Resch v Federal Commissioner of Taxation

The case of Resch v Federal Commissioner of Taxation concerned an appeal by Edmund Resch to the High Court of Australia following an amended income tax assessment. The dispute arose from the distribution of undistributed profits of Resch's Ltd. to its shareholders, including Edmund Resch, during its voluntary liquidation. The Commissioner of Taxation sought to assess these distributed profits as part of the shareholders' taxable income under the Income Tax Assessment Act 1922-1930.

The High Court was required to determine several legal issues. These included whether the Income Tax Assessment Act 1922-1930 and the Income Tax Act 1930 infringed section 55 of the Constitution by taxing both capital profits and income. The court also had to consider whether the transactions involving the sale of Resch's Ltd.'s assets and the subsequent distribution of proceeds to shareholders, who then invested in the purchasing company, constituted a "distribution" within the meaning of section 16B of the Income Tax Assessment Act. Furthermore, the court needed to ascertain the correct method for apportioning profits accumulated before and after 1 July 1914 when determining the tax-exempt portion of distributions under the second proviso to section 16(b)(i). Finally, the timeliness of the amended assessment was in question, specifically whether it was made within the three-year period prescribed by section 37(1A) of the Act.

The Court held that the Income Tax Assessment Act 1922-1930 did not contravene section 55 of the Constitution. It found that the transactions, despite the exchange of cheques and the shareholders' immediate reinvestment, constituted a distribution of profits by the liquidators for the purposes of section 16B. The Court affirmed the Commissioner's method of apportioning capitalized profits pro rata between those accumulated before and after 1 July 1914, in the absence of evidence of specific appropriation by the company. Regarding the timeliness of the amended assessment, the Court determined that the inclusion of a statement on the original assessment notice extending the payment deadline effectively extended the period for making an amended assessment, meaning the assessment dated 15 June 1934 was made within the statutory three-year limit.

The Court ordered that the appeal be dismissed, upholding the Commissioner's amended assessment. The profits distributed by the liquidators of Resch's Ltd. were deemed assessable income to the extent they represented profits accumulated after 1 July 1914, and the Commissioner's method of apportionment for calculating the tax-exempt portion was deemed correct. The amended assessment was also found to have been made within the time prescribed by the Act.