Farnsworth v Federal Commissioner of Taxation

The appellant, Delina Wilhelmina Farnsworth, a fruitgrower, appealed to the High Court against a decision of a Board of Review that confirmed an income tax assessment. The dispute concerned the inclusion of an estimated sum of £648 in her assessable income for the year ending 30 June 1943. The Federal Commissioner of Taxation had included this amount, in addition to the £340 actually received by the appellant during that year, on the basis that it represented the value of her trading stock on hand at the end of the income year.

The legal issues before the court were whether the appellant's interest in the dried fruit delivered to a packing company and mixed with that of other growers constituted "trading stock on hand" at the end of the income year, and if so, whether the estimated sum of £648 represented its value for the purposes of assessment under the Income Tax Assessment Act 1936-1943. Specifically, the court had to determine if the appellant's share in the pooled fruit was trading stock under section 28, if £648 was its ascertained value under subdivision B of Division 2, and consequently, if this sum should be included in her assessable income.

The High Court, in answering the questions posed in the case stated, held that the sum of £648 was wrongly included in the appellant's assessable income. The court reasoned that upon delivery to the packing company and subsequent mixing, the appellant's fruit lost its identity and she no longer had "trading stock on hand" in the sense contemplated by section 28 of the Act. The estimated amount of £648 was not the value of any specific trading stock owned by the appellant at that date, but rather a projection of future earnings from the pooled fruit. Furthermore, the court found that section 36 of the Act, which deals with the disposal of business assets, was not applicable to the regular delivery of fruit for sale in the ordinary course of business.

Consequently, all questions in the case stated were answered in the negative. The court concluded that the appellant's assessable income for the year should not include the estimated sum of £648, as it did not represent trading stock on hand or any other form of assessable income for that period.