Evans v Deputy Federal Commissioner of Taxation (SA)

The case of *Evans v Deputy Federal Commissioner of Taxation (SA)* concerned an appeal to the High Court of Australia from a decision of the Supreme Court of South Australia. The appellant, Arthur Ernest Herbert Evans, a shareholder in Guinea Gold No Liability, challenged the inclusion of certain distributions made by the company in his assessable income for income tax purposes. The Deputy Federal Commissioner of Taxation had included the market value of shares distributed in specie and a cash distribution among the appellant's taxable income.

The central legal issues before the High Court were whether the distributions received by the appellant constituted assessable income under section 16(b)(i) of the *Income Tax Assessment Act 1922-1930*, and if so, whether they were protected by the proviso concerning profits arising from the sale of assets not acquired for resale at a profit. Specifically, the court had to determine the nature of the profits derived from the sale of the company's air service undertaking and mining leases, and whether the subsequent distribution of shares and cash in respect of these sales represented taxable income or a return of capital.

A majority of the High Court (Rich, Dixon, and Evatt JJ., with Starke J. dissenting) held that the shares in Guinea Airways Ltd. represented a profit that fell within the charging provisions of section 16(b)(i)(1), and thus were assessable income to the extent of their value exceeding their face value at allotment. However, they found that the shares in New Guinea Goldfields Ltd. did not represent a profit on the sale of the upper leases, but rather surplus assets, and therefore were not assessable. Regarding the cash distribution from the lower leases, the majority determined that these leases were not acquired for the purpose of resale at a profit, and consequently, the distribution was not assessable income. The decision of the Supreme Court of South Australia was varied accordingly.