Deputy Federal Commissioner of Taxation v Evans Limited

The Deputy Federal Commissioner of Taxation (the appellant) appealed to the High Court of Australia from a decision of the Supreme Court of Western Australia. The dispute concerned the assessability of a sum of £4,260 received by Evans Limited (the respondent) from Woolworths Pty. Ltd. The respondent, which held a sub-lease of business premises, had entered into a transaction with Woolworths Pty. Ltd. that was structured as a sub-demise for the residue of the respondent's term. The Commissioner sought to include the £4,260, paid by Woolworths Pty. Ltd. at the commencement of this sub-lease, as part of the respondent's assessable income.

The central legal issue before the High Court was whether the sum of £4,260 paid by the purchaser to the respondent constituted a "premium, fine or foregift or consideration in the nature of premiums, fines or foregifts" within the meaning of section 16 (d) of the Income Tax Assessment Act 1922-1929. The respondent contended that the sum represented the realisation of a capital asset and was not income, while the Commissioner argued it was a taxable premium.

The High Court, by majority, allowed the appeal. The Court applied the principle established in *Clarke v. Federal Commissioner of Taxation* (1932) 48 C.L.R. 56, holding that section 16 (d) was not confined to payments made on an assignment of a lease but extended to sums paid for the grant of a lease or sub-lease. The Court reasoned that the transaction, despite its form as a sub-demise, involved the grant of a leasehold interest for which a substantial payment was made. The immediate payment of £4,260, coupled with a weekly rental that covered the original rent and provided a profit, indicated that the payment was a premium. The Court found that the substance of the transaction was the grant of a sub-lease, and the payment was a premium in connection with that leasehold estate, thus falling within the scope of section 16 (d).