Gibb v Federal Commissioner of Taxation

[1966] HCA 74

HIGH COURT OF AUSTRALIA

Barwick C.J., McTiernan, Taylor, Windeyer and Owen JJ.

GIBB v. FEDERAL COMMISSIONER OF TAXATION

(1966) 118 CLR 628

29 November 1966

Income Tax (Cth)

Income Tax (Cth)—Income—Bonus shares—Shares issued on capitalization of profits arising from revaluation of assets—Distribution of proceeds of sale by liquidator of company shareholder—Income Tax and Social Services Contribution Assessment Act 1936-1961 (Cth), ss. 6 "dividend"*, 44*, 47 (1)*.

Decisions

November 29.
The following written judgments were delivered:-
BARWICK C.J., McTIERNAN AND TAYLOR JJ. The question to be resolved in this case is whether an amount of 41,000 pounds, which was received by the appellant on 17th May 1962 from the liquidator of Gibbsons Investments Limited (Gibbsons) in the course of the winding up of that company was, within the meaning of the Income Tax and Social Services Contribution Assessment Act 1936-1961 (Cth), assessable income of the appellant. As appears from the case stated this distribution was made out of a fund constituted by the proceeds of the sale of shares in another company - Gibb &Miller Limited - which had been allotted to Gibbsons in 1956 following a resolution of the shareholders of Gibb &Miller Limited that an amount representing profit disclosed by revaluation of the company's freehold property be capitalized and distributed amongst its shareholders in the same proportions as they would be entitled to receive the same if distributed by way of dividend on the footing that they become entitled thereto as capital and that all such capitalized fund be applied in paying up in full at par 90,000 unissued ordinary shares of the company which will be issued and distributed accordingly and that such issue distribution and payment shall be accepted by such members in full satisfaction of their interest in such capitalized fund. (at p631)

2. The respondent's assessment for the relevant year, which included the amount of 41,000 pounds, was supported by reference to s. 47 of the Act, it being asserted that it was a payment made in the course of a distribution of the character referred to in the section and that the payment was made out of a fund consisting of income derived by Gibbsons and was, therefore, deemed to be a dividend paid out of profits derived by that company. It was not contended that the shares had been acquired by Gibbsons for the purpose of resale at a profit or in the course of carrying on or carrying out any profitmaking undertaking or scheme. The only question is whether the fund out of which the distribution was made can be said to have been income derived by Gibbsons. (at p631)

3. Two propositions were advanced on behalf of the respondent both of which were denied by the appellant. It was said, first of all, that the bonus shares received by Gibbsons represented income of that company in the ordinary or commercial sense of that term and, secondly, that even if they did not, the effect of the Act was to attribute the character of income to the allotment of the shares made pursuant to the resolution. (at p632)

4. Each of these propositions was the subject of discussion in the reasons of the members of the Court who decided Federal Commissioner of Taxation v. W. E. Fuller Pty. Ltd. (1959) 101 CLR 403 and it is as well to commence our consideration of the present problem with an examination of what that case decided. The actual question in that case was whether the face value of bonus shares acquired in circumstances similar to those of the present case represented "net exempt income" of the taxpayer for the purposes of s. 80 of the Act and, by majority, the Court held that it did. Dixon C.J. dissented holding that the shares received by the taxpayer did not constitute income in any sense, that is to say, that they did not constitute income in the ordinary and commercial sense of that term and that the allotment of the shares was not given that character by any of the provisions of the Act. Fullagar J., on the other hand, disagreed on both points. Menzies J. agreed with the Chief Justice on the first point but disagreed on the second and, in the result, the appeal of the taxpayer was dismissed. There is therefore, at least implicit in the respective arguments advanced in this case by both counsel an invitation to reconsider the decision in Fuller's Case (1959) 101 CLR 403 . (at p632)

5. In the reasons of Dixon C.J. cases relevant to the first point were discussed and he regarded it as settled law that an issue of shares made in such circumstances could not according to ordinary principles be regarded as the receipt of income by the shareholder. With this view Menzies J. agreed. We entertain the same view and having regard to what was said in that case and in earlier cases - particularly Dickson v. Federal Commissioner of Taxation (1940) 62 CLR 687, at pp 713-71 - we think it unnecessary to do more than to express our concurrence with that view. If, therefore, this were the only point in the case the appeal should be allowed. (at p632)

6. The respondent, however, points to certain provisions of the Act and asserts that their effect is to give to the issue of shares made to Gibbsons the character of income - though exempt income - for the purposes of the Act and relies upon the fact that a majority of the Court in Fuller's Case (1959) 101 CLR 403 so decided. The reasons of Fullagar J. for the conclusion which he reached are shortly stated. He was, of course, primarily concerned with the question whether the bonus shares were, for the purposes of s. 80, "exempt income" and he pointed out that that expression "means income which is exempt from income tax and includes income which is not assessable income". Then he said:

"To read this definition as not comprising anything which is not income in the ordinary and commercial sense is, in my opinion, to stick too much to the letter and to miss the substantive intention."

And after quoting part of the passage in Dickson's Case (1940) 62 CLR, at pp 713-715 , to which we have already given a reference, he proceeded (1959) 101 CLR, at p 421 :

"On the taxpayer's reading of that definition the second part of it would add nothing and would be altogether otiose. Obviously income which is exempt from income tax is not assessable income. I think it reasonably clear that the second part of the definition was added in order to bring within its scope, in addition to receipts which the Act in terms 'exempts' from income tax, receipts which the Act treats as income but excludes from assessable income. Section 44 (1), read with the definitions in s. 6 of 'dividend', of 'income from personal exertion', and of 'income from property', clearly treats the amount represented by the face value of bonus shares as income - income for all the purposes of the Act, including the definition of 'exempt income' in s. 6. Being income, it is prima facie assessable income (s. 25 (1) (a)). But then s. 44 (2) takes out of the category of assessable income the amount represented by the face value of specified classes of bonus shares. Section 44 (1) makes them income, but s. 44 (2) makes them non-assessable income. These two facts make them, in my opinion, for the purposes of the Act, 'income which is not assessable income', and therefore, by virtue of the definition, 'exempt income' for the purposes of s. 80." (at p633)

7. With great respect to the learned judge we do not think that the appellant's argument in that case treated the word income in the definition of "exempt income" as confined to income in the ordinary and commercial sense for it is obvious, so far as the first part of the definition is concerned, that the Act operates to exempt from income tax certain "assessable income" whether the receipts which constitute the assessable income are or are not income according to ordinary concepts. We refer, for example, to the provisions of s. 26, the effect of which is to include specific classes of receipts in the assessable income of a taxpayer "some of which" (as Fullagar J. points out (1959) 101 CLR, at p 416 ) "would, and some of which would not, be comprehended within the ordinary meaning of the word 'income'" and, then, to the many exemptions contained in s. 23. Nor do we think that on the taxpayer's reading of the definition of exempt income "the second part of it would add nothing and would be altogether otiose". It is sufficient to point out that the assessable income of a non-resident taxpayer is limited to his "gross income derived directly or indirectly from all sources in Australia". His ex-Australian income is not assessable income for the purposes of the Act though s. 23 (r) goes on to exempt from income tax income derived by such a taxpayer from sources wholly out of Australia. However, the dividend income of a non-resident taxpayer paid out of profits derived partly in Australia and partly outside Australia is not the subject of an express exemption, but it is clear that his assessable income for the purposes of the Act includes only those dividends to the extent to which they are paid out of profits derived by the company from sources in Australia (s. 44 (1) (b)). The remainder of his dividend income is, therefore, income which is not "assessable income" but it is "exempt income" pursuant to the second part of the definition of that term for the purposes of the Act including s. 80. The remainder of his Honour's observations treats s. 44 (1) "read with the definitions of 'dividend' and of 'income from personal exertion' and of 'income from property'" as investing with the character of assessable income, all dividend receipts and then regards s. 44 (2) as removing them from the category of assessable income. (at p634)

8. We shall deal with the final step in his Honour's reasoning after referring briefly to the basis upon which Menzies J. reached his conclusion on this point. First of all, his Honour referred to the definition of dividend. The effect of this was, his Honour said, to include "bonus shares (which are by their nature capital) within the definition of dividends (which are by their nature income)". The result of this, prima facie, he said, "is to give everything that falls within the definition of dividends the character of dividends, that is, income". The next step in his reasoning was that the purpose of the several sections of the Act to which he referred was, "to make provision for the inclusion of dividends (which are prima facie income) in the category of assessable income by reference to their source". (at p634)

9. Thereafter, he proceeded (1959) 101 CLR, at p 425 :

"What s. 44 (2) does is to take out of the category of 'assessable income' dividends which are 'income' and which are 'assessable income' by virtue of sub-s. (1), but in doing so it does not deny to those dividends the character of income. It is clear, for instance, that what falls within sub-s. (2) (b) (i), (c) and (d) are dividends which are by their nature income, and I see no reason for treating the sub-section as negativing the character of income accorded by the definition to which I have already referred to bonus shares issued in the manner provided by sub-s. (2) (b) (iii)." (at p635)

10. In our view, and with respect to the learned judge, we cannot agree that the definition of "dividend" operates to invest the allotment of bonus shares in circumstances such as the present with the character of income for the purposes of the Act; it does no more than define the meaning to be assigned to the word "dividend" as used in the Act. Consequently, any distribution of the character mentioned in the definition is for the purposes of the Act a "dividend" whether it constitutes an income or a capital receipt to the shareholders. The line of reasoning employed to support the respondent's contention does not, of course, suggest that the effect of the definition is to convert every distribution of the nature described in the definition into dividends in the ordinary sense of that term. It asserts that, since dividends, in the ordinary and natural sense of that term, are income it follows that when the Act defines the term in a different and artificial sense - that is, to include distributions which are not dividends or income in the ordinary sense - it operates to invest dividends as so defined with the character of income. In our view, and with respect to those who think otherwise, this line of reasoning is fallacious. The function of a definition clause in a statute is merely to indicate that when particular words or expressions the subject of definition, are found in the substantive part of the statute under consideration, they are to be understood in the defined sense - or are to be taken to include certain things which, but for the definition, they would not include. Such clauses are, therefore, no more than an aid to the construction of the statute and do not operate in any other way. As was said by Sutherland (Statutes and Statutory Construction, 2nd ed., vol. 2, p. 687),

"Such definitions can, in the nature of things, have no effect except in the construction of the statutes themselves".

Consequently the effect of the Act and its operation in relation to dividends as defined by the Act must, we think, be found in the substantive provisions of the Act which deal with "dividends". We agree with Dixon C.J. when he said:

"the conception of 'dividend' does not affect the meaning or application of the word 'income'; at all events so it appears to me. The Act is not expressed to bring the defined conception of dividend within the word 'income'" (1959) 101 CLR, at p 409 . (at p635)

11. The substantive provisions of the Act dealing with what dividends shall be included in a taxpayer's assessable income of dividends is to be found in s. 44. Sub-section (1) of that section provides that the assessable income of a resident shareholder shall, subject to this section, include "dividends paid to him by the company out of profits derived by it from any source" and sub-s. (2) (b) (iii) provides that his assessable income shall not include dividends of the nature in question in this case. Can it properly be said that s. 44 (1) "clearly treats the amount represented by the face value of bonus shares as income" (1959) 101 CLR, at p 421 and that "s. 44 (2) takes out of the category of assessable income the amount represented by the face value of specified classes of bonus shares" (1959) 101 CLR, at p 421 or that the effect of s. 44 (2) "is to take out of the category of 'assessable income' dividends which are 'income' . . . by virtue of sub-s. (1)" (1959) 101 CLR, at p 425 . In our view it cannot. Of course, if the definition of "dividend" operated to attribute the character of income to an allotment of bonus shares no further inquiry would be necessary. The same result would follow if the definition of "income from personal exertion" and "income from property" had a like effect. But when the question is whether, in substance, s. 44 (1) produces the result contended for by the respondent it is important to observe that, in terms, sub-s. (1) does not purport to deal with all dividends as defined; it deals, subject to this section, with all such dividends and we find that sub-s. (2) declares that the assessable income shall not include dividends of the description here in question. Consequently it is, we think, erroneous to say that dividends of that character are, first of all, comprehended by sub-s. (1) and then excluded by sub-s. (2). On the contrary at no time do dividends of the kind referred to in sub-s. (2), by force of sub-s. (1), achieve the character of assessable income. It is, of course, clear that some classes of dividends which by force of sub-s. (2) are not assessable income would, apart from that sub-section, be income of the taxpayer. But this is because they would be income according to ordinary concepts, not because the provisions of sub-s. (1) make them assessable income. This, however, is not so in the case of dividends falling within sub-s. (2) (b) (iii). (at p636)

12. Further we are of opinion that even if s. 44 (1) operates initially to make "dividends" of the latter character "assessable income", and sub-s. (2) then operates to remove them from that category, the effect of the section is not to leave them with the character, merely, of "income". (at p636)

13. It seems to us that in reaching the contrary conclusion in Fuller's Case (1959) 101 CLR 403 Fullagar J. and Menzies J. did not travel by the same paths to their respective conclusions and, that being so, we feel that we should, particularly having regard to the dissent of Dixon C.J., express our own views on the question which now arises. (at p637)

14. One further matter may be mentioned which, it seems to us, operates to confirm the views which we have expressed. By force of s. 47 of the Act, distributions to shareholders of a company by a liquidator in the course of winding up the company, to the extent to which they represent income derived by the company other than income which has been properly applied to replace a loss of paid-up capital, are deemed to be "dividends" paid to the shareholders by the company out of profits derived by it. But although in the language of the Act they may to this extent be properly described as "dividends" they do not, by force of their character as such, further assume the character of assessable income, or, for that matter, of income. This, we think, is clear enough from the observations in Glenville Pastoral Co. Pty. Ltd. v. Commissioner of Taxation of the Commonwealth (1963) 109 CLR 199, at pp 205-207 and Commissioner of Taxation of the Commonwealth v. Uther (1965) 112 CLR 630, at pp 641, 642 . The "statutory fiction" (see Muller v. Dalgety &Co. Ltd. (1909) 9 CLR 693, at p 696 ) introduced by s. 47 merely provides a basis for the operation of s. 44 which is concerned exclusively with what dividends shall or shall not form part of a taxpayer's assessable income. It would, in our view, be anomalous to hold that distributions which constitute "dividends" because they are comprehended by the definition of that term thereby, necessarily, achieve the character of income whilst distributions of a character which are not comprehended by the definition but which are deemed by s. 47 to be "dividends", do not by force of that provision achieve that character. (at p637)

15. In the circumstances we would answer the questions raised by the case stated:

(1) No.

(2) No. (at p637)

WINDEYER J. The question in this case arises under the Income Tax and Social Services Contribution Assessment Act 1936-1961 (Cth). (at p637)

2. It comes to this: Did the moneys which Gibbsons Investments Limited (which I shall call Gibbsons) received when it sold the bonus shares in Gibb &Miller Limited represent income derived by it, Gibbsons, within the meaning of s. 47 (1) of the Act? If they did, then the aliquot part thereof which the appellant as a shareholder in Gibbsons received on the winding up of that company was taxable in his hands. That is because it would in that case be deemed to be a dividend paid to him as a shareholder out of profits derived by the company; and pursuant to s. 44 would be assessable income in his hands. (at p638)

3. It was said for the Commissioner, first, that the receipt of the bonus shares by Gibbsons had involved a receipt by it of income according to ordinary concepts of the distinction between receipts of capital and of income. The transaction by which the bonus shares were issued was analysed to support this contention. But I think that we should accept as now settled law that the receipt by Gibbsons of the bonus shares did not, nor did any incident of the transaction by which they were issued to it, amount to a receipt by it of income in the ordinary economic sense of that term. The moneys which Gibbsons received when it sold the shares were therefore the proceeds of the sale of a capital asset. Therefore these moneys were not "income derived by the company" in any ordinary sense of that phrase. The first answer which the Commissioner made to the appellant's case fails. (at p638)

4. Secondly, it was argued for the Commissioner that the word "income" in s. 47 was not restricted to income, in the ordinary sense of a receipt on income account as distinct from a distribution of capital or a capital gain. The section had, it was said, a wider application. The decision of this Court in Federal Commissioner of Taxation v. W. E. Fuller Pty. Ltd. (1959) 101 CLR 403 , was relied upon as supporting this view. The conclusion of the majority in that case (Fullagar J. and Menzies J., Dixon C.J. dissenting) undoubtedly does accord with the position which the Commissioner has taken in this case, although in that case the question arose in a different way. But the somewhat diverse reasoning by which their Honours who there formed the majority arrived at the same conclusion means, I think, that we should not simply take what was decided in that case as determining this case. (at p638)

5. The argument for the Commissioner that the word "income" in s. 47 (1) had a larger application than income in the ordinary economic sense was, as I gathered it, put in several ways. The first is that the word comprehends everything which would, under any provision of the Act, be brought to charge as part of what the Act calls "assessable income". This proposition was expressed as being that anything which the Act treats as income is income within the meaning of that word in s. 47. But that is misleading, because the Act, as I read it, does not treat as income, or describe as income, anything which is not income according to ordinary concepts of the distinction between capital and income. What it does is to provide how a tax described as a "tax upon incomes" shall be assessed and collected. The tax is imposed by reference to income receipts in the strict sense and also by reference to certain capital receipts and other benefits which are not income in that sense. In Resch v. Federal Commissioner of Taxation (1942) 66 CLR 198, at p 225 , Dixon J. said that

"the distinction between profits of a capital nature and profits in the nature of income in the strict sense is not one which the Act maintains. Nor is it a discrimination which the legislature is bound to regard".

That, however, is far from saying that capital profits and other gains which are brought to charge along with income profits are thereby comprehended by the word "income" wherever it is used in the Act. That is not the method by which the Act brings within the tax net receipts which are not income. Its method is to impose the tax in respect of all receipts of an income nature, except such as it expressly exempts from charge, and also in respect of certain receipts not of an income nature which it expressly brings to charge. This it does by stating that receipts of money or other benefits in respect of which tax is levied are all included in a taxpayer's "assessable income". That term "assessable income" is not defined by reference to the word "income". It means "all the amounts which under the provisions of this Act are included in the assessable income". (at p639)

6. Even if one assumes, as the argument for the Commissioner does - erroneously I think - that the word "income" in s. 47 is to be given a meaning which would comprehend anything which under any provision of the Act is brought to charge as part of the assessable income, I am unable to agree that something which is both not income in the strict sense, and not by the Act made part of the assessable income of a company, can be "income derived by the company" within the meaning of s. 47. And that is the position here. Section 44 (2) (b) (iii) states expressly that the assessable income of a taxpayer shall not include dividends paid wholly and exclusively out of profits arising from a revaluation of assets not acquired for the purpose of resale at a profit, if the dividends paid from such profits are satisfied by the issue of shares, as occurred here. It is conceded by the Commissioner that the assets of Gibb &Miller Ltd. which were revalued when the bonus shares were issued had not been acquired for the purpose of resale at a profit. The result is that, by virtue of s. 44 (2) (b) (iii), no assessable income was derived by Gibbsons from the transaction in relation to the bonus shares. The provisions of s. 44 (1) are expressly made subject to s. 44 (2). Therefore, as the acquisition of the bonus shares did not mean that Gibbsons got any income in the ordinary sense, or that its assessable income was increased, I am unable to accept the view that when the proceeds of their sale were distributed the distributions could in any sense "represent income derived by the company". They were I consider capital in its, Gibbsons', hands and the proceeds of their sale were capital too. (at p640)

7. There was, however, a further argument advanced for the Commissioner which was supported by reference to some passages in the judgments in the case of W. E. Fuller Pty. Ltd. (1959) 101 CLR 403 . This, as I followed it, was based on the definition of "dividend". Section 6 states that where that word appears in the Act it

"includes . . . the paid-up value of shares distributed by a company to its shareholders to the extent to which the paid-up value represents a capitalization of profits".

The assumption apparently is that the word "profits" here can include an increase in value. Whether that be so or not, the effect of s. 44 (2) (b) (iii) is to make some dividends not taxable by excluding them from assessable income. Nevertheless, the argument, which fastened upon a sentence which Menzies J. used in the course of his judgment in the case abovementioned, ran, as I understood it, as follows. Dividends which a company pays to shareholders out of its profits have the character of income according to ordinary concepts. Therefore anything which for the purposes of the Act is included within the term "dividend" is, for all purposes of the Act, given the character of income: therefore wherever the word "income" appears in the Act it comprehends everything which the word "dividend" would comprehend. (at p640)

8. But, with respect to those who have found this reasoning acceptable, it is I think fallacious. When a word is said in an interpretation section or clause to "include" certain objects some of them may be objects which according to its ordinary connotation would not be within its denotation. But thus giving a term an enlarged denotation, as "a device to avoid repetition", does not thereby result in all objects brought within the enlarged denotation gaining all the characteristics which the term in its ordinary usage connotes. I am therefore unable to accept the view that, because the word "dividend" is made to comprehend bonus shares, and because dividends are ordinarily income, the proceeds of the sale by Gibbsons of its bonus shares are made income for the purposes of s. 47. And I do not think that the definition of "income from personal exertion" carries the matter any further. (at p641)

9. For the reasons I have given I think that we must prefer the dissenting decision of Dixon C.J. in the case of W. E. Fuller Pty. Ltd. (1959) 101 CLR 403 , to the conclusion of the majority in that case. (at p641)

10. I would answer the questions:

(1) No.

(2) No. (at p641)

OWEN J. The amount of 41,000 pounds treated by the Commissioner as part of the appellant's assessable income was a distribution made to him by a liquidator in the course of winding up Gibbsons Investments Limited, a company in which the appellant was a shareholder. To the extent to which the amount so distributed represented "income derived" by Gibbsons Investments Limited, s. 47 (1) deems the amount received by the appellant to have been a dividend paid to him by that company out of profits derived by it. The appellant's contention is, however, that the payment to him by the liquidator did not represent "income derived" by Gibbsons Investments Limited and that s. 47 (1) has therefore no application to the case. (at p641)

2. The question is then whether the transaction by which Gibb &Miller Limited allocated so much of the profit fund arising from the revaluation of its assets as represented the share of Gibbsons Investments Limited in that fund to pay up the face value of the bonus shares and issued those shares to Gibbsons Investments Limited resulted in that company deriving "income" within the meaning of s. 47 (1). (at p641)

3. I agree that, if the word "income" in the sub-section is used only in its ordinary commercial sense, the receipt by a shareholder of bonus shares would not be a receipt or derivation of income nor, I think, would the notional or actual crediting to a shareholder in a company in circumstances such as here existed of an amount appropriated by the company to pay up shares issued to him as fully paid be a receipt or derivation of income by the shareholder. In this I agree, with respect, with what Dixon C.J. said in Fuller's Case (1959) 101 CLR 403, at p 408 . But it is, in my opinion, necessary to go further and ask whether "income" in s. 47 (1) does not include everything which, for the purposes of the Act, is given the character of income, whether or not the actual word "income" is used in the Act to describe it. If the word is given this extended meaning, then I am of opinion that the transaction as a result of which Gibbsons Investments Limited received the bonus shares resulted in the derivation by it of an amount of "income" equivalent to the paid-up value of the shares. (at p642)

4. The conclusion to which I have ultimately come is that when s. 47 (1) speaks of "income derived by the company", that is to say by the company which is in course of liquidation, the phrase covers not merely those receipts which would be regarded as income in the ordinary sense of the word but also all those transactions and things which, for the purposes of the Act, are treated as the derivation of income and that if Gibbsons Investments Limited derived a benefit which the Act treats as income, whether it was or was not part of that company's assessable income, then the distribution made by its liquidator to the extent to which it represented that benefit falls, in my opinion, within s. 47 (1). The paid-up value of the bonus shares issued to Gibbsons Investments Limited was a "dividend" within the definition of that word in s. 6 which includes

"the paid-up value of shares distributed by a company to its shareholders to the extent to which the paid-up value represents a capitalization of profits".

And the effect of the definitions of "income from personal exertion" and "income from property" is, in my opinion, to bring dividends into the category of "income from property". This was the conclusion reached by Menzies J. in Fuller's Case (1959) 101 CLR 403 and, with respect, I agree with it. Section 44 (1) appears to me to proceed upon this footing and provides that, subject to the section, the assessable income of a shareholder in a company shall - if he is a resident - include dividends paid to him by the company out of profits derived by it from any source. It is true that s. 44 (2) (b) (iii) provides that the assessable income of a shareholder shall not include dividends paid wholly or exclusively out of profits arising from the revaluation of assets not acquired for the purpose of resale at a profit if the dividends paid from such profits are satisfied by the issue of shares in the company declaring the dividend. Its effect is to take such a dividend out of or perhaps to prevent it falling into the category of assessable income with the result, in the present case, that the paid-up value of the shares issued by Gibb &Miller Limited to Gibbsons Investments Limited, being a "dividend paid wholly or exclusively out of profits arising from the revaluation of assets not acquired for the purpose of resale at a profit", formed no part of the latter company's assessable income. But although this dividend did not form part of the company's assessable income, the Act, in my opinion, regards it as income. This accords, I think, with the view stated by Fullagar J. in Fuller's Case (1959) 101 CLR, at p 421 . His Honour had earlier expressed the opinion that the application by a company on behalf of a shareholder of an amount representing the latter's share of capitalized profits in payment of bonus shares issued to that shareholder in circumstances similar to those in the present case was a derivation of "income" by the latter in the ordinary or commercial sense of that word. He went on, however, to say that even if it were wrong to hold that the taxpayer in such a case had derived income in the generally accepted sense of that word

"s. 44 (1), read with the definitions in s. 6 of 'dividend' of 'income from personal exertion', and of 'income from property', clearly treats the amount represented by the face value of bonus shares as income - income for all the purposes of the Act . . .".

With respect, I agree, and I think the same view should be taken of the meaning of the word "income" in s. 47 (1). The judgment of Menzies J. in that case seems to me to have followed the same line of reasoning. The Act, his Honour said, expressly includes

"bonus shares (which are by their nature capital) within the definition of dividends (which are by their nature income). The result, prima facie, is to give everything that falls within the definition of dividends the character of dividends, that is, income" (1959) 101 CLR, at p 424 , and "It is my opinion, therefore, that the Act does give to the paid-up value of bonus shares, the character of income" (1959) 101 CLR, at p 425 . (at p643)

5. I would answer the questions as follows:

(1) Yes. (2) Yes. Questions in the case stated answered as follows: (1) No. (2) No. (at p643)

Orders

Costs of the case stated reserved for the decision of the Justice disposing of the appeal.