Employers Mutual Indemnity Association Ltd v. Federal Commissioner of Taxation68 CLR 165
(Judgment by: STARKE J)
Employers' Mutual Indemnity Association Ltd
v. Federal Commissioner of Taxation
Starke JMcTiernan J
Taxation and revenue
War-time company tax
Mutual indemnity association
Co-operative insurance company
War-time (Company) Tax Assessment Act 1940 No 90 - s 14(b); s 14(d)
Income Tax Assessment Act 1936 No 27 - s 117
Judgment date: 1 December 1943
Appeal by the taxpayer from the decision of a Board of Review rejecting objections to an assessment to war-time (company) tax for the financial year 1940-1941 referred by order to this Court. The Board acquired jurisdiction under the provisions of the War-time (Company) Tax Assessment Act 1940, which incorporated various sections of the Income Tax Assessment Act 1936-1940.
The appeal was made to this Court pursuant to the provisions contained in the latter Act, which provides that the Commissioner or the taxpayer may appeal to the High Court from any decision of the Board which involves a question of law. The taxpayer claims that it is a company in which little or no capital is required and therefore entitled to the exemption provided by the War-time (Company) Tax Assessment Act 1940, s. 14 (d). Capital in its context in this section is not the share capital of a company, but the capital in the business sense required for the conduct of a business such as the company carries on (Incorporated Interests Pty Ltd v Federal Commissioner of Taxation [F5] ). The question therefore was one of fact for the Board. It has found that the company was incorporated under the Companies Act 1899 (N.S.W.) and is a company limited by guarantee issuing policies covering workers' compensation and motor vehicle, including third party, risks. It issues such policies to its members, but its memorandum of association does not so restrict it. Obviously such a company could not, as a matter of business, rely wholly upon the annual premium income for the purpose of meeting claims: it would require reserves or accumulated funds in the ordinary course of business. And the company has in fact accumulated a reserve fund of PD27,000 or thereabouts out of income for any of the purposes of its business. The only question for this Court is whether, in these circumstances, there is any evidence which affords a reasonable basis for the finding of the Board that the taxpayer is not a company in which little or no capital is required. Clearly there is.
The taxpayer also claims it was a co-operative company as defined by the Income Tax Assessment Act and entitled to the benefit of the provision of s. 14 (b) of the War-time (Company) Tax Assessment Act 1940. A co-operative company for the purposes of this provision includes "a company which has no share capital, and which ... is established for the purpose of carrying on any business having as its primary object or objects ... (d) the rendering of services to its shareholders." The taxpayer has no share capital: it is a company limited by guarantee. It issues policies of insurance to its members as already mentioned and settles claims under those policies. The Board has found that the company was not established for, and does not carry on, any business having as its primary object or objects the rendering of services to its shareholders.
In a general sense insurance companies do give or render service to the public or their members. Mutual insurance companies, associations and clubs are quite common in connection with marine insurance. And so are co-operative societies in connection with the purchase and sale of commodities and loans of money. And all in a general sense give or render service to their members. But the question is what is the meaning of the expression "the rendering of services to its shareholders" in the context in which it is found in the Income Tax Assessment Act 1936-1940. It is used in connection with what is called a co-operative company and the doing of acts for shareholders. And it is in this sense, I think, that the expression is used in the Assessment Act: the doing of acts for shareholders, including the rendering of services to its shareholders such, for instance, as shearing sheep for shareholders, as was suggested during the argument.
The Board was right in rejecting the general sense in which the expression "giving or rendering services" is sometimes used. And beyond this the question is, as it seems to me, one of fact. The only question for the Court is whether there is any evidence which affords a reasonable basis for the finding of the Board that the issue of policies and settling claims by the taxpayer is not "the rendering of services to its shareholders." Again clearly there is.
The appeal should be dismissed.