Jolly v Federal Commissioner of Taxation - [1934] HCA 66

FEDERAL COMMISSIONER OF TAXATION

RESPONDENT.

ON APPEAL FROM DIXON J. Income Tax (Cth.)-Assessment-Faitur to include assessable income-Subsequent

voluntary disclosure-Liability for additional tax-Deduction-Payment of interest-Whether money exclusively expended for production of income-Sale of shares at profit-Whether business of dealing in shares conducted-Profit liable to assessment-Dividends from stock-Profits of company liable to British income MELBOURNE, tax-Some dividends declared free of British income tax; other dividends not- Oct. 23, 24, 25; Whether tax payable on amount before deducting British tax or only on net amount received-Income Tax Assessment Act 1915-1921 (No. 34 of 1915-No. 31 of 1921), secs. 12A, 14 (b), 18 (1) (a), 20 (e)-Finance Act 1920 (10 &11 Geo. V. c. 18), sec. 27 (5).

The taxpayer was assessed to income tax in respect of income received during the four years 1917 to 1921. In 1927 the taxpayer voluntarily furnished amended returns of income for the years in question. In 1931 the Commis- sioner altered the original assessment upon the basis of the amended return submitted by the taxpayer. The amended assessment included a penalty for omitted income under sec. 59 (1) (b) of the Income Tax Assessment Act 1915- 1921 imposed upon the ground that the taxpayer had failed to include assessable income in his returns.

Held, by Dixon J. and on appeal by the Full Court, that the taxpayer came within the description of a "person who fails to include any assessable income in any return " in sec. 59 (1) (b) and was liable to the penalty imposed by that section, and that the Court could not review the discretion of the Commis- sioner who had not remitted any additional tax, as he had power to do.

In the assessable income derived during the year ending 30th June 1920 the Commissioner included a profit made by the taxpayer on the sale of shares in a company. The taxpayer objected on the ground that the profit was not income but was of a capital nature.

Held, by Dixon J. and on appeal by the Full Court, that the taxpayer had not discharged the onus of showing that the profit obtained on the sale of the

50 CLR 132

shares in question was not the result of carrying out a scheme of profit-making consisting of taking up shares for the purpose of resale at a profit in pursuance of a general course of conduct and that the profit SO received was taxable.

During the year ended 30th June 1921 the taxpayer received dividends upon the ordinary stock and also upon the preference stock which he held in a company. The profits of the company were liable to British income tax. The dividends upon the ordinary shares were declared free of British income tax, but the dividends upon the preference shares were not. The sum received from the preference stock was the residue of dividends from which deductions had been made on account of tax. The Commissioner claimed that the dividends upon the ordinary stock should, for…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Jolly v Federal Commissioner of Taxation

Details

AGLC: Jolly v Federal Commissioner of Taxation [1934] HCA 66
Case: [1934] HCA 66
Decision Date: 5 March 1934

CaseChat Overview and Summary

This case concerned four consolidated appeals by the taxpayer, John Jolly, against amended income tax assessments issued by the Federal Commissioner of Taxation for the financial years 1918-1922. The dispute arose from the Commissioner's inclusion of certain items as assessable income and the imposition of additional tax under section 59(1)(b) of the Income Tax Assessment Act 1915-1921, following the taxpayer's voluntary submission of amended returns.

The Full Court was required to determine several legal issues. Firstly, whether the taxpayer was a "person who fails to include any assessable income in any return" for the purposes of section 59(1)(b), thereby rendering him liable to additional tax. Secondly, whether a profit made on the sale of shares in George Pizzey & Sons Ltd. constituted assessable income or was of a capital nature. Thirdly, whether dividends received from the New Zealand Loan and Mercantile Agency Co. Ltd., some declared "free of British income tax" and others not, should be included in the taxpayer's assessable income at the net amount received or at a grossed-up amount reflecting the British income tax.

The Court, affirming the decision of Dixon J., held that the taxpayer was liable for the additional tax under section 59(1)(b) as he had failed to include assessable income in his original returns, and the Court could not review the Commissioner's discretion not to remit this tax. Regarding the profit on the sale of shares, the Court found that the taxpayer had not discharged the onus of proving it was of a capital nature, concluding it was derived from a scheme of profit-making and thus taxable. On the issue of dividends, the Court determined that only the net amount actually paid to the taxpayer by the company was assessable income, as the amounts representing British income tax were not credited or paid to him. The appeals were allowed in part, with the amended assessments to be remitted to the Commissioner to give effect to the Court's findings.

Orders