Squatting Investment Co Ltd v Federal Commissioner of Taxation

[1953] HCA 13

86 CLR 570

by the company in respect of or in relation to " an employ- ment of the appellant by the Crown in the armed forces. I would respectfully agree with this. The payments were not in any real sense rewards for services rendered to the Crown. For the rest, the learned Judges accept the decision of Fair J. as correct and express the opinion that periodicity of payment affords no ground for distinguishing between the two cases. Myers C.J. and Northcroft J. in a joint judgment say Nor do we think that what is referred to in some of the cases as the periodicity of the payments makes any difference" 1.

The point to be observed about the second Louisson Case 2 is that it proceeds wholly on S. 79 (1) (b) of the Land and Income Tax Act 1923. The question in connection with which Fair J. in the earlier case had regarded the "lump sum character of the payment as relevant was the question whether the case fell within S. 79 (1) (h), that is to say, the question whether, apart from any category specifically mentioned in the Act, the payment fell within the ordinary conception of "income". But in the later case no reference appears to be made to this latter question either in the argument of counsel for the commissioner or in any of the judg- ments. Counsel seems to have proceeded on the view that, if the receipts in question could not be related to any employment in the relevant sense, they amounted to mere gifts" and could not be "income" within the meaning of the Act. Some colour may be said to be given to this assumption by such English cases as Beynon v. Thorpe 3 and Stedeford v. Beloe 4, but it is to be remembered that the sole question in England in such cases has been whether a particular receipt falls within the terms of a particular description in a schedule which deals with profits or gains arising from an office or employment. At any rate no such assumption can be made with respect to the Commonwealth Income Tax Assessment Act, and for this reason it appears to me that the second Louisson Case (2) should be regarded as supporting the view that this case falls outside the definition of "income from personal exertion" and outside S. 26 (e), but otherwise as having no bearing on the present case.

It seems to me that the appellant's receipts from Macdonald, Hamilton &Co. must be regarded as having the character of income. They were regular periodical payments a matter which has been regarded in the cases as having some importance in determining

1(1943) N.Z.L.R., at p. 9. 2(1943) N.Z.L.R. 1. 3(1928) 14 Tax Cas. 1. 4(1932) A.C. 388. 86 CLR 571

A. whether particular receipts possess the character of income or

capital in the hands of the recipient, see e.g. Seymour v. Reed 1 and Atkinson v. Federal Commissioner of Taxation 2. This consideration, while not unimportant, is not decisive. What is, to my mind, decisive is that the expressed object and the actual effect of the payments made was to make an addition to the earnings, the undoubted income, of the respondent. What the employing firm decided to do, and what it really did, in relation to the respondent and others in the same position, was to make up the difference between their present rate of wages and the amount they will receive What is paid is not salary or remuneration, and it is not paid in respect of or in relation to any employment of the recipient. But it is intended to be, and is in fact, a substitute for-the equivalent pro tanto of-the salary or wages which would have been earned and paid if the enlistment had not taken place. As such, it must be income, even though it is paid voluntarily and there is not even a moral obligation to continue making the pay- ments. It acquires the character of that for which it is substituted and that to which it is added. Perhaps the nearest parallel among the many cases cited to us is to be found in Commissioner of Taxes (Vict.) v. Phillips 3. Phillips was managing director of a com- pany under a contract for a term of years. That company entered into an agreement with another company which necessitated the retirement of Phillips from his position. By way of " compensa- tion" the company agreed to pay Phillips the same amounts at the same times as it would have been obliged to pay him if he had continued in his position until the expiration of his term of employ- ment. The payments made by way of "compensation" were held to partake of the same nature as the payments which would have been made if the employment of Phillips had continued. The payments in that case were made in pursuance of a binding contract, whereas the payments in the present case were voluntary. But the nature of the payments was the same in both cases, and what was said in Phillips's Case (3) applies mutatis mutandis to this case. In a joint judgment Dixon and Evatt JJ. said: " No prima facie reason exists for regarding as instalments of capital annual payments which are taken in place of the contractual rights" 4 given by the original contract. And again In these circumstances they' (i.e. the payments under the substituted

1(1927) A.C. 554, at p. 570. 2(1951) 84 C.L.R. 298. 3(1936) 55 C.L.R. 144. 4(1936) 55 C.L.R., at p. 156. 86 CLR 572

contract) " must

be regarded as of the same nature as the payments they replace " (1).

The question asked by the case stated should, in my opinion, be answered: Yes.

Question in the case stated answered: Yes.

Costs of the case stated reserved for the Justice disposing of the appeals. Solicitor for the appellant, D. D. Bell, Crown Solicitor for the Commonwealth.

Solicitors for the respondent, Vincent J. Brady, Donald &Co.

(1) (1936) 55 C.L.R., at p. 157.

86 CLR 573

[ ]

THE SQUATTING INVESTMENT COMPANY

FEDERAL COMMISSIONER OF TAXATION Income Tax Cth.)-Assessable income- Income '-Acquisition of wool supplied

by grower in course of business-Payment of full proceeds due-Subsequent gratuitous payment to class ascertained by criterion based on amount of wool supplied-" Income from personal exertion Proceeds of MELBOURNE,

on by taxpayer "__" Bounty or subsidy received in or in relation to carrying Oct. 21, 22,

on of a business -Income Tax Assessment Act 1936-1949 (No. 27 of 1936 -No. 66 of 1949) SS. 6, 25, 26 (g)-Wool Realization (Distribution of Profits) Act 1948 (No. 87 of 1948) SS. 7, 28, 29-Wool Realization Act 1945-1946 (No. SYDNEY,

49 of 1945-No. 77 of 1946), 88. 9, 10-National Security (Wool) Regulations April 13.

(S.R. 1939 No. 108-S.R. 1943 No. 88), reg. 30.*

In 1939 a Wool Purchase Arrangement was made between the Governments of Great Britain and the Commonwealth of Australia, whereby the former Government agreed to purchase all wool produced in Australia for the period of the war and one wool year thereafter, except wool required for the purpose of woollen manufacture in Australia. It was a term of this arrangement that the two Governments would divide equally any profit arising from the resale by the Government of the United Kingdom outside the United Kingdom of wool bought pursuant to the arrangement. To give effect to this arrange- ment, the National Security (Wool) Regulations were notified which set up a Central Wool Committee charged with the administration of the regulations and empowered under reg. 30 (2) to deal in its absolute discretion with any moneys received by it under or in consequence of the arrangement. The regulations provided for the sale of all wool by appraisement, and for the passing of the property in every parcel of wool to the Commonwealth when the final appraisement was completed in the manner prescribed by the instructions of the Central Wool Committee. After appraisement the suppliers * These provisions are described in the judgments of the Court, post. [EDITOR'S NOTE -On 6th July 1953 the Judicial Committee of the Privy Council granted special leave to appeal from the decision of the High Court.]

86 CLR 574

of the wool were paid the whole of the compensation money, to which they were legally entitled, resulting from the compulsory acquisition of the wool. From the inception of the arrangement the Central Wool Committee had contemplated that any profit which the Government of the Commonwealth of Australia received from the Government of Great Britain, in respect of wool sold outside the United Kingdom, would be divided between the persons who supplied wool shorn from the living sheep, and that suppliers of skin wool would not participate. In 1945, in order to dispose of large stocks of carry-over wool held by the United Kingdom under the arrangement, agreed upon a Disposals Plan under which these stocks of wool were to be transferred into the joint ownerhip of the two Governments, and all wool subsequently acquired pursuant to the scheme was to be held in joint owner- ship. The ultimate balance of profit or loss arising from the venture was to be shared equally between the Governments of Great Britain and the Commonwealth of Australia. This wool was to be held and disposed of by a joint organization to be incorporated as a private company in England and to have an Australian subsidiary. The Australian subsidiary of this company was the Australian Wool Realization Commission, set up by the Wool Realiza- tion Act 1945. Section 9 of that Act provided that the Wool Realization Commission should be substituted for the Central Wool Committee and should have, and perform, all the duties, and should have, and might exercise, all the powers, authorities and functions of the Central Wool Committee under, inter alia, the National Security (Wool) Regulations. The Wool Realization (Distribution of Profits) Act 1948 made provision for the distri- bution, both interim and final, of the profit accruing to the Commonwealth as a result of the activities of the Australian Wool Realization Commission. Section 7 provides as follows :-" (1) Subject to this Act, an amount equal to each declared amount of profit shall be distributed by the Commission in accordance with this Act. (2) There shall be payable by the Commission, out of each amount to be distributed under this Act, in relation to any participating wool, an amount which bears to the amount to be distributed the same proportion as the appraised value of that wool bears to the total of the appraised values of all participating wool. (3) Subject to this Act, an amount payable under this Act in relation to any participating wool shall be payable to the person who supplied the wool for appraisement. (4) Where two or more persons jointly supplied participating wool for appraisement, those persons shall, for the purpose of determining their claims in relation to that wool in any distribution under this Act, be treated as one person Section 28 provided that no action should lie against the Australian Wool Realization Commission or the Commonwealth for the recovery of any money claimed to be payable under the Act; and S. 29 rendered moneys payable under the Act inalienable prior to actual receipt.

Held, by McTiernan, Williams and Webb JJ. (Fullagar and Kitto JJ. dis- senting), that moneys paid pursuant to the Wool Realization (Distribution of Profits) Act 1948, did not, for the purposes of the Income Tax Assessment

86 CLR 575

Act 1936-1949, form part of the assessable income of the persons to whom payments were made, on the grounds, per McTiernan and Williams JJ., the moneys did not constitute income: they were a voluntary gift, and the mere fact that the class of donees was chosen by reference to the criterion SQUATTING

laid down in S. 7 of the Wool Realization (Distribution of Profits) Act 1948 did not alter the character of the payment or make the distribution part of assessable income and accordingly the moneys were not caught by the definition of income from personal exertion' in S. 6 (1) of the Act as being proceeds of a business carried on by a taxpayer; and per Webb J., the sum was a personal gift, and as such, excluded income in the ordinary acceptation of that term, and, on the further ground, per McTiernan, Williams and Webb JJ., the moneys SO received were not a " bounty or subsidy received in or in relation to the carrying on of a business " within the meaning of S. 26 (g) of the Act because, per McTiernan and Williams JJ., the sum was not paid for the purpose of assisting persons to carry on a business at the time the sum was paid or to commence a business in the future, and, per Webb J., the provision is a compound expression designed to deal with pay- ments received to assist in carrying on a business, and this was not such a payment.

Perpetual Executors Trustees and Agency Co. (W.A.) Ltd. v. Maslen (1952) A.C. 215, applied and discussed, and Ritchie v. Trustees Executors and Agency Co. Ltd. (1951) 84 C.L.R. 553, discussed.

CASE STATED by Dixon C.J.

The Squatting Investment Company Limited a company incor- porated on 14th April 1882 under the Companies Acts (Vict.) owned certain properties namely Thurulgoona Station at Cunna- mulla, Queensland Tondeburine Station at Gulargambone, New South Wales and Quantabone Station at Brewarrina, New South Wales, on all of which properties it carried on, inter alia, the activity of wool growing. The wool grown on these properties in the seven seasons from 1939/40 to 1945/46 inclusive was acquired by the Commonwealth pursuant to the National Security (Wool) Regulations. By a notice published in the Commonwealth Gazette (Gazette No. 86 of 24th November 1949) the Minister of State for Commerce and Agriculture declared the amount of £25,000,000 to be available for distribution under the Wool Realiza- tion (Distribution of Profits) Act 1948, and, pursuant thereto, the sum of £22,851 2s. 8d. was paid to the appellant on 30th November 1949. By notice of assessment dated 13th April 1950, the Com- missioner of Taxation of the Commonwealth, included in the assessable income of the appellant for the year ending 31st December 1949 the above-mentioned sum of £22,851.

By notice of objection dated 31st May 1950 the appellant objected to the assessment on the ground that the sum of £22,851 was not

86 CLR 576

income within the meaning of the Income Tax Assessment Act 1936-1949.

The commissioner disallowed the objection, and the appellant, on 31st October 1950, pursuant to S. 187 of the Income Tax Assess- ment Act 1936-1949 requested the respondent to treat the objection as an appeal and to forward it to the High Court of Australia.

At the hearing of the appeal Dixon C.J., with the concurrence of the parties and pursuant to S. 198 of the Income Tax and Social Services Contribution Assessment Act 1936-1952, stated a case for the opinion of the Full Court of the High Court of Australia.

The following are the relevant portions of the case stated 5. The National Security (Wool) Regulations were made under the National Security Act 1939. The regulations were amended from time to time but not in any respect relevant to this case, save as indicated herein.

6. The regulations were made for the purpose of carrying out an arrangement (hereinafter referred to as the Wool Purchase Arrangement") made between the United Kingdom Government and the Commonwealth Government at the outbreak of war in 1939 by which the United Kingdom Government purchased all wool produced in Australia for the period of the war and one full wool year thereafter, except wool required for the purpose of woollen manufacture in Australia. The price agreed upon for the wool to be purchased by the United Kingdom Government under the Wool Purchase Arrangement was 10.75 pence (sterling) per pound of greasy wool for the whole clip (13.4375 pence Australian). One of the terms of the Wool Purchase Arrangement was that the United Kingdom Government and the Commonwealth Government would divide equally any profit arising from the resale outside the United Kingdom of wool purchased by the United Kingdom Government under the arrangement.

7. The price per pound of greasy wool agreed to be paid by the United Kingdom Government for the whole of the Australian wool clip (except wool required for the purpose of woollen manufacture in Australia) is hereinafter referred to as "the flat rate purchase price The flat rate purchase price of 10.75 pence (sterling) agreed upon in 1939 was paid for the wool purchased in the three wool seasons 1939/40, 1940/41 and 1941/42. In 1942 it was agreed between the United Kingdom Government and the Com- monwealth Government that the flat rate purchase price should for the 1942/43 season and the following seasons be increased by 15 per cent resulting in a flat rate purchase price of 15.45 pence (Australian) per pound.

86 CLR 577

8. Having entered into the Wool Purchase Arrangement with 1952-1953. the United Kingdom Government, the Commonwealth, under the

regulations, compulsorily acquired all wool produced in Australia, that is to say, not only the wool covered by the Wool Purchase Arrangement which the United Kingdom Government had arranged to purchase, but also the wool required for the purpose of woollen manufacture in Australia, which was excluded from that arrange- ment. The method of acquisition established by the regulations was to require all wool to be submitted for appraisement under the regulations, which provided that the wool was to vest in the Commonwealth upon appraisement. Thus property in all wool vested in the Commonwealth upon the wool being appraised. The wool excluded from the Wool Purchase Arrangement, i.e. that required for woollen manufacture within Australia, was ascertained after appraisement. Manufacturers who were authorised by the Central Wool Committee to obtain wool were entitled to examine wool after appraisement and to select what wools they required. The wool selected was sold by the Central Wool Committee on behalf of the Commonwealth to the manufacturers and did not form part of the wool purchased by and paid for by the United Kingdom Government. The balance of the wool (being in fact some 85 per cent of the whole) was transferred to the United Kingdom Government.

9. Wool was appraised at the premises of approved wool selling brokers. Appraisements were made in series, that is to say that in a wool selling centre appraisements were held in turn at the premises of each approved wool selling broker. Such a series was called an appraisement series. At the close of each appraisement series the Central Wool Committee notified the United Kingdom Government of the appraised price of wool to be acquired by it pursuant to the Wool Purchase Arrangement and appraised in that series. The United Kingdom Government paid the price of which it was thus notified on the fourteenth day after the close of each appraisement series, and the property in the relevant wool then was considered to have passed to the United Kingdom Govern- ment.

10. The United Kingdom Government made the payments referred to in the last preceding paragraph direct to the Central Wool Committee. At the end of each wool season an adjustment was made as between the Central Wool Committee on behalf of the Commonwealth and the United Kingdom Government in order to bring the total of the appraised prices SO paid into line with the flat rate purchase price and this was done by the flat rate adjustment referred to in pars. 20 and 21 below. In addition pursuant to the

86 CLR 578

Wool Purchase Agreement, the United Kingdom Government H. O OF A. paid to the Central Wool Committee on behalf of the Commonwealth

"handling charge" of 3d. per pound of wool to cover the expense of handling the wool from the time of appraisement to the point of loading, i.e. from the brokers' stores where appraisement took place to the f.o.b. point and this included storage pending shipment. None of the payments SO received by the Central Wool Committee i.e. neither the appraised price nor flat rate adjustment nor handling charges was treated as part of the Consolidated Revenue of the Commonwealth.

11. In addition to the flat rate purchase price received from the United Kingdom Government in respect of wool purchased by the United Kingdom Government pursuant to the Wool Purchase Arrangement, the Central Wool Committee also received from woollen manufacturers in Australia payment for the wool purchased by them from the Commonwealth, i.e. selected by them after appraisement, which did not pass to the United Kingdom Govern- ment under the Wool Purchase Arrangement. The price received by the Central Wool Committee for the wool selected by the Australian manufacturers was ascertained in the manner provided by the regulations. The regulations as originally made provided for such sales to be at appraised prices ". In 1940 the regulations were amended SO as to provide that such sales were to be at prices to be fixed by the Central Wool Committee and they were in fact fixed at appraised prices plus a percentage, in 1940/41, 71 2 per cent and in 1941/42, 15 per cent. In 1942 the regulations were again amended SO as to provide for the price for such wool to be fixed by the Central Wool Committee in accordance with determinations notified to it by the Commonwealth Prices Commissioner, and that system of price fixing continued for the remainder of the duration of the compulsory acquisition by the Commonwealth, i.e. until 30th June 1946. The prices SO fixed were again ascertained by reference to the appraised price plus a percentage-in fact 10 per cent.

12. The result of the Commonwealth selling wool to Australian woollen manufacturers at prices ascertained in the above manner was a loss to the Commonwealth at the date when the compulsory acquisition of wool by the Commonwealth ceased of approximately £800,000. This loss arose from the fact that the prices at which the Central Wool Committee on behalf of the Commonwealth sold such wool to manufacturers were less than the prices which the Commonwealth paid to growers in respect of its acquisition of that wool under the regulations, because the percentage addition to the

86 CLR 579

appraised price charged to Australian woollen manufacturers was, 1952-1953. save in the 1941/42 season, less than the flat rate adjustment

paid to wool growers in addition to the appraised price-see par. 20 below.

13. However, from the point of view of the supplier of the wool, i.e. the grower who submitted the wool for appraisement, it made no difference whether the wool was purchased from the Common- wealth by the United Kingdom Government under the Wool Purchase Arrangement or purchased from the Commonwealth by an Australian manufacturer. The amount received by the grower and the method of its calculation were the same whatever the ultimate destination of his wool, although the amount received by the Central Wool Committee on behalf of the Commonwealth Government in respect of that wool differed according to whether the Central Wool Committee on behalf of the Commonwealth sold it to an Australian woollen manufacturer or sold it to the United Kingdom Government.

14. The price paid to the grower who submitted wool for appraise- ment was ascertained by the process of appraisement in accordance with a "Table of Limits " drawn up by the Central Wool Committee pursuant to reg. 17 of the regulations. This method takes into account the nature of wool as a commodity and the need for dividing the flat rate purchase price among the various growers according to the type and quality of the wool submitted for appraise-

15. The Australian wool clip is of an extremely diversified character and the value of an individual bale of wool cannot be ascertained merely by means of applying the flat rate purchase price to the weight of the wool. The clip contains lots which range from fine merinos to coarse crossbreds and comeback wools, from fleece-wools to such miscellaneous lowgrade wools as locks and crutchings, and there are in addition very great variations in the percentage of impurities i.e. grease, dirt or dust and vegetable matter and in the percentage of moisture. The value of an individual bale of wool depends on a combination of two factors -first the "type" of wool concerned which is determined by degree of fineness, length of staple, degree of fault and other like factors affecting its spinning qualities and ultimate use and, secondly, the "yield" i.e. the percentage of wool which will be yielded from the bale after removal of impurities i.e. grease, dirt and vegetable matter. The flat rate purchase price was payable under the Wool Purchase Arrangement for all wool purchased by the United Kingdom Government irrespective of type and yield. Subject

86 CLR 580

to what is stated in par. 17 of this case the function of the Table H. of Limits was to provide a basis for the division amongst the wool growers of the price of the whole clip at the flat rate purchase price,

SO that the suppliers of the fine quality high yield wools would receive an appropriate amount more per pound of wool than the suppliers of low quality and low yield wools. For each type of wool a limit was fixed in the Table of Limits which was the appropriate price for that grade of wool on the basis of a 100 per cent yield where the average price for the whole clip on a greasy basis was the flat rate purchase price. The relative values of the different types of wool and the approximate quantity of each type that might be expected to be produced were known both in the wool industry and to the Central Wool Committee and its advisers who compiled the Table of Limits. The Table of Limits as compiled comprised 928 types and 608 sub-types of wool and it ascribed to each a limit i.e. a price per pound for each such type of wool on the basis of 100 per cent yield. Thus in order to place a price on an individual lot of wool, two processes were required-first it had to be typed i.e. classified according to which of the 1,500 odd types it fell into, and, secondly, its ' yield '' (which was expressed as a percentage) had to be estimated and the resulting price was then that percentage of the "limit" for that type of wool. This process thus gave a price per pound greasy for each lot of wool appraised.

16. It was in this that the process of appraisement consisted- classifying according to type and estimating the yield. Subject to what is stated in par. 17 of this case, each lot of wool submitted for appraisement was thus appraised at a price per pound greasy which represented a price appropriate for that particular lot of wool in a wool season in which the average price of the whole clip was the flat rate purchase price. The Table of Limits was SO designed and compiled as to produce the result that the total appraised prices of all wool submitted for appraisement approxi- mated to but did not exceed the price of the whole clip at the flat rate purchase price. This involved the estimation in advance of, amongst other things, the proportions of the various types of wool which were to be produced in the wool year and the yields which might be expected from such wools. The preparation of the Table of Limits was, therefore, a task essential to the admin- istration of the regulations. It is apparent from the nature of the task that it could not be performed with mathematical exactness and that if the total appraised price of the whole clip was exactly the same as the price of the whole clip at the flat rate purchase

86 CLR 581

price, it would be nothing more than coincidence. Although 1952-1953. exactness of that character could not be attained, substantial

accuracy was possible and was attained. There was thus a virtual SQUATTING

certainty of a difference between the total appraised price of the wool clip and the total purchase price at the flat rate. What this difference would be depended in part upon the accuracy of the Table of Limits and the estimates upon which it was based and in part upon the accuracy of the appraisements, and it could be ascertained only at the conclusion of each year's appraisements when the whole year's clip had been appraised. At that stage the total of the appraised prices could be ascertained by addition (and as average appraised price calculated) and the total amount represented by the flat rate purchase price could be equally ascer- tained by application of the flat rate purchase price to the total weight of wool appraised.

17. Pursuant to reg. 17 of the regulations, in the preparation of the Table of Limits, regard was had to the price payable by the United Kingdom Government to the Commonwealth Government under the Wool Purchase Arrangement and the limits were fixed with the object and intention of ensuring that the price per pound payable by the United Kingdom Government for the wool of any wool year, i.e. the flat rate purchase price, would not be exceeded by the average price per pound of the total payments made pursuant to the appraisement of that wool. In fact in all seasons the average appraised price per pound was lower than the flat rate purchase price. Since the compilation of the Table of Limits involved the making of the estimates referred to in par. 16, it was possible that it would fail to achieve the desired object. It was further possible that errors might occur in the process of appraisement, either in the classification by type or in estimating the yield, which could result in a failure to achieve the object aimed at by the Table of Limits and produce an average appraised price either above or below the flat rate purchase price. The nature of the process of appraisement made it impossible to predict with certainty the exact difference between the average appraised price and the flat rate purchase price and moreover the possibilities referred to above made it impossible to predict with certainty whether the average appraised price would be above or below the flat rate purchase price.

18. The Commonwealth, in the administration of the regulations, paid to the wool growers as a whole an amount equal to the value of the whole wool clip at the flat rate purchase price and did SO by paying to each grower the equivalent in respect of his wool of

86 CLR 582

the flat rate purchase price-whether the Central Wool Committee H. on behalf of the Commonwealth had sold his particular wool to the United Kingdom Government or to an Australian woollen manufacturer. The Commonwealth Government acquired the wool upon appraisement and the Central Wool Committee made INVESTMENT payments to the growers in respect of wool SO appraised fourteen days after appraisement. Accordingly it was impossible to tell at the time of such payments being made, what the difference between the average appraised price and the flat rate purchase price would be. The Central Wool Committee, therefore, followed the practice of making an initial payment fourteen days after appraise- ment and then after the conclusion of each wool year when all the figures were available making an adjustment.

19. The possibility that the total appraised price of the whole wool clip would be greater than the value of the clip at the flat rate purchase price made it undesirable to pay over the whole of the appraised price of each lot of wool within the fourteen days after appraisement. To guard against this possibility, the Central Wool Committee made a deduction from the appraised price paid to each grower upon appraisement. This deduction was called "retention money " and in the first wool year of the operation of the regulations (i.e. the 1939/40 wool season) was 10 per cent of the appraised price and in the subsequent years up to, but not including 1945/46, was 5 per cent. This percentage was retained by the Central Wool Committee until the end of the wool season in which the wool was appraised in order that an adjustment might be made if the average appraised price proved to be greater than the flat rate purchase price.

20. At the end of each wool season the Central Wool Committee was able to ascertain the relationship between the total appraised price of the whole clip and the price of the whole clip at the flat rate purchase price. When the difference between these two amounts was ascertained, it was possible to calculate as a percentage the addition which should be made to, or the subtraction which should be made from, the total appraised price in order to equate it to the price of the whole clip at the flat rate purchase price. The price of each lot of wool could similarly be brought into proper relationship with the flat rate purchase price by adding that percentage to, or subtracting it from the appraised price of such lot. That percentage was known as the "flat rate adjustment". In fact in each wool season in which the Commonwealth compul- sorily acquired the whole wool clip the total appraised price of the whole clip proved to be less than the price of the whole clip at the

86 CLR 583

flat rate purchase price and the flat rate adjustment was, therefore, always made by an addition to the appraised price. It was accordingly not necessary to resort to the retention money in order to find the necessary fund for making the adjustment. On the contrary, in order to give to each wool grower the equivalent in respect of his wool of the flat rate purchase price, it was necessary to pay to him the retention money and also of further sum being the flat rate adjustment in respect of the appraised price of his wool. Retention money and flat rate adjustment were paid to all growers whether their wool was sold by the Central Wool Committee on behalf of the Commonwealth to the United Kingdom Government under the Wool Purchase Arrangement or to Australian, woollen manufacturers.

21. One of the terms of the Wool Purchase Arrangement was that at the conclusion of each wool year an adjustment was to be made as between the United Kingdom Government and the Commonwealth by which the United Kingdom Government would pay to the Commonwealth or the Commonwealth refund to the United Kingdom Government as the case might be, the flat rate adjustment in respect of the wool purchased by the United Kingdom Government from the Commonwealth. The amount SO calculated was in the events which happened paid by the United Kingdom Government to the Central Wool Committee on behalf of the Commonwealth in the month of July immediately following the conclusion of each wool year and was used by it towards making the flat rate adjustment payment to the wool growers.

22. Because the amount SO received from the United Kingdom was calculated only on the appraised price of the wool purchased by it from the Commonwealth, it was not sufficient to enable the Central Wool Committee to make the flat rate adjustment payment in respect of the whole clip. The amount necessary to make the full payment of the flat rate adjustment to the wool growers in respect of wool purchased from the Commonwealth Government by Australian woollen manufacturers was found by the Central Wool Committee from other funds at its disposal, i.e. funds other than those received from the United Kingdom Government as indicated above. These other funds were derived from the percentage addition to the appraised price of wool sold to Australian woollen manufacturers referred to in par. 11 above, and from the operations of the Central Wool Committee pursuant to the National Security (Wool Tops) Regulations. The National Security (Price of Wool for Manufacture for Export) Regulations and from the surplus amount not expended out of the 3d. per pound handling

86 CLR 584

charge (which surplus prior to the agreement as to price made in 1942 was retained by the Commonwealth).

23. Accordingly, at the conclusion of each wool season the Central Wool Committee paid to each wool grower the retention money which had been withheld in respect of his wool and also the flat rate adjustment in respect of his wool. The amounts of the flat rate adjustment in each year of the Wool Purchase Arrange- ment, expressed as a percentage of the appraised price, were as follows:

24. In the wool seasons 1939/40-1944/45 inclusive, the exact difference between the average appraised price and the flat rate purchase price was in no case exactly the percentage referred to in par. 23 above but the amount paid to the wool growers by the Central Wool Committee was calculated by reference to those percentages, the amount represented by the difference between those percentages (which were taken to the nearest one quarter of one per cent) and the exact figure being either made up by the Central Wool Committee from other funds at its disposal or carried forward in its books to a subsequent year. The flat rate adjustment was paid to all wool growers irrespective of whether their wool had been purchased from the Central Wool Committee on behalf of the Commonwealth by the United Kingdom Government, SO that the Central Wool Committee on behalf of the Commonwealth Government received for it the equivalent of the flat rate purchase price, or had been purchased from the Central Wool Committee on behalf of the Commonwealth by Australian woollen manufac- turers, SO that the Central Wool Committee on behalf of the Com- monwealth Government received for it from the woollen manu- facturers the amounts referred to in par. 11 above.

25. In practice, therefore, each wool grower received for his wool its appraised price (which, save in the last year, was paid in two instalments, the second instalment being the retention money) and a further payment expressed as a percentage of the appraised price-the flat rate adjustment.

26. The system of deducting retention money and making the flat rate adjustment, as described in the preceding paragraphs,

86 CLR 585

H. was applied to "participating wool". For the purposes of the 1952-1953. administration of the regulations there was a basic distinction which

separated all wool into two categories. This is the distinction SQUATTING

between wool obtained from the shearing of live sheep, i.e. shorn wool", and wool obtained from the skins of slaughtered sheep, i.e. " 'skin wool" The Wool Purchase Arrangement provided, as stated in par. 6 above, that any profit to arise from the resale of wool outside the United Kingdom was to be shared equally TAXATION.

between the United Kingdom Government and the Commonwealth Government. The regulations provided by reg. 30 (2) that any monies which may be received by the Central Wool Committee from the Government of Great Britain under and in consequence of such arrangement (i.e. the Wool Purchase Arrangement) over and above the purchase price payable by such Government there- under for the wool, and any surplus which may arise, shall be dealt with as the Central Wool Committee shall in its absolute discretion determine". From the inception of the Wool Purchase Arrangement the Central Wool Committee contemplated that the Commonwealth Government's share of any profit to arise should. if there were any profit, be paid to the wool growers, i.e. the suppliers of shorn wool and not to the suppliers of skin wool. Shorn wool was therefore classified as "participating wool", i.e. wool the suppliers of which were, according to the intention of the Central Wool Committee, entitled to participate in the Commonwealth Government's share of any profit to arise under the Wool Purchase Arrangement, and the suppliers of which also participated in the flat rate adjustment which as appears above took the form in each year of a further payment. The suppliers of skin wool received the appraised price without deduction of retention money and did not participate in the flat rate adjustment and were not intended by the Central Wool Committee to participate in any profit. Skin wool was, therefore, listed as "non-participating" Accordingly, all wool submitted for appraisement was, in addition to being appraised according to type and yield under the Table of Limits, listed in the broker's appraisement catalogues as "participating" or non-participating"

27. Under the regulations all wool was required to be submitted for appraisement through wool selling brokers. The brokers received the wool into their stores and there arranged for its appraisement. They prepared appraisement catalogues" which listed the various lots of wool (being lots of one bale or more) submitted for appraise- ment. The wool was displayed on the appraisement floors for inspection by the appraisers who entered the type and yield of

86 CLR 586

each lot in the appropriate column in the appraisement catalogue. H. C. The appraisement catalogue recorded the name and usual brand mark of the person on whose behalf the wool was submitted for appraisement and in addition, if such was the case, listed the wool as being participating wool.

The wool selling brokers also received on behalf of the persons submitting the wool for appraisement, all payments made by the Central Wool Committee. The Central Wool Committee made the initial payment for participating wool, i.e. appraised price less retention money, to the wool selling broker within fourteen days of the appraisement and paid the retention money and the flat rate adjustment to the wool selling broker before the end of the July immediately following the end of the wool season in respect of which the payments were made.

28. The wool purchased by the United Kingdom Government under the Wool Purchase Arrangement was handled on its behalf by the Central Wool Committee and was dealt with in one of three ways-it was either shipped to the United Kingdom or shipped to other countries after having been sold by or on behalf of the United Kingdom Government to purchasers there, held in Australia for storage or treatment (i.e. scouring, carbonising or reclassing) on behalf of the United Kingdom Government or shipped to the United States of America for storage there pursuant to arrangements made between the United Kingdom and United States Governments. The wool sent to countries other than the United Kingdom was sold either by the United Kingdom Government or by the Central Wool Committee on its behalf at prices (known as 'export issue prices ") determined by the United Kingdom Government. The accounts in respect of such sales were kept in England by the United Kingdom Government and it was from these accounts that it was ascertained whether any profit was being made on sales of wool outside the United Kingdom. The account in which these amouts were recorded was known as the Distributable Profits Account' " However, while large quantities of the wool purchased by the United Kingdom Government remained in store in Australia and elsewhere, it was impossible to determine whether there would ultimately be any such profit or not, and no distribution of profits from this account was in fact made.

29. During the wool year 1945/46 the method of acquisition of Australian wool by the Central Wool Committee up to 15th Novem- ber, 1945, and after that date, by the Australian Wool Realization Commission (to which reference is made hereafter), was the same as that previously used by the Central Wool Committee and the

86 CLR 587

method of payment was also the same save that during that wool 1952-1953. season no deduction was made from the appraised price in respect

of retention money. The sale of wool by appraisement in accordance with the regulations came to an end on 30th June 1946, by virtue of the Wool Realization Regulations (Statutory Rules 1946 No. 129) made under the Wool Realization Act 1945.

30. As a result of negotiations conducted in the year 1945, an agreement was reached between the United Kingdom Government, the Commonwealth Government and the Governments of South Africa and New Zealand upon a plan for the winding up of the wartime wool purchase arrangements and the disposal of the large stocks of wool held by the United Kingdom Government without unduly disturbing the marketing or depressing the price of future wool clips. The agreement SO reached was called the " Disposals Plan" and is set out in the schedule to the Wool Realization Act 1945-1946. Pursuant to that agreement, the United Kingdom Government arranged for the formation of United Kingdom- Dominion Wool Disposals Limited, a company incorporated in the United Kingdom (commonly called the "Joint Organization ") and each of the other Governments set up a subsidiary of the Joint Organization. The Australian subsidiary is the Australian Wool Realization Commission set up by the Wool Realization Act 1945.

31. The Joint Organization was established in 1945 and com- menced operations as from 1st August, 1945. The task of the Joint Organization was the disposal of the accumulated surplus of Dominion wool purchased during the war by the United Kingdom Government. The stocks held by the United Kingdom Government on 1st August, 1945, and taken over by the Joint Organization on that date amounted to 10,407,000 bales of which 6,796,000 bales were Australian wool purchased from the Commonwealth by the United Kingdom Government under the Wool Purchase Arrangement. It was agreed that the three Dominion Governments concerned should each acquire a half interest in the stocks of wool from their respective Dominions held by the United Kingdom Government and that the value of such stocks for the purposes of the Disposals Plan, be taken as the original cost of the wool as appearing in the United Kingdom Government books, less the accumulated profits from sales of wool outside the United Kingdom, i.e. the cost of the wool held in store less the balances standing in the Distributable Profits Accounts. Each Dominion Government was to acquire on this basis, a half interest in the stocks of the

86 CLR 588

wool purchased from it and held by the United Kingdom Govern- H. ment on 1st August, 1945, and was to receive, after due allowance for operating expenses, half the net proceeds of sale of that wool upon its being sold by the Joint Organization. Payment for this half interest was to be made by each Dominion Government to the United Kingdom Government within four years and each Dominion Government's half share in the proceeds of sale by the Joint Organization was to be applied in payment of the amount

SO payable.

32. The Disposals Plan provided that the Wool Purchase Arrange- ment should terminate on 31st July, 1945, but further provided (in Pt. I, par. 9 thereof) that for the wool year 1945/46, the first year of the Disposals Plan (known as the interim period and terminating on 31st July, 1946), the method of purchase of wool- viz., appraisement and acquisition-which had operated during the preceding six years, should be continued and (in Pt. III, par. 6) that the United Kingdom Government would be responsible for financing the purchase of all the wool SO acquired but that the management and sale of the 1945/46 wool clip should be entrusted to the Joint Organization and that such wool should be dealt with by the Joint Organization in the same manner as the stocks taken over by it as at 1st August, 1945. In Australia the acquisition of the 1945/46 wool clip was administered by the Central Wool Committee until 15th November, 1945, upon which date the Australian Wool Realization Commission took over. The system of acquisition upon appraisement continued until 30th June, 1946 and in the following wool season the sale of wool by auction was resumed-the first of such auctions being held in September 1946. Thereafter all wool, both from new clips and stocks held by the Joint Organization, was disposed of by auction or private sale. Certain small quantities were bought in by the Joint Organization at reserve prices, when other bids at auction did not reach the reserves established pursuant to the Disposals Plan.

33. The stocks of Australian wool taken over by the Joint Organization on 1st August, 1945, consisted of 6,796,000 bales, the original cost of which was £stg. 106,796,829, and at that date the amount standing to the credit of the Distributable Profits Account was £stg. 24,019,740, SO that the net cost to the Joint Organization of the opening stock of Australian wool was £stg. 82,777,089, and this figure was used in the first accounts pre- pared by the Joint Organization as at 30th June, 1947. The figure to the credit of the Distributable Profits Account was subsequently found to have been overstated because certain adjustments (the

86 CLR 589

nature of which is not now material) had not been made-the 1952-1953. correct figure for the amount to the credit of the Distributable

Profits Account as at 31st July, 1945, was subsequently ascertained at £stg. 19,489,233, and the later years' accounts are based on that figure.

34. During the interim period (in which the whole of the 1945/46 clip was purchased) the Joint Organization acquired 2,866,000 bales of Australian wool at a cost of £stg. 46,547,554. Inaddition TAXATION.

to the purchase of the 1945/46 clip, the Joint Organization also bought in during the eleven months ending 30th June, 1947 (i.e. the first year of auction) 64,000 bales of Australian wool at a cost of £stg. 763,248. In the period from the take over on 1st August, 1945, to the end of its first accounting period, 30th June, 1947, the Joint Organization sold 6,529,000 bales of Australian wool for the sum of £stg. 138,273,685. At the end of that accounting period (30th June, 1947), the Joint Organization held a stock of 3,076,000 bales of Australian wool, the original cost of which was £stg. 38,942,444, but which stood in the balance sheet of the Joint Organization at 30th June 1947 at £stg. 19,660,527. At 30th June 1947, the net profit of the Joint Organization for the period 1st August, 1945-30th June, 1947, in respect of Australian wool was £stg. 21,349,884.

35. The operation of the Joint Organization in respect of Australian wool in subsequent years may be summarized as follows. Year ended 30th June, 1948- Stock at 30th June 1947

3,076,000 bales, book value 38,942,444 Purchase during year Sales during year

Profit realized during year-£17,272,237. Year ended 30th June, 1949- Stock at 30th June, 1948 2,271,000 bales, book value 26,846,728 Purchase during year Sales during year

Profit realized during year-£22,377,505. Year ended 30th June, 1950- Stock at 30th June, 1949

1,254,000 bales, book value 14,430,678 Purchase during year Sales during year

Profit realized during year-£29,702,248. Stock at 30th June, 1950-379,100 bales, book value £4,452,783

86 CLR 590

36. The position with respect to profits realized by the Joint H. C. OF Organization in respect of Australian wool up to 30th June, 1950, 1952-1953. may be summarized as follows :- Profit realized-

1st August, 1945-30th June, 1947

£stg.21,349,884 1st July, 1947-30th June, 1948 1st July, 1948-30th June, 1949 1st July, 1949-30th June, 1950

£stg. 90,701,874 In effect the total profit £stg. 90,701,874 includes an appropriate proportion of the adjusted sum of £stg. 19,489,233 which was on 31st July, 1945 standing to the credit of the Distributable Profits Account. In the year ended 30th June, 1950, payments on account of profit were made to each of the governments interested in the Joint Organization and the amount paid to the Commonwealth Government was £stg. 20,000,000. At 30th June, 1950 the amount standing to the credit of the Commonwealth Government in the books of the Joint Organization as its share of the surplus was £stg. 32,869,163. These profits reflected the very substantial increases in world prices for wool (as well as other commodities) after the resumption of the sale of wool by auction in September, 1946. The extent of these increases in world wool prices is indicated by the following table of prices based upon the base figure of 100 being the average over the period 1934/38 :-

Crossbred wool (Average 64s.) Base figure (average 1934/38) 37. The trading operations of the Joint Organization thus consisted of the disposal or realization by sale of the stocks of wool taken over by it on 1st August, 1945, and additional wool purchased by it. The capital with which it acquired those stocks was provided or deemed to have been provided, SO far as Australian wool was concerned, equally by the United Kingdom Government and the Commonwealth Government. This amount was provided first by applying to the original cost of the wool the balance standing to the credit of the Distributable Profits Account as at 31st July,

86 CLR 591

1945 (which balance was under the Wool Purchase Arrangement 1952-1953. to be shared equally between the United Kingdom Government

and the Commonwealth Government) and the remainder of the cost was to be provided equally by the two Governments. The United Kingdom Government's share was provided by the transfer of the wool itself and the Commonwealth Government's share was to be paid by the Commonwealth Government to the United Kingdom Government over four years but was to be provided in the first place out of the Commonwealth Government's share of the proceeds of the sale of the wool as it was disposed of by the Joint Organization. In fact the Joint Organization's trading oper- ations were SO successful that the Commonwealth Government's share of the remainder of the capital was fully paid out of such proceeds by 30th June 1947 and the sale over the period 1st August 1945-30th June, 1950, of the Joint Organization's stock of wool, resulted after the repayment of the capital cost of its stocks of wool, in the profit of £stg. 90,701,874 referred to in par. 35 above, with a prospect of further profits when the remainder of the stock is sold.

38. The Wool Realization (Distribution of Profits) Act 1948 made provision for the distribution among the persons who supplied participating wool for appraisement, of a fund called the Wool Disposals Profit" which includes the Commonwealth Government's share in the ultimate balance of profit arising from the transactions of the Joint Organization. By S. 6 (1) of the Act it is provided that the Minister may, if he is satisfied that the financial position under the Disposals Plan justifies his SO doing, by notice published in the Gazette, declare an amount to be available for distribution under the Act out of the expected net profit. By a notice published in the Commonwealth Gazette (Gazette No. 86 of 24th November, 1949) and bearing date 24th November, 1949, the Minister of State for Commerce and Agriculture declared the amount of tA.25,000,000 to be available for distribution under the Wool Realization (Distri- bution of Profits) Act 1945. Annexed hereto as Appendix E is a copy of the said declaration.

39. Pursuant to the regulations, the appellant submitted for appraisement all wool grown on its properties in the wool seasons 1939/40 to 1945/46 inclusive and all such wool was duly delivered to the Commonwealth by Goldsbrough Mort &Co. Ltd., the wool selling broker through whom the same was submitted for appraise- ment. All such wool was duly appraised and was listed as parti- cipating wool " in the appraisement catalogue used by the appraisers for the purpose of such appraisement.

86 CLR 592

40. The appraised price of the wool submitted for appraisement H. C. OF by the appellant in each of the wool seasons 1939/40 to 1945/46 was as set out below :-

Thurulgoona Station ", ", Cunnamulla, Queensland-

£172,190 4 6 " Tondeburine Station", Gulargambone, N.S.W -

£58,973 8 3 " Quantabone Station", Brewarrina, N.S.W.- -

£136,291 16 7 TOTAL

£367,455 9 4 The appraised prices as set out above were duly received by the appellant and in each wool season, save the 1945/46 season, were

86 CLR 593

received in two instalments viz. appraised price less retention money within fourteen days of appraisement, and retention money in the month of July immediately following the conclusion of the SQUATTING

wool season. The figures set out above include the amount of retention money.

41. In addition to the appraised price as set out in par. 40, the appellant received from the Central Wool Committee and the Wool Realization Commission a further amount in respect of each wool season, being the amount of flat rate adjustment. The amounts received in `respect of the flat rate adjustment were received in the month of July immediately following the conclusion of each wool season and were as follows :-

Thurulgoona Station ", aforesaid--

£18,868 1 0 " Tondeburine Station aforesaid- " Quantabone Station aforesaid-

86 CLR 594

47. The parties desire that the questions raised by the said appeal should be determined by the Full Court of the High Court and

I accordingly state the following questions for the opinion of the Full Court: (i) Is the sum of £22,851 referred to in par. 42 above assessable income of the appellant within the meaning of the Income Tax Assessment Act 1936-1949 (ii) If so, was the said amount part of its assessable income in the year ended 31st Decem- ber, 1949, or in some other and what year or years ?

D. I. Menzies, Q.C. (with him K. A. Aickin), for the appellant. There are three possibilities as to the sum of £22,851 received by the appellant 1. that it is part of the proceeds of wool which was acquired 2. that it is a gift connected or associated with the growing of wool, SO as to be taxable 3. that it is a gift made to a class of persons designated by the Act, and without reference to any income earning activity. Section 8 of the Wool Realization (Distribution of Profits) Act 1948 is one of a number of provisions which provide for the payment to be made other than to the supplier of the wool. Nor is it the case of some right which the supplier had, devolving upon some other person. Section 7 (3) provides that in certain cases the supplier shall get the money, but in other cases somebody other than the supplier shall get the money.

[WEBB J. The section is selective, but not on the basis of rights. It is selective because it selects the object of the bounty. Section 10 does no more than give the commission, in the circumstances to which it relates, a very wide discretion to pay no money at all, or to pay it to whom it chooses. Section 11 is similar to S. 9 in that it does not say that the grant from the proceeds shall be deemed to be part of the estate of the deceased person, but it merely provides that the person to whom the money shall be paid is the personal representative. It then provides that, having received it he shall hold it in a certain way. Section 20 assumes that there is a payment to be made, but that there is doubt as to the identity of the payee. It does not provide for a case where there is doubt as to whether any payment should be made at all. Under the National Security (Wool) Regulations, regs. 14, 15 and 30, it is clear that if there was any profit distributed under reg. 30, it would be a profit upon which suppliers of wool had no claim. Any moneys that remained in the hands of the Central Wool Com- mittee by virtue of the operation of the regulations belonged to the Commonwealth. Any such profits as there were, were under the

86 CLR 595

original National Security (Wool) Regulations to be dealt with as 1952-1953. the Central Wool Committee should in its absolute discretion decide,

and no person had an enforceable claim to any part of those moneys. That discretion was never exercised. The substitution in 1945 of the Wool Disposals Plan for the Wool Purchase Arrangement was the adoption of an altogether new plan, and not merely an alternative way of carrying out that arrangement. Any profit which accrued to the Commonwealth under the Wool Disposals Plan belonged to the Commonwealth and no commitment of any kind was made with respect to the distribution of that profit. Until the passing of the Wool Realization (Distribution of Profits) Act 1948 there was nobody entitled to share in the Commonwealth Government's profit, and, upon the passing of the Act, the only persons who could share in the distribution of that profit were those designated by the Act. The criterion laid down for determining those who would share in that profit is the supply of shorn wool, and not merely to have been a wool grower. Of course it was unlikely that the Central Wool Committee would exercise its discretion except in favour of wool growers.

[McTIERNAN J. If a son expects to get a legacy from his father that does not make it taxable.]

Perpetual Executors Trustees and Agency Co. (W.A.) Ltd. V. Maslen 1 is authority for the proposition that the payment of money under the Wool Realization (Distribution of Profits) Act 1948 is a gift to individual persons.

[McTIERNAN J. If a personal gift is made to a son it is given in the character or capacity of a son as such. In this case it is given to the donee in its capacity as a supplier of wool. Can it thereafter be called a personal gift ?]

Yes, because it is independent of the fact, at the time it is given, of whether or not he is carrying on business. The grower may have retired or changed his occupation.

[McTIERNAN J. But does not the whole matter arise out of some- thing in the sphere of business ?]

It may be that the person who supplied the wool for appraisement was not at the time carrying on the business of a wool grower, or, indeed, any business at all.

[WILLIAMS J. Yes, but a large percentage were wool growers. That does not matter because it is not the circumstance upon which Parliament has seized to determine whether or not they should receive the gift.

1(1952) A.C. 215. 86 CLR 59686 CLR 59786 CLR 598

The payment in the present case bears the character of part of H. the price for the wool submitted for appraisement. It is not a mere personal gift in the sense of a gift on personal grounds. The words "personal gift " are ambiguous, as is seen in the Tips Cases and which was commented upon in Calvert (Inspector of Taxes) V. Wainwright 1. They may mean a gift to a person individually such as a gift to a woman, subject to a restraint on anticipation. It would be a personal gift which had to be received by her personally. Or a gift may be a personal gift in the sense that it is given to a person on personal grounds such as a wedding present. Moreover a gift which is really a further remuneration for services rendered may be a personal gift. In Maslen's Case 2 the Privy Council in using the expression personal gift '', were drawing a distinction between a gift which might be taken by an assignee of the supplier of the wool as distinct from a gift which was to be received by the supplier of the wool, and by him only. If the true character of the payment was a further payment on account of wool submitted, it does not matter for taxation purposes that it was voluntary. See Ritchie v. Trustees Executors &Agency Co. Ltd. 3. In Ritchie's Case (3) the whole problem was the true character of the payment made under the act itself-whether it had an income nature or not. In Maslen's Case (2) the question was as to the destination of the payment in question and not the character in which the person who received it took it. Where the Privy Council speaks of the payment being a "true gift " 4 what is meant is that it was a voluntary payment, not pursuant to any prior legal obligation.

This being so, it may seem somewhat odd that support for the contention that the amount received is not income is claimed from the well-known line of decisions upon the question whether gratui- tous payments are assessable as profits arising out of the recipient's employment or by reason of his office, within the meaning of English taxing statutes. The distinction those decisions have drawn between taxable and non-taxable gifts is the distinction between, on the one hand, gifts made in relation to some activity or occupa- tion of the donee of an income-producing character, such gifts being variously described as accruing to the donee in virtue of his office (Herbert v. McQuade 3 ) or as remuneration (Beynon V. Thorpe 4 Seymour v. Reed 5 ), or in respect of his past services (Beynon v. Thorpe 6 ), or substantially in respect of his services (Blakiston v. Cooper 7; and, on the other hand, gifts referable to the attitude of the donor personally to the donee personally, such as those which have been called mere gifts or presents made to the donee on personal grounds (Seymour v. Reed 8 mere donations (Stedeford v. Beloe 9 ), gifts moved by the remembrance

1(1927) 12 Tax Cas. 927. 2(1951) 84 C.L.R. 105, at pp. 112, 3(1902) 2 K.B. 631, at p. 649. 4(1928) 14 Tax Cas. 1, at p. 11. 5(1927) A.C. 554, at p. 559. 6(1928) 14 Tax Cas., at p. 14. 7(1909) A.C. 104, at p. 107. 8(1927) A.C., at p. 559. 9(1932) A.C. 388, at p. 391. 86 CLR 637

of past services already sufficiently remunerated as services in 1952-1953. themselves (Beynon v. Thorpe 1 ), payments peculiarly due to

the personal qualities of the particular recipient, or personal gifts as marks of esteem and respect (Blakiston v. Cooper 2 ). The application of the distinction thus drawn ought surely to be that amounts such as that now in question are to be regarded as income if they were received in relation to wool supplied for appraisement in the course of a business carried on for profit. The Act makes it plain that these amounts are made payable in respect of the wool which was supplied and because it was supplied not because of any admiration for the personal qualities of the suppliers or because of gratitude for their having supplied wool for which adequate payment was considered to have been made already.

The explanation of the appellant's reliance upon the line of cases just referred to is that in Maslen's Case (Perpetual Executors Trustees &Agency Co. (W.A.) Ltd. v. Maslen 3 Lord Porter, in the course of stating the reasons of the Judicial Committee, described as "personal gifts" certain payments of the very kind with which the present case is concerned. If I understood his Lordship to have used that expression in the sense which it has in the tax cases, I should of course put aside at once any inconsistent view of my own. But when account is taken of the actual problem to which the judgment was addressed, when one considers the precise question raised by the case and the competing views which had been reflected in the judgments delivered in this Court, it becomes, I venture to think, quite clear that in the context of their Lordships' judgment the expression ' personal gift " has a meaning which not only affords no support for the argument of the appellant here but tends strongly in the opposite direction.

The amount in question in Maslen's Case (3) had been distributed in relation to wool which had been supplied for appraisement by a firm consisting of two partners. After the wool had been SO supplied, one of the partners assigned to a third party all his right title and interest as a partner in the assets of the partnership. Thereafter the partnership was dissolved. Upon a distribution being made under the Wool Realization (Distribution of Profits) Act 1948, the question arose whether the destination of the assignor's share in that distribution was affected by the assignment. In this Court 4 Latham C.J. and I considered that the question should be answered in the affirmative because of the provisions of sub-ss. (2) and (3) of S. 10 of the Act. Sub-section (2) provides that where participating wool was supplied for appraisement by a partnership

1(1928) 14 Tax Cas., at p. 14. 2(1909) A.C., at pp. 107, 108. 3(1952) A.C. 215. 4(1950) 82 C.L.R. 101. 86 CLR 638

which has been dissolved, an amount which would otherwise be H. payable to the partnership may be paid by the Commission to any partner; and sub-s. 3 provides that where an amount has been paid in pursuance of the section (and the amount in question in Maslen's Case 1 had been SO paid), the rights, duties and liabilities of the person to whom it is paid in respect of the amount shall be the same as if it were part of the proceeds of a sale of the wool of the partnership, made at the time of the supply of the wool for appraisement. If the wool supplied for appraisement by the partnership in Maslen's Case (1) had been sold by auction instead of being supplied for appraisement, and part of the proceeds of sale had remained outstanding and had come in at the time when the distribution was made under the Act, the assignee would clearly have been entitled to that part of the proceeds of sale; and for that reason the majority of the Court considered that the assignee was entitled to the distribution moneys, not by force of the assign- ment itself, but by force of the parallelism which S. 10 (3) required to be observed.

Fullagar J. dissented. He considered that the main general provision of the Act was the provision in S. 7 (3) that an amount payable under the Act in relation to any participating wool shall be payable to the person who supplied the wool for appraisement. He pointed out 2 that the general principle of the Act was that the wool produced the profit, and the man who produced the wool should receive the profit. Sub-section (3) of S. 10 his Honour regarded as simply giving a particular legal character to a sum of money, and as doing SO without creating the inferential conse- quences, first, that a debt must be regarded as having been owed to the suppliers of the wool as from the date on which they supplied it, and secondly, that any past transaction affecting debts owing to the suppliers at the time of the transaction must be deemed to have affected a notional debt created by the sub-section.

Now, their Lordships of the Privy Council had to choose, as they said (3), between the two constructions, and they upheld the view of Fullagar J. They said 4 that the sums paid by the commission were admittedly nothing but a gift, and (3) that it would do violence to that admitted fact to construe the provisions (of S. 10) as going further than to require a member of a dissolved partnership to account to his former partner, that is to say as going SO far as to stipulate that the money should be dealt with as if it were the result of a contract or debt which came into existence when the

3(1952) A.C., at p. 229. 1(1952) A.C. 215. 2(1950) 82 C.L.R., at p. 121. 4(1952) A.C., at p. 227