Henty House Pty Ltd (in voluntary liquidation) v Federal Commissioner of Taxation
[1953] HCA 54
•9 September 1953
^pl
Cons
Cons _
oass^ In
BPOU
Taxation, fPoaRefine.
Refmery
Federal
.
Commissioner
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FamLR41'?f e
Isl
■
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88 C.L.R.]
OF AUSTRALIA.
[HIGH COURT OF AUSTRALIA.]
HENTY HOUSE PROPRIETARY L IM IT E D \
A p p e l l a n t ;
(IN VOLUNTARY LIQUIDATION)
. /
AND
FEDERAL COMMISSIONER OF TAXATION .
R e s p o n d e n t .
Income Tax (fith.)—Assessable income— Disposal of assets on which depreciation H. C. OF A.
has been allowed for consideration greater than depreciated value—Compulsory
1953.
acquisition of such assets together with other assets—Consideration receivable
in respect of disposal—Compensation—Lump sum payment—No separate
Melbotjene ,
value allocated to assets—Compensation not agreed on for eighteen months^
June 5, 8, 9.
Year of income to which attributable—“ Disposed o f”—Income Tax Assessment
S y d n e y ,
Act 1936-1948 {No. 27 of 1936—iVo. 44 of 1948), s. 59 (1) (2) (3).
8ept. 9.
Section 59 of the Income Tax Assessment Act 1936-1948 provides, inter alia, Williams A.C.J.
.
Webb,
as follows “ (1) Where any property of a taxpayer, in respect of which ~ - Fullagar, ’
Kitto and depreciation has been allowed or is allowable under this or the previous Act,
Taylor JJ.
is disposed of, lost or destroyed at any time in the year of income, the depreciated value of the property at that time, less the amount of any con sideration receivable in respect of the disposal, loss or destruction, shall be an allowable deduction. (2) If that consideration exceeds that depreciated value, the excess, to the extent of the sum of the amounts allowed and allowable in assessments for income tax under this Act and any previous law of the Commonwealth in respect of depreciation, shall be included in his assessable income of that year. (3) The consideration receivable in respect of the disposal, loss or destruction means— . . (c) in the case where the property is sold with other assets and no separate value is allocated to the property—the amount determined by the Commissioner.”
Held (1) That the words “ disposed o f” in s. 59 (1) were wide enough to include a compulsory acquisition of property.
Smith V. Federal Commissioner of Taxation (1932) 48 C.L.R. 178, applied.
142 HIGH COURT
[1953.
H.C. of a. (2) That s. 59 (3) (c) was applicable to property which had been compulsorily
| 1953. | acquired together with other property and to which no separate value had been allocated. |
| H | enty |
| H ouse (3) That s. 59 (2) operated to increase the income of the year in which |
P t y . Lt d .
the disposal occurred.
( In Volu n
tary
L iq u id a tio n ) Ca se St a ted by
Fullagar
J.
V.
F edebal Henty House Proprietary Limited (hereinafter called the
Commis
appellant company) a company incorporated in the State of
sio n er
OF
Victoria on 12th June, 1923, owned land situated in Little Collins Street, Melbourne on which was erected a building. This land and building were known as Henty House.
T axa tio n .
By notice published in the Commonwealth Government Gazette on 16th October, 1947, the Commonwealth of Australia, pursuant to the provisions of the Lands Acquisition Act 1906-1936 acquhed Henty House together with all fittings and fixtures which included, inter alia, lifts, rubber floorings and gas heating installations. A claim for compensation was made pursuant to the provisions of s. 32 of the Lands Acquisition Act 1906-1936 and the Minister of State for the Interior offered the sum of £104,000, which offer was not accepted.
On 7th December, 1948, the appellant company commenced an action in the Supreme Court of Victoria against the Commonwealth of Australia claiming, as compensation in respect of the acquisition, the sum of £175,000. Negotiations, however, proceeded between the parties until 14th April 1949 when the appellant company accepted an offer of £167,500 in full satisfaction of its claim, including costs, but subject to all necessary adjustments as to rates, taxes, &c. This sum after adjustments, &c., amounted to £133,923 11s. 7d., which was paid by the Commonwealth of Aus tralia to the appellant company, on 10th May 1949. The action in the Supreme Court of Victoria was not proceeded with.
On 9th May 1949 the appellant company went into voluntary liquidation.
On 20th September 1949 the appellant company being dis satisfied with two taxation assessments, lodged objections in writing against the same. The objections having been disallowed, the company requested the Commissioner of Taxation to treat the same as appeals and to forward them to the High Court of Australia. The appeals were heard by Fullagar J. who on 13th April 1953, with the concurrence of the parties and pursuant to s. 198 of the Income Tax and Social Services Contribution Assessment Act 1936 1952 stated a case for the opinion of the Full Court. The
88 C.L.R.] OF AUSTRALIA.
143
following are the material portions of the case which should be H. C. oe A,
read with the facts outlined above.
5. The appellant company had from time to time claimed and been allowed depreciation under the provisions of the Income
H en ty
H ouse
P t y .
L t d .
Tax Assessment Acts in respect of the said lifts, rubber floorings, (In V olu n
gas heating installations and other fixtures and fittings.
tary
11. On 26th August 1948 the appellant company lodged with Liquidation)
the commissioner a return of income for the twelve months from
F ed er a l Commis
1st July 1947 until 30th June 1948 showing a net taxable income s io n e r OE
of £1072.
T a x a tio n .
12. The commissioner on 16th February 1949 issued a notice of assessment of income tax at £268 Os. Od. in respect of income derived during the said period of twelve months.
13. The commissioner by letter dated 23rd June 1949 requested the liquidator of the appellant company to supply him with certain information, which was supplied by the liquidator on 29th June 1949. The information so supplied by the liquidator was true. The request and reply were as follows :—
Question 1.—What was the total consideration payable by the Commonwealth Government in respect of the acquisition of Henty
House ?
.
Answer.—Total compensation for the acquisition £167,500, from which was deducted £30,000. Mortgage taken over by Common wealth Government. Net £137,500.
Question 2.—How was this amount allocated between (a) Land and buildings ; (b) Lifts ; (c) Rubber flooring ; (d) Fixtures and
fittings ; (e) Gas heating installation.
•
Answer.—The compensation was a lump sum and I have no information as to how the Government allocated it between the assets set out here.
Question 3.—Please furnish a copy of the agreement entered into between the company and the Commonwealth Government in respect of the sale.
Answer.—The property was not sold under any agreement, but was compulsorily acquired as from 16th October 1947.
On 24th August 1949 the commissioner issued to the appellant company a notice of amended assessment of income tax at £2,193 8s. Od. in respect of income derived during the said period of twelve months together with an alteration sheet relating thereto. The alteration sheet was as follows :—
14.
144 HIGH COURT
[1953.
H. C. OF A.
Alterations
Total
1953.
Net income as returned by you . . .. . . ..
1072
H
enty
H ouse
Excess depreciation written back has been ascertained as
P t y . Lt d .
under :—
(In Volu n
| taryLiftsRubber Fixtures Gas |
L iq u id a tio n )
V.
flooring and
heating
F ederal
fittings installa
Commis
tion
sio n er
OP
T axa tion . Cost price91765090 1304
919
Valuation
for^
purpose
of
acquisition by >5690 4072
850
D epartm ent
of Interior
Written down! 2295 853 418
384
value— — ■
—
Excess
depre
ciation .33953219 886 466 .
7966
Valuation of fixtures and fittings was in excess of cost price.
Net income as per assessment
9038
15. In issuing such alteration sheet and assessing the appellant
company in the said amended assessment the commissioner attri buted to the fixtures and fittings including the lifts, rubber flooring and gas heating installation the valuations adopted by the Depart ment of the Interior for the purposes of acquisition and assessed the appellant company on the basis that in the year of income ended 30th June 1948 it had disposed of or lost the said fixtures and fittings within the meaning of s. 59 (1) of the Income Tax Assessment Act 1936-1948 and that the consideration receivable in respect of such disposal or loss within the meaning of the said section was the amount so attributed by the commissioner to them. The said amounts so attributed by the commissioner to the said fixtures and fittings exceeded the depreciated value of the same as appearing in the appellant company’s income tax returns by a total amount of £7,966. Each of the amounts making up the said amount of £7,966 is not more than the amount of the depreciation which had been allowed in assessments of income tax under the Income Tax Assessment Acts in respect of the various fixtures and fittings in question.
88 C.L.R.] OF AUSTRALIA.
145
16. At all times material the appellant company was a private H. C. OF A.
company within the meaning of Div. 7 of the Income Tax Assess
1953.
ment Act 1936-1948.
H en ty
H ouse
17. Between 1st July 1947 and 31st December 1948 the appellant company distributed only £752 of its income.
P t y .
L t d .
(In
V o lu n
18. On 24th August 1949 the commissioner issued to the appellant company a notice of assessment of additional tax and Liquidation)
tary
V.
contribution at £2,194 14s. Od. in respect of income derived during
F ed er a l Com m is
the twelve months from 1st July 1947 until 30th June 1948 pursuant sio n e r of
to Div. 7 of the Income Tax Assessment Act 1936-1948 and s. 16
T a x a tio n .
of the Social Services Contribution Assessment Act 1945-1948. The part of the notice of assessment which showed how the sum was arrived at was as follows :—
Taxable income as assessed . .
£9038 0 0
Less taxes (s. 103) . . ..
2510 0 0
Distributable income . . . .
£6528 0 0
Less allowance—s. 103 (2) (e)
1579 0 0
Sufficient distribution . . . .
£4949 0 0
Less dividends paid . .
752 0 0
Undistributed amount . . . .
£4197 0 0
Additional tax payable . . . .
£1891 17 0
Additional contribution payable
302 17 0
Additional total amount payable
£2194 14 0
22. The following questions of law have arisen on these appeals, and they are submitted for the opinion of a Full Court :—
(a) Whether by reason of the notice of acquisition pursuant to the provisions of the Lands Acquisition Act 1906-1936 there was a disposal or loss of the fixtures and fittings referred to in par. 5 hereof within the meaning of s. 59 of the Income Tax Assessment Act.
(b) If yea to Question (a)—(i) was any consideration receivable by the appellant company in respect of such disposal or loss within the meaning of s. 59 of the said Act, and (ii) If yea to Question (b) (i)
VOL.
L X X X V III .----10
140 HIGH COURT
[1953.
H.C. 01? A.should the amount of such consideration be measured by the value
| 1953. | of the said fixtures and fittings or an amount determined by the |
| H knty | commissioner or how otlierwisc ? |
| Ho US 15 | (c) If yea to Question (a) and Question (b) (i) and on the assump tion tliat tlie amount of such consideration exceeded the depreciated |
P t y .
L t d .
( In V odun-
| T.VRYvalue of the said fixtures and fittings by an amount less than the |
LiQuiDATroN) depreciation allowed in assessments of income tax in respect thereof V. Fddiohad was the amount of such excess properly included in the assessable
Commis
income of the appellant conipany for the year ended 30th June
sio n er
OE
T axa tion .1948 ?
(d) If yea to Question (a) and to Question (b) (i) and on the assumption referred to in question (c) was the commissioner entitled in applying Div. 7 of the Income Tax Assessment Act 1936-1948 to include such excess in the taxable income of the appellant company for the year ended 30th June 1948 ?
K. A. Aickin, for the appellant. The issues which arise are dependent upon the construction of the words “ disposed of, lost or destroyed ” in s. 59 (1) of the Income Tax Assessment Act 1936 1948 and whether property which has been compulsorily acquired pursuant to the provisions of the Lands Acquisition Act 1906-1936 can be said to have been “ disposed of, lost or destroyed The words “ disposed of ” apply only to a voluntary disposition whereas “ lost or destroyed ” are two instances of involuntary disposition. The only case in which s. 59 has been construed is Case No. B. 44 (1) in which a board of review held “ disposed o f” included only a voluntary disposition. The same meaning was given to the words which appear also in s. 36 (1) of the Act in Federal Commissioner of Taxation v. Wade, per Dixon and Fullagar JJ. (2). Smith V. Federal Commissioner of Taxation (3), is distinguishable. There it was held that money resulting from the compulsory acquisition of assets was “ a profit arising from the sale of assets
But the definition of “ sale ” in that case throws no light on the meaning of the word as used in s. 59 (3) where “ sale ” is only one of the methods by which there may be a voluntary disposition. [He referred to Hobart Bridge Co. Ltd. v. Federal Commissioner of Taxation (4).] Moreover, the legislature, in continuing to main tain the distinction between “ sale ” and “ compulsory acquisition ” even after the re-drafting of the Act in 1936, showed that it did not adopt the meaning of “ sale ” given in Smith v. Federal
(1) (1951) 2 T.B.R.D. (N.S.) 193, at
(3) (1932) 48 C.L.R. 178.
p. 194.
(4) (1951) 82 C.L.R. 372, at p. 382.
(2) (1951) 84 C.L.R. 105, at pp. 109
88 C.L.R.] OF AUSTRALIA.
147
Commissioner of Taxation (1). See the Income Tax Assessment
H. C. OF A.
1953.
Act 1936, s. 44 (2) (b) (ii).
Nor were the assets “ lost or destroyed ”
in the ordinary meaning of those words. Even if they were, H e n ty
there was no amount of consideration receivable in respect of the
H ouse
P t y .
L t d .
loss or destruction within the meaning of s. 59 (1), and s. 59 (3) (In V o lu n
does not enable the commissioner to fix an amount as the considera
tary
L iq u id a t io n )
tion. Even if there were a disposal of assets, no consideration can be held to have been receivable in respect of the disposal, having
V.
F ed er a l Commis
regard to s. 59 (3). The appellant should not have been assessed
sio n e r OF
in 1949 in respect of undistributed profits in the 1947-1948 income
T a x a tio n .
year because, until 14th April 1949, when the action between the appellant and the Commonwealth was settled, it was impossible for the appellant to know what amount it would receive in respect of the acquisition and whether there would be profit to distribute.
J. B. Tait Q.C. (with him C. I . Menhennitt), for the respondent. Smith V. Federal Commissioner of Taxation (1) decides that the term “ sale ” is wide enough to include a compulsory acquisition of property, although certain features of a sale, as generally under stood, are lacking. I t is not of significance that the words “ sale or compulsory resumption ” were retained in s. 44 (2) (5) (ii) of the Income Tax Assessment Act, after it had been re-drafted in 1936. They may have been retained for greater caution. Being a sale the transaction here was a “ disposal ” of property within the meaning of s. 59 (1). If it is not a sale it is still a disposal of property, because “ disposal ” is a word of the widest meaning and is not limited to a voluntary disposal: Federal Commissioner of Taocation v. Wade, per Dixon and Fullagar JJ . (2). That passage lays down that the words “ disposed of ” are of such wide meaning that they would there, but for the context, have included compulsory destruction or any other form of alienation. The property was “ disposed of ” at the moment of gazettal of the notice of acquisition. By s. 16 of the Lands Acquisition Act 1906 1936 the property from that moment vested in the Commonwealth of Australia. The words “ disposed of, lost or destroyed ” are not mutually exclusive, but overlap in meaning. “ Lost ” goes beyond misplacement. See the meaning given in the Standard Oxford Dictionary “ Not retained in possession ; no longer to be found ” . In s. 59 the word is applicable just as much to property taken by compulsory acquisition as to property stolen. [He referred to Michail v. Savings Bank of South Australia (3).]
(1) (1932) 48 C.L.R. 178.(3) (1930) S.A.S.R. 60, at p. 64.
(2) (1951) 84 C.L.R., at pp. 109-111.
148 HIGH COURT
[1953.
H. C. OF A. Section 59 (1) applies whether there is consideration received or
rcceival)le or not. The consideration receivable here, although
H fn ty ]>('̂ ’lia/ps undefined, came into existence on the date of gazettal
Hocsi! of the notice of ac(pusition.
The assessment in respect of undis-
(1n\ \ ! i un- profit for the year 1947-1948 is correct. The fact that TARY the appellant did not know until 1949 that there was a profit does
laQiaoATioN)
j|- jy often impossible to know profits in advance.
Kioduhal The remedy is to estimate it. [As to the amount of consideration
COM.MKS-
receivable in respect of the fixtures, he said :] That is only a
S lO N U l l
OF
T a x a t io n .question of apportioning the lump sum. [He referred to Ronpibon Tin No Liability v. Federal Commissioner of Taxation (1).] On the construction of s. 59 (1), unless these sums can be brought into the assessment for the year 1947-1948 they cannot be brought in at all.
K. A. Aickin, in reply. It is impossible to say that any sum was paid in respect of the fittings, &c. The sum paid in respect of the whole acquisition, £167,500, was a compromise figure. I t is unknown on what basis either party agreed to this figure. No procedure is provided for apportionment in such a case as this. If there wmre a disposal by sale, it was not until all the elements of the sale were ascertained, including the price.
Cur. adv. vult.
Sept. 9.
The following written judgments were delivered :—
W illia m s A.C.J., W e b b , K itto and T aylor JJ. The questions
we are called upon to decide come before us on a case stated by
Fullagar J. in an appeal to this Court concerning the income tax
payable by the appellant company in respect of income derived
by it in the year ended 30th June 1948 under the provisions of the
Income Tax Assessment Act 1936-1948.
The questions depend upon the true construction of s. 59 of the
Act. That section is one of a group of sections comprising ss. 54 to 62 both inclusive, which deal wdth the topic of depreciation. Sections 54 to 58 are directed to making depreciation, at rates provided for, an allowable deduction in respect of property being “ plant ” (an expression defined to include certain items of property described by reference to their use in relation to a purpose of pro ducing assessable income), or being articles owmed by a taxpayer and used by him during the year of income for the purpose of producing assessable income. As a corollary, s. 59 deals with the
(1) (1949) 78 C.L.R. 47.
88 C.L.R.] OF AUSTRALIA.
U 9
situation whicli arises where at any time in a year of income H . C. of A.
property in respect of which depreciation has been allowed or is
allowable is disposed of, lost or destroyed. The section requires H e n ty
a comparison to be made between the depreciated value of such
H ouse
P t y .
L t d .
property (in effect, as s. 62 provides, its cost to the taxpayer less (In V o lu n
the total amount of depreciation allowed or allowable to the tax
tary
payer in respect of it for any anterior period), and any consideration I^iq u id a t io n )
receivable in respect of the disposal, loss or destruction. If the
F ed er a l
consideration receivable is less than the depreciated value, the
Com m is-
. ,
^
̂ . S IG N E R
O F
deficiency is made, by sub-s. (1) of s. 59, an allowable deduction.
T a x a tio n .
If, on the other hand, the consideration receivable exceeds the
Williams A.C.J.
Webb J.
depreciated value, the excess, to the extent of the sum of the Kitto J.
amounts allowed or allowable in assessments for income tax in
Taylor J.
respect of depreciation, is included, by sub-s. (2), in the taxpayer’s assessable income. For the purposes of these provisions, sub-s. (3) enacts a definition of the expression “ the consideration receivable in respect of the disposal, loss or destruction ” . I t means—(a) in the case of a sale of the property—the sale price less the expenses of the sale of the property; (6) in the case of loss or destruction of the property—the amount or value received or receivable under a policy of insurance or otherwise in respect of the loss or destruc tion ; (c) in the case where the property is sold with other assets and no separate value is allocated to the property—the amount determined by the commissioner ; (d) in the case where property is disposed of otherwise than by sale—the value, if any, of the property at the date of disposal.
The facts in relation to which it is necessary to construe the section are, briefly, as follows. For a number of years, until 16th October 1947, the appellant owned certain land in Melbourne and a building known as “ Henty House ” erected thereon. Installed in the building were certain lifts, rubber flooring, gas heating installations and other fixtures and fittings, which may be called for convenience the fixtures. These being articles owned by the appellant and used by it for the purpose of producing assessable income, depreciation in respect of them was an allowable deduction, by virtue of s. 54 of the Act, in the assessment of the appellant’s income tax. Accordingly depreciation was from time to time claimed by the appellant and allowed by the commissioner.
On 16th October 1947, pursuant to s. 15 (2) of the Lands Acquisition Act 1906-1936 the Governor-General declared by notification published on tha t day in the Gazette that the land upon which “ Henty House ” was erected had been acquired under
150 HIGH COURT
[1953.
| H. | C. OF A. fQj. a public purpose referred to in the notification. There- | |
|
H kntv House and the fixtures with it, became vested in the Commonwealth,
| Housis | and by virtue of s. 17 the estate and interest of the appellant was |
P t y .
L td.
(In ^'oLUN-converted into a claim for compensation. After an action for TAKYcompensation for the property acquired had been commenced by L iq u id .vtion) appellant in the Supreme Court of Victoria and protracted
fiomoRAL negotiations had taken place, the compensation payable by the
Commis- Commonwealth was agreed at the lump sum of £167,500, which
SIONKE OF . °
^
T axa tion , was paid to the appellant on 11th May 1949. There was no wiiiiiun^cj agreement as to the manner of computation of this sum, or, in
Wobb ,r. Kitto J . particular, as to any amount allowed in the computation in respect
Taylor J.of the fixtures.
The Commissioner of Taxation took the view that the fixtures had been disposed of or lost, within the meaning of s. 59, in the year ended 30th June 1948, He took the values which the Department of the Interior had assigned to the fixtures, and he treated those values as constituting, within the meaning of the section, the consideration receivable in respect of the disposal or loss. These values exceeded the depreciated value in each case. The total amount of the excess, to the extent of the sum of the amounts allowed or allowable for depreciation, (that is to say, disregarding the amounts by which, in some instances, the excess was greater than the sum of the amounts which had been allowed or were allowable for depreciation) was £11,916. The total depreciated value was £3,950. The difference between these two amounts, namely £7,966, the commissioner included in the appellant’s assessable income in reliance upon the provisions of sub-ss. (2) and (3) of s. 59. The result was to increase the amomit assessed against the appellant both for ordinary income tax and, since the appellant is a private company within the meaning of Div. 7 of Pt. I l l of the Act, for additional tax under that Division.
The main argument submitted for the appellant was that not only is the word “ lost ” as inappropriate to a case of compulsory acquisition by a public authority as is the word “ destroyed ”, but “ disposed of ” is also inapplicable, because it refers only to a voluntary disposition by the taxpayer. To place so narrow a construction upon “ disposed of ” would take out of the operation of s. 59 a deprivation of property by any mode of involuntary alienation. A sale, for example, by a sheriff under a writ of fieri facias, or by a liquidator in a winding-up by the court, or by a receiver appointed by the court, would be outside the purview of the section. The suggested distinction would rest upon no logical
88 C.L.R.] OF AUSTRALIA.
151
foundation, for the rationale of the section applies as much to dis
H . C. OF A .
positions of the kinds just mentioned as it does to dispositions
1953.
made voluntarily by or by the authority of the taxpayer
H e n ty
himself. The apparent object of the section is clear. I t is, first,
H ouse
P t y .
L t d .
that in the case of property depreciation of which is made by the (In V o lu n
iVct an allowable deduction because of the relation of the property
tary
L iq u id a t io n )
ia the taxpayer’s hands to the production of his assessable income,
V.
the whole of that portion of the cost of the property which the
F ed er a l Com m is
taxpayer fails to recover when the property becomes no longer s io n e r OF
available to him for the production of assessable income shall be
T a x a tio n .
deductible in the assessment of his taxable income ; and that to that
Williams A.C.J.
Webb J.
end, in so far as it is not covered by deductions for depreciation Kitto J.
under ss. 54 to 58, it shall be the subject of a deduction under
Taylor J.
s. 59 (1). And, secondly, the section provides for the converse case : if it turns out, when the property ceases to be available to the taxpayer for the production of assessable income, that his deductions for depreciation have been greater in total than that portion of the cost which he has failed to recover, then the excess amount shall be brought back into assessable income under sub-s. (2). (In the case of a gift, the value of the property is treated as if it had been recovered by the donor.) No distinction in any way material to these purposes can be drawn between a sale by the taxpayer in the market, or an exchange or a gift made by him, and a transfer of the title effected by the act of another to whom the law gives the requisite authority. There is as little reason for attempting such a distinction as there would be for distinguishing between a loss due to the carelessness of the taxpayer and a loss due to theft, or between a destruction by the intentional act of the taxpayer and a destruction by act of God. Nothing but quite intractable language could justify us in placing upon provisions of the character which s. 59 exhibits a construction producing so capricious a result as its inapplicability to cases of involuntary alienation.
But the language used is by no means intractable. No doubt the notion primarily conveyed by the words “ disposed of ” is the notion of a disposition by the taxpayer ; but it is not necessarily so confined, and the use of the passive voice, without specific words of restriction referring to the person by whose act the disposal takes place, leaves ample room for a construction in keeping with the general tenour of the section, and with its place in the scheme which ss. 54 to 62 provide. The entire expression “ disposed of, lost or destroyed ” is apt to embrace every event by which property ceases to be available to the taxpayer for use for the purpose of
m
m
152 HIGH COURT
[1953.
I
H.C. OF A. producing assessable income, either because it ceases to be his,
| 1953. | or because it ceases to be physically accessible to him, or because |
| H enty | it ceases to exist. In the context of s. 59 there is ample reason |
| H ousj5 | for rejecting a narrower construction. In particular, the words |
| I’t y . L t d . “ is disposed of ” are wide enough to cover all forms of alienation, |
( [n
V'olu n -
TARYas Dixon and Fullagar JJ . remarked in Federal Commissioner of LiQuii)ATroN) 'fixation v. Wade (J), and they should be understood as meaning
F ederal no less than “ becomes alienated from the taxpayer ”, whether
COiMMlS-
STONER OFit is by him or by another that the act of alienation is done.
I ’axa tion .Neither the words themselves nor the setting in which they appear
afford any support for the view that cases of involuntary alienation
W ill iam s
A.C.J.
Wel)l) J . fall outside their meaning.
K i t t o .1.
Ta,\ lor J.The view for which the appellant contends is really answered
by this Court’s decision in Smith v. Federal Commissioner of Taxa tion (2). The expression there in question was narrower than that with which we are now concerned. I t was the expression “ the sale of assets ”, as used in s. 16 (6) (i) of the Income Tax Assessment Act 1922-1927 ; and the decision was that it included a compulsory acquisition by a public body under statutory authority, and that an inference to the contrary ought not to be drawn from the fact that a subsequent amending Act of 1930 had added “ or compulsory resumption for public purposes ” after “ the sale ” . Rich J. said: “ Sale is not a word of precise technical import. In many contexts the essential idea it conveys is an agreement to transfer property for a valuable consideration. Often the valuable consideration intended is restricted to money. In other contexts agreement is not of the essence of the conception but the conversion of property into money or its realization is the notion sought to be expressed. Ever since the Lands Clauses Consolidation Act 1845 the alienation of property accomplished under its provisions has been regarded as an instance of sale. The very title under which the subject is discussed in legal compilations is compulsory purchase ” (3). His Honour proceeded to discuss a number of English authorities, and said : “ Perhaps in England the procedure by notice to treat produced a greater similarity in conveyancing practice to the completion of a voluntary sale, but the difference is not material in considering whether agreement is an essential element in the connotation of the word ‘ sale,’ or whether it is capable of including alienation of property for a money sum, when the alienee alone possesses freedom of action; see per Lord Macnaglvten in Williams v. Permanent Trustee Co. of New South Wales (4),
(1) (1951) 84 C.L.R. 105, at p. 110.(3) (1932) 48 C.L.R., at p. 186.
(2) (1932) 48 C.L.R. 178.
(4) (1906) A.C. 249, at p. 252.
88 C.L.R.] OF AUSTRALIA.
153
H. C. OF A.
where he says ;
‘ I t is a compulsory purchase just as much in the
one case as in the other ’ ” (1). The same view was expressed
1953.
in the joint judgment of Starke, Dixon and McTiernan JJ . (2). H en ty
They described the compulsory process as “ an exchange of land,
H ouse
P t y .
L t d .
made under legislative enactment, for money ”, adding that ( In V o lu n
“ Substantially the Act has provided the price at which the land
tary
L iq u id a t io n )
is to be taken or resumed ” . I t is obvious tha t the case for a
V.
construction of the expression “ disposed of ” as extending to
F ed er a l Com m is
compulsory acquisition is even stronger. The words “ disposed
sio n e r OF
of ” are not technical words. They mean disposed of in a commer
T a x a tio n .
cial sense. Similar words in other Acts have been given a very
Williams A.C.J.
Webb J.
wide meaning in suitable contexts. The
Port of London Act, 1908
Kitto J.
(Imp.) (8 Edw. 7. c. 68), s. 3 (1), provided that as from the appointed
Taylor J.
day the undertakings of three dock companies should be transferred to and vested in the Port of London Authority and the Port Authority should issue to those companies, or as they might direct, as consideration for their undertakings, certain amounts of port stock created by the Act for distribution by the dock companies amongst their shareholders. In Inland Revenue Commissioners v. Port of London Authority (3), the House of Lords held that the acquisition of the undertakings of the dock companies by the Port of London Authority was a purchase of an asset for a consideration other than cash within the meaning of r. 3 of Pt. I l l of Schedule IV of the Finance {No. 2) Act 1915 (Imp.) (5 & 6 Geo. 5. c. 89). There is also the long line of cases in which the equitable rule that a purchaser should be charged with interest on his purchase money from the date when he took or might safely have taken possession of the land has been extended to compulsory purchases. In Surift A Co. v. Board of Trade (4), Viscount Cave L.C. said th a t : “ the rule has been extended to cases of compulsory purchase under the Lands Clauses Consolidation Act, 1845 : In re Pigott & Great Western Railway Co. (5) ; Fletcher v. Lancashire cfe Yorkshire Railway Co. (6) ; but this is because the notice to treat under the statute is treated in equity as creating the relation of vendor and purchaser ” (7). The rule has also been extended to cases where there is no notice to treat and the statute simply provides for expropriation of the owner and for conversion of his ownership into a claim for compensation ; Inglewood Pulp & Paper Co. v. New Brunswick Electric Power Commission (8) ;
(1) (1932) 48 C.L.K., at pp. 187, 188.(5) (1881) 18 Ch. D. 146.
(2) (1932) 48 C.L.R., at pp. 189-191.(6) (1902) 1 Ch. 901.
(3) (1923) A.C. 507.(7) (1925) A.C., at p. 532.
(4) (1925) A.C. 520.
(8) (1928) A.C. 492, at p. 498.
154 HIGH COURT
[1953.
H . C. OF A .
International Railway Co. v. Niagara Parks Commission (1).
1953.Referring to such cases in The Commonwealth v. Huon Transport Pty.
H ENTY Ltd. (2), the present Chief Justice said “ The rule springs from the
Ho US 10
doctrine that a notice of acquisition, or a notice to treat, establishes
P ty .
Ltd .
(In Voi.un-the relation of vendor and purchaser and it rests upon the view
TAKY
that ‘ The right to receive interest takes the place of the right to
L iq u id a t io n )
V.retain possession ’ (3) ” (4).
F ed eea l
I t was further submitted on behalf of the appellant that if a compulsory acquisition is to be considered a disposal, the appeal
Commis
sio n er
OF
T axa tion .should nevertheless succeed because no consideration can be held
Williams A.C.J.
to have been “ receivable in respect of the disposal ”, having regard
Webb J.
Kitto J. to the exclusive definition of those words provided by s. 59 (3).
Taylor ,T.The argument is that par. (a) does not apply, because no part of
the compensation payable for the entirety of the property acquired by the Commonwealth can be specifically described as the sale price of the fixtures ; par. [h) does not apply, because the case is not one of loss or destruction; par. (c) does not apply, because it is expressed in terms appropriate only to a sale by agreement, the allocation referred to being a consensual allocation made in the sale transaction ; and par. {d) does not apply, because the considera tions which bring the case within s. 59 are inconsistent with the description of the case as one in which property is disposed of other wise than by sale. And a final argument is added, to the effect that if this be wrong, then the case is within par. [d), and the commissioner was in error in not ascertaining and bringing into the assessable income the value of the fixtures at the date of the disposal. The answer to these contentions is that par. (c) covers the case. I t may be true that there cannot be an allocation of values within the meaning of that paragraph except by agreement of the parties, but, even so, it does not follow that the only cases of sale which are governed by the paragraph are those of sale by agreement. There was in the present case a sale in the relevant sense, an exchange of the fixtures together with other assets for a total sum ; and, as the taxpayer and the Commonwealth did not agree upon any separate figure in respect of the fixtures as an ingredi ent in the total compensation to be paid, it cannot be said that there was a separate value allocated to the fixtures. The commissioner was therefore authorized by par. (c) to determine for himself what amount should be treated as the consideration receivable in respect of the disposal of the fixtures ; and it is not denied that if he was so authorized he acted within the scope of his authority in adopting for the purpose the values which the Department of the Interior
(1) (1941) A.C. 328.(3) (1928) A.C., at p. 499.
(2) (1945) 70 C.L.R. 293.
(4) (1945) 70 C.L.R., at p. 323.
88 C.L.R.] OF AUSTRALIA.
155
Lad assigned to the fixtures in the course of dealing with the question
H. C. OF A.
of compensation.
1953.
I t may be observed tha t in John Hudson <h Co. Ltd. v. Kirkness (1), an acquisition of railway wagons, effected by the operation of a
H en ty
H ouse
P t y .
L t d .
statute, was held by Upjohn J. not to be a sale within the (In V o l u n
meaning of a section (s. 17) of the Income Tax Act 1945-1950
tary"
L iq u id a t io n )
(Imp.) (8 & 9 Geo. 6. c. 32—14 Geo. 6. c. 15), which in some respects
V.
resembles s. 59 of the Commonwealth Act. His Lordship recog
F ed er a l Com m is
nized that the absence, in a compulsory acquisition, of the element
sio n e r of Webb J.
of mirtual assent which the common law required for a sale did
T a x a tio n .
not necessarily determine the question whether such an acquisition
Williiims A.C.J.
was a sale within the meanmg of the Income Tax Act. Pointing Kitto J.
out that the compensation payable for wagons under the acquiring
Taylor J.
Act was a sum fixed according to the age azid type of wagon and had no relation to the actual worth of the wagon, the learned judge said that to describe such a transaction as a compulsory purchase was not a proper use of legal language. The implication of the judgment is that a compulsory acquisition which can properly be described as a compulsory purchase may be a sale within the meaning of a particular statute. The case is therefore consistent with the decision of this Court in Smith v. Federal Commissioner of Taxa tion (2).
The appellant’s objections raise the further qzxestion whether the commissioner was right in treating the consideration receivable in respect of the disposal as assessable income of the appellant in the year ended 30th June 1948, in view of the fact that the amount to be paid by the Commonwealth as compensation was not agreed upon until February 1949. The point has special significance in relation to the assessment of additional tax under Div. 7, because the appellant company, in order to escape liability for such tax would have had to make a sufficient distribution of its income of the year ended 30th June 1948 (including in that income any amount brought into assessable income under s. 59) before 31st December 1948, at which date the amount of the compensation was still unknown. But it is clearly the assessable income of the year in which the disposal occurs that s. 59 (2) operates to increase, and the disposal occurs when the Governor-General’s notification is pub lished in the Gazette. I t is a t that point of time that the estate and interest of the owner is converted into a claim for compensation. Uncertainty may exist at that time, and may continue until more than six months after the end of the current income year, as to the amount which has to be included in assessable income under s. 59 (2). Uncertainty may be due, in the case of an ordinary sale of depreci-
(1) (1953) 1 W.L.R. 749.
(2) (1932) 48 C.L.R. 178.
15G HIGH COURT
[1953.
H.C. OF A.ated property, to the fact that the price has still to be fixed by
| 1953. | arbitration or otherwise by reason of the terms of the sale contract; or it may be dne, in the case of loss or destruction, to the fact |
| K | entv |
| H ouse | that an assessment has to be made under a policy of insurance; |
| Pt y . Lt d . or it may be due, in the case of a sale of depreciated property to |
(In A'olu n-
| TARYgether with other property, to the fact that the commissioner has |
L i q i u d a t i o n )
V.not yet determined an amount under sub-s. (3) (c) ; or it may be
F ederal due, in the case of a disposal otherwise than by sale, to the fact that
Commis
the value of the property is undetermined. But the existence
sio n er
of
T axa tio n .of the uncertainty, for whatever cause, and the consequential
Williams A.C.J.
difficulty in knowing within the six months what is the amount
Webb J.
Kitto J. of the income which must be distributed within that time if Div. 7
Taylor J.tax is not to be payable, afford no ground for denying to s. 59 the
construction which its precise terms require. Those terms leave no room for any other conclusion in the present case than that the relevant year of income is the year ended 30th June 1948.
The questions should accordingly be answered as follows :—
(a) Yes.
(b)
(i) Yes.
(ii) An amount determined by the commissioner.
(c) Yes. (d) Yes.
F ullagar J. This case is not free from difficulty. I was at first strongly inclined to think that we had here a typical example of a casus omissus, and to regard it as covered by what Lord Simonds said in Inland Revenue Commissioners v. Wolfson (1). His Lordship said :—“ I t is not the function of a court of law to give to words a strained and unnatural meaning because only thus will a taxing section apply to a transaction which, had the legislature thought of it, would have been covered by appropriate words.”
The term “ disposed of ” is not a technical term, and its “ ordinary ” or “ popular ” meaning does not, to my mind, cover a case in which a person is deprived of his property against his will or without his consent. If A’s house were compulsorily acquired by the Crown or by a public authority, he would not say “ I have disposed of my house ” or “ My house has been disposed of ” . The idea of ordering, managing, controlling, arranging, the idea of the exercise of an existing power over a thing, is generally inherent in the word “ dispose ” itself, and this essential idea is not lost when the word is used with a preposition to denote an act of alienation or creation of a new interest in property.
(1) (1949) 1 All. E.R. 865, at p. 868.
88 C.L.R.] OF AUSTRALIA.
157
However, I would not deny tliat the words “ disposed of ” may, in an appropriate context, properly be given a wider meaning
than wliat I regard as their normal meaning. In the present case H en ty
we have a provision for adjustment which may operate either in
H ouse
P t y .
L t d .
favour of the taxpayer or in favour of the revenue. One would (In V o lu n -
certainly expect to find all cases of alienation covered. No reason
TAKY
suggests itself for distinguishing between a voluntarv alienation
and a compulsory acquisition. And I think tha t the case of
Smith
F ed er a l
V. Federal Commissioner of Taxation (1), justifies, if it does not Com m is-
compel, reading the words in s. 59 of the Income Tax Assessment Act
Ta x a tio n .
1936-1948 as including a case of compulsory acquisition on payment
j
of compensation. I t is a trite saying that a decision on the con struction of one statute must be used very cautiously when one is construing another statute, and one feels that there is much to be said for the view expressed by Gavan Dnjfy J . and Evatt J . in Smith's Case (1). But I cannot find any satisfactory ground for distinguishing Smith's Case (1) from this case. If it was right to read the word “ sale ” in that case as including compulsory acquisition, I cannot help feeling that it would be wrong to read the words “ disposed of ” in this case as excluding compulsory acquisition. There is, of course, no great difficulty in regarding a compulsory acquisition as a sale where the process of acquisition is by way of notice to treat, and a binding obligation to convey is created when, though not before, a price has been fixed by agreement or by arbitration. And in Smith's Case (1) the majority of the Court appears to have thought that the substance of the matter could not be regarded as different where the transfer of legal ownership takes place automatically on a proclamation or on the doing of some prescribed act by the acquiring authority.
I agree with the proposed answers to the questions before the Court, though, if it had not been for Smith's Case (1), I think I should have taken a different view.
Questions in case stated answered as follows :— (a) Y e s ; (6) {i) Y e s ; {ii) an amount determined by the commissioner ; (c) Yes ; {d) Yes. Costs of the case stated reserved for the judge disposing of the appeal.
Solicitors for the appellant, Whiting & Byrne.
Solicitor for the respondent, D. D. Bell, Crown Solicitor for the
Commonwealth.
R. D. B.
(1) (1932) 48 C.L.R. 178.
14
0
0