Federal Commissioner of Taxation v Uther

[1965] HCA 42

HIGH COURT OF AUSTRALIA

Kitto, Taylor and Menzies JJ.

FEDERAL COMMISSIONER OF TAXATION v. UTHER

(1965) 112 CLR 630

12 August 1965

Income Tax (Cth)

Income Tax (Cth)—Assessable income—Dividends—Company—Reduction of capital—Payments to shareholders—"A return of paid-up capital"—Excess of payments received over amounts paid up on shares—Whether excess to be included in assessable income—Income Tax and Social Services Contribution Assessment Act 1936-1962 (Cth), s. 6 (1) "dividend"*, s. 44 (1) (a)**.

Decisions

August 12.
The following written judgments were delivered:-
KITTO J. This is an appeal from an order of Owen J. allowing an appeal by the present respondent against an assessment of the income tax payable by him in accordance with the provisions of the Income Tax and Social Services Contribution Assessment Act 1936-1962 (Cth) in respect of income derived in the year ended 30th June 1962: Uther v. Federal Commissioner of Taxation (1964) 111 CLR318 . (at p633)

2. In that year the respondent was a shareholder in a company called Best &Gee Pty. Limited, and he was a beneficiary in a deceased estate of which the trustees held shares in the same company. The issued capital of the company consisted of 17,026 preference shares of 1 pound each, 31,000 ordinary shares of 1 pound each and 30,000 deferred shares of 1s. each, all being fully paid. On 2nd March 1962 the company, finding that it had cash on deposit at its bankers in excess of its requirements to the extent of 499,663 pounds 10s. 0d., determined to reduce its capital by cancelling all un-issued shares and one-half of the issued shares of each class. This was to be done by paying 2 pounds per share to the holders of cancelled preference shares, 17 pounds 5s. 6d. per share to the holders of the cancelled ordinary shares and 14 pounds 6s. 6d. per share to the holders of the cancelled deferred shares. The total amount to be paid was 499,663 pounds 10s 0d. The reduction thus proposed was confirmed by the Supreme Court of Victoria and was duly carried into effect. In the relevant year of income the respondent received his due proportion of the amount distributed, part of it from the company in respect of his own holding, and the balance from the trustee in respect of the shares belonging to the estate. The Commissioner assessed him to tax on the footing that the amount which a member of the company received under the reduction in respect of a cancelled share, less the amount paid up thereon, was assessable income under the provisions of the Act. The learned Judge, however, held that moneys distributed were of a capital nature and that there was no provision of the Act requiring that any portion of them be included in assessable income. Accordingly he allowed the appeal, set aside the assessment and directed the issue of an amended assessment. (at p634)

3. The correctness of his Honour's opinion that the whole of the amounts received by the shareholders in the distribution was capital in their hands must, I think, be conceded at once. There was no detachment from the company's assets of any amount to represent profits, no distribution of moneys as the produce of shares which should remain nevertheless intact. There was simply an allocation and payment to each shareholder of a sum of money belonging to the company, in satisfaction and extinguishment of some of his shares. The shares were the shareholder's capital: so, necessarily, was the money that took their place. See Webb v. Federal Commissioner of Taxation (1922) 30 CLR 450 ; Inland Revenue Commissioners v. Burrell (1924) 2 KB 52 ; Commissioner of Taxation (N.S.W.) v. Stevenson (1937) 59 CLR 80 and Thornett v. Federal Commissioner of Taxation (1938) 59 CLR 787 . (at p634)

4. The Commissioner, however, relies upon the provisions of the Act to bring the excess of the amount distributed in respect of each share over the amount paid up thereon within assessable income notwithstanding its capital nature. The relevant provisions are in s. 44 (1) (a) and the definition of "dividend" in s. 6 (1). The former includes in the assessable income of a shareholder in a company (if he is a resident, as the respondent is) "dividends paid to him by the company out of profits derived by it from any source". The definition includes in the word "dividend" inter alia any distribution made by a company to its shareholders, whether in money or other property; but it adds that the word does not include a return of paid-up capital. On these provisions the first question that arises for consideration is whether on the one hand the whole of the moneys received by the respondent in the distribution which the company made, or on the other hand only a portion of those moneys equal to the amount that had been paid up on his cancelled shares, was a return of paid-up capital. If the answer is that only the portion was a return of paid-up capital, the further question will arise, whether the balance of the amount he received constituted a distribution made by the company out of profits derived by it. (at p635)

5. The expression "a return of paid-up capital" has no special technical legal meaning, and as a matter of English it means a repayment of capital paid up. How a payment of 200 pounds can be wholly a return of 100 pounds I must confess I do not understand. What is said, in effect, is that it is legally possible to effect a 100 pounds reduction of a company's paid-up capital by means of a payment of 200 pounds. No doubt this is so, but surely it remains a fact nevertheless that the amount "returned" is 100 pounds , just as, if I pay 200 pounds in satisfaction of a loan of 100 pounds, I have "returned" to the lender only 100 pounds and paid him 100 pounds in addition. The expression in the Companies Act 1958 (Vict.), s. 53 (1) (b) (ii), is not "return" but "pay off"; but I see no difference between them. Nor, apparently, did Lord Radcliffe in Ex parte Westburn Sugar Refineries Ltd. (1951) AC 625, esp at p 636 . (at p635)

6. In Inland Revenue Commissioners v. Universal Grinding Wheel Co. Ltd. (1953) Ch 499; (1954) Ch 117; (1955) AC 807 , the distinction between the amount of a return of capital and the amount applied in effecting it was made the ground of decision by Upjohn J., by a majority of the Lords Justices and by a unanimous House of Lords. The question in that case was whether the whole of a sum paid in redemption of preference shares, being larger than the nominal amount of those shares, was within a proviso enacting that no sum "applied in reducing the share capital" should be treated as a taxable distribution under the Finance Act, 1947 (Imp.). It seems clear from the judgments in that case that if the statutory provision had spoken not of a sum "applied in reducing the share capital" but of a sum "returned to shareholders in a reduction of capital" the dissenting judgment of Hodson L.J. would have prevailed and the decision would have gone the other way. Indeed, Singleton L.J. came very close to the point when he said (1954) Ch, at p 123 that he found difficulty in agreeing with the submission made on behalf of the Crown, in the absence of some such words at the end of the proviso as "except in so far as the sum so applied exceeds the nominal amount of the share capital repaid". I draw attention to the final word. (at p636)

7. I should refer to one other consideration. It was the amending Act of 1934 that first introduced a definition by which "dividend" was made to include "any distribution made by a company to its shareholders". In that definition appeared the qualifying words "out of its profits". The 1936 Act dropped those words and inserted instead the specific provision "but does not include a return of paid-up capital". It is not difficult to see why this was done. The draftsman of the 1934 Act cannot have intended to duplicate the restriction to profits which he was sufficiently making in s. 16AA (now s. 44). The only other purpose consistent with the words used was the purpose of excluding from assessable income a distribution, even of profits, if it would reduce the value of the company's capital assets below the level of its paid-up capital (i.e. in a case where a loss of capital has previously been incurred); but for that purpose the proper form of expression to use was one which excluded a return of paid-up capital, as may be appreciated readily enough from a consideration of a well-known passage in the judgment of Farwell J. in Bond v. Barrow Haematite Steel Co. (1902) 1 Ch 353, at p 365 . It seems to me that a reduction in the level of paid-up capital is all that the definition means by the expression "a return of paid-up capital". (at p636)

8. On the point I have so far discussed I think that the Commissioner correctly interpreted the Act. I turn to the second question, where the distribution in the present case, so far as it was in excess of the paid-up capital returned, was paid by the company out of profits. If, by a decision binding within the structure of the company, a fund of profits had been made the source for payment of the excess of the amount distributed in the reduction of capital over the amount of the reduction, it could hardly have been doubted, I should have thought, that within the meaning of s. 44 (1) (a) the excess was a distribution paid by the company out of profits derived by it. There was in fact no such decision; but the Supreme Court's approval of the reduction necessarily implies that the assets of the company remaining after the reduction were sufficient to provide for the paid-up capital that was not paid off; and the figures before the Court in the present appeal point convincingly in the same direction. Indeed it seems obvious that the moneys distributed on the reduction of capital, so far as they exceeded the amount paid up on the cancelled shares, consisted of profits which the company had derived. Whether capital profits or trading profits it is not material to inquire. The fact that the excess was not distributed separately from the share capital returned does not seem to me a ground for saying that there was not a distribution of the excess out of profits within the meaning of s. 44 (1): cf. Stevenson's Case (1937) 59 CLR, at pp 100, 101 . The ground on which the respondent contends that the excess is not included by s. 44 (1) (a) in his assessable income is that the reasoning of the judgment of Fullagar J., in Federal Commissioner of Taxation v. Blakely (1951) 82 CLR 388 necessitates that conclusion. I shall turn at once to that case. (at p637)

9. What had happened there was that the shareholders of a company, without putting the company into liquidation, had paid off its external liabilities and appropriated its remaining assets to themselves. The Commissioner (I am simplifying the facts) had treated the appropriation as having resulted in the return to the shareholders of their paid-up capital and the payment to them of a dividend out of profits derived by the company. All three members of the Court who sat in the case held that an assessment on that basis was wrong, but they were not at one as to the reason. Latham C.J. considered that on the facts of the case the distribution had not been made by the company, as distinguished from the shareholders, so that his ratio decidendi was one which has no application here. Fullagar J., with the concurrence of Dixon J., considered that the whole receipt by each shareholder was of a capital nature, that there was nothing in the Act to give any part of it the character of income, and (contrary to the opinion of Latham C.J.) that was enough to require its non-inclusion under s. 44 (1) in the shareholder's assessable income. If the case should stand as an authority to this effect, no doubt the present case must be decided against the Commissioner; for in this case, as in that, what the shareholders received was not an amount of detached profits of the company, distributed as the fruit of the shares, but was simply property extracted from the assets of the company without regard to the distinction between what would be capital and what income in the hands of the shareholders. But that that is the criterion of assessability under the Act as it stands was a proposition which Latham C.J. categorically denied. He considered the relevant question to be whether what the share-holder has received has come from the profits of the company: (1951) 82 CLR, at p 397 and I feel obliged to say, with great respect, that when the terms of the legislation are examined that appears to me quite clearly to be so. (at p638)

10. The crux of the judgment of Fullagar J. is in the penultimate paragraph. Referring to s. 44 (1), his Honour said first that he was not prepared to deny that there was a "distribution" in that case, and then he proceeded: "But the point in this case is, as it was in Stevenson's Case (1937) 59 CLR 80 , as to the nature of the receipt" (1951) 82 CLR, at p 407 ; and he went on to hold, by reference to the principle applied in Stevenson's Case (1937) 59 CLR 80 and in Thornett's Case (1938) 59 CLR 787 , that what had been received by the shareholder was capital, and that there was nothing in the Act to give it the character of income. What his Honour thus described as the point in the case was indeed the point in Stevenson's Case (1937) 59 CLR 80 and Thornett's Case (1938) 59 CLR 787 but amending legislation had made it no longer the point. Those cases had decided that in the Income Tax Acts there in question the word "dividend", used as it was without a specially extensive definition, should be taken to refer only to distributions which from the shareholder's point of view were of an income nature. But even before the cases were decided the amending Commonwealth Act of 1934 had introduced a definition which made it impossible for the future to confine the meaning of "dividend" to distributions of that nature. "Dividend" was made to mean inter alia" any distribution made by a company to its shareholders . . . out of its profits". (at p638)

11. It is important to note that the judgment of Fullagar J. did not find in the word "distributions" a prima facie reference to receipts of an income character only. Nor indeed would it have been possible to limit the word in that way ; for what the 1934 amending Act had done was to take the word from s. 16B of the Principal Act of 1922-1933, where it necessarily had no income significance, and use it for the newly-provided definition of "dividend". The amending Act had repealed s. 16B, and replaced it with a new s. 16AA in terms similar to those of the present s. 44 (1), a new s. 16AB which need not be discussed, and a new s. 16B in terms similar to those of the present s. 47. It is important to see what this means. The need to enact the original s. 16B (in 1928) had been made clear by Burrell's Case (1924) 2 KB 52 , which had shown that a distribution to shareholders by a liquidator in a winding-up is, in the hands of the shareholders, necessarily of a capital nature, whether the moneys or other assets distributed represented, from the company's point of view, capital or income. What s. 16B did was to include in a shareholder's assessable income any amount received by him in such a distribution to the extent to which it represented income of the company (with an exception). Capital though it was in the hands of the shareholder, its inclusion in his assessable income was made a consequence of the income character (from the company's point of view) of the source from which it was taken by the liquidator. The 1934 Act carried a similar notion into the field of distributions made by a company while still a going concern. This it did by enacting simultaneously the definition of "dividend" and the new s. 16AA. The section brought into a shareholder's assessable income "dividends" to the extent to which they were paid out of the profits of the company, while the definition, as I have said, removed from the word "dividend" the prima facie restriction to income which is normally inherent in it, and gave the word a comprehensive meaning to include "any distribution" by a company out of its profits. The expression "out of its profits" was omitted in the 1936 consolidation, as I have already said, but its presence or absence is immaterial to the point which it is important here to notice. The point is that the enactment of s. 16AA together with the definition had the effect of making shareholders in a company which is a going concern assessable to tax on a principle fundamentally different from that of previous legislation. The criterion for the inclusion of a share-holder's receipts from the company is no longer the "dividend" character of the receipts, that is to say their income character when considered from the shareholder's point of view ; it is the profit character - from the company's point of view - of the source from which distributions should be made. (at p639)

12. Counsel for the Commissioner put this to the Court in Blakely's Case (1951) 82 CLR 388 , and his submission was upheld by Latham C.J. (1951) 82 CLR, at p 397 . Fullagar J. dismissed it as representing a conclusion rather than a premiss. In truth the amendments, as I have endeavoured to show, were directed to changing the major premiss which the Act propounded. His Honour proceeded on the footing that no such change had been made, and that accordingly the nature of the receipt by the shareholder was still the determining consideration. It was only because that was his starting point that it was material for him to give reasons for holding that what the shareholders received was capital in their hands. His Honour's opening comment that there had not been a distribution of profits, or a distribution out of profits, can only have meant, in view of the agreed facts of the case, what he proceeded to explain: "There was no detachment or severance from the funds of the company of money or other assets as representing a profit made by the company. There was simply a realization of a share investment" (1951) 82 CLR, at p, 407 . His Honour quoted from Stevenson's Case (1937) 59 CLR 80 : "The shareholders . . . receive nothing but the ultimate capital value of the intangible property constituted by the shares . . . The shareholder simply receives his proper proportion of a total net fund without distinction in respect of the source of its components and he receives it in replacement for his share" (1937) 59 CLR, at p 99 . These words were completely accurate in Blakely's Case (1951) 82 CLR 388 , and a repetition of them in the present case would likewise be completely accurate. But their relevance is to a case where the point to be decided is in truth "as to the nature of the receipt". With great respect, it seems to me that under legislation which turns away from the nature of the receipt and looks only at the nature of the source from which the company has made the distribution, the point to be decided is of a different order. (at p640)

13. For the reasons I have given I would allow the appeal and restore the disputed assessment. (at p640)

TAYLOR J. In my opinion the question which arises in this appeal with respect to s. 44 (1) of the Income Tax and Social Services Contribution Assessment Act 1936-1962 and the definition of "dividend" in s. 6 of that Act is indistinguishable from the question which arose with respect to those provisions in Federal Commissioner of Taxation v. Blakely (1951) 82 CLR 388 and I agree with Owen J. that the appeal is concluded by the views expressed in the leading judgment of Fullagar J. in that case. The ground upon which the appellant sought to distinguish that case is without substance and, in my view, no reason of sufficient consequence was advanced why we should reconsider it. It was the subject of decision some fourteen years ago, since then the Act has been amended on numerous occasions but without any attempt to amend it in any particular relevant to the present problem and, presumably, assessments in the meantime have issued on the assumption that the judgment of Fullagar J. was correct. Further, as recently as 1959 it seems to have been accepted as a correct statement of the law (Parke Davis &Co. v. Commissioner of Taxation (1959) 101 CLR 521, at p 530 ). (at p641)

2. In the circumstances of the case, however, I propose to state briefly why I think that decision should be accepted as decisive of this appeal. In doing so I pass over the initial difficulty which arises upon consideration of the concluding words of the definition of "dividend" in s. 6 of the Act and assume that of the amount of 32,288 pounds received by the respondent upon the cancellation of his 2,244 shares in Best &Gee Pty. Limited, the sum of 2,244 pounds only represented a return of paid-up capital within the meaning of the definition and that the balance, 30,044 pounds, constituted a dividend as defined. Whether these assumptions are justified I do not decide but there is, I think, much to be said for the proposition that they are not. (at p641)

3. On the assumptions which I have made there remains a difficulty in the way of the appellant which I regard as insuperable. This difficulty springs initially from the provisions of s. 44 (1) of the Act which provides that the assessable income of a shareholder, in the case of a resident, includes dividends paid to him by the company out of profits derived by it from any source. In short, to constitute assessable income the amount received by the share-holder must be not only a dividend within the meaning assigned to that term by the Act ; it must be a dividend paid out of profits derived by the company. (at p641)

4. In the case of a dividend paid as such by a company in the ordinary course of the management of its affairs this latter requirement does not create any problem for such dividends may be paid only out of profits. But in the case of other authorized distributions of the property of a company there is no such limitation and merely to characterize such distributions as dividends for the purposes of income tax legislation does not operate to enable it to be said that in making the distribution the company was subject to any such limitation or, otherwise, to say that the distribution must have been paid out of profits derived by the company. (at p641)

5. Burrell's Case (1924) 2 KB 52 , which has been followed consistently in this Court and which was referred to by Fullagar J. in Blakely's Case (1951) 82 CLR 388 , established quite clearly that a distribution by a liquidator in the course of a winding-up does not constitute, either in whole or in part, a distribution of the company's profits (see also In re Armitage (1893) 3 Ch 337, at p 346 ) referred to in Clowes v. Federal Commissioner of Taxation (1954) 91 CLR 209, at pp 227, 229 and it is interesting to see how this situation is dealt with by s. 47 of the Act. Speaking for the Court in Parke Davis and Co. v. Commissioner of Taxation (1959) 101 CLR 521 Dixon C.J. said of this section: "Its purpose is obvious enough. The section was first enacted in an earlier form to meet the situation, made clear enough by Inland Revenue Commissioners v. Burrell (1924) 2 KB 52 which decided in effect that a distribution of a mass of assets, although in a colloquial sense they represented or contained profits, was a distribution of capital" (1959) 101 CLR, at p 530 . Section 47 does two relevant things. First of all, in effect, it deems distributions to shareholders by the liquidator of a company in the course of winding up, "to the extent to which they represent income derived by the company", to be dividends paid to the shareholders and then it deems such dividends to have been paid to the shareholders by the company out of profits derived by it. Such deemed dividends then form part of each shareholder's assessable income pursuant to s. 44 (1) as dividends paid by the company out of profits derived by it. (See Glenville Pastoral Co. Pty. Ltd. (In Liquidation) v. Commissioner of Taxation (1963) 109 CLR 199, at pp 206, 207 ). (at p642)

6. With respect to distributions of the character under consideration in this case neither the definition of "dividend" nor any other provision of the Act carries the matter as far as this. So far as is relevant to this case the Act does no more than characterize as a dividend any distribution made by a company to its shareholders other than a return of paid-up capital. The Act does not go further, as does s. 47 in the case of distributions by a liquidator, and deem any such dividend as defined to have been paid out of profits derived by the company. On the assumptions which I have made it is true that the respondent received from the company by way of dividend as defined the sum of 30,044 pounds but, in my view, it is impossible to say that this amount was paid out of profits derived by the company. It was, to adopt the language of Dixon C.J. in Parke Davis &Co. v. Commissioner of Taxation (1959) 101 CLR 521 , received in partial distribution of a mass of assets which, although in a colloquial sense they contained profits, was a distribution of capital. The point which Blakely's Case (1951) 82 CLR 388 made was that, although, in the case of distribution by a liquidator, s. 47 carried the matter as far as deeming such distributions to a limited extent to be dividends paid out of profits derived by the company, in the case of distributions of the character now under consideration, no provision of the Act takes this final and essential step. (at p642)

MENZIES J. When in the course of a confirmed reduction of capital a taxpayer receives from a company in which he is a share-holder money or assets in specie for the payment off of capital paid up upon his shares, no part of what he so receives is a dividend for the purposes of the Income Tax and Social Services Contribution Assessment Act. Such a distribution is not a dividend or other distribution of income according to the principles of company law and I regard the express exclusion of "a return of paid-up capital" from the definition of "dividend" in s. 6 of the Act as an adoption of the company law principle for the purpose of income tax. (at p643)

2. It is true that there is not to be found in the Companies Act of Victoria - with which we are here concerned - or the Companies Acts of the other States the phrase "a return of paid-up capital" but in each Act there is provision for a company to reduce its paid-up share capital by paying off paid-up share capital, and I regard any paid-up capital which is so paid off as returned by the company to the shareholder. This is how it is usually described: cf. Halsbury's Laws of England, 3rd ed., vol. 6, p. 159 ; Buckley on The Companies Acts, 13th ed. (1957) pp. 159, 160 and Index thereto p. 123. Indeed, it is common enough to refer to all that a shareholder receives in a reduction of capital as "returned capital" even in a case where what is received exceeds the nominal amount whereby his shares are reduced: Ex parte Westburn Sugar Refineries Ltd. (1951) AC 625, at pp 633, 635, 636 . See too Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) (1948) 77 CLR 143 . In each of these cases the company involved, in the course of a reduction of capital, transferred to shareholders assets the value of which substantially exceeded the amount by which the share capital of the company was being reduced and what was being done was properly regarded as a return of share capital. Thus, for instance, in the first-named case Lord Radcliffe said: "The point that has caused . . . difficulty relates to the value of the assets with which the company proposes to satisfy its obligation to return to its shareholders a portion of the paid-up share capital" (1951) AC, at p 633 . Later he said: "I am not indifferent to the possibility of danger which attends a scheme to return share capital in the form of assets which are of a value substantially greater than the amount of share capital" (1951) AC, at pp 636, 637 . Of course, in neither of these cases did the question with which we are here concerned arise, but it is important for present purposes that in each of them all that was paid to shareholders was regarded as a return of paid-up share capital. A return of paid-up capital or a payment off of share capital - whichever form of words be used - is, of course, a distribution by a company to its shareholders but, whether or not what is distributed exceeds the nominal amount by which the capital is reduced, there is always but a single distribution and all that is distributed has the one character, viz. a return of paid-up capital or a payment off of share capital. When the capital of a company is divided into shares, the nominal value of a member's shareholding measures, but does not state, his interest in the capital of the company so that, upon a return of capital, that member is entitled to receive his proportionate share of the capital being reduced and not merely a sum equivalent to the nominal value of the reduction being effected. (at p644)

3. It is in the light of the foregoing principles that I read the exempting words at the end of the definition of "dividend" in the Act as removing a distribution which is a return of capital from the scope of the definition. It neither calls for, nor warrants, the splitting up of a single distribution which exceeds the amount of the nominal reduction into two elements, one having the character of a return of capital and the other some different and unidentified character. (at p644)

4. The concern of the Commissioner to treat "a return of paid-up capital" as meaning nothing beyond the amount by which the nominal capital is reduced stems, not unnaturally, from the advantage that has been taken of the now well-established principle of company law that, in the course of a reduction of capital, more can be paid in to shareholders than a nominal amount whereby the capital paid up upon their shares is reduced: see Ex parte Westburn Sugar Refineries Ltd. (1951) AC 625 and In re Preston Motors Pty. Ltd. (1957) VR 111 . In this case a company incorporated in Victoria, Best &Gee Pty. Limited, returned to tis shareholders 499,663 pounds 10s. 0d. in the course of a reduction of capital whereby paid-up capital was reduced as follows:-

17,026 preference shares of 1 pound each reduced to 8,513 preference shares of 1 pound each ; 31,000 ordinary shares of 1 pound each reduced to 15,500 ordinary shares of 1 pound each ; and 30,000 deferred shares of 1s. each reduced to 15,000 deferred shares of 1s. each.

The Commissioner has attempted an apportionment as if, of the 499,663 pounds 10s. 0d., only the amount of the reduction in the nominal value of the shares - viz. 24,763 pounds - were a return of paid-up capital and the balance were something else. That "something else", so it was argued, is a dividend for tax purposes. In accordance with the principles of company law, however, all that the share-holders received from the company was a return of paid-up capital, and the meaning which I attach to the words "a return of paid-up capital" in the definition of "dividend" produces the same consequence for the purposes of tax so that the attempted apportionment is without warrant of law. To deal with the same sort of problem as here confronts us when there is the liquidation of a company rather than a reduction of its capital, a special provision was found to be necessary, viz. s. 47. It seems to me that if there is to be any apportionment of what is, according to company law, a return of capital into a return of capital and dividend for taxation purposes, some like provision would be necessary. Cf. Income Tax Act (South Africa) which taxes as dividends all amounts distributed by a company to its shareholders and defines a distribution to include "on a reduction in capital, any cash or the value of any property given to a shareholder in excess of the cash equivalent of the nominal value by which the shares are reduced, except to the extent that the cash or value given represents a reduction of the share premium account". (at p645)

5. Furthermore, I consider that the judgment of Fullagar J., with which Dixon J. agreed, in Federal Commissioner of Taxation v. Blakely (1951) 82 CLR 388 requires the conclusion that the distribution here made was not a distribution of profits or a distribution out of profits. In this case, as was held in that, what was received by the share-holders was capital. (at p645)

6. In my opinion, the appeal should be dismissed. (at p645)

Orders

Appeal dismissed with costs.