, a chose in action or any other right, or an interest or right in or over property – the cancellation, release, discharge, satisfaction, surrender, forfeiture, expiry or abandonment, at law or in equity, of the asset;

   (c)…

   (d)…”

2. His Honour observed (at [23]) that in Orica the High Court had decided that by reason of subs 160M(1) and par 160M(3)(b) there had been a deemed change in the ownership of Orica’s chose in action against MMBW and therefore a deemed disposal of an asset by Orica. The chose in action consisted of MMBW’s contractual obligation to Orica to assume liability for the payments of capital required to be made in the 1987 year of income. The deemed change in ownership, and therefore the deemed disposal, occurred when MMBW made each payment to the Trustee.

3. His Honour went on to say (at [24]) that Orica was concerned with the existence of a capital gain, rather than with the time at which the disposal that resulted in the capital gain was deemed to have occurred. The latter issue arose under s 160U, which was not referred to in argument or in any of the judgments in Orica. Section 160U provided, relevantly, as follows:

   “160U(1)Subject to the provisions of this Part other than this section, where an asset has been acquired or disposed of, the time of acquisition or disposal for the purposes of this Part shall be ascertained in accordance with this section.

   (2)If the time of acquisition or disposal as ascertained under a sub-section of this section is different from the time of acquisition or disposal as ascertained under a subsequent sub-section of this section, the time of acquisition or disposal shall be taken to have been the time of acquisition or disposal as ascertained under that subsequent sub-section.

   (3)Where the asset was acquired or disposed of under a contract, the time of acquisition or disposal shall be taken to have been the time of the making of the contract.

   (4)Where the asset was acquired or disposed of otherwise than under a contract, the time of acquisition or disposal shall be taken to have been the time when the change in the ownership of the asset that constituted or gave rise to the acquisition or disposal occurred.

   …”

4. His Honour observed (at [26]) that, because of the provisions of subss 160U(3) and (8) (subs (8) is not relevant to the facts of this case), which deemed the time of disposal to be a date earlier than the actual change of ownership or than the events which gave rise to the deemed change of ownership, a question had arisen as to the Commissioner’s power under s 170 of the Act to amend assessments, and that, as a result, subs (10) had been inserted into s 160U by Act No 82 of 1994, providing that s 170:

   “…does not prevent the amendment of an assessment at any time to give effect to subsection (3) or (8) where the time of an acquisition or disposal is taken to have been before the making of the assessment.”

1. His Honour said (at [27]) that the issue was whether Orica’s and Dulux’s asset, being, in each case, its chose in action under the relevant Assumption Agreement, had been “disposed of under a contract” (my emphasis) and therefore fell within subs 160U(3). If so, the time of disposal of the asset was taken to be the date of the making of the contract, which in each case was 6 June 1986. If subs 160U(3) did not apply, it was common ground that subs 160U(4) applied to make that time the time of each payment by MMBW to the Trustee.

   (d)       The primary Judge’s reasoning

2. The primary Judge referred to the explanation of the operation of subs 160U(3) by Gleeson CJ, Gaudron, McHugh and Hayne JJ in Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 (“Sara Lee”) (at [42]):

   “The words ‘under a contract’, in s 160U(3), direct attention to the source of the obligation which was performed by the transfer of assets which constituted the relevant disposal.”

3. In Sara Lee, the question was whether the time of disposal was in May 1991, when the original contract to sell a business was made, or in August 1991, when both an amending agreement was entered into and a deed of assignment was executed which effected the disposal of the assets by the taxpayer and their acquisition by the buyer.  The time of the disposal was held by the High Court to be the date of the original agreement because that agreement was treated as the “source of the obligation” to transfer the assets.

4. His Honour said (at [30]) that in the present case the “source of the obligation” of MMBW to make the payments which discharged pro tanto the obligation of MMBW to Orica and Dulux (and, concomitantly, of Orica and Dulux to the debenture-holders), was the Orica Assumption Agreement or Dulux Assumption Agreement.

5. The performance by MMBW of its contractual undertaking to make the payments resulted in “the disposal” of assets of Orica and Dulux for the purposes of Pt IIIA.  As was stated in Orica (at [100]):

   “…for the purposes of Pt IIIA performance by MMBW of its obligations under the Principal Assumption Agreement, and discharge pro tanto of those obligations by performance, is a disposal of part of the taxpayer’s asset (being its rights against MMBW under the Principal Assumption Agreement).”

6. The source of MMBW’s obligation to make the payments, the primary Judge held (at [32]), was each Assumption Agreement. It appeared to his Honour to follow that the disposal of Orica’s and Dulux’s rights against MMBW was “under a contract” for the purposes of subs 160U(3).

7. Noting (at [33]) the Commissioner’s contention that there was no disposal of the relevant asset under a contract because, upon entering into the respective Assumption Agreements, Orica and Dulux did not lose dispositive power over their choses in action, but continued to have an unfettered ability to deal with them, his Honour said that even if that contention were accepted, it did not lead to the conclusion that there was no pro tanto disposal of the choses in action when the payments were made by MMBW pursuant to those agreements.  On the contrary, so his Honour held, on the basis of the reasoning in Orica and in Sara Lee the only source of the obligation that resulted in the “disposals” were the Assumption Agreements. 

8. His Honour noted (at [34]) a further argument advanced by the Commissioner. In the construction of subs 160U(3), regard must be had to the provisions of subs 160M(1), which defines what constitutes a disposal or acquisition for the purposes of the assessability of a capital gain, primarily on the basis that the event which triggers the gain is “a change .... in the ownership of an asset”. The Commissioner argued that the change in the ownership of an asset is the essential element of liability for capital gains tax purposes under Pt IIIA; that as a change in ownership usually occurs where there is a disposal of an asset after its acquisition, it was necessary for the legislature to provide for indexation and an indexed cost base of the asset acquired; and that indexation under s 160ZJ ensured that, in the calculation of the amount of a capital gain, the consideration received on disposal would be compared to an indexed cost base rather than the nominal cost base. It was inconsistent with the statutory scheme, the Commissioner argued, to construe s 160U in a manner that treated the change in ownership which occurred in a later year as having occurred simultaneously with the earlier acquisition, in cases where there was, in fact, no disposal.

9. In rejecting this submission, the primary Judge said (at [35]-[37]):

   “[35]  In some circumstances it may seem anomalous to treat a disposition as having occurred at a date when, in fact, there was no disposition and therefore no capital gain.  However, that is precisely the situation with which s 160U(3) is concerned.  The subsection expressly provides for a relation back to the date of the contract where the asset was disposed of ‘under a contract’.  Thus, where there is a disposition of a chose in action under a contract and a capital gain is realised on that disposition after the date of the contract, the reason the indexation provisions do not operate where the asset was also acquired under the same contract is that s 160U(3) deems that the disposal occurred at the date of the contract and not at the date of the disposition.

   [36] In any event it is not easy to rely upon supposedly anomalous outcomes when it comes to s 160U. As the Full Court observed in Kiwi Brands Pty Ltd v FCT (1998) 90 FCR 64 at 73; 160 ALR 1 at 9:

   ‘Where there is a disposition it is irrelevant not only that there is no acquisition of the same asset, but also whether if there is an acquisition it occurs at the same time.  No doubt normally a disposition and acquisition will be coextensive.  But there is no reason in principle and certainly no reason apparent from the language of s 160U to conclude that the same transaction could not give rise to a disposal at one time and an acquisition at a later time.’

   [37] The relation back that can arise under s 160U(3) is also supported by the legislature’s acknowledgment in s 160U(10) that it was necessary to ensure that express provision is made for s 170 [which limits the time in which the Commissioner may amend an assessment] not to operate to prevent the amendment of an assessment. Section 160U(10) was a legislative recognition that the relation back provided for in s 160U(3) and 160U(8) can result in amended assessments having to be raised in relation to years of income prior to the occurrence of the disposition that attracted capital gains tax.”

10. His Honour went on to observe (at [38]) that it should not be assumed that Pt IIIA is a coherent set of provisions in harmony with each other. Part IIIA is drawn in terms that are intended to catch a wide range of transactions, many of which could be expected to be structured to avoid the incidence of capital gains tax. Part IIIA contains a complex set of provisions which concern both actual and deemed changes in ownership. In part because of the complexity of the provisions, s 160U was required in order to determine the time of disposal and acquisition in the many and varied transactions with which Pt IIIA is concerned. The primary Judge added that the Commissioner’s reliance on a change in ownership did not assist him, as it was plain that s 160M was concerned with what constitutes a change of ownership or a disposition and acquisition, while s 160U was concerned with the separate question of when an acquisition or disposition is deemed to have occurred.

11. His Honour concluded (at [40]) that the natural and ordinary meaning of subs 160U(3) required the conclusion that, for the purposes of Pt IIIA, the pro tanto disposal of Orica’s and Dulux’s choses in action did not occur when the relevant payments were made by MMBW to the Trustee but when the Assumption Agreements were made, that is, on 6 June 1986.

12. The Commissioner also contended that there was an issue estoppel against Orica as a result of the decision in Orica. His Honour accepted that the issues raised by s 160U in Orica’s present appeals were issues that could have been determined in Orica in respect of the 1986 and 1987 income years. The contention had particular relevance to the 1986 income year because, under subs 160U(3), that was the year of income in respect of which the capital gains the subject of the present appeals would have been assessable. However, his Honour noted (at [50]) that the present appeals by Orica related to amended assessments for other years of income, namely, the 1988, 1989, 1990, 1994 and 1995 years, not the 1986 (or 1987) year.

13. The primary Judge observed (at [51]) that issue estoppel has been held not to apply to a taxpayer where the decision relied upon as founding the estoppel related to a different year of income.  In Caffoor v Commissioner of Income Tax Colombo [1961] AC 584 (“Caffoor”) the Privy Council determined (at 598-601) that a taxpayer is not estopped from contending it was entitled to an exemption in respect of a year of income by a decision in respect of a different year of income. More recently, in Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 (at 510), Deane, Toohey and Gaudron JJ cited Caffoor as authority for the proposition that “the Commissioner is not bound by a determination made in respect of an assessment for one year, so far as other years are concerned”.  It must follow, the primary Judge said, that the Commissioner’s issue estoppel argument failed.

    THE GROUNDS OF THE COMMISSIONER’S APPEAL

14. The Commissioner relies upon the following grounds of appeal:

    A.       “Time of the Disposal” issue

    His Honour erred in holding that, by reason of s 160U, the time of the disposal of each part of the asset (chose in action) was the time of the making of the Principal Assumption Agreement, and should have held that the effect of s 160U was that the times of disposal were the times of the staged discharge of that asset, which was a consequence of the performance by MMBW from time to time of its obligations under the respective Principal Assumption Agreements.

    B.       “Disposal Under a Contract” issue

    · His Honour erred in holding that part of an asset was disposed of “under a contract” within the meaning of subs 160U(3) and should have held that each disposal was “otherwise than under a contract” within the meaning of subs 160U(4).

    · His Honour erred in holding that the expression “under a contract” in subs 160U(3) extended beyond cases in which a contract provided for a disposal and should have held that it does not extend beyond cases in which a contract provided for a disposal.

    C.       “Estoppel” issues [Orica]

    His Honour erred in holding that Orica was not estopped from contending that the time of the disposal was, in each case, the time of the making of the Principal Assumption Agreement, and should have held that, by reason of the decision of the High Court in Orica, Orica was so estopped by judgment, or, alternatively, in accordance with the principles of quasi-issue estoppel explained in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.

    OUTLINE OF THE JUDGMENTS IN ORICA

15. It is convenient now to turn to what was decided by the High Court in Orica.

16. Brennan CJ noted (at [38]) that a “capital gain” exists when the consideration in respect of the disposal of an asset exceeds the indexed cost base in respect of the asset (par 160Z(1)(a)).  Having concluded that, by virtue of the operation of par 160M(3)(b), there had been a “change in ownership” and thus a “disposal”, his Honour said (at [39]):

    “… As s 160ZI requires apportionment of the cost base attributable to any part of an asset disposed of, there is no problem in dissecting the aggregate of the Present Values paid by [Orica] under cl 2 of the Principal Assumption Agreement in order to ascertain the cost base attributable to the payments made by MMBW during the 1987 income year.  The indexing of the cost base and the calculation of the net capital gain to be included in [Orica’s] assessable income for the 1987 income year should be made by the Commissioner.”

17. Gaudron, McHugh, Kirby and Hayne JJ noted (at [64]) that the Commissioner expressly disclaimed reliance upon Div 16E, and acknowledged that, because none of Orica’s debentures fell due for payment in the year ended 30 September 1986 (some did in the 1987 year), if his contention was accepted his appeal in relation to the 1986 year would fail.

18. Having concluded (at [90]) that the rights acquired by Orica against MMBW under the Orica Principal Assumption Agreement were an “asset” for the purposes of Pt IIIA, their Honours addressed the question of “disposal”.  They noted (at [92]) the Commissioner’s submission that par 160M(3)(b) applied to deem performance by MMBW of its obligations under the Orica Principal Assumption Agreement to be a change in the ownership of Orica’s asset (its rights under that agreement);  and that MMBW's performance of its obligations was a “discharge” or “satisfaction” of the asset being the “chose in action or any other right” constituted by Orica’s rights under the Orica Principal Assumption Agreement.  But their Honours held (at [99]) that there was no basis for confining “discharge” or “satisfaction” to a discharge or satisfaction otherwise than according to the tenor of the obligation incurred.  Accordingly, they held (at [100]) that, for the purposes of Pt IIIA, performance by MMBW of its obligations under the Orica Principal Assumption Agreement and the consequential discharge pro tanto of those obligations, was a disposal of part of Orica’s asset (its contractual rights against MMBW under the Orica Principal Assumption Agreement).

19. Their Honours expressed their conclusion thus (at [102]):

    “MMBW having made no payment under the Principal Assumption Agreement during the 1986 year, the Commissioner’s appeal in respect of that year should be dismissed with costs.  MMBW having made payments in the 1987 year, the appeal to this Court in respect of that year of income should be allowed, the orders made by the Full Court set aside, and in lieu it should be ordered that the appeal to that Court should be allowed, the decision of the Commissioner disallowing [Orica’s] objection set aside and the Commissioner directed to amend the assessment concerned.”

    In independent judgments, Gummow J and Callinan J dissented (see below).

20. Finally, reference should be made to the relevant provisions of the High Court’s orders which were as follows:

    “…(b)   set aside the decision of the Commissioner of Taxation disallowing the taxpayer’s objection to the assessment in respect of the 1987 year of income;

    (c)direct that the Commissioner of Taxation amend the assessment in accordance with law;…”

    In accordance with the Commissioner’s concession noted at [26] above, the Court dismissed Orica’s appeal in relation to the 1986 year.

    REASONING ON THE APPEAL

    General

21. It is desirable that I set out certain general propositions at the outset.  (I will refer to Orica, but what follows applies with necessary adjustments to Dulux.)

22. Firstly, the amount which Orica paid on 6 June 1986 to the Trustee and which the Trustee paid to MMBW on 1 July 1986, $62,309,546, was the present (1 July 1986) value of the stream of amounts totalling $98,662,800 payable under the debentures from 1986 to 2000, which MMBW undertook by the Orica Assumption Agreement to pay to the Trustee.  Unless it transpired that the discount rate chosen was grossly inappropriate, the transaction would not be expected to involve what might be described in ordinary parlance as a “gross” capital gain or loss.  It has not been suggested:

    ·that Orica and MMBW were not at arm’s length; or

    ·that they did not believe that $62,309,546 represented the present day value of the future stream of payments.

    These considerations do not signify that there could be no capital gain for the purposes of Pt IIIA, but at least they suggest that the existence of a gross capital gain for those purposes might be inconsistent with the commercial reality of the transaction.

23. Secondly, subject to the next sentence, in the absence of an effective difference between the discount rate and the statutory indexation rates required to be applied for the purposes of Pt IIIA (see s 160ZJ of the Act), there would be no difference for capital gain purposes according to whether the time of disposal was 6 June 1986 or the date of each payment by MMBW to the Trustee: either way there would be no capital gain. In fact, the statutory indexation rates, when applied to increase the respective parts of the amount of $62,309,546 which Orica paid in June 1986, apparently do produce figures which are less than the amounts MMBW paid from time to time to the Trustee (see [4] and [5] earlier), but the amounts of the capital gains are much less than that next to be mentioned. (Section 160R provides that for the purposes of Pt IIIA, a reference to a disposal of an asset includes, unless the contrary intention appears, a reference to a disposal of part of an asset, and s 160ZI provides for a pro rata apportionment of the cost base in such a case.)

24. Thirdly, it is in the year of income in which an asset is disposed of that any capital gain is deemed to have accrued to the taxpayer (subs 160Z(1)). Orica’s submission is that the asset (its chose in action) was disposed of under a contract (the Orica Assumption Agreement) for the purposes of subs 160U(3), with the result that that subsection requires the time of the disposal to be taken to have been the time of the making of the contract. Orica does not resile from the remarkable implication of such a submission, coming, as it does, from the mouth of the taxpayer: that it is taken to have made a capital gain in the 1986 year alone of $36,353,254, representing the difference between the aggregate of the amounts paid by MMBW to the Trustee to discharge Orica’s debenture obligations ($98,662,800) and the amount paid by Orica to the Trustee in 1986 ($62,309,546) for MMBW’s contractual undertaking to make those payments.

25. Orica is in a position to make such a remarkable submission because, so senior counsel for Orica informed us, it is too late for the Commissioner to issue an amended assessment for the 1986 year.  But for that fact, Orica and other taxpayers who enter into contracts of a relevantly similar kind would be far worse off according to the construction supported by Orica than they would according to that supported by the Commissioner.  This is because the former denies them the alleviative effect of indexation in respect of the period from contract to payment and (pro tanto) discharge, whereas they would enjoy that benefit according to the Commissioner’s construction, and Pt IIIA does not permit a discounting of the consideration (the succession of payments made by MMBW) in respect of a disposal. The only situation in which there would have been no capital gain is if the discount rate had been reduced to nil, that is to say, if Orica had paid $98,662,800 in June 1986 for MMBW’s undertaking to pay the same amount over the contractual period of some fourteen years. Such a transaction would in fact have involved a considerable loss to Orica, and if Orica had had the means in 1986 of paying $98,662,800 there would have been no occasion for it to have entered into the Orica Assumption Agreement at all. (It is ironical that in his original assessment for the 1986 year, the Commissioner assessed Orica to tax on the basis that its assessable income included the very sum of $36,353,254 calculated in the manner mentioned ($98,662,800–$62,309,546), although he did so in reliance on subs 25(1) and/or s 25A, rather than Pt IIIA, of the Act.)

26. Fourthly, whatever may be said of the Commissioner’s “issue estoppel” and “Anshun estoppel” submissions, at least it must be acknowledged that the parties and the members of the High Court in Orica appear to have assumed that Orica’s asset, its chose in action as against MMBW, was to be taken to have been disposed of progressively at the times of the successive payments by MMBW to the Trustee in progressive discharge of that chose in action (and simultaneously Orica’s indebtedness to the debenture-holders), and that the amounts of the successive capital gains were to be determined after allowing for indexation from 6 June 1986 to the dates of those respective payments.

1. The above considerations are persuasive in favour of a conclusion, if it be reasonably open, that, consistently with the majority view in Orica that for the purposes of Pt IIIA there were disposals by Orica of an asset consisting of the pro tanto discharges of its chose in action upon the making of the successive payments by MMBW to the Trustee, the times of those disposals were the times of the making of those payments rather than the date of the making of the Orica Assumption Agreement, and that the amounts of any capital gains are limited by the effect of indexation of the pro rata portions of the cost base accordingly.

   Orica

2. The Court is bound by the reasoning of the majority decision of the High Court in Orica.

3. It is clear that the operation of indexation was an important assumption underlying the opinion of their Honours in the majority. As noted at [25] above, Brennan CJ stated (at [39]) among other things:

   “… The indexing of the cost base and the calculation of the net capital gain to be included in [Orica’s] assessable income for the 1987 income year should be made by the Commissioner.”

   In their joint judgment, Gaudron, McHugh, Kirby and Hayne JJ found in indexation the answer to the Commissioner’s submission, which found favour with Gummow J in dissent (see below), that it was highly unlikely that the legislature would have intended the mere performance of any executory contract in accordance with its terms to be deemed a disposal of an asset.  Their Honours stated (at [98]-[99]) as follows:

   “It was submitted that unless the provision was read down by confining ‘discharge’ and ‘satisfaction’ to discharge or satisfaction otherwise than by performance of the obligation undertaken, performance of every executory contract would be brought within the reach of the capital gains provisions.  No doubt that is so but it does not mean that a party to an executory contract will always be liable to tax.  It is necessary to recall that tax will be payable only if there is a capital gain, that is, only ‘if the consideration in respect of the disposal exceeds the indexed cost base to the taxpayer in respect of the asset’ (s 160Z(1)(a)).  If what the taxpayer receives on performance of the obligation undertaken by the other party to an executory contract does exceed the indexed cost base to the taxpayer in respect of the acquisition of the right to have the obligation performed, we see no incongruity in concluding that the taxpayer has made a capital gain.

   Accordingly, there is no basis for confining the word ‘discharge’ (or, for that matter, the word ‘satisfaction’) to discharge or satisfaction otherwise than according to the tenor of the obligation incurred.” (my emphasis)

   In my opinion, we must, in accordance with this passage, and if it is reasonably open to us to do so, construe s 160U in a manner which allows scope for indexation to operate on the sum of $62,309,546.

4. In separate dissenting judgments, Gummow J and Callinan J would not have given the word “discharge” in par 160M(3)(b) its literal and full significance.  Gummow J thought that the steps listed in pars (b) and (c) of subs 160(M)(3) were apt to identify “supervening activity by the disponor ... or by a third party exercising some superior authority ... which extinguishes the asset in question” (at [113]).  After referring to some of the steps mentioned in par 160M(3)(b), his Honour stated (at [115]):

   “In all these instances, the discharge is the product of some supervening activity beyond the receipt of the benefit by the promisee of performance of an executory obligation.  However, performance in this latter sense will answer the description of a discharge … .  The question that arises on this appeal is whether the inclusion of the term ‘discharge’ in the collection of expressions found in par (b) of s 160M(3) brings with it this particular operation of the term.”

   Later his Honour stated (at [117]):

   “… The nature of the various elements in par (b) of s 160M(3) is such that they have a common characteristic, namely some supervening activity of the nature described, beyond performance in the ordinary course, whilst one element, discharge, has a further characteristic.”

   And his Honour concluded (at [119]) in the passage referred to in [38] above:

   “A construction of s 160M(3)(b) which gave effect to the term ‘discharge’ in all its operations would lead to curious results.  In particular, it may be thought unlikely that the legislature set out to achieve the result that merely upon the performance of an executory contract in accordance with its terms there was, on the part of the promisee, a disposal of an asset for the purposes of Pt IIIA.”

5. Similarly, Callinan J stated (at [192]):

   “Whilst it must be accepted that s 160M may apply to situations in which an asset or right may cease to exist after its release, discharge, or satisfaction, the language of the section is not, in my opinion, apt for the performance by a party of that party’s obligations under an agreement of the kind entered into here.  I say this notwithstanding the wide meaning dictionaries give to the word ‘discharge’, and indeed, ‘satisfaction’, and the use of the expression ‘discharge’ by performance in the law of contract.  However, as expansive as the language of the section is (s 160M(3)(b)), it omits the words which I think would be needed if it were to be applicable here, ‘[discharge] by performance’.”

   Kiwi Brands and Sara Lee

6. Section 160U was considered by a Full Court of this Court in Kiwi Brands Pty Ltd v Commissioner of Taxation (1998) 90 FCR 64 (“Kiwi Brands”) and by the High Court on appeal from the Full Court’s decision in that case in Sara Lee.

7. The facts of that litigation were very different from those of the present case.  Sara Lee Corporation (“Sara Lee”) carried on business in 25 countries through 24 subsidiary or associated companies.  On 30 or 31 May 1991 (both dates appear in the reports but for convenience I will refer to 31 May only) it contracted to sell its business to Roche Holdings Limited (“Roche”) of Switzerland.  The parties to the agreement were Sara Lee and its 24 subsidiary or associated companies, including the appellant, Kiwi Brands Pty Limited (“KB”), as sellers, and Roche as buyer.  The total price was US$597,681,000 of which US$61,461,000 was allocated to KB.

8. On 30 August 1991, the day of settlement, an amending agreement was entered into.  It provided, inter alia, that a Roche company, which had been incorporated only as recently as 25 June 1991, that is, since the making of the original agreement, Nicholas Products Pty Limited (“Nicholas Products”), was to be the purchaser from KB of its assets.

9. On the same day, numerous documents were executed and exchanged, effecting settlement of the transaction.  These included a Deed of Assignment between KB as assignor and Nicholas Products as assignee, in respect of KB’s assets.

10. The dispute was as to whether, for the purposes of subs 160ZO(1) a net capital gain accrued to KB in the year of income ended 30 June 1991, as the Commissioner contended, or the year ended 30 June 1992, as KB contended. The answer depended on whether the disposal effected by the Deed of Assignment was “under” the original “umbrella” agreement of May or the amending agreement of August: if the former, any capital gain accrued to KB in the year ended 30 June 1991; if the latter, any capital gain accrued to KB in the year ended 30 June 1992. If the former, KB would have the benefit of indexation only down to 31 May 1991, but if the latter, it would have that benefit down to 30 August 1991. (There may also have been other advantages to KB in the accrual to it of any capital gain in the later year.)

11. A Full Court of this Court decided that KB’s business assets were disposed of under the amending agreement of August 1991.  Reversing that decision, the High Court held that the disposal occurred under the original agreement of May 1991.

12. It is important to appreciate that the case concerned “assets”, a “change in ownership” and a “disposal”, all in accordance with general law concepts: KB’s assets existed independently of the making of the original agreement of 31 May, and they existed down to (and following) the making of the amending agreement and the settlement on 30 August 1991. It was, then, a paradigm case to which subs 160U(3) applied, the only issue being, under which of the two contracts the disposal took place.

13. The Commissioner submits that Sara Lee is distinguishable because it was concerned with an actual change of ownership under an executory contract, whereas the present case concerns the discharge of a chose in action by performance of the very contract which created it, which is only deemed to be a change in ownership, and therefore a disposal, by s 160M of the Act. The Commissioner submits that subs 160U(3) addresses only actual changes in ownership under a contract. He relies on the following words from the joint judgment of Gleeson CJ, Gaudron, McHugh and Hayne JJ in Sara Lee (at [42]):

    “The words ‘under a contract’, in s 160U(3), direct attention to the source of the obligation which was performed by the transfer of assets which constituted the relevant disposal ...”

14. I agree that nothing said by the High Court in Sara Lee, or, for that matter, by the Full Court of this Court in Kiwi Brands, stands in the way of the Court’s distinguishing between those cases and the present one, if the distinction is otherwise reasonably available on a proper construction of s 160U. It is a reasonable view of their Honours’ words, set out above, that they had in contemplation only an actual transfer of assets which existed at both the time of the contract and the time of the transfer, that is, assets, the existence of which was independent of the executory contract and the transfer under it.

    My construction of s 160U

15. It is not, and could not reasonably be, challenged in the present case:

    ·that the payments which MMBW made from time to time to the Trustee, were made under the Orica Assumption Agreement; or

    ·that the making of those payments was not, and did not give rise to, a disposal of an asset (other than, of course, the money paid) in accordance with general law concepts.

    But just as clearly, Orica establishes that by reason of the operation of par 160M(3)(b) of the Act, upon the making of those payments, there were deemed, for the purposes of Pt IIIA, to be disposals of an asset. The question before us is whether subs 160U(3) is, on some proper basis, to be construed so as not to refer to those deemed disposals.

16. In my opinion, the chief purpose and object of subs 160U(3) is to express the legislature’s choice between two possibilities, one of which would give the benefit of indexation in respect of the period from contract to completion to the purchaser and the other of which would give that benefit to the vendor. Under the choice made, indexation of the vendor’s cost base comes to an end at the date of the making of the contract rather than the later date of the change in ownership under the contract, whereas, when the purchaser eventually sells, indexation of its cost base commences from the date on which it contracted to purchase, rather than from the later date when its purchase was completed.

17. Accordingly, subs 160U(3) applies where there is a potential for the asset in question to be disposed of, both at the time of the making of the contract and at the time of the later disposal. But there is no scope for subs 160U(3) to express the legislative choice to which I have referred, where, as in the present case, the asset is a chose in action created by the very contract, the due performance of which gives rise to the discharge constituting the deemed disposal. The concept of indexation is simply quite foreign to such circumstances, and there is no scope for subs 160U(3) to apply to them.

18. Two further considerations justify the above construction. The first is the clarificatory role of s 160U. That section sets up a timing régime which covers all acquisitions and disposals and resolves timing issues in doubtful cases. An example of the latter is to be found in subss 160U(5) and (6) which resolve the obvious problem of the time of “acquisition” of an asset by, respectively, the constructor or the creator of the asset. Similarly, some uncertainty was likely to arise where, in accordance with general law principles, property was acquired and disposed of under an executory contract, since both acquirer and disponor have rights in respect of the property from the time of contract, even though the acquisition or disposal is not perfected until the contract is completed. Subsection 160U(3) removes doubt in such a case. But confusion would not be likely to arise as to the timing of the deemed disposal constituted by the discharge of a chose in action resulting from nothing more than the outworking of the contract which created that chose in action: all would agree, in the absence of a provision such as subs 160U(3), that the time of the deemed disposal was the time of the discharge. Accordingly, subs 160U(3) has no clarificatory role to perform in such a case.

19. The second consideration is that in the circumstances of the present case, the deemed change in ownership which gives rise to the deemed disposal is a totally artificial construct produced by the Act. In a sense, all the disposals with which Pt IIIA is concerned, even those arising from actual changes in ownership, are only “deemed” ones (see subss 106M(1) and (3)), but changes in ownership may be either “real” (see subs 160M(1)) or deemed (see subs 160M(3)). In my opinion, it is not correct to say, for the purposes of subs 160U(3), that each deemed change in the ownership of a part of the chose in action here was “under” the Assumption Agreement. Certainly, the progressive discharge of the chose in action took place under that contract, but that is a different matter. Each deemed change in ownership, and therefore each deemed disposal, took place, not under the contract, but under par 160M(3)(b) in its operation, not in terms on the contract itself, but on the progressive discharge of the chose in action. Subsection 160U(4), rather than subs 160U(3), applies in these circumstances.

20. Orica submits that:

    1.there is no proper basis for construing subs 160U(3) as applying to some disposals under a contract and not to others;

    2.on any reckoning, the subsection would apply to, for example, an executory contract for the sale of land under which the price was payable by instalments over a period of years: subs 160U(3) would require the time of disposal to be taken to be the time of contract, so that under s 160Z the vendor would be deemed to have made at that date a capital gain equal to the excess of the total of all the instalments over the cost base indexed up to the date of contract but not beyond that date;

    3.the references to indexation in the majority judgments in Orica do not necessarily point to the Commissioner’s construction, since they can be read as embracing the possibility that indexation will yield a nil result; and

    4.the introduction of subs (10) into s 160U supports the construction for which Orica contends.

21. While appreciating the force of the first of these submissions, I do not accept it;  the policy and purpose of the subsection provide a proper legal basis for the distinction which I have drawn.

22. I accept Orica’s second submission, that is, that a long-term executory contract for the sale of property already in existence providing for payment of the price by instalments would, on any reckoning, fall within subs 160U(3), and so possibly give rise to the making of a capital gain for Pt IIIA purposes as at the date of contract equal to the total amount of all the instalments less the cost base of the subject property indexed only down to the date of contract. Nonetheless, I think my construction of subs 160U(3) is correct: the fact that it does not overcome all anomalies that can be suggested does not detract from its merit in overcoming those of the kind resulting from “totally artificial disposals” represented by the performance of the Orica Assumption Agreement. It may be reasonably suggested that since an executory instalment contract of the kind described would so obviously involve a disposal of an asset under a contract, the legislative policy was to leave it to the parties to structure their transaction so that there would not be, for the purposes of Pt IIIA, where there would not be in commercial reality, a capital gain (they might do so by, for example, providing for an immediate transfer of title and a mortgage from the purchaser back to the vendor, stipulating for payments, in the form of mortgage instalments, of the amount of the price with interest).

23. Orica’s third submission does not, in my view, make due allowance for the reason why Gaudron, McHugh, Kirby and Hayne JJ referred to indexation in the passage (at 194 CLR 500 at [98]-[99]) set out at [38] above. The only fair reading of that passage is that their Honours would have seen an “incongruity” in a conclusion that Orica had made a capital gain in June 1986 of $36,353,254, that is, an amount arrived at by reference to an unindexed cost base of $62,309,546.

24. With respect, I find unpersuasive senior counsel’s fourth submission, which found favour with the primary Judge. I set out subs 160U(10) at [9] above. I think the introduction of subs (10) by Act No 82 of 1994 is neutral in relation to the issue before the Court. The subsection has work to do in “the ordinary case”, of which Sara Lee is an example, of an executory contract for the disposal of an existing asset according to general law principles under which the actual disposal takes place after contract and upon completion.

25. Both parties relied on provisions of the Income Tax Assessment Act 1997 (Cth) (“the ITA Act 1997”). That Act provides in s 1-3 that it contains provisions of the Act “in a rewritten form” and that ideas expressed in the ITA Act 1997 are not to be taken to be different from ideas expressed in the Act “just because different forms of words were used”. I have carefully considered the respective provisions of the ITA Act 1997 to which Orica and the Commissioner have referred but do not find them persuasive, one way or the other, as to the issues of construction which are before the Court.

26. For the above reasons, I would allow each appeal with costs.

    Issue Estoppel

27. The above conclusion makes it unnecessary for me to consider the Commissioner’s further submission under this head.

    Anshun Estoppel

28. Similarly, the above conclusion makes it unnecessary for me to consider the Commissioner’s submission under this head.

    CONCLUSION

29. In each appeal I would:

    ·allow the appeal;

    ·order that the respondent pay the appellant’s costs of the appeal;

    ·set aside the orders made on 2 February 2001 in proceedings VG 439, 440, 441, 442, 443 and 444 of 1999; and

    ·in lieu of those orders, order that each application be dismissed, that each objection decision be confirmed, and that the present respondent pay the present appellant’s costs of those proceedings.

I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate:        

Dated:             2 November 2001

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 147 OF 2001

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA APPELLANT
AND:	DULUX HOLDINGS PTY LIMITED RESPONDENT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY		V 148 OF 2001
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
BETWEEN:	THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA APPELLANT
AND:	ORICA LIMITED RESPONDENT

JUDGES:	BEAUMONT, LINDGREN AND KENNY JJ
DATE:	2 NOVEMBER 2001
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

KENNY J:

1. I have had the benefit of reading in draft the reasons for judgment prepared by Lindgren J.  I agree with what his Honour proposes for the disposition of these appeals, and I do so substantially for the reasons given by him.

2. The principal issue in these appeals, as in TheCommissioner of Taxation v Sara Lee Household and Body Care (Australia) Pty Limited (2000) 201 CLR 520 (“Sara Lee”), concerns the identification of the year of income in which capital gains made by the respondent taxpayers were brought to tax by s 160U of the Income Tax Assessment Act 1936 (Cth) (“the Act”).

3. The decision in TheCommissioner of Taxation v Orica Limited (1998) 194 CLR 500 (“Orica”) establishes that, for the purposes of Part IIIA of the Act, these capital gains resulted from the performance by the Melbourne and Metropolitan Board of Works (“MMBW”) of its obligations under the relevant Principal Assumption Agreement (“the Agreement”). The majority in Orica held that s 160M(3)(b) of the Act applied to deem the performance by MMBW of its obligation under the Agreement a change in ownership (being a disposal) of Orica’s asset (namely, its rights under the Agreement).

4. As Lindgren J shows in his reasons for judgment, in the circumstances of these appeals, the question that ultimately arises is whether each disposal of part of the relevant asset was a disposal “under a contract” within the meaning of s 160U(3) or “otherwise than under a contract” within the meaning of s 160U(4) of the Act.

5. The decision in Sara Lee did not turn on this aspect of the timing question and is, therefore, of limited assistance in these appeals.  Sara Lee, as Lindgren J notes, related to the sale of a business. Plainly enough, the source of the obligation to make the transfer of assets, which constituted the disposal for the purposes of Part IIIA of the Act, was a contractual one. There was little doubt that s 160U(3) applied. The question in Sara Lee was whether the relevant contractual obligation derived from the initial or a subsequent agreement regarding sale.  As the reference in Sara Lee, at 537, to Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 249 indicates, the majority’s observations in Sara Lee concerning the expression “under a contract” in s 160U(3), upon which the respondents rely in these appeals, are to be understood in this context. That is, the majority were directing attention to the specific obligation, necessarily created by contract, which gave rise to the requirement, on the vendor’s part, to transfer the assets as agreed. These appeals relate to a relevantly different circumstance, and Sara Lee is distinguishable from them.

6. In the circumstance with which these appeals are concerned, there is a change in ownership of an asset which is a chose in action (s 160A and s 160M(3)(b)) by virtue of the direction in s 160M(3)(b) that “a change shall be taken to have occurred” by discharge of the chose in action; and because the performance on MMBW’s part of the Agreement discharged its liability to the respondent under the Agreement.

7. In this circumstance, as Lindgren J observes, it is correct to say that the payments made by MMBW in discharge of the chose in action belonging to each respondent took place under the relevant Agreement. Absent s 160M(3)(b) of the Act, however, would it be appropriate to characterise the discharge (and extinction) of the respondents’ rights as a “change in ownership” of the rights? I do not think that it would. The change in ownership of the relevant asset is brought about by the combined operation of s 160M(3)(b) and MMBW’s performance of the relevant Agreement.  For this reason, it cannot be said that each disposal of part of the relevant asset is accurately and sufficiently described as being made “under a contract” within the meaning of s 160U(3). The relevant disposal is also made “otherwise than under a contract” within the meaning of s 160U(4) of the Act. In this circumstance, s 160U(2) of the Act operates to resolve the timing issue, with the result that the time of the disposal is taken to be the time of disposal as ascertained under s 160U(4) of the Act. This conforms, so it seems to me, to the holding in Orica at 540 that the asset was disposed of by “performance by MMBW of its obligations under the … Agreement, and discharge pro tanto of those obligations by performance” (emphasis added). 

8. I too would allow each appeal and make the other orders as proposed by Lindgren J.

I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.

Associate:

Dated:             2 November 2001

In each of appeals V 147 and V 148 of 2001:

Counsel for the Appellant:	Mr G A A Nettle QC and Ms M M Gordon
Solicitors for the Appellant:	Australian Government Solicitor
Counsel for the Respondent:	Mr J de Wijn QC and Mr S H Steward
Solicitors for the Respondent:	Mallesons Stephen Jaques
Date of Hearing:	14 August 2001
Date of Judgment:	2 November 2001