Gregrhon Investments Pty Limited v Commissioner of Taxation; Clough v Commissioner of Taxation; Clough v Commissioner of Taxation

The applicants, Gregrhon Investments Pty Limited and Mr. Clough, sought special leave to appeal to the High Court of Australia from a decision of the Full Court of the Federal Court. The Federal Court had upheld appeals by the Commissioner of Taxation, overturning a decision of Mr. Justice Lee of the Supreme Court of New South Wales. Mr. Justice Lee had previously allowed the taxpayers' appeals against the disallowance of their objections to income tax assessments for the year ended 30 June 1980.

The central legal issue before the High Court was whether the taxpayers were parties to an arrangement of the relevant kind within the meaning of section 260 of the *Income Tax Assessment Act*. This section deals with the anti-avoidance provisions of the Act. The appeals involved transactions that were broadly similar to those considered in a previous High Court decision, *Slutzkin v Federal Commissioner of Taxation*, although there were some factual differences.

The court was required to consider the specific factual circumstances of the transactions, including the sale of shares in Detail Furniture Company Pty Ltd. The taxpayers caused Detail Furniture Company Pty Ltd to sell its business to a newly formed company for a price equal to the net tangible assets. The contract for the sale of shares included a promise by the vendors to cause Detail Furniture Company Pty Ltd to transfer its net tangible assets to the purchaser's nominee. A warranty was also included that the purchaser would not cause Detail Furniture Company Pty Ltd to provide financial assistance for the purchase of the vendors' shares, a warranty that was not performed by the purchaser. The purchaser subsequently caused Detail Furniture Company Pty Ltd to be left with no assets to meet its tax liabilities, a fact of which the vendors were unaware at the time. The court noted that the target company in this case had substantial current year profits, unlike the situation in *Slutzkin*.