Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) - [2005] HCA 20

HIGH COURT OF AUSTRALIA
GLEESON CJ,
McHUGH, GUMMOW, KIRBY, HAYNE, CALLINAN AND HEYDON JJ
COMMISSIONER OF TAXATION APPELLANT
AND
LINTER TEXTILES AUSTRALIA LTD (IN LIQUIDATION) RESPONDENT
Commissioner of Taxation v Linter Textiles Australia Ltd (In Liquidation)
[2005] HCA 20
26 April 2005
S606/2003
ORDER
1.Leave to amend notice of appeal granted and amended notice of appeal treated as filed and served.

2.Appeal allowed.

3.Set aside the orders of the Full Court of the Federal Court of Australia made on 14 April 2003 and in their place order:
(a)appeal allowed with costs;

(b)set aside the orders of Hely J made on 6 September 2002 and in their place order:

(i)objection decision dated 9 February 2001 affirmed;

(ii)applicant to pay the costs of the proceedings before Hely J.

4.Appellant to pay the respondent's costs of and incidental to the proceedings in this Court.

On appeal from the Federal Court of Australia
Representation:
M R Aldridge SC with S J McMillan and N Perram for the appellant (instructed by Australian Government Solicitor) at the hearing on 3 August 2004
A Robertson SC with M R Aldridge SC and S J McMillan for the appellant (instructed by Australian Government Solicitor) at the hearing on 9 December 2004
D H Bloom QC with J Davies SC and S H Steward for the respondent (instructed by Phillips Fox)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS
Commissioner of Taxation v Linter Textiles Australia Ltd (In Liquidation)
Income tax – Allowable deductions – Loss carry forward provisions – Losses incurred by taxpayer company in preceding years – Requirement of continuity during year of income of beneficial ownership in shares in the taxpayer company that carry between them various rights – Winding-up order made in respect of parent of taxpayer company and subsequently in respect of taxpayer company – Liquidators appointed in each case – Whether shares in the taxpayer company still carried between them the rights required to be attached to those shares.
Income tax – Allowable deductions – Loss carry forward provisions – Losses incurred by taxpayer company in preceding years – Requirement of continuity during year of income of beneficial ownership in shares in the taxpayer company that carry between them various rights – Winding-up order made in respect of parent of taxpayer company and subsequently in respect of taxpayer company – Liquidators appointed in each case – Whether, subsequent to winding up of parent company, the shares held by parent company in the taxpayer company were not "beneficially owned" by the parent company.
Income tax – Allowable deductions – Loss carry forward provisions – Losses incurred by taxpayer company in preceding years – Discretion in Commissioner of Taxation to apply additional requirements for carrying forward previous tax losses – Requirement that voting power in taxpayer company be controlled, or capable of being controlled, by an individual or two or more persons not being companies – Ultimate holding company of parent of taxpayer company was trustee of two trusts administered for benefit of a family – Whether family still controlled voting power in taxpayer company.
Statutes – Construction – Loss carry forward provisions in income tax legislation – Meaning of requirement that shares held in taxpayer company be "beneficially owned" by parent company – Effect of intervening winding-up orders and appointment of liquidators in each company – Meaning and purpose of the requirement of beneficial ownership in this context – Relevance and utility of analysis by reference to the law of trusts and equitable ownership of property.
Corporations – Involuntary winding up – Whether company in liquidation divested of beneficial ownership of assets – Whether liquidator trustee for the benefit of creditors.
Trusts – Whether liquidator trustee for the benefit of creditors.
Appeal – Appeal before High Court – Application to amend notice of appeal to raise explicitly the application of statute to the facts and circumstances of the case – Whether amendment should be granted – Whether any procedural injustice involved in such amendment – Considerations relevant to the determination of application.
Words and phrases – "beneficially owned", "trustee", "satisfaction".
Income Tax Assessment Act 1936 (Cth), s 80A.

GLEESON CJ, GUMMOW, HAYNE, CALLINAN AND HEYDON JJ. The appellant ("the Commissioner") appeals from the judgment of the Full Court of the Federal Court (Hill, Goldberg and Conti JJ)[1]. The Full Court dismissed the Commissioner's appeal against the judgment of Hely J[2]. His Honour upheld an "appeal" by the respondent taxpayer ("Linter Textiles") against the disallowance by the Commissioner of its objection to an assessment of income tax under the Income Tax Assessment Act 1936 (Cth) ("the Act") for the year of income ended 30 June 1992.
[1]Commissioner of Taxation v Linter Textiles Australia Ltd (In liquidation) (2003) 129 FCR 42.
[2]Linter Textiles Australia Ltd (In liquidation) v Federal Commissioner of Taxation (2002) 20 ACLC 1708; 50 ATR 548.
These reasons seek to demonstrate that the appeal to this Court should be allowed, but only on a ground available to the Commissioner by amendment of the grounds of appeal. The necessary leave for that amendment should be granted.
The effect of winding-up orders
At all material times, the taxpayer, Linter Textiles, was a wholly owned subsidiary of Linter Group Ltd ("Linter Group"). The ultimate holding company of Linter Group was Pochette Nominees Pty Ltd ("Pochette"). That company was the trustee of two trusts, which, while described as discretionary trusts, nevertheless were administered solely for the benefit of the Goldberg family[3].
[3]In this appeal, no question has arisen respecting the treatment of discretionary trusts in Taxation Determination TD 2000/27, a public ruling for the purposes of Pt IVAAA of the Taxation Administration Act 1953 (Cth).
On 12 April 1991, an order was made by the Supreme Court of New South Wales that Linter Group be wound up under the Companies (New South Wales) Code ("the Code"). Thereafter, on 24 February 1992, an order was made by that Court for the winding up of Linter Textiles under the Corporations Law ("the Law"). In each case, the Court appointed a liquidator to the company. What were the legal consequences of those orders and appointments? The answer supplies the context in which the issues in this Court are to be considered.
Each liquidator, as Deane and Gaudron JJ put it in Tanning Research Laboratories Inc v O'Brien[4], "assume[d] a responsibility, as an officer of the court, to administer the statutory scheme for the winding up of a company". In respect of Linter Group, s 374(1) of the Code stated that the liquidator "shall take into his custody or under his control all the property to which [Linter Group] is or appears to be entitled". Section 374(2) empowered the Supreme Court on the application of the liquidator by order to direct that all or any part of the property of Linter Group vest in the liquidator; if such an order were made, thereupon the property in question would vest in the liquidator. No such order was made.
[4](1990) 169 CLR 332 at 352.
It may be noted that rather differently expressed provision was made in the Code respecting the effect of a voluntary winding up. Section 394(1) of the Code provided that, from the commencement of the winding up, the company was to cease to carry on its business "except so far as is in the opinion of the liquidator required for the beneficial disposal or winding up of that business, but the corporate state and corporate powers of the company, notwithstanding anything to the contrary in its articles, continue until it is dissolved". Section 493(1) of the Law was in similar terms. It will be necessary later in these reasons to note the significance that has been attached in some of the cases to distinctions between voluntary and involuntary winding up.
Another consequence of the order made for the winding up of Linter Group was provided in s 371(2) of the Code. No action or other civil proceeding might be commenced or be proceeded with against Linter Group without the leave of the Supreme Court in accordance with such terms as the Supreme Court imposed.
The Law contained provisions to like effect of s 371 and s 374 of the Code, and these operated upon the winding up of Linter Textiles[5]. As with Linter Group, no vesting order was made in respect of the assets of Linter Textiles.
[5]Sections 471(2) and 474 respectively. Like provision is now made in the Corporations Act 2001 (Cth), ss 471B and 474 respectively.
Section 58 of the Bankruptcy Act 1966 (Cth) provides for the automatic vesting in the Official Trustee of the property of the bankrupt. However, as exemplified by the above provisions of the Code and the Law, the successive companies statutes have not included an equivalent of s 58[6]. It also should be noted that it has long been settled that an action commenced at the instigation of the liquidator would nevertheless be instituted by the company as the party on the court record[7].
[6]Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 341, 352‑353.
[7]Jones v The Davies Franklin Cycle Co Ltd (1902) 27 VLR 649; Growden v Wiltshire (1935) 52 CLR 286.
As Hely J pointed out[8], it was not an inevitable consequence of the orders for the winding up of Linter Group and Linter Textiles that they be dissolved. The Code (s 383) and the Law (s 482) empowered the Supreme Court to order the stay or termination of the winding up[9]. His Honour added[10]:
"Where an order is made terminating the winding up, directions may be given with a view to restoring management and control of the company to its officers. It was accepted by counsel for the Commissioner that if an order staying or terminating the winding up were made, the company would thereupon resume beneficial ownership of its assets."
[8](2002) 20 ACLC 1708 at 1712; 50 ATR 548 at 553.
[9]McAusland v Commissioner of Taxation (1993) 47 FCR 369 at 372‑374.
[10](2002) 20 ACLC 1708 at 1713; 50 ATR 548 at 553.
That reference to beneficial ownership introduces the issues of revenue law which arise on this appeal.
Loss carry forward provisions
On 23 December 1999, the Commissioner issued an assessment under the Act against the taxpayer, Linter Textiles, for the year ended 30 June 1992 ("the 1992 year"). In the 1992 year, Linter Textiles derived as assessable income an amount of $10,163,773, but sought to carry forward certain losses. Generally speaking, in the 1992 year, a taxpayer which in preceding years had incurred or was deemed itself to have incurred a loss was entitled to a deduction for the year of income for that loss which the taxpayer was able to carry forward. The Full Court approached the matter on the basis that the losses which Linter Textiles sought to carry forward had been incurred after the 1989 year of income, with the consequence that the relevant provision was s 79E, rather than s 80 which would have applied had the losses been incurred in an earlier year[11].
[11](2003) 129 FCR 42 at 45.
In what appears to have been accepted as the year ended 30 June 1990 ("the loss year"), Linter Group had incurred a tax loss of $9,929,676. By operation of s 80G of the Act, the Linter Group loss was deemed to have been incurred by Linter Textiles, the taxpayer, in the loss year. Linter Textiles itself had incurred a tax loss of $10,393,871. Section 80G of the Act made detailed provision for the transfer of losses within a company group. It is common ground that, but for the arguments turning upon the consequences for the Act of the winding‑up orders, the losses from the loss year were available to Linter Textiles to offset against its assessable income for the 1992 year. In particular, there is no separate question disputing the operation of s 80G. Rather, the critical questions concern the construction of s 80A in the light of the consequences of the winding‑up orders. The losses in question were not available to Linter Textiles unless the criteria in s 80A were satisfied.
The entitlement under the income tax law to carry forward losses has been subject to limitations and conditions which have changed as the Act has been amended from time to time. The legislative history, beginning with the Income Tax Assessment Act 1944 (Cth) ("the 1944 Act"), was traced by Hely J. The 1944 Act added what was then s 80(5), the forerunner of s 80A, the provision in issue here.
The 1944 Act was what now would be called an anti‑avoidance measure. In the Explanatory Note to what became s 80(5), the Treasurer (the Hon J B Chifley) had said:
"Whilst a company is an entity separate and distinct from its shareholders, the shareholders are the real owners of the business carried on by the company and there is no justification for the allowance of a loss sustained by an entirely different set of shareholders in earlier years."
These notions of ownership and control, and of form and substance, have, in varying degrees, also informed the later legislation, including that with which this appeal is concerned.
The Income Tax and Social Services Contribution Assessment Act (No 3) 1964 (Cth) ("the 1964 Act") omitted s 80(5) and included s 80A[12] in a form which then was replaced by the s 80A inserted by the Income Tax Assessment Act 1973 (Cth) ("the 1973 Act")[13]. Section 80A was amended by statutes including the Taxation Laws Amendment Act (No 2) 1990 (Cth) ("the 1990 Act"). The 1990 Act introduced s 79E, to which reference has been made above, and inserted references to the new section into s 80A[14]. In general terms, the Explanatory Memorandum on the Bill for the 1964 Act spoke of the requirement of a substantial continuity of beneficial ownership, and that for the 1973 Act spoke of the strengthening of the "continuing ownership test".
[12]By s 17 of the 1964 Act.
[13]By s 8 of the 1973 Act.
[14]By ss 11 and 59, Sched 1, Pt 1, Sched 1, Pt 2.
Section 80A(1)
It is convenient to turn now to s 80A(1). It will be necessary later in these reasons also to consider s 80A(2), (3). So far as is relevant, the text of s 80A(1) was as follows:
"[A] loss incurred by a company in a year before the year of income shall not be taken into account for the purposes of section 79E, 79F, 80, 80AAA or 80AA unless –
(a)the company satisfies the Commissioner; or
(b)in the case of a company that is not a private company in relation to the year of income, the Commissioner considers that it is reasonable to assume,
that, at all times during the year of income, shares in the company carrying between them –
(c)the right to exercise more than one‑half of the voting power in the company;
(d)the right to receive more than one‑half of any dividends that may be paid by the company; and
(e)the right to receive more than one‑half of any distribution of capital of the company,
were beneficially owned by persons who, at all times during the year in which the loss was incurred, beneficially owned shares in the company carrying between them rights of those kinds." (emphasis added)
For the present facts, "the company" is Linter Textiles and the "persons" is Linter Group.
In this Court, as in the Federal Court, two issues arise respecting the application of s 80A(1). The first is whether, by reason of the order for the winding up of Linter Textiles, the taxpayer, the shares of Linter Group in Linter Textiles ceased to be shares "carrying between them" the rights identified in pars (c), (d) and (e) of s 80A(1). The second is whether, by reason of the order for the winding up of Linter Group, it no longer "beneficially owned", within the meaning of s 80A(1), the shares it held in Linter Textiles.
The first issue concerning s 80A(1)
This turns upon the construction of the expression "shares in the company carrying between them" the rights to exercise more than one‑half of the voting power, to receive more than one‑half of any dividends that may be paid and to receive more than one‑half of any distribution of capital. The Commissioner submits that, as a consequence of the making of the order on 24 February 1992 for the winding up of Linter Textiles, it could not be said that at all times during the 1992 year there were shares in Linter Textiles which carried those rights. This is because the exercise of the rights in question was constrained by the supervening appointment of the liquidator to Linter Textiles and the consequential operation of the companies legislation.
The Commissioner's submission should be rejected. Section 80A(1) turns upon the criterion of beneficial ownership of shares, unlike (as will appear) s 80A(3), which turns upon the control of voting power and other matters. In s 80A(1), the phrase "shares in the company carrying" the rights in question is adjectival. It identifies the nature of the shares as indicated by the constituent provisions of the articles of association of Linter Textiles. It is the beneficial ownership of the shares which is critical for the operation of the sub‑section. The Full Court pointed out that the phrase in s 80A(1) does not pose the issue whether, in the events that had happened, there could be general meetings, dividends or reduction of capital. Rather, the issue is whether there would be the capacity to vote, or to receive dividends or distributions of capital should the occasion arise. Their Honours continued[15]:
"There is no change in the rights attaching to the shares merely because the company has gone into liquidation. The shares continue to carry the same rights. In our view the question can only be answered by looking at the rights which, in accordance with the articles of association of [Linter Textiles] attach to the relevant shares. Those rights are such that at all times in the year of income there was the necessary continuity of rights as existed in the year of loss. In our view, therefore, the tests of s 80A(1) do not operate to disqualify the losses otherwise available to [Linter Textiles] from being an allowable deduction to it in the year of income."
We agree in that statement. The Commissioner fails on the first issue under s 80A(1).
[15](2003) 129 FCR 42 at 62.
The winding up of Linter Group
For the second issue under s 80A(1), which is further and in the alternative to the first, the Commissioner fixes upon the consequences attributed to the winding‑up order made in respect of Linter Group in 1991. The submission is that, thereafter, the shares held throughout by Linter Group in Linter Textiles were not "beneficially owned" by Linter Group.
The short answer is to be found in the reasoning in Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation[16]. That was a decision where Menzies J, sitting in the original jurisdiction of the Court, considered the phrase "beneficially held" as it appeared in what was then s 80(5) of the Act. His Honour said that he examined the authorities dealing with the consequences in company law of a winding‑up order "not to control the language of s 80(5) but to inform myself of the principles to be applied"[17]. Menzies J continued[18]:
"I have come to the conclusion that I would be going further than the statute warrants were I to hold that, for the purposes of s 80(5), a company which owns shares beneficially in another company ceases, upon its liquidation, to own those shares beneficially. These shares remain the property of the company and the beneficial interest is not, by virtue of the liquidation, vested in any other person or persons."
[16](1970) 125 CLR 52.
[17](1970) 125 CLR 52 at 71.
[18](1970) 125 CLR 52 at 71.

When used in relation to companies, "hold" normally refers to legal ownership established by reference to the register of members[19]. The relevant phrase in s 80A(1) is "beneficially owned" rather than "beneficially held".
[19]Dalgety Downs Pastoral Co Pty Ltd v Federal Commissioner of Taxation (1952) 86 CLR 335 at 341‑342.
That distinction aside, the Commissioner challenges the conclusion reached by Menzies J in Franklin's. In particular, the Commissioner relies upon remarks by Lord Diplock in Ayerst v C & K (Construction) Ltd[20] when construing the phrase "beneficial ownership" in s 17 of the Finance Act 1954 (UK). Lord Diplock, who delivered the only speech in the House of Lords[21], said that the phrase "beneficial ownership" was repeated in the 1954 statute from earlier revenue legislation and that there was "a consistent line of judicial authority that upon going into liquidation a company ceases to be 'beneficial owner' of its assets as that expression has been used as a term of legal art since 1874"[22].
[20][1976] AC 167.
[21]Viscount Dilhorne, Lord Kilbrandon and Lord Edmund-Davies expressed their agreement.
[22][1976] AC 167 at 181.
Oriental Steam
The reference by Lord Diplock to 1874 was to the decision in that year of the Court of Appeal in In re Oriental Inland Steam Company. Ex parte Scinde Railway Company[23]. Earlier in his reasons, Lord Diplock had introduced his discussion of Oriental Steam and In re Albert Life Assurance Co (The Delhi Bank's Case)[24] by saying[25]:
"The nature of a company's interest in its assets after a winding‑up order had been made first fell to be considered by the Court of Chancery under the Companies Act 1862. It was, perhaps, inevitable that the court should find the closest analogy in the law of trusts."
[23](1874) LR 9 Ch App 557.
[24](1871) 15 SJ 923.
[25][1976] AC 167 at 179.
However, a more recent statement in the joint judgment of this Court in Clay v Clay[26] is immediately in point. The Court said[27]:
"It is to be recalled that, in the past, the term 'trustee' sometimes was used to describe the position of a director in relation to the company in question[28]. Such a use of the term 'trustee' could at best be metaphorical because property of the company was not vested in the directors. Again, in Knox v Gye[29], Lord Westbury said:
'Another source of error in this matter is the looseness with which the word "trustee" is frequently used. The surviving partner is often called a "trustee," but the term is used inaccurately. He is not a trustee ...
The application to a man who is improperly, and by metaphor only, called a trustee, of all the consequences which would follow if he were a trustee by express declaration – in other words a complete trustee – holding the property exclusively for the benefit of the cestui que trust, well illustrates the remark made by Lord Mansfield, that nothing in law is so apt to mislead as a metaphor.'"
[26](2001) 202 CLR 410.
[27](2001) 202 CLR 410 at 430‑431 [41].
[28]Re International Vending Machines Pty Ltd and the Companies Act [1962] NSWR 1408 at 1419‑1420; Mulkana Corporation NL (in liq) v Bank of New South Wales (1983) 1 ACLC 1143 at 1148‑1150; 8 ACLR 278 at 283‑285; Sealy, "The Director as Trustee", (1967) Cambridge Law Journal 83.
[29](1872) LR 5 HL 656 at 675‑676.
It is true that in Oriental Steam Mellish LJ had said of the Companies Act 1862 (UK) ("the 1862 Act")[30]:
"No doubt winding‑up differs from bankruptcy in this respect, that in bankruptcy the whole estate, both legal and beneficial, is taken out of the bankrupt, and is vested in his trustees or assignees, whereas in a winding‑up the legal estate still remains in the company. But, in my opinion, the beneficial interest is clearly taken out of the company. What the statute says in the 95th section is, that from the time of the winding‑up order all the powers of the directors of the company to carry on the trade or to deal with the assets of the company shall be wholly determined, and nobody shall have any power to deal with them except the official liquidator, and he is to deal with them for the purpose of collecting the assets and dividing them amongst the creditors. It appears to me that that does, in strictness, constitute a trust for the benefit of all the creditors, and, as far as this Court has jurisdiction, no one creditor can be allowed to have a larger share of the assets than any other creditor."
[30](1874) LR 9 Ch App 557 at 560. Section 94 of the 1862 Act provided for liquidators to take into their custody or under their control all the property, effects and things in action to which the company was or appeared to be entitled. Section 95 empowered liquidators with the sanction of the court to do all such things as might be necessary for winding up the affairs of the company and distributing its assets.
In the same case, James LJ had observed[31]:
"The English Act of Parliament has enacted that in the case of a winding‑up the assets of the company so wound up are to be collected and applied in discharge of its liabilities. That makes the property of the company clearly trust property. It is property affected by the Act of Parliament with an obligation to be dealt with by the proper officer in a particular way. Then it has ceased to be beneficially the property of the company; and, being so, it has ceased to be liable to be seized by the execution creditors of the company."
[31](1874) LR 9 Ch App 557 at 559.
In the year after Oriental Steam, and in another context respecting liquidation law, James LJ preferred to describe the liquidator as an "agent" and Mellish LJ contrasted the vesting of title in a trustee in bankruptcy[32].
[32]In re Anglo-Moravian Hungarian Junction Railway Company. Ex parte Watkin (1875) 1 Ch D 130 at 133, 134 respectively.
Insofar as their Lordships were proceeding in Oriental Steam upon an assumption that the law of property requires the location at all times and in all circumstances of distinct legal and beneficial ownership, that assumption since has been exploded by Commissioner of Stamp Duties (Q) v Livingston[33]. In Franklin's, Menzies J made this point respecting the significance of Livingston[34]. McLelland J later rightly emphasised[35] "the imprecision of the notion that absolute ownership of property can properly be divided up into a legal estate and an equitable estate". Hope JA said[36]:
"[A]n absolute owner in fee simple does not hold two estates, a legal estate and an equitable estate. He holds only the legal estate, with all the rights and incidents that attach to that estate."
[33](1964) 112 CLR 12; [1965] AC 694.
[34](1970) 125 CLR 52 at 70.
[35]Re Transphere Pty Ltd (1986) 5 NSWLR 309 at 311; cf the remarks of Nourse LJ in Sainsbury (J) Plc v O'Connor [1991] 1 WLR 963 at 978.
[36]DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 519; revd on other grounds (1982) 149 CLR 431.
Shortly before Ayerst arrived to quell debate in England[37], Megarry J had considered the English cases up to the decision of Buckley J in Inland Revenue Commissioners v Olive Mill Ltd (In Liquidation)[38]. In In re Calgary and Edmonton Land Co Ltd, Megarry J remarked[39]:
"Some of these authorities seem to me to do little or nothing to support the proposition that the members of the company are beneficiaries under a trust. It is one thing to say that there is a trust or a fiduciary duty, and another to say that the members are beneficiaries under a trust. The high water-mark in the authorities are some words of James and Mellish LJJ in In re Oriental Inland Steam Co[40], spoken in relation to creditors rather than members. An alternative way of regarding the matter is to treat the company and the liquidator as being bound by fiduciary or statutory obligations towards the creditors and members to administer the company's assets in accordance with their respective rights under the law. The parallel is with the rights of those entitled under an intestacy or gift of residue, on the line of authorities of which Commissioner of Stamp Duties (Queensland) v Livingston[41] is one of the latest."
[37]See Megarry V-C's subsequent remarks in Tito v Waddell (No 2) [1977] Ch 106 at 226.
[38][1963] 1 WLR 712; [1963] 2 All ER 130.
[39][1975] 1 WLR 355 at 359; [1975] 1 All ER 1046 at 1050‑1051.
[40](1874) LR 9 Ch App 557 at 559, 560.
[41][(1964) 112 CLR 12 at 22, 23;] [1965] AC 694, especially at 712, 713.
A statutory regime for the custody and administration of property on behalf of others may render the custodian and administrator a trustee in the ordinary sense, even without the use of the term "trust" in the statute. Registrar of the Accident Compensation Tribunal v Federal Commissioner of Taxation[42] provides a recent example. However, references in Oriental Steam to a trust are at best analogical or metaphorical, as an attempted description of the operation of the statutory regime of winding up by court order.
[42](1993) 178 CLR 145 at 165‑166.
The conscription of the term "trust" in Oriental Steam was received with caution in Australia and New Zealand[43]. In 1935, well before Ayerst, Davidson J observed in the New South Wales Full Court[44]:
"[A] liquidator is principally and really an agent for the company but occupies a position which is fiduciary in some respects and is bound by the statutory duties imposed upon him by the [Companies] Act."
Davidson J, with reference to Oriental Steam, remarked that[45]:
"even in [that] case ... where the liquidator is said to be a trustee, there is added the qualification that no individual creditor can be allowed a larger share than another".
[43]Lowenstern, "Liquidator as Trustee", (1928) 2 Australian Law Journal 255; Shaw Savill and Albion Co Ltd v Commissioner of Inland Revenue [1956] NZLR 211 at 216‑217.
[44]Thomas Franklin & Sons Ltd v Cameron (1935) 36 SR (NSW) 286 at 296. See also Commissioner for Corporate Affairs v Peter William Harvey [1980] VR 669 at 695.
[45](1935) 36 SR (NSW) 286 at 294.
In In re A Caveat. Ex parte The Canowie Pastoral Company Ltd[46], Angas Parsons J held that it did not follow from Oriental Steam that a shareholder of a company in liquidation which had paid all its debts had a sufficient interest in the assets to support a caveat against dealings by the liquidator with a mortgage held by the company.
[46][1931] SASR 502; noted (1932) 6 Australian Law Journal 16 and cf Shaw Savill and Albion Co Ltd v Commissioner of Inland Revenue [1956] NZLR 211; Re Your Size Fashions Ltd [1990] 3 NZLR 727 at 734.
Not only does the liquidator, in the absence of a specific vesting order, lack the legal title to the assets of the company; the liquidator is not accountable as a trustee. The point was made fairly soon in England after Oriental Steam by Romer J in Knowles v Scott[47]. His Lordship remarked[48]:
"In my judgment the liquidator is not a trustee in the strict sense, with such a liability affecting his position as has been contended for by the Plaintiff. The consequences would be very serious if such a doctrine were to be upheld. If a liquidator were held to be a trustee for each creditor or contributory of the company, his liability would indeed be onerous, and would render the position of a liquidator one which few persons would care to occupy."
[47][1891] 1 Ch 717.
[48][1891] 1 Ch 717 at 721‑722.
Knowles concerned the position of a liquidator in a voluntary winding up and in a similar context was applied by the New South Wales Full Court in In re Paul and Gray Ltd[49].
[49](1932) 32 SR (NSW) 386 at 393.
Olive Mill[50] was also a case of a voluntary winding up. Buckley J referred[51] to Oriental Steam as authority that on the passing of a resolution for voluntary winding up, the beneficial interest of the shares of the holding company "ceased to reside in the holding company".
[50][1963] 1 WLR 712; [1963] 2 All ER 130.
[51][1963] 1 WLR 712 at 726‑727; [1963] 2 All ER 130 at 139.
In Franklin's, Menzies J, after referring to Olive Mill and Oriental Steam, said[52]:
"It seems to me, however, that once a company is in liquidation the statutory provisions apply whether it be solvent or insolvent and it is not an easy distinction to say that if a company is insolvent it has ceased to have a beneficial interest in its assets, but, if it is not, it continues to do so. In each case it is for the liquidator to carry out the statutory scheme of liquidation, to pay creditors and to divide any surplus that there may be among contributories. Whether or not there may be a surplus hardly seems to me to bear upon the relationship between the company in liquidation and its assets."
Indeed, in Ayerst[53], Lord Diplock indicated that the essential characteristics of the scheme for dealing with the assets of a company do not differ between a voluntary winding up and a compulsory winding up. That may be conceded. But what are those essential characteristics? Do the authorities upon which Lord Diplock relied support his formulation of principle or that which earlier had been identified by Menzies J in Franklin's? Or are they beside the point of construction of s 80A(1) here at issue? The answer to the last question is "yes". We turn to indicate why this is so.
[52](1970) 125 CLR 52 at 70.
[53][1976] AC 167 at 176.
The 1862 Act
The 1862 Act presented situations, particularly in insolvent administrations, which called for the exercise of some judicial ingenuity. Recourse was had to the trust concept but this went beyond what was necessary for the decision in the cases in hand. From that over‑response in one field has followed confusion in others. Two examples will suffice.
First, prior to the enactment of the Supreme Court of Judicature Act 1875 (UK), the insolvency set‑off provision in the bankruptcy legislation did not apply to liquidations under the 1862 Act; however, rights of set‑off for mutual debts were found in the provisions of the Statutes of Set‑off[54]. One difficulty was that the debt sought to be set off against the company would not have been recoverable by action against it because after the winding‑up order the action could not have been brought without leave of the court. Another difficulty arose where a contributory sought to set off against a call of unpaid shares a debt owed by the contributory to the company. The requirement of mutuality on its face was satisfied but the statutory set‑off otherwise available might be denied on equitable grounds and such an equitable ground was found in the circumstance that the assets of the company were now subject to due administration in the course of the winding up.
[54]Derham, The Law of Set‑off, 3rd ed (2003), §6.06.
Bramwell B said that in an action by the company the "real plaintiff" would be the liquidator and he will be suing "for the benefit of the general body of creditors"; the result was that the debts, in substance and in fact, were not mutual debts within the meaning of the Statutes of Set‑off[55]. Thereafter, in In re Paraguassu Steam Tramroad Co. Black & Co's Case[56], Lord Selborne LC, in holding that a contractor could not set off against the amount due by him on calls a debt due to him by the company, said[57] that it was "essential in such cases that the rights should be substantially the same". To permit one creditor to pay himself while retaining his own calls would in effect give him a preference and exonerate him from his obligation as a shareholder to contribute towards the debts of the other creditors.
[55]Sankey Brook Coal Co v Marsh (1871) LR 6 Ex 185 at 189.
[56](1872) LR 8 Ch App 254.
[57](1872) LR 8 Ch App 254 at 261.
The good sense of these decisions may be accepted without taking the further step that the rights were not substantially the same because a trust had arisen in respect of the company's assets upon the making of the order for winding up. However, in Black & Co's Case Lord Selborne LC had gone further and added[58]:
"[T]he hand which receives the calls necessarily receives them as a statutory trustee for the equal and rateable payment of all the creditors."
[58](1872) LR 8 Ch App 254 at 262.
Oriental Steam is another case of judicial ingenuity dealing with new situations which arose after the passage of the 1862 Act. Oriental Steam was a company incorporated in England but had carried on business in India. An order in England was made for the winding up of Oriental Steam. Thereafter, a creditor attached property of Oriental Steam in India to obtain satisfaction of a judgment against Oriental Steam recovered in India. The question for the Court of Appeal was whether, in the English administration, the creditor should be denied the fruits of the attachment.
Oriental Steam is treated as authority for the proposition that under the 1862 Act and succeeding legislation an order for the winding up of a company incorporated in England is regarded in England as having a worldwide effect[59]. A creditor who successfully completed execution of a foreign judgment would be able to gain priority in England over the unsecured creditors. To prevent this, the English court has jurisdiction to restrain creditors from bringing or continuing the foreign execution process. In Mitchell v Carter[60], Millett LJ referred to Oriental Steam as an example of the exercise of that jurisdiction.
[59]Mitchell v Carter [1997] 1 BCLC 673 at 686 per Millett LJ; Dicey and Morris, The Conflict of Laws, 13th ed (2000), §30‑072-§30‑073. See also In re International Tin Council [1987] Ch 419 at 446‑447 per Millett J (affd on other grounds [1989] Ch 309).
[60][1997] 1 BCLC 673 at 686‑687.
Hence the statement by James LJ in Oriental Steam respecting what had been said below by Malins V‑C[61]:
"There were assets fixed by the Act of Parliament with a trust for equal distribution amongst the creditors. One creditor has, by means of an execution abroad, been able to obtain possession of part of those assets. The Vice‑Chancellor was of opinion that this was the same as that of one cestui que trust getting possession of the trust property after the property had been affected with notice of the trust. If so, that cestui que trust must bring it in for distribution among the other cestuis que trust."
[61](1874) LR 9 Ch App 557 at 559.
This passage explains both the occasion for and the lack of necessity in fixing upon the notion of a trust. The animating principle, as Millett LJ later recognised in Mitchell, is more akin to that jurisdiction "to grant what amounts to an anti-suit injunction in order to restrain execution proceedings in a foreign court which would prevent the liquidator from getting in the assets"[62]. Seen in that light, Oriental Steam is an example of a court seized of the administration of a winding up reacting to foreign proceedings interfering with or having a tendency to interfere with its administration.
[62][1997] 1 BCLC 673 at 687.
In Oriental Steam itself, there was no occasion to protect the English administration by what now would be called an anti‑suit injunction[63]. That was because, in the events that had happened, there was a fund in the English court representing the proceeds of the Indian attachment. The decision was that the liquidator was entitled to those proceeds and that they should not be paid out to the creditor.
[63]See CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 at 391‑392.
It is from this particular adoption of the trust analogy to meeting what in 1874 was a novel situation that there has developed a line of authority in England which has extended into other spheres and in Ayerst was applied in the construction of the revenue law. The analogy is of no utility, and indeed is misleading, when the task involves a comparison between the operation of the companies legislation respecting winding up on the one hand and the criteria selected on the other hand for the operation of revenue legislation.

The proper conclusion respecting the operation of the principles of company law in an insolvent administration such as that of Linter Group and Linter Textiles was indicated in Franklin's by Menzies J in the following passage[64]:
"Even if a company, being insolvent, goes into liquidation, I find difficulty in regarding the company itself as trustee for anybody, notwithstanding that it can no longer employ its assets in its business, nor dispose of them. The assets must be held for the purpose of its own liquidation in accordance with statute. Of course its assets have to be realized by the liquidator and distributed among the company's creditors but this is done in accordance with elaborate statutory provisions for bringing about the result for which the statute provides. The matter is not left to the application of general law relating to trustees and cestuis que trust."
[64](1970) 125 CLR 52 at 69‑70.
The construction of s 80A(1)
Given that conclusion, the principal issue on this branch of the appeal becomes, as indeed it always has been, one of construing the phrase "beneficially owned" in s 80A(1). The phrase "is to be construed in context and must reflect the purposes of the section in which it occurs"[65].
[65]Martin v Martin [1988] 1 NZLR 722 at 731.
The Commissioner submitted that in the present context "beneficially owned" meant the ability of Linter Group to use its shares in Linter Textiles for its own benefit, by selling them and applying the proceeds as it thought fit; the liquidator of Linter Group had had the power to cause the transmission of the ownership of the shares of Linter Group in Linter Textiles, but "beneficial ownership" by Linter Group had been lost because the liquidator was bound to apply proceeds of sale in accordance with the statutory formula of distribution between creditors.
The term "beneficial" is usually employed in trust law as a cognate of "beneficiary". That term identifies those persons for whose benefit the trustee of a private trust (ie not a charitable purpose trust) is bound to administer the trust property. Where A holds Blackacre on a bare trust for B, it may accurately be said that B is the beneficial owner.
But that use of the word "owner" does not entail enjoyment by B of all the rights which the law as a whole confers in relation to Blackacre. Thus, as Hope JA explained in DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties[66], although B may be entitled by equitable remedies to be put into possession, B cannot sue A in ejectment. Again, the will or settlement conferring an equitable fee simple may qualify that gift and render it determinable by the conferral upon another of an option to purchase[67], or by the imposition of a condition subsequent which is certain and does not contravene the policy of the law[68].
[66][1980] 1 NSWLR 510 at 519‑520.
[67]Oliver v Oliver (1958) 99 CLR 20 at 24, 26.
[68]Church Property Trustees, Diocese of Newcastle v Ebbeck (1960) 104 CLR 394.
The authors of a leading Australian text correctly wrote as follows of the effect of a winding‑up order[69]:
"Whether the company is insolvent or solvent, the company holds its property beneficially but subject to the statutory scheme of liquidation under which the liquidator is to pay creditors and distribute any surplus among members. Unsecured creditors and contributories have the benefit of the liquidator's administration of the company's estate. Their special interest is to some extent like that of objects of a discretionary trust; they have a right to have a fund of assets protected and properly administered. That interest, although not an interest in specific assets, will be protected against third persons. For example, a holder of an unregistered registrable charge who asks the court to extend the time for registration[70] or a person who seeks rectification of an instrument of charge which could prejudice unsecured creditors[71] will not ordinarily succeed if the company is in liquidation or on the verge of liquidation."
The critical point is that the change in control of the affairs of the company has no impact upon its beneficial ownership of its assets.
[69]Ford and Austin's Principles of Corporations Law, 7th ed (1995) at 1013.
[70]Re Ashpurton Estates Ltd [1983] Ch 110.
[71]J J Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (1987) 12 ACLR 1.
By analogy with the general law, the circumscribing or suspension by reason of the appointment of the liquidator of the exercise by the usual organs of the company of the incidents of ownership of the assets of the company does not mean that the company itself has ceased to own beneficially its assets within the meaning of s 80A(1). Power to deal with an asset and matters of ownership or title are not interchangeable concepts[72].
[72]cf Blankfield v Federal Commissioner of Taxation (1972) 127 CLR 610 at 615‑616.
The 1944 Act used the phrase "beneficially held". In Dalgety Downs Pastoral Co Pty Ltd v Federal Commissioner of Taxation[73], this Court decided that shares registered in the name of X, but as mortgagee from Y, were not "held" by Y within the meaning of s 80(5). Webb, Fullagar and Kitto JJ said that the modification in s 80(5) of "held" by the adverb "beneficially" did not justify acceptance of the displacement of the ordinary meaning of "held" as "registered" when used of shares[74]. Their Honours said of the inclusion of "beneficially"[75]:
"This word serves more naturally the purpose of excluding the case of a holding for the benefit of others than the purpose of so broadening the meaning of the word 'held' beyond the particular significance which it normally has in relation to shares as to make it equivalent to 'owned' in the most general sense of that word."
Earlier, in Avon Downs Pty Ltd v Federal Commissioner of Taxation[76], Dixon J had said of the expression, in what was then s 80(6) of the Act, "beneficially held by the trustee of his estate" that it conveyed:
"the idea that the trustee of the estate holds it as part of the estate and not for some person claiming adversely to the beneficiaries. In other words, if the testator was a nominee, his executor is to be in no better position than he is. It seems to me that a transferor of a share who has been paid the consideration for the transfer, holds simply as a passive trustee until the registration of the transfer and the entry of the transferee's name on the register. He could not be said to hold 'beneficially.'"
[73](1952) 86 CLR 335.
[74](1952) 86 CLR 335 at 341‑342.
[75](1952) 86 CLR 335 at 342.
[76](1949) 78 CLR 353 at 364‑365.
The 1964 Act replaced "beneficially held" with "beneficially owned" as the criterion for determining substantial continuity of shareholding and the 1973 Act continued that criterion. Given the outcome in Dalgety Downs, the change evidently was made to assist the taxpayer, by allowing the taxpayer to go beyond the face of the share register.
The point was expressed by Hely J as follows[77]:
"The winding up of [Linter Group] does not strip [Linter Group] of the risks and benefits of ownership of the shares which it holds in [Linter Textiles]. If [Linter Textiles] was not in liquidation and a general meeting of [Linter Textiles] were called whilst [Linter Group] was in liquidation, [Linter Group] could vote; if dividends were declared or capital returned by [Linter Textiles], then [Linter Group] would be the recipient of the payment."
In these matters Linter Group would not be subject to direction by any third party for whose benefit it owned the shares in Linter Textiles. True enough, unsecured creditors and contributories would have the benefit of the administration of the affairs of Linter Group by the liquidator. But that does not carry any corollary that the shares in Linter Textiles were no longer beneficially owned by Linter Group. To adapt the reasoning of Menzies J in Franklin's[78], the ownership of the shares was not "for the benefit of others"; the ownership of the shares was subjected to the purposes of the liquidation in accordance with company law.
[77](2002) 20 ACLC 1708 at 1721; 50 ATR 548 at 563.
[78](1970) 125 CLR 52 at 71.
The Commissioner's argument on s 80A(1) thus fails on its second branch, as on its first. But other issues arise concerning s 80A(2) and s 80A(3).
Section 80A(2)
As indicated earlier in these reasons, Linter Textiles sought to establish that it was entitled to utilise the losses provided that the criteria in s 80A(1) were satisfied. They were satisfied but, on the face of the Act, that was not necessarily fatal to the Commissioner's case.
Sub‑section (2) of s 80A reads:
"Where –
(a)subsection (1) would, but for this subsection, apply for the purpose of determining whether a loss incurred by a company in a year before the year of income is to be taken into account for the purposes of section 79E, 79F, 80, 80AAA or 80AA;
(b)during the whole or any part of the year in which the loss was incurred, or during the whole or any part of the year of income, another company or other companies beneficially owned all or any of the shares in the first-mentioned company or an interest or interests in all or any of those shares; and
(c)the first-mentioned company requests the Commissioner at the time when it furnishes to him a return (or, if more than one return is furnished, the first return) of its income of the year of income, or within such further period as the Commissioner allows, that subsection (3) should apply for the purpose referred to in paragraph (a) or the Commissioner considers it reasonable that that subsection should apply for that purpose,
then subsection (3) applies for that purpose in lieu of subsection (1)." (emphasis added)
Section 80A(2) sets out steps whereby s 80A(3) applies in place of s 80A(1), for the purposes of determining whether losses are to be taken into account. One of the conditions for the supplanting of s 80A(1) is that the sub‑section "would, but for [sub‑s (2)], apply for the purpose of determining whether a loss ... is to be taken into account for the [purpose] of section 79E" (s 80A(2)(a)). In the present case, as has been indicated in these reasons, the application of s 80A(1) would determine that the losses in question were to be taken into account for the purposes of s 79E.
However, another condition specified in s 80A(2) is that the Commissioner may consider it reasonable that s 80A(3) apply (s 80A(2)(c)). Paragraph 10 of the Commissioner's statement of facts, issues and contentions which was filed in the Federal Court stated:
"The [Commissioner] formed the opinion (that if the requirements of section 80A(1) of [the Act] were met) then it was reasonable in terms of subparagraph (c) of subsection 80A(2) of the Act that subsection 80A(3) should apply for the purpose of determining whether the loss incurred by [Linter Textiles] should be taken into account for the purpose of section 79E in lieu of subsection (1) thereof for the year ended 30 June 1992."
This repeated the substance of what the Commissioner had indicated in the Reasons for Decision disallowing the objection by Linter Textiles to the assessment. That exercise of the discretion or power conferred by par (c) of s 80A(2), if otherwise effective, would be deemed by s 169A(3) of the Act to have occurred when the initial assessment was made.
At trial, there was cross-examination of the Commissioner's responsible officer concerning the matters she had considered relevant in the exercise of the discretion (or power) under s 80A(2) of the Act. The officer stressed that the answer to the question whether the requirements of s 80A(1) were met turned upon matters of law. The taxpayer's grounds of objection had contained detailed reference to Ayerst and Franklin's. Against the contingency that s 80A(1) was satisfied, the Commissioner had "consider[ed] it reasonable", within the meaning of s 80A(2)(c), that s 80A(3) apply in lieu of s 80A(1).
There may have been an issue whether that exercise of discretion (or power) was open to challenge by the respondent. But, at trial, no point was taken that s 80A(3) could not apply because the precondition to it doing so, provided by par (c) of s 80A(2), had not been met[79]. Nothing in these reasons should be taken as indicating any view on that question.
[79]cf Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 at 360; Giris Pty Ltd v Federal Commissioner of Taxation (1969) 119 CLR 365 at 383‑385.
Section 80A(3)
However, at trial, there remained other issues respecting the interpretation of s 80A(3). One concerned any differential operation between private and public companies. After reservation of judgment, counsel concurred in a written statement to his Honour. This Hely J in his reasons recorded as an agreement that "subject to the impact (if any) of the winding up orders, the requirements of s 80A(1) or (3) are met"[80].
[80](2002) 20 ACLC 1708 at 1710; 50 ATR 548 at 550.
That agreement, Hely J said, made it unnecessary to determine what was a dispute on the written submissions "of whether s 80A(3) is an alternative test to s 80A(1), or whether it is cumulative"[81]. The agreement also had the effect of putting to one side any possible argument by the Commissioner that, by reason of the discretionary trusts of which Pochette was the corporate trustee, s 80A(1) could not apply because at the end of a tracing process required by the sub‑section there was disclosed no beneficial owner of the shares in Linter Textiles, and par (a) of s 80A(3) could not apply because there were no individuals controlling the voting power.
[81](2002) 20 ACLC 1708 at 1710; 50 ATR 548 at 550.
However, the phrase set out above, "subject to the impact (if any) of the winding up orders" (emphasis added), which repeated the written statement by the parties, was apt to identify the orders made against both Linter Group and Linter Textiles. To the significance of this it will be necessary to return.
The phrase "apply for the purpose" and cognate expressions appear in s 80A(2) and s 80A(3). They do so to identify the operation on the one hand of s 80A(1) and on the other of s 80A(3). Where, as here, the taxpayer establishes that the criteria specified in s 80A(1) are satisfied, then, unless its operation is displaced by another provision, s 80A(1) must be said to apply the loss provision of s 79E. A question would arise if the criteria specified in s 80A(1) were not met by the taxpayer's case and the taxpayer wished to go on to enlist s 80A(3) as an alternative and sufficient route to the favourable destination of enlivening s 79E. No such issue now arises for determination and it may be put to one side.
What s 80A(2) does indicate, in the closing words of par (c), is that it was apparently possible for the Commissioner to bring about the result that s 80A(3) applies in this case. That was the point of the formation of the opinion by the Commissioner to which reference has been made above.
The first part of s 80A(3) reads as follows[82]:
"Where, by virtue of subsection (2), this subsection applies for the purpose of determining whether a loss incurred by a company (in this subsection referred to as the 'loss company') in a year before the year of income is to be taken into account for the purposes of section 79E, 79F, 80, 80AAA or 80AA, then, notwithstanding those sections but subject to subsection (5) and sections 80B, 80DA and 80E, that loss shall not be taken into account for the purposes of section 79E, 79F, 80, 80AAA or 80AA unless the Commissioner is satisfied, or considers that it is reasonable to assume, that:
(a)at all times during the year of income the voting power in the loss company was, either directly or through one or more interposed companies, trustees or partnerships, controlled, or capable of being controlled, by a person not being a company, or by 2 or more persons not being companies, who, either directly or through one or more interposed companies, trustees or partnerships, controlled, or was or were capable of controlling, the voting power in the loss company at all times during the year in which the loss was incurred". (emphasis added)
[82]Reprint No 9, to which the Court was referred by the parties, omits "79E, 79F" where first occurring and thus does not reflect the text as it stood after the 1990 Act.
What then was the impact of the orders for the winding up of Linter Group and Linter Textiles upon the requirements of s 80A(3)(a)? Section 80A(3) stipulates three requirements, in pars (a), (b) and (c), each of which must be satisfied. Paragraphs (b) and (c) were considered by Hely J as follows[83]:
"What may be important for present purposes is that under pars (b) and (c) of s 80A(3) the ultimate human controller(s) of the loss company should be entitled to receive for his or their 'own benefit' more than one half of dividends distributed or capital returned. In the Commissioner's submission this provision provides some insight into the meaning of 'beneficially owned' in s 80A(1). In my view it does not assist. The same question is thrown up, namely whether property is held for a person's own benefit unless it is held, by that person, on behalf of some other person."
[83](2002) 20 ACLC 1708 at 1721; 50 ATR 548 at 562‑563.
It is apparent that a focus of the submissions to the primary judge was the meaning of "beneficially owned" as it appeared in s 80A(1), and that the phrase "own benefit" as it appears in pars (b) and (c) of s 80A(3) was referred to as throwing light on the earlier provision. Paragraph (a) of s 80A(3) does not use the phrase "own benefit" and par (a) was not referred to by Hely J in this connection.
Nevertheless, the Commissioner had never relinquished reliance upon s 80A(3) as an alternative path to the success of the case against the respondent, and the taxpayer presented no issue challenging the reliance by the Commissioner upon par (c) of s 80A(2). Against that background, one of the grounds of appeal by the Commissioner to the Full Court was that Hely J should have held that the requirements of s 80A(3) were not satisfied from the time of the winding up of Linter Group and the time of the winding up of Linter Textiles.
The Full Court said[84]:
"The main question in the appeal therefore was whether the winding up orders made with respect to both [Linter Group] and [Linter Textiles] brought about the result that [Linter Textiles] could not, in the year of income, comply with the requirements of s 80A(1) or (3) so as to permit it to deduct against the assessable income of that year under s 79E of [the Act] the prior year losses it had incurred."
[84](2003) 129 FCR 42 at 44‑45.
Paragraph (a) of s 80A(3) was considered by the Full Court but in relation to the winding up of Linter Textiles alone. Unlike pars (b) and (c), it speaks not in terms of benefit, but of control and capacity to control voting power by natural persons. One issue taken by the Commissioner in the Full Court fixed upon the Linter Textiles winding‑up order. However, the Full Court dealt with it as follows[85]:
"Counsel for the Commissioner submitted that there was a third issue which arose for decision, that being whether the making of a winding up order in relation to [Linter Textiles] had the consequence that the persons referred to in s 80A(3) of [the Act] ceased to have the control or rights of the kind identified in the section. However, it was common ground that if the other two questions were answered in favour of [Linter Textiles] then this third question would likewise be answered in favour of [Linter Textiles] and the appeal would accordingly be dismissed. For that reason we do not propose to consider separately this third issue."
[85](2003) 129 FCR 42 at 47.

In this Court, the Commissioner submits that a consequence of the winding‑up orders made in respect of Linter Group (if not of the order made thereafter in respect of Linter Textiles) was that the voting power in Linter Textiles was no longer controlled or capable of being controlled by the Goldberg family; the liquidator of Linter Group, and no one else, would vote and control the voting of its shares in Linter Textiles and "control" here was not used adjectivally as was "carrying" in s 80A(1)[86]. A submission to that effect had been open upon the ground of appeal to the Full Court to which reference has been made above. This referred distinctly to each of the winding‑up orders.
[86]The first issue concerning s 80A(1) turned on the adjectival use of "carrying".
In the course of argument in this Court, the Commissioner sought an amendment to par 4 of the Notice of Appeal to refer specifically to the winding up of Linter Group. Paragraph 4 would then read:
"The Court erred in failing to hold that on the making of the winding-up orders in relation to [Linter Textiles] and [Linter Group] the persons referred to in subsection 80A(3) of the Act ceased to have control or rights of the kind identified in that section."
That leave should be granted and, as a consequence, the appeal be allowed. Special leave was granted to the Commissioner on terms that, irrespective of the result, the Commissioner pay the taxpayer's costs of the appeal. The narration in these reasons of the conduct of the litigation at trial and in the Full Court indicates that the point sought to be raised in this Court by the amendment was open at both stages in the Federal Court. The respondent taxpayer did not, in opposition to the amendment, deny that all the relevant facts had been established or deny that the point is one of construction and law. It is expedient and in the interests of justice to allow the amendment and to entertain the issue it raises[87].
[87]Water Board v Moustakas (1988) 180 CLR 491 at 497.
Outcome respecting s 80A(3)
There are several contrasts between the text and structure of sub‑s (1) and sub‑s (3) of s 80A. Sub‑section (1), as applied to the facts of this case, is concerned with the beneficial ownership, by individuals or companies, of the shares in Linter Textiles carrying certain rights. The focus of sub‑s (3) is not upon beneficial ownership by any entity of any shares in any company. Rather, the legislative concern with the strengthening of the "continuing ownership test" is manifested in par (a) of sub‑s (3) by fixing upon the control of (or the capacity to control) the voting power in Linter Textiles by an individual or by two or more persons not being companies; that control or capacity to control may be exercised by that individual or those individuals either directly or "through" interposed entities; and the required control or capacity to control must exist in respect of the voting power in Linter Textiles at all times during the year of income ended 30 June 1992. The litigation has been conducted on the footing that, despite the presence of the discretionary trusts, the members of the Goldberg family were to be treated as the individuals by whom any relevant control was capable of exercise.
Unless these various criteria in s 80A(3)(a) were met, the loss was not to be taken into account for the purposes of s 79E.
The Commissioner submits that, on the making of the order for the winding up of Linter Group on 12 April 1991 and at all times thereafter, the voting power in Linter Textiles ceased to be controlled, or to be capable of being controlled, by those persons being the Goldberg family who, before the making of the winding‑up order, had been in that position. They no longer could control the exercise of the voting power of Linter Group in its wholly owned subsidiary Linter Textiles. It is unnecessary for this purpose to determine whether, within the meaning of par (a) of s 80A(3), that control had passed to, and was vested in, the liquidator of Linter Group. The Commissioner need only establish the negative proposition that the control was not that of the Goldberg family.
These submissions should be accepted. Counsel for the taxpayer sought to outflank them by putting to one side the inconvenient turn taken by the facts when Linter Group was ordered to be wound up. The submission was that the "control" and capacity to control spoken of in par (a) of s 80A(3) was not to be confused with a present ability to exercise the voting rights. Rather, there was an assumption to be made that a general meeting of Linter Textiles was called and voting was in accordance with the articles of that company.
The taxpayer appeared to rely upon a distinction drawn in such cases as W P Keighery Pty Ltd v Federal Commissioner of Taxation[88] and Federal Commissioner of Taxation v Sidney Williams (Holdings) Ltd[89] between capability to control existing in law by the exercise of legal or equitable rights or powers and de facto control by persons acting in breach of the rights of others. But that reasoning cannot assist. It may be assumed, without deciding the point, that the capacity to control spoken of in par (a) of s 80A(3) was to be exerted by the exercise of legal or equitable rights or powers by the Goldberg family and the intermediaries identified in par (a). The winding‑up order in respect of Linter Group was a drastic act in the law which disrupted any such exercise of legal or equitable rights and powers. Again, if de facto capacity be sufficient, no case has been made that such control was capable of exercise through the liquidator who was responsible as a court officer to administer the statutory scheme for the winding up of Linter Group.
[88](1957) 100 CLR 66.
[89](1957) 100 CLR 95.
That conclusion respecting par (a) of s 80A(3) is sufficient to be fatal to the taxpayer's case under that provision. It is unnecessary to consider par (b) or par (c) of s 80A(3) or the effect of s 80A(4).
Orders
Leave should be granted for the amendment to the Notice of Appeal and the Amended Notice of Appeal should be treated as filed and served. The appeal should be allowed. The respondent's costs of the appeal to this Court nevertheless must, as indicated above, be paid by the appellant. The orders of the Full Court should be set aside and in place thereof the appeal to the Full Court allowed with costs, the orders of the primary judge set aside and the objection decision affirmed, with the costs of the proceeding before Hely J to be borne by the respondent.
McHUGH J. This appeal concerns the construction of ss 80A(1)-(3) of the Income Tax Assessment Act 1936 (Cth) and their application to the facts of the case. The central issue is whether orders for the winding up of a parent company and its subsidiary result in the subsidiary being unable to meet the conditions prescribed by those sub-sections for deducting prior year losses from the assessable income of the current year.
In my opinion, although the subsidiary met the conditions specified in s 80A(1) of the Act, it did not meet the conditions specified in s 80A(3). That is because, on the winding up of the parent company, the persons who controlled the parent company were no longer able to exercise control and no longer had the capacity to control the voting power of the subsidiary. As a result, the Commissioner acted within his powers when he disallowed the claim to offset prior year losses against the assessable income for the relevant period.
Statement of the case
In March 2000 the Commissioner served a notice of assessment on the respondent, Linter Textiles Australia Ltd (in Liq) ("Linter Textiles"), in respect of the 1992 income year. In April 2000, Linter Textiles lodged an objection to the assessment. The Commissioner disallowed the objection. Linter Textiles appealed to the Federal Court against the Commissioner's disallowance of the objection. The appeal was heard by Hely J who allowed it[90]. The Full Court of the Federal Court (Hill, Goldberg and Conti JJ) unanimously dismissed an appeal by the Commissioner against the decision of Hely J[91].
[90]Linter Textiles Australia Ltd (in Liq) v Federal Commissioner of Taxation (2002) 50 ATR 548.
[91]Commissioner of Taxation v Linter Textiles Australia Ltd (in Liq) (2003) 129 FCR 42.
This Court subsequently granted the Commissioner special leave to appeal against the orders of the Full Court.
Statement of the material facts
At all material times the respondent, Linter Textiles, was a wholly owned subsidiary of Linter Group Ltd (in Liq) ("Linter Group"). Pochette Nominees Pty Ltd, as trustee for two discretionary trusts – the Goldberg Family (Deborah) Trust and the Goldberg Family (Faye) Trust ("the Goldberg Family Trusts") – indirectly held shares in Linter Group. Members of the Goldberg family were the beneficiaries under the Trusts. In April 1991, the Supreme Court of New South Wales ordered that Linter Group be wound up under the Companies (New South Wales) Code ("the Companies Code"). In February 1992, that Court ordered that Linter Textiles be wound up under the Corporations Law. In each case a liquidator was appointed[92].
[92]By way of background, the Linter group of companies were associated with Mr Abraham Goldberg and carried on business primarily as manufacturers and distributors of clothing and handled brands such as King Gee, Speedo, Pelaco, Exacto, Formfit, Kortex and Stubbies. The group collapsed in January 1990 with an estimated deficiency of approximately $550 million. Linter Group and all of its operating companies were put into receivership. The receivers sold each of the businesses and brand names. During 1991 and 1992 the companies, by then each a shell, were serially put into liquidation.
In the year of income ended 30 June 1992, Linter Textiles had derived an assessable income of $10,163,773. Linter Textiles had also incurred losses in the year of income ended 30 June 1990 totalling $10,393,871 that it sought to carry forward. Section 80G of the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act") also deemed the company to have incurred losses of $9,929,676. That deemed loss was a consequence of the transfer to it, under s 80G, of losses that had been incurred by Linter Group in the year of income ended 30 June 1990.
There was no change in the natural persons who were the ultimate beneficiaries of the Goldberg Family Trusts between the loss year (ended 30 June 1990) and the income year (ended 30 June 1992).
In the hearing before Hely J, the parties agreed that, but for the winding up orders that were made with respect to Linter Group and Linter Textiles, the requirements of s 80A(1) or (3) and s 80G(6) of the 1936 Act were met. Accordingly, the losses would have been available to Linter Textiles as an offset to the assessable income derived by it in the 1992 year of income. Neither Hely J nor the Full Court dealt with the question whether s 80A(3) was an alternative test to s 80A(1) or whether it was cumulative. As I later show, the omission of the primary judge and the Full Court to deal with this matter and the agreement of the parties does not prevent this Court from examining the issue.
The issues
The main issue in the appeal is whether the orders for the winding up of both Linter Group and Linter Textiles brought about the result that, in the 1992 year of income, Linter Textiles could not comply with the requirements of s 80A(1) or (3). Unless it satisfied those conditions, it could not deduct against the assessable income of that year under s 79E of the 1936 Act the prior year losses it had incurred. The issue raises several questions in respect of the application of s 80A(1) and s 80A(3) of the Act:
1.In relation to s 80A(1):
(a)whether, by reason of the order for the winding up of Linter Textiles, the shares of Linter Group in Linter Textiles ceased to be shares "carrying between them" the rights in s 80A(1)(c)-(e), that is, the rights to exercise more than one-half of the voting power, to receive more than one-half of any dividends that may be paid and to receive more than one-half of any distribution of capital; and
(b)whether, by reason of the order for the winding up of Linter Group, it no longer "beneficially owned" the shares it held in Linter Textiles within the meaning of s 80A(1).
2.If the requirements of s 80A(1) were satisfied and it was reasonable for the Commissioner under s 80A(2) to determine that s 80A(3) applied, whether, by reason of the order for the winding up of Linter Group, the Goldberg family ceased:
.to control or be capable of controlling the voting power in Linter Textiles; or
.to have a right to receive (directly or indirectly and for their own benefit) more than one-half of any dividends that may be paid and more than one-half of any distribution of capital within the meaning of s 80A(3).
The resolution of these questions turns on the construction of s 80A(1) and s 80A(3). The words of the sub-sections must be construed in the context in which they appear, and read in light of the legislative objects of the sections.
The application of s 80A(1)
Introduction: the interpretation of s 80A(1)
Section 80A is entitled "Losses of previous years not to be taken into account unless there is substantial continuity of beneficial ownership of shares in company". It appears in Div 3 (Deductions) of Pt III (Liability to Taxation) of the 1936 Act. Section 80A(1) provided at the relevant time:
"Notwithstanding sections 79E, 79F, 80, 80AAA and 80AA but subject to this section and sections 80B, 80DA and 80E, a loss incurred by a company in a year before the year of income shall not be taken into account for the purposes of section 79E, 79F, 80, 80AAA or 80AA unless:
(a)the company satisfies the Commissioner; or
(b)in the case of a company that is not a private company in relation to the year of income, the Commissioner considers that it is reasonable to assume;
that, at all times during the year of income, shares in the company carrying between them:
(c)the right to exercise more than one-half of the voting power in the company;
(d)the right to receive more than one-half of any dividends that may be paid by the company; and
(e)the right to receive more than one-half of any distribution of capital of the company;
were beneficially owned by persons who, at all times during the year in which the loss was incurred, beneficially owned shares in the company carrying between them rights of those kinds."
In its natural and ordinary meaning, s 80A(1) provided that a company was not entitled to claim a deduction for a loss year unless the Commissioner considered that it was reasonable to assume that at all times during the loss year and the income year the same "persons" "beneficially owned" "shares in the company carrying between them" the rights:
.to exercise more than one-half of the voting power in the company;
.to receive more than one-half of any dividends that may be paid by the company; and
.to receive more than one-half of any distribution of capital of the company.
The expression "shares carrying between them" directed the Commissioner's inquiry to the shares in the company and the rights that attached to those shares as conferred by the company's memorandum and articles of association. The inquiry was whether those shares carried between them rights of the relevant kind. The 1936 Act did not define the expression "beneficially owned", but the "test" in s 80A(1) was satisfied if it was reasonable to assume that at all relevant times certain persons "beneficially owned" shares that between them carried those rights under the company's articles of association.
Section 80A(1) was inserted into the 1936 Act by the Income Tax and Social Services Contribution Assessment Act (No 3) 1964 (Cth) ("the 1964 Act"). Unlike its predecessor sections, which applied only to private companies, s 80A(1) applied specifically to public companies. The Explanatory Memorandum to the Income Tax and Social Services Contribution Assessment Bill (No 3) 1964 (Cth) ("the 1964 Bill") noted that ss 80(5) and (6) of the 1936 Act (which applied to private companies) were enacted[93]:
"to inhibit a practice under which shareholders in a private company with accumulated losses sold their shares in that 'loss' company to a successful company [with the result] that losses incurred by a private company at a time when it was owned by various individual shareholders became deductible from income derived by that company after the shares in the 'loss' company had been transferred to the purchasing company."
[93]Australia, Income Tax and Social Services Contribution Assessment Bill (No 3) 1964 (Cth) at 37-38.
The Memorandum also noted that "the Commonwealth lost tax on an amount of income equal to the losses accumulated at the time the shares were sold."[94] Remedial legislation had proved to be ineffective and in any event had no application in relation to public companies. The Explanatory Memorandum identified a further defect in that "in a few isolated cases [the provisions] have operated with undue severity."[95] The Memorandum continued[96]:
"Broadly, the legislation now proposed is designed to remove the weaknesses in the law, extend it to public companies and correct anomalies that have come under notice."
[94]Australia, Income Tax and Social Services Contribution Assessment Bill (No 3) 1964 (Cth) at 38.
[95]Australia, Income Tax and Social Services Contribution Assessment Bill (No 3) 1964 (Cth) at 38.
[96]Australia, Income Tax and Social Services Contribution Assessment Bill (No 3) 1964 (Cth) at 38.
Sub-sections (5) and (6) of s 80 of the 1936 Act were inserted by the Income Tax Assessment Act 1944 (Cth) ("the 1944 Act"). The 1944 Act was directed at the problem that, under the 1936 Act as it then stood, a company was entitled to a deduction in respect of previous income years, even though the shareholders in those years and the income year were entirely different. An Explanatory Note to the Income Tax Assessment Bill 1944 (Cth) described the operation of s 80 – which provided for business losses from previous income years to be carried forward – and asserted that companies were using the provision for the purpose of avoiding income tax. The Explanatory Note stated[97]:
"There is in existence, evidence showing that in order to avoid income tax, some people are acquiring the shares of companies which have sustained losses in previous years and have ceased to carry on business but have not formally gone into liquidation.
...
Whilst a company is an entity separate and distinct from its shareholders, the shareholders are the real owners of the business carried on by the company and there is no justification for the allowance of a loss sustained by an entirely different set of shareholders in earlier years."
[97]Australia, Income Tax Assessment Bill 1944 (Cth) at 48.
The Income Tax Assessment Act 1973 (Cth) ("the 1973 Act") repealed s 80A and inserted s 80A(1) in essentially its current form. The Explanatory Memorandum to the Income Tax Assessment Bill 1973 (Cth) ("the 1973 Bill") described "a main purpose" of the proposed amendments as "the strengthening of the 'continuing ownership test'". It also stated that the amendments were "designed to ensure that the test operates in the way intended when it was introduced into the law."[98]
[98]Australia, Income Tax Assessment Bill 1973 (Cth) Explanatory Memorandum at 18.
The legislative background to s 80A(1) indicates that the section was enacted to further the legislative purpose of conditioning the entitlement of taxpayer companies to carry forward business losses from previous income years. Hely J and the Full Court took slightly different views of the purpose of s 80A(1). Hely J found that the purpose of the section was to protect the revenue against the consequences of trafficking in losses[99]. This end was achieved by lifting the corporate veil and requiring a substantial continuity in the beneficial ownership of the shares in the loss company in both the year of income and the year of loss. The Full Court adopted a broader view of the mischief at which s 80A(1) was directed. It said that the object of s 80A "is to ensure that losses will not be available to a company where there has not been a continuity of ownership of shares during the year of income and the year of loss."[100]
[99]Linter Textiles (2002) 50 ATR 548 at 562 [60].
[100]Linter Textiles (2003) 129 FCR 42 at 60 [57].

The statutory language:The focus of the language of s 80A(1) is upon whether shares in the identified companies "were beneficially owned" by identified persons "at all times during the year in which the loss was incurred". This is a precondition to the deduction entitlement that the Act confers. It must therefore be complied with. This provides the setting for the determination of the meaning of "beneficially owned" in s 80A(1).
In that context, it cannot be said that a person beneficially owns shares during a specified interval if, throughout that time, the person is incapable of exercising, on that person's own behalf, and for his or her benefit, the rights ordinarily co-extensive with ownership. What are those rights? Normally, a person who beneficially owns shares is entitled by law, under the benefit of ownership, to the right to vote, the contingent right to a return of capital, and the right to the distribution to the owner of the profits of the company concerned, attributable to those shares. A person cannot be said to be the beneficial owner of property unless that person has the right to deal with the property as that person's own. In the case of shares, such dealing ordinarily includes the unimpeded possibility of disposal or sale of the shares and enjoyment of the fruits of such disposal or sale. Unless the person has these ordinary incidents of beneficial ownership, the person is not the "beneficial owner" of the shares within the use of that term in s 80A(1) of the Act[226].
[226]See Wood Preservation Ltd v Prior [1969] 1 WLR 1077 at 1096-1097; [1969] 1 All ER 364 at 368.
Addressing the words "beneficially owned" is sufficient to indicate that the Parliament intended, as a condition for the availability of the deduction of losses carried forward, that the shares in the company concerned should be owned by persons who enjoy the large bundle of rights conventionally accompanying the beneficial ownership of such shares. In this case, the interposition of a liquidator of the companies diminished, to the extent of the liquidator's powers, the bundle of rights usual to the beneficial ownership of such shares. From the moment the liquidators were appointed, they respectively enjoyed powers in relation to such shares afforded to them by company law. It is true that, as such, and unlike bankruptcy[227], there was no automatic vesting of the property in the shares in the liquidator. But that is not the question in issue. By s 80A(1) of the Act, that question is addressed to the assertion of beneficial ownership by persons who claim to fulfil the requirements of that sub-section and who must do so in order to gain the benefits for which it provides. To deny the modification of the bundle of rights derived by such persons from such shares, to the extent of the powers afforded to and duties imposed upon the liquidator, is to deny the plain terms of the applicable law of company liquidation.
[227]Bankruptcy Act 1966 (Cth), s 58. See joint reasons at [9].
Under that law, the rights to voting power, to dividends and to distribution of capital of the company, that are otherwise ordinarily carried by the shares, are, during the liquidation, subject to the rights of the liquidator. Moreover, the purpose of the control of the company in liquidation is no longer, as such, to maximise the returns to the shareholders. Instead, it is primarily to ensure the protection of the creditors of the company[228]. To this extent, important conventional attributes of beneficial ownership of the shares in the company are diminished.
[228]See Hiley v The Peoples Prudential Assurance Company Ltd (in liq) (1938) 60 CLR 468 at 496.
Of course, the persons possessed of the shares continue to have rights. These include, contingently, the revival of full beneficial ownership upon any termination of the liquidation. However, to speak of such persons beneficially owning the shares in the company during the liquidation is to deny the essential point of the liquidation, which is the administration of the company pro tempore for the "benefit" of the creditors, not of the shareholders. This is the fundamental reason why the concept of "beneficially owned" as used in the Act is inconsistent with the existence of the statutory powers and duties of the liquidator. Millett LJ explained this point in Mitchell v Carter[229]:
"The making of a winding-up order divests the company of the beneficial ownership of its assets which cease to be applicable for its own benefit."
[229][1997] 1 BCLC 673 at 686; see also at 688 per Leggatt LJ agreeing; cf Buchler v Talbot [2004] 2 AC 298 at 308-309 [28].
The mistake of those who have reached the contrary view is that they have fastened upon the distinction derived from bankruptcy law and upon the fact that the making of a winding up order in relation to a company does not, as such, effect a transfer to the liquidator of any interest in the company's property. This point of distinction was fully accepted by the Commissioner. However, the transfer of shares (or of property in them) is not a prerequisite to a failure of the "beneficial ownership" test in s 80A(1). In relation to that test, the question is whether the person claiming the deduction can establish the prerequisite of "beneficial ownership" of the shares, with its large connotation in respect of the rights attributable to such ownership. It is not whether, as such, the Commissioner can prove affirmatively that beneficial ownership has passed to someone else[230].
[230]In this respect, the issue is somewhat analogous to the treatment, in the joint reasons, of the question of control and capability of control. As the joint reasons point out at [83], on that issue the Commissioner needed only to establish the negative proposition that the control was not in the Goldberg family. Here it is enough for him to show that "beneficial ownership" in the shares, as that term is to be understood in s 80A(1), did not continue in the same persons as before the liquidation, also a negative proposition.
The statutory history:Support for this view may also be found in the statutory history. Originally, the predecessor to s 80A(1), namely s 80(5) of the Act as it formerly stood, spoke of shares being "beneficially held". It was this statutory expression that resulted in the decision of Menzies J in Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation[231]. It was that phrase that led his Honour to conclude that he "would be going further than the statute warrants were [he] to hold that, for the purposes of s 80(5), a company which owns shares beneficially in another company ceases, upon its liquidation, to own those shares beneficially"[232].
[231](1970) 125 CLR 52.
[232](1970) 125 CLR 52 at 71.
The remarks of Menzies J cannot be taken as deciding the meaning of the different expression ("beneficially owned") now appearing in s 80A(1). This is because, as Menzies J pointed out[233], the statutory expression with which he was concerned was "beneficially held". His Honour was influenced by the fact that s 80(6) of the Act, as then appearing, spoke of shares being "beneficially held by the trustee". He expressed the view that what "under[lay] the provisions of sub‑s (6) … [was that] the section [was] concerned with … a continuing identity of interest such as there is, for instance, between a shareholder and the person who, upon his death, becomes his trustee, notwithstanding that he holds for beneficiaries".
[233](1970) 125 CLR 52 at 69.
The former s 80(5) of the Act has been repealed. The language of holding shares has been removed. The stronger requirement has been substituted, requiring that the taxpayer claiming the deduction must demonstrate continuous beneficial ownership, with all that that large notion imports. The issue that exercised Menzies J in Franklin's is now dealt with specifically by s 80B(3) of the Act which, in the specified circumstances, deems shares to have been "beneficially owned by the same person ... if the person has died". There is no like provision covering the liquidation of a company. That case is left to the application of the general language of s 80A(1). The language of that sub-section states the applicable requirement more emphatically than in the Act as it appeared at the time of Franklin's. To the extent that the precondition has been re-expressed, the changed language suggests that after Menzies J wrote his reasons in Franklin's there was a deliberate escalation of the statutory requirements.
However that may be, there is no binding rule in Franklin's that decides this appeal, concerned as it is with different statutory language. To the extent that the reasons of Menzies J, addressing a different expression, suggest any different conclusion in this case, I would respectfully decline to follow it.
The statutory purpose:In addition to the foregoing considerations the construction of the Act, as urged by the Commissioner, is more consonant with the evident policy of the tax loss provision as he explained it. That policy is that (subject to exceptions specifically provided in respect of the "same business" in s 80E) a company may only deduct losses carried forward from an earlier taxation year where the requisite percentage of shareholders who potentially stand to gain for their own benefit from the ability to deduct losses also stood to suffer when the losses were incurred.
One can easily understand the object of such a provision and the policy lying behind it. To the limited extent provided, it lifts the corporate veil. It addresses the actuality of the flow of profits and losses to and from the natural persons controlling the respective companies.
Once a winding up order is made, and a liquidator is appointed to perform the functions provided by law for the protection of creditors, the scene has changed. When the corporate veil is lifted, the flow of funds is not, or is not primarily or necessarily, into the pockets of the same natural persons. During the liquidation, it is primarily into the pockets of the creditors. But it is inconsistent with the policy evident in the Act for the benefit of the losses to be available to creditors who are typically different natural persons from those who earlier controlled the subject company. If such a benefit is to be allowed to the advantage of creditors, it must be specifically enacted. It cuts across both the language and the purpose of s 80A(1), so expressed.
The Full Court in this case expressed the opinion that it was difficult to see what policy reason there could be for the Parliament to disallow a deduction to a company that had gone into liquidation[234]. However, with all respect, that statement mistakes the object that lies behind the loss carry forward provisions in the Act. The question is not whether, as a matter of overall fairness, it might be desirable to provide for corporate losses to be carried forward to the advantage of creditors in the event of the liquidation of a relevant company. That point could doubtless be argued both ways. It is now the subject of the Treasury paper to which I have referred[235]. However, that flow of tax advantages (and the provision of tax deductions) for the benefit of creditors would reflect a policy different from the one appearing in s 80A(1). If there is to be such a different policy, it requires the approval of the Parliament to different statutory provisions.
[234]Commissioner of Taxation v Linter Textiles (2003) 129 FCR 42 at 61 [59].
[235]See these reasons at [203].
The statutory provisions last enacted ("beneficially owned") contradict the suggested application of s 80A(1), at least for so long as the company concerned is in liquidation. To say that the shareholders during such liquidation "beneficially owned" their shares is to ignore the interposition of the liquidator with his superimposed legal powers and duties under company law, primarily for the benefit of the creditors.
Consideration in other jurisdictions:The conclusion reached in the Federal Court on the issue of benefical ownership in s 80A(1) of the Act, a conclusion favourable to the respondent and now accepted by a majority in this Court, is also inconsistent with a strong trend of highly persuasive authority addressed to analogous language in revenue legislation in a number of jurisdictions of the common law to which this Court would ordinarily pay regard.
In Ayerst v C & K (Construction) Ltd[236], the House of Lords considered the meaning of the expression "beneficial ownership" as used in the Finance Act 1954 (UK), s 17(6)(a). Their Lordships unanimously held that, upon a company going into liquidation, it ceases to be the "beneficial owner" of its assets. The reasoning of Lord Diplock in that case, with the concurrence of Viscount Dilhorne and Lords Kilbrandon and Edmund-Davies, rests on arguments of general principle, not matters peculiar to United Kingdom revenue law. Lord Diplock referred to the expression "beneficial ownership" as "a term of legal art since 1874"[237]. He invoked[238] what Lord Cairns had said in In re Albert Life Assurance Company (The Delhi Bank's Case)[239]:
"'… the assets of the company from the moment of winding up, … become fixed and inalienable; the executive and the direction of the company are unable to alienate them or to part with them for any purpose; they become fixed and impressed with the trust declared by section 98,' – (which corresponds to section 257(1) of the Act of 1948) – 'a trust by which all the assets of the company are to be applied in discharge of the liabilities of the company.'"
[236][1976] AC 167.
[237][1976] AC 167 at 181.
[238][1976] AC 167 at 179; cf Tito v Waddell [No 2] [1977] Ch 106 at 226-227 per Megarry V-C.
[239](1871) 15 SJ 923 at 924.
It was that notion of beneficial ownership of the company's property after the commencement of winding up that was given effect in In re Oriental Inland Steam Company; Ex parte Scinde Railway Company[240], the 1874 decision that Lord Diplock regarded as establishing the principle applicable in Ayerst. In that case, James LJ[241] had said of the effect of liquidation:
"The English Act of Parliament has enacted that in the case of a winding-up the assets of the company so wound up are to be collected and applied in discharge of its liabilities. [That makes the property of the company clearly trust property.] It is property affected by the Act of Parliament with an obligation to be dealt with by the proper officer in a particular way. Then it has ceased to be beneficially the property of the company".
[240](1874) LR 9 Ch App 557.
[241](1874) LR 9 Ch App 557 at 559 (I have added brackets around the second sentence for the reasons explained below at [243]).
The introduction of analogies, taken from the law of trusts, which occasions the attempt, in the joint reasons in this Court, to distinguish this settled line of authority on this aspect of revenue law in the United Kingdom, is, with respect, a forensic red-herring. It appears to have been introduced into these proceedings in a not unfamiliar reaction to keep the Australian waters of equity and trust law unsullied by foreign and supposedly deleterious intrusions, even where (as here) the intrusions originated in the country from which the law of equity and trusts itself derives. I have no sympathy for such parochial inflexibilities[242].
[242]Breen v Williams (1994) 35 NSWLR 522 at 542-549 (see Breen v Williams (1996) 186 CLR 71); cf Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at 209-210 [116]-[118].
The reference to "trust property" in the earlier English authority was not, as such, an attempt to import all of the features of the law of trusts into defined statutory relationships following a company liquidation. Self-evidently, that could not have been intended by the knowledgeable and experienced judges involved. Instead, it was an attempt (in effect in an aside in the course of reasoning) to explain the construction and operation of a statute in terms that would have been understood by lawyers in the English Court of Chancery in 1874, who had the responsibility of applying the pertinent statute. The analogy was not the essence of the reasoning of the English judges. This can be seen by the simple expedient of deleting the reference to the analogy to trust property (shown in brackets in the foregoing quotation) from the reasons of James LJ. His Lordship's reasons remain coherent and convincing without the words in brackets. The essence of those words was an attempt to draw on a familiar analogy to help explain the operation which the Act of Parliament had upon the property in question. By that operation "it has ceased to be beneficially the property of the company".
In Ayerst, Lord Diplock noted that the holding in Oriental Inland Steam Company, based on the relevant United Kingdom legislation, had been repeated in successive editions of Buckley on the Companies Acts "from 1897 to the present day"[243]. As such, it had clearly passed muster before a great many English lawyers of high distinction and experience, who fully understood the law of company liquidation. Lord Diplock recorded the invitation before the House of Lords to say that the reasoning was wrong "because it was founded on the false premise that the property is subject to a 'trust' in the strict sense of that expression as it was used in equity before 1862"[244]. His Lordship rejected that sterile argument. Instead, he grounded his interpretation of the phrase in the settled meaning of beneficial ownership in this context which was to be taken as incorporated in revenue law when the notion of "beneficial ownership" was first used in a United Kingdom taxing statute in 1927. He thus expressly considered, and rejected, the reasoning that prevailed in the Federal Court in this case and now finds favour with a majority in this Court. Not a single Law Lord dissented from Lord Diplock's speech.
[243][1976] AC 167 at 180.
[244][1976] AC 167 at 180.
I can see no reason of legal authority, principle or policy to justify this Court's taking a different course from that adopted by the unanimous opinion of the House of Lords on a precisely identical point of revenue law. Only an elaborate reasoning, founded on metaphors, similes and analogical references (and based on a somewhat parochial antipodean inflexibility concerning the law of trusts), could persuade this Court to impose, on similar Australian statutory language, a construction opposite to that which has been followed for one and a quarter centuries in the United Kingdom. There is no reason why we should take such a course. There are many reasons why we should not.
The differences that emerge between the respective views expressed by Menzies J in Franklin's and by the House of Lords in Ayerst (concededly upon somewhat different statutory language) have been noted in a number of
[245]Federal Commissioner of Taxation v St Hubert's Island Pty Ltd (in liq) (1978) 138 CLR 210 at 232-233, 249-250; Deputy Commissioner of Taxation v AGC (Advances) Ltd [1984] 1 NSWLR 29 at 36-37; Re Allan Fitzgerald Pty Ltd (in liq) (1992) 112 FLR 203 at 208-209; Mineral & Chemical Traders Pty Ltd v T Tymczyszyn Pty Ltd (in liq) (1994) 15 ACSR 398 at 416-417; CPH Property Pty Ltd v Commissioner of Taxation (1998) 88 FCR 21 at 50-51; Commissioner of Taxation v Macquarie Health Corporation Ltd (1998) 88 FCR 451 at 468.
[246]McPherson, The Law of Company Liquidation, 4th ed (1999) at 219; Meagher, Heydon and Leeming, Equity: Doctrines and Remedies, 4th ed (2002) at 132-133 [4-055].
[247]See these reasons at [184].
decisions[245] and in text commentaries[246]. The decision in Ayerst, as I have previously stated, is consistent with the approach taken by the courts of New Zealand, Ireland and Hong Kong[247]. This fact should also make this Court pause before striking out on the opposite approach in what, clearly, is a common problem of revenue law arising in many like jurisdictions.

Conclusion: the s 80A(1) error: It is those last words that afford the ultimate justification for the line of authority, adopted in other countries of our legal tradition, which this Court should also, in my view, follow. The context of the provision for the deduction of past tax losses requires clear identification of the purpose and policy for such a deduction. Hence, it requires understanding of the statutory language in which the prerequisites are expressed. When these factors are given due weight, the conclusion reached in the overseas authorities is compelling. The only way to justify a different conclusion, in respect of similar language in the Act, is to impose upon that language presuppositions derived from notions of judge-made law, specifically the law of trusts. But if that is done, a judicial remark in analogical reasoning is pressed far beyond its intent. The fundamental duty of this Court, namely to interpret and uphold the purpose of the Parliament as stated in the language of the Act, is then forgotten. This is the flaw in the reasoning about s 80A(1) of the Act that led the judges of the Federal Court to their orders. It is an error that requires correction by this Court. It is to expose that error that I have added these remarks concerning that part of the joint reasons with which I respectfully disagree.
Orders
It follows that, on the first and third issues[248], and not just on the first, the Commissioner is entitled to succeed. It is for these reasons that I agree in the orders proposed in the joint reasons.
[248]Of the issues identified in these reasons at [189].