Smith v Federal Commissioner of Taxation

48 CLR 178

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(Judgment by: STARKE, DIXON AND McTIERNAN JJ)

Smith
v Federal Commissioner of Taxation

Court:

Judges: Gavan Duffy CJ and Evatt J
Rich J

Starke J, Dixon J and McTiernan J

Subject References:
Taxation and revenue
Income tax
Resumption of land
Compulsory sale
Profit distributed as dividend
Dividend not assessable income
Subsequent amending legislation

Legislative References:
Income Tax Assessment Act 1922 (Cth) No 37 - s 16(b)(i)
Income Tax Assessment Act 1930 (Cth) No 50 - s 6(b)
City of Brisbane Improvement Act 1916 (Qld) (7 Geo V No 24) - ss 3, 7, 8, 17

Hearing date: SYDNEY 9 August 1932; 10 August 1932; 18 August 1932;
Judgment date: 18 August 1932

Sydney

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Judgment by:
STARKE, DIXON AND McTIERNAN JJ

SThe Income Tax Assessment Act 1922-1927, s. 16 (b), provided that where a dividend or bonus is paid wholly or exclusively out of the profits arising from the sale of assets which were not acquired for the purpose of resale at a profit, a member or shareholder shall not be liable to tax on that dividend or bonus.

It appears that certain land had been resumed under the City of Brisbane Improvement Act of 1916, and the question arises whether that resumption is a sale of assets within the meaning of the Income Tax Assessment Act already mentioned. A sale technically imports the conveyance or transfer of property or an agreement or other obligation to convey or transfer property for a price in money. The compulsory acquisition of lands under such Acts as the Lands Clauses Consolidation Act 1845 (Eng.) and the Lands Compensation Act 1928 of Victoria is well enough described as a sale and purchase once the price is ascertained. As Lord Hatherley L.C. said in Harding v Metropolitan Railway Co ^[F10] : "When the price is ascertained ... you have then all the elements of a complete agreement, and, in truth, it becomes a bargain made under legislative enactment between the railway company and those over whom they were authorized to exercise their power." Under the City of Brisbane Improvement Act, however, the Council is authorized to declare that any land required for the purposes of the Act has been taken by the Council, and, upon publication of a notice of resumption, the land becomes vested in the Council and the right of the person from whom the land is taken is converted into a claim for compensation under the Act. It is an exchange of land, made under legislative enactment, for money. Substantially the Act has provided the price at which the land is to be taken or resumed (Davies v Collector of Imposts ^[F11] ; Commissioners of Inland Revenue v Glasgow and South-Western Railway Co ^[F12] ). Does the expression "sale of assets" require a definite contract of purchase and sale, or does it mean a parting with assets in the same manner as upon a contract of purchase or sale? The latter view, in our opinion, is the right one (Great Western Railway Co v Commissioners of Inland Revenue ^[F13] ). The Act looks to the substance of the matter, and is not concerning itself with technical definitions of the word sale. It would be strange indeed if the Income Tax Assessment Act 1922-1927, s. 16 (b), applied to compulsory acquisitions of lands by means of a notice to treat under such Acts as the Land Compensation Act of Victoria and not to compulsory acquisitions by means of a notice of resumption under such Acts as the City of Brisbane Improvement Act. The alteration in the provisions of the Income Tax Assessment Act 1922-1927 by the Act 1930, No. 50, s. 6 (b), does not affect this case, but it has been used in argument as an aid to construction of the words in the original Act. It is not, we think, a legitimate deduction, and in any case the implication that the Legislature was not expanding the meaning of the expression "sale of assets" is just as sound as that it was. Despite some argument to the contrary, the evidence now before us, which was not before the Board of Review, makes it clear in the present case that the dividends, the subject of this appeal, were wholly and exclusively paid out of the profits arising from the land resumed by the City of Brisbane Council, and it was not in contest that the land was not acquired for the purpose of resale.

The appeal should be allowed.