Ormond Investment Co v Betts - [1928] HCA 30

THE DEPUTY FEDERAL COMMISSIONER

OF TAXATION Income Tax (Cth.) - Assessment - Company - Dividends paid out of profits

accumulated prior to 1st July 1914 Carried forward in its profit and loss account' Income Tax Assessment Act 1922-1927 (No. 37 of 1922-No. 32 of PERTH,

1927), sec. 16 (b) (i.), (ii.).* Sept. 11.

A company in its periodical profit and loss accounts as published showed only MELBOURNE,

the actual amount of profit in respect of the then immediately past accounting period, and did not bring forward therein any profit earned or accumulated in any previous year. In its ledger, however, there was an account headed 'Profit and Loss," each period of which commenced with the credit balance brought down from the last preceding period and ended with the balance to be carried down to the succeeding period. The dividend declared in the past had been declared partly out of the year's profit disclosed in the published statements and partly out of "reserves," which reserves 22 were in fact the balance of profit accumulated prior to the period in question. On 5th February

members or shareholders any undis- 1922-1927, in sec. 16, provides (inter

tributed income accumulated prior to alia) that 'The assessable income of

the first day of July one thousand nine any person shall include

hundred and fourteen the sum so in the case of a member, shareholder,

received by the member or shareholder depositor or debenture-holder of a com-

shall not be included as part of his pany which derives income from a

income. For the purpose of this (i.) divi-

proviso amounts carried forward by a dends, bonuses or profits

company in its profit and loss account, credited, paid or distributed to the

appropriation account, revenue and member or shareholder from any profit

expenses account or any other account derived from any source by the com-

similar to any of the foregoing accounts pany" and (in the second proviso to

shall not be deemed to be accumulated clause (i.)) 'Provided where a company distributes to its

42 CLR 107

1927 the directors resolved "that a dividend of 1s. 6d. per share be declared

the reserved or undistributed profits accumulated prior to the 1st July 1914."

Held, that the amount brought forward was income accumulated prior to 1st July 1928.

Held, also, by Knox C.J. and Higgins J. (Isaacs and Powers JJ. dissenting), that the sum brought forward out of which the dividend of 1s. 6d. per share was paid was not carried forward in the company's profit and loss account, and therefore came within the meaning of the second proviso of sec. 16 (b) of the Income Tax Assessment Act 1922-1927.

APPEAL against the assessment by the Deputy Federal Commissioner of Taxation (W.A.) of the appellant to income tax, which came on for hearing before Knox C.J., who (after taking evidence) referred the appeal to the Full Court.

The balance-sheet of Nicholson's (1911) Ltd. (a company carrying on business in Western Australia), which was…

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.

Keep reading for free

Create a free CaseChat account to read Ormond Investment Co v Betts and more:

Read every judgment in full
Ask AI and get answers linked to paragraphs
See how each paragraph was cited in later cases
Download judgments as PDF or Word

Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details

Case: [1928] HCA 30
Decision Date: 15 October 1928

CaseChat Overview and Summary

The case of *Ormond Investment Co v Betts* concerned an appeal against an assessment by the Deputy Federal Commissioner of Taxation. The appellant, a shareholder in Nicholson's (1911) Ltd., received a dividend declared from profits accumulated prior to 1 July 1914. The appellant contended that this dividend was exempt from income tax under the second proviso to section 16(b)(i) of the *Income Tax Assessment Act 1922-1927*, arguing it was paid from undistributed income accumulated before that date. The Commissioner disputed this, asserting that the accumulated profits had been carried forward in the company's profit and loss account, thus disqualifying them from the exemption. The appeal was heard by the Full Court of the High Court of Australia.

The central legal issue before the court was the interpretation of the phrase "carried forward by a company in its profit and loss account" within the second proviso of section 16(b) of the *Income Tax Assessment Act 1922-1927*. Specifically, the court had to determine whether the profit and loss account presented to shareholders, or a ledger account headed "Profit and Loss," constituted the relevant account for the purposes of this proviso. This determination was crucial to deciding whether the accumulated profits, from which the dividend was paid, were to be deemed "accumulated income" for the purposes of the exemption.

A majority of the High Court, comprising Knox C.J. and Higgins J., held that the profit and loss account presented to shareholders annually was the account contemplated by the proviso. They reasoned that this was the universally recognised practice and the account that a business person would expect to receive. The ledger account, while containing a record of profits carried forward, was considered a mere record or history of past results rather than the formal "profit and loss account" referred to in the legislation. Consequently, as the accumulated profits were not carried forward in the profit and loss account presented to shareholders, they fell within the meaning of accumulated income and the appeal was allowed. Isaacs and Powers JJ. dissented, finding that the ledger account, being a book of account kept by the company, satisfied the statutory description and that the profits had indeed been carried forward in that account, thus rendering the dividend taxable.

Orders