Modern Permanent Building and Investment Society (In Liquidation) v Federal Commissioner of Taxation

The Modern Permanent Building and Investment Society (In Liquidation) appealed to the High Court against a decision of the Taxation Board of Review No. 3, which had disallowed a sum of £24,707 14s. 8d. as a deduction from the Society's assessable income for the period 1 August 1954 to 13 April 1955. The Society had claimed this amount as a deduction, described as "discount in lieu of costs of collection," arising from the sale of its outstanding loans to another building society prior to its voluntary dissolution. The Federal Commissioner of Taxation had disallowed the deduction.

The primary legal issues before the Court were whether the outstanding loans constituted "trading stock" within the meaning of the *Income Tax and Social Services Contribution Assessment Act 1936-1955*, and consequently, whether the loss incurred on their sale was an allowable deduction. The appellant argued that it was engaged in the business of money lending, that money was its stock-in-trade, and that the loss should be treated as a revenue loss deductible under section 51 of the Act, potentially by analogy with sections 28 and 36 which deal with trading stock.

Williams J. held that choses in action, such as the loans in question, were not included within the definition of "trading stock" as defined in section 6(1) of the Act, nor could they be considered "on hand" as contemplated by section 28. The provisions of sections 29 and 31 further indicated that "trading stock" referred to tangible assets. Therefore, the appellant could not directly rely on sections 28 and 36. His Honour also found no warrant for applying these provisions by analogy to the sale of the Society's loans for the purpose of dissolution. Furthermore, the Court concluded that the Society was not carrying on the business of a money lender in the ordinary acceptation of the term, but rather an investment business, and that the mass sale of its loans to effect dissolution constituted a realisation of capital assets, rendering the loss a capital loss and not an allowable deduction.

The appeal was dismissed with costs.