Perrott v Deputy Federal Commissioner of Taxation (NSW)

[1925] HCA 8

450 H IG H COURT

[1925.

[HIGH COURT OF AUSTRALIA.]

PERROTT Appellant;

THE DEPUTY FEDERAL COMMISSIONER

R espondent.

OF TAXATION (N.S.W.) . . .

.

ON APPEAL FROM THE SUPREME COURT OF

NEW SOUTH WALES.

H. c. o r A. Income Tax (Cth.)—Assessment— Proceeds of business— Buying and selling lard—

1925.                  Purchase-money 'paid in instalments— Profits — Income Tax Assessment Act 1915-1921 {No. 34 of 1915—No. 32 of 1921), secs. 3, 10.

S y d n e y ,

May 1.The appellant (who, as was found, carried on the business of buying and selling land) purchased a station property, subdivided it and sold the

Knox C.J., subdivisional blocks.

The purchase-money for the blocks was payable as to

Isaacs, Higgins

and Starke JJ .

25 per cent in cash and as to the balance in equal yearly instalments spread over a number of years. The appellant prepared an account in respect of the year 1919-1920 which showed th a t the sales resulted in a profit of 26’136 per cent and which contained a statem ent th a t 26‘136 per cent of the instalment* received was income.

Held, th a t in assessing the appellant for Federal income tax the* Commissioner might properly assess the apprellant’s income on the basis that the profits of the appellant’s business for the particular year of assessment were 26'136

j)er cent of the instalments received in that year. Decision of the Supreme Court of New South Wales {James J.) affirmed.

A p p e a l from the Supreme Court of New South Wales.

For the years ending 30th June 1920, 30th Jime 1921 and 30th Jime 1922, Edward Montgomery Perrott was assessed for Federal income tax in respect of sums of £8,741, £461 and £3,846 respec­ tively as being income received by him in those years from the

40 C.L.R.] OF AUSTRALIA.

451

business of dealing in land, those sums being alleged to be the

C. or A.

profits derived by the appellant in those years from the sale of a

^

station property called “ Oliefden.” Objections were lodged to the

P erkott

V.

assessments on the ground tha t the respective sums were capital

D epxtty F e d e r a i,

and not income.

The objections were disallowed and, being treated

CoMMIS- ■SIONEB o r

as a notice of appeal to the Supreme Court of New South Wales, T axation

came before James J. for determination, when evidence was heard.

(N.S.W.).

The appellant had on 14th August 1919 purchased a station property called “ Cliefden,” in New South Wales, for the price of £4 per acre on a freehold basis, 25 per cent being paid in cash and the balance in equal yearly instalments a t per cent reducible to 5^ per cent on pimctual payment. The property, which comprised 24,000 acres, had belonged to trustees who could only sell it as a whole; and the appellant stated that when he bought it he did so with the intention of keeping 5,000 acres upon which to make his home and of selhng the remaining 19,(X)0 acres, but tha t after buying the property he changed his mind and determined to sell the whole. He then had the property subdivided and proceeded to sell the subdivisional blocks on the terms of 25 per cent cash and the balance in equal yearly instalments with interest a t 6 per cent. In respect of the year ending 30th June 1920 the appeUant’s accmmtant prepared an account (Ex. K) which showed on one side the total amount of the purchase price paid and payable by the appellant and the amount of the expenses coimected with the sale and subdivision, and on the other side the total amount of purchase- money of the subdivisional blocks sold before 30th Jime 1920 and the value of the blocks remaining unsold. A balance was then showm of £33,185 Is. 5d., representing a gross profit of 26T36 per cent on the total amount of the purchase-money. Appended to the account was a statement by the accountant th a t “ the sales, as shown above, contain 26T36 per cent of profit, and the income applicable to each year is thus dependent on the instalments paid, but equitably must be 26T36 per cent on the annual instalments,” &c. The sums of £8,741, £461 and £3,846 were arrived a t by taking 26T36 per cent of the instalments of purchase-money received by the appellant in the years ending 30tli June 1920, 30th June 1921 and 30th June 1922 respectively. The learned Judge found tha t the

462

HIGH COUBT

[1925.

H. 0. OF A. appellant was carrying on the business of buying and selling land

for the purpose of making a profit, and tha t Cliefden was bought by Pebuott the appellant for tha t purpose. He therefore held that the profit

D e p u t y

derived from the subdivisional sales was taxable as income from

CoM^s^ personal exertion. He also was of opinion tha t the income in respect TaS timT Chef den by the appellant should be assessed as soon as (N.S.W.). the profit was ascertained by the sales, th a t the assessment need not be spread over the time for the pa}rment of the instalments of pur chase-money and need not wait until all the out-of-pocket moneys had been paid and an actual profit received by the appellant. But. as the Commissioner of Taxation had adopted the 26'136 per cent basis and expressed his wiUingness to abide by that method, he left matters as they stood and dismissed the appeal with costs.

From tha t decision the appellant now appealed to the High Court.

Wait K.C. (with him A. L. Campbell), for the appellant. On the evidence the learned Judge should have foimd that the profits on the sales of the land were accretions of capital and not income. Even if any profit should ultimately accrue on the whole transaction none could accrue until the appellant was recouped the whole amoimt of his outlay on the purchase of the land (see St. Lucia Usines and Estates Co. v. Colonial Treasurer of St. Lucia (1) ).

[Knox C. J . referred to Webb v. Australian Deposit and Mortgage

Bank Ltd. (2).]

The method of accountancy adopted by a taxpayer has nothing to do with estimating his income for the purpose of the Income Tm Assessment Act. There is no provision in the Act by which, if the appellant was liable to tax in respect of portion of the instahnents, he could be recouped in the event of the transaction ultimately resulting in a loss.

Lamb K.C. and Bowie Wilson, for the respondent, were not called on.

K nox C.J. With reference to the first point argued by Mr. WaU, tha t is to say, whether these proceeds represented a change of invest ment, I think tha t the only reasonable conclusion on the evidence

(1) (1924) A.C. 508, at p. 512.

(2) (1910) 11 C.L.R. 223, at p. 227.

40 C.L.R.] OF AUSTRALIA.

453

before the learned Judge was tha t a t which he arrived, and there­

fore there is no fault to be found with his decision on tha t score.

'

With regard to the second ground, as to the time a t which these

P b b b o t t

V.

profits became available to be taxed as income, I think the learned

D e p u t y F e d e r a i ,

Judge was right on that also, because the profits are chargeable

Co m m is ­

with tax as being income consisting of proceeds of a business. I t s io n e r

OF

T a x a t io n

seems to me that once you get profits brought under tha t head

(N.S.W.).

you have to look at business principles and make up the account

Knox C.J.

in the ordinary business waJ^ LTpon the evidence I am satisfied that the learned Judge was manifestly right in upholding the^ assessment. I therefore think that the appeal should be dismissed.

Isaacs J. I am of the same opinion. Without any disrespect to Mr. Watt I think the case is quite unarguable,

H iggins J. I am of the same opinion. The fact tha t a man is a grazier does not prevent him from entering into the business of laud-jobbing, if he wish to do s o ; and if originally the appellant intended to live on part of this property and to work it, he changed that intention. This transaction was not a change of investm ent; and the profit here in question is profit made from the business of land-jobbing.

Starke J. I agree. The first question argued was simply one of fact which the learned Judge below rightly found, in my opinion, against the appellant. The second question argued before us was based upon the decision in St. Lucia Usines and Estates Co. v. Cohnml Treasurer of St. Lucia (1). I t was urged tha t no income had “ come in ” to the appellant in respect of the years for which he had been assessed. But, to take the year ending on 30th June 1920, the appellant received instalments from the sale of land amounting to the sum of £35,384. That sum had actually “ come in.” But according to Mr Watt, no part of tha t sum could be treated as income until the appellant recouped himself the whole of his capital outlay on the land. The appellant or his accoimtant allocated £9,248 of that siun to profits or income—it was afterwards

(1) (1924) A.C. o08.

454 HIGH COURT

[1925.

H. C, or A.

reduced to £8,741—and stated the basis of his apportionment in a

1925,

document (Ex. K). The method is based upon sensible business

P b b b o t tconsiderations and the Commissioner and the learned Judge were

V.

D e p u t yentitled, in my opinion, to act upon th a t method as a basis of

F e d e b a l

C O M M IS - assessment.

S IO IT E B O F

T a x a t io n

(N.S.W.).

Af f ea l dismissed with costs.

APPIRefd lo

Solicitors for the appellant, Clmjton TJtz & Co.

Onaynay V

1̂‘onac V

PasfonUIDq?ufy

Solicitor for the respondent, Gordon, H. Castle, Crown Sohcitor for

WAR

*^ymmissioner

the Commonwealth.

Djst

B. L

‘Alliance fCTySun

/nvcs/mcfits

(2005} 222 ALR286

[HIGH COURT OF AUSTRALIA.]

THE FEDERAL COMMISSIONER

OF

Appellant;

T A X A T IO N ...............................................

AND

THOROGOOD

R espondent.

H. C. OP A. Income Tax (Cth.)—Assessmx.nl—Proceeds of business—Buying and subdividingknd,

building thereon and selling same — Sales during year of assessment — Payments by instalments extending over several years—Profits— "'Income P e b t h , derived ” by taxpayer— Income Tax Assessment Act 1922-1925 (No. 37 of 1922—

1927.

Sept. 9, 12,

Ho-

of 1925), secs. 4, 13, 16 (a), 19, 25, 51.

Ifi.

Held, by Isaacs A.C.J. and Starke J., that, in assessing for the purposes

Isaacs

HiKgins andof the Income Tax Assessment Act 1922-1925 the income derived from the

Starke J J .sale of land during the year of assessment on extended terms by a taxpayer

who carries on the business of buying land and subdividing it and selling the allotments under contracts providing for payment of the purchase-money by instalments in subsequent years, the Commissioner should base his assess­ ment upon the facts of each particular transaction even though the taxpayer has treated himself in his books of account as having received the whole of the profits of the transactions in the year of sale.