The Squatting Investment Co Ltd v Federal Commissioner of Taxation
86 CLR 5701953 - 0413A - HCA
[1953] ALR 366
(Judgment by: McTiernan and Williams JJ)
Between: The Squatting Investment Co Ltd
And: Federal Commissioner of Taxation
Judges:
McTiernan J and Williams JWebb J
Fullagar J
Kitto J
Subject References:
Taxation and revenue
Income tax
Assessable income
Acquisition of wool supplied by grower in course of business
Legislative References:
Income Tax Assessment Act 1936 No 27 - s 6; s 25; s 26(g)
Wool Realization (Distribution of Profits) Act 1948 No 87 - s 7; s 28; s 29
Wool Realization Act 1945 No 49 - s 9; s 10
National Security (Wool) Regulations 1939 SR No 108 - r 30
Judgment date: 13 April 1953
SYDNEY
Judgment by:
McTiernan and Williams JJ
The questions in the case stated ask (i) whether the sum of PD22,851 paid by the Australian Wool Realization Commission to the appellant company on 30th November, 1949, formed part of the assessable income of that company within the meaning of the Income Tax Assessment Act 1936-1949 and, if so, (ii) was the amount part of its assessable income in the year ended 31st December, 1949, or in some other and what year or years. The appellant is a company which has adopted as its accounting year the period of twelve months commencing on 1st January and ending on 31st December in each year instead of the usual accounting period from 1st July in one year to 30th June in the following year. The Australian Wool Realization Commission is a body set up and incorporated by the Wool Realization Act 1945-1946 as the subsidiary in Australia of the Joint Organization set up and incorporated under the Disposals Plan set out in the schedule to that Act. The sum of PD22,851 is the appellant's share of a distribution of profits authorized by the Wool Realization (Distribution of Profits) Act 1948.
The case stated gives a detailed account of the manner in which the Australian wool clip was acquired and is being disposed of during and after the recent world war. It is unnecessary to set out these facts in any detail again. They have been discussed in three decisions of this Court; namely, Ritchie v Trustees Executors and Agency Co Ltd; [F1] Maslen v Perpetual Executors Trustees & Agency Co (W.A.) Ltd [F2] and Poulton v Commonwealth , a recent decision of Fullagar J. [F3] Maslen's Case [F4] went on appeal to the Privy Council and is reported. [F5] The statement of facts in Ritchie's Case [F6] was objected to in certain respects by counsel for the appellant. At the time of the present argument the judgment in Poulton's Case [F7] had not been delivered. The issues in all three cases were different from the present issue. It is sufficient to say that for the purposes of this appeal the facts, if they differ from the facts stated in the judgments in the other cases, must be taken to be the facts set out in the case stated. These facts need not be repeated in great detail. Some only are of particular importance on the present issue
On the outbreak of war an arrangement was made between the Governments of the United Kingdom and the Commonwealth by which 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. The price to be paid for the wool was at a flat rate of 10.75 stg. (13.4375A) pence per lb. of greasy wool for the whole clip. (Subsequently increased by 15 per cent for the 1942/43 and following seasons.) The important term in that arrangement for present purposes is the term that the Governments would divide equally any profit arising from the resale outside the United Kingdom of wool purchased by the Government of the United Kingdom under the arrangement. To carry the arrangement into effect the National Security (Wool) Regulations were enacted which set up a Central Wool Committee charged with the administration of the regulations and all matters arising out of the arrangement.
The regulations provided that no person should sell or buy any wool or wool tops, except in accordance with the regulations. They also provided that the sale of wool should be by appraisement and the property in every parcel of wool submitted for appraisement should pass to the Commonwealth when the final appraisement was completed in the manner prescribed by the instructions of the Central Wool Committee governing appraisement. It was necessary to appraise the wool because the Australian wool clip is of a diversified character and the value of a particular bale of wool could not be ascertained by applying the flat rate purchase price to the weight of the wool. By the method of appraisement adopted the total price received from the United Kingdom calculated at the flat rate was divided among the suppliers of the wool according to the value of the wool supplied.
Regulation 30 provided that (1) all moneys payable by the Government of Great Britain under the arrangement made by that Government with the Commonwealth for acquiring Australian wool should be received by the Central Wool Committee and out of such moneys the Central Wool Committee should defray all costs, charges and expenses of administering these regulations, and make the payments for wool to the suppliers. (2) Any moneys which might be received by the Central Wool Committee from the Government of Great Britain under or in consequence of such arrangement over and above the purchase price payable by such Government thereunder for the wool and any surplus which might arise should be dealt with as the Central Wool Committee should in its absolute discretion determine.
Pursuant to the regulations the whole of the Australian wool clip in each year during hostilities was acquired by the Commonwealth and the suppliers of the wool, in the manner set out in the case stated, received the whole of the compensation moneys to which they were legally entitled resulting from the compulsory acquisition of their wool. But the Central Wool Committee, from the inception of the wool purchase arrangement, had contemplated that any profit which the Commonwealth Government 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, who would ordinarily be wool growers, and that the suppliers of skin wool would not participate. Mainly for this reason shorn wool was classified in the brokers' catalogues as "participating wool" and skin wool as "non-participating wool". To give effect to this term of the arrangement the Government of Great Britain opened a divisible profits account in which a record was kept in the United Kingdom of the sales of wool in other countries so that it could be ascertained whether any profit was being made on the sale of wool outside the United Kingdom. However, while large quantities of the wool purchased by the United Kingdom remained in store in Australia and elsewhere, it was impossible to determine whether there would eventually be any such profit or not and no distribution of profits from this account was ever made.
The end of hostilities found the United Kingdom the owner of large stocks of wool, much of it held in Australia for storage or treatment or stored in the United States of America, purchased from the Commonwealth under the arrangement and wool purchased from New Zealand and South Africa under similar arrangements. A similar problem to that which arose at the end of the first world war again arose, namely, how to dispose of the stocks of carry-over wool in such a way as not to spoil the market and prejudice not only their disposal value but also the sale value of the current clips. As a result of negotiations conducted in the year 1945, an agreement intended to overcome this problem was reached between the Governments of the United Kingdom, Australia, New Zealand and South Africa and was called the Disposals Plan. To give effect to this agreement the Commonwealth Parliament passed the Wool Realization Act 1945, which came into force on 15th November, 1945. The plan is printed in the schedule to that Act. Pursuant to the agreement the United Kingdom 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 local subsidiary of the Joint Organization. The Australian subsidiary is the Australian Wool Realization Commission set up by the Wool Realization Act 1945.
The disposals plan provided that the stock of Dominion grown wool in the ownership of the United Kingdom at 31st July, 1945, would be transferred to the joint ownership of the United Kingdom Government and Dominion Government concerned and all wool subsequently acquired under the scheme would be held in joint ownership. It provided that the functions of the principal company would be primarily to buy, hold and sell wool as agent of the four Governments and generally to administer the scheme agreed upon between them. It provided for the purchase by the United Kingdom, by the existing methods of appraisement and bulk purchase, of the whole clip for the wool year 1945/46 (called the interim period) which was to become the joint property of the United Kingdom and Dominions concerned. After that year the usual practice of selling wool by auction was to be resumed but the Joint Organization, through its subsidiaries, was to lift wool offered at auction (from stocks or current clips) for which the reserve price fixed by the Joint Organization or better was not offered by a commercial buyer.
The plan provided for the necessary capital contributions to be provided by the United Kingdom and Dominions and for the operating expenses of the Joint Organization in carrying out the plan. It provided that the United Kingdom and the Dominion concerned would each take up 50 per cent of the original capital represented by the opening stock of wool grown in that Dominion to be handed over to the Joint Organization. The opening stock was to be taken in by the Joint Organization at its original cost (including f.o.b. payments) less the amount accumulated in the divisible profits accounts. In the case of Australia the opening stock was 6,796,000 bales the original cost of which was PDstg. 106,796,829, the amount to the credit of divisible profits account was PDstg. 19,489,223, so that the Commonwealth Government assumed a liability of over PDstg. 40,000,000.
The fund which until then, subject to a profit being finally realised, was in the discretion of the Central Wool Committee disappeared as a separate fund. Section 9 of the Wool Realization Act 1945 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. Section 10 provided that any reference in the National Security (Wool) Regulations to the arrangement made between the Government of Great Britain and the Government of the Commonwealth should include and be deemed at all times, on and after 1st August 1945, to have included a reference to the Disposals Plan. It may be that, if there had been no further legislation, any ultimate profit the Commonwealth received from the operation of the Disposals Plan could have been disposed of in the discretion of the Commission and it may be assumed that this disposal would have been in accordance with the intention already mentioned. But the matter was not left there for, as will be seen, the Commonwealth Parliament stepped in and itself provided for the distribution of this profit.
Payment of the Dominions' shares of the original capital was to be made in four annual instalments to which the Dominions' shares of the proceeds of sale by the Joint Organization and of the net profit during the interim period were to be applied. The United Kingdom was to be reimbursed by each Dominion for half of the cost of the new clip of that Dominion purchased by the United Kingdom in the interim year and unsold at the end of the wool year. Each Dominion and the United Kingdom were to share equally in the provision of any further capital required by the Joint Organization during the operation of the scheme for "bought-in" new wool of that Dominion.
The plan provided that the operating expenses of the Joint Organization should be borne equally between the industry and the Joint Organization itself; that the share of the industry would be paid by the Dominion Governments primarily from the proceeds of a contributory charge on all sales of new clip wool and the share of the Joint Organization would be made by deduction from the proceeds of sales by the Joint Organization before application to capital repayment. The plan provided that, after deduction of one-half of the operating costs, the proceeds of all sales by the Joint Organization together with certain other sums would be used for repayment of capital equally between the United Kingdom and the Dominion Government concerned. The ultimate balance of profit or loss arising from the transactions of the Joint Organization in the wool of any Dominion would thus be shared equally between the United Kingdom and the Government of that Dominion. The plan provided that payments would be so adjusted that each Government would receive the sum to which it was entitled under the scheme, irrespective of any tax chargeable by the United Kingdom Government or a Dominion Government on profits arising from the operations of the Joint Organization or its subsidiaries.
It will be seen that the Disposals Plan introduced a complete departure from the agreement in the wool purchase arrangement that the Commonwealth should receive half of the profits (if any) arising from the sale by the Government of Great Britain outside the United Kingdom of wool purchased under that arrangement. That agreement imposed no financial obligations on the Commonwealth whatever. The whole task of disposing of the wool was left to the United Kingdom. If that disposal resulted in a profit half of that profit was to become the property of the Commonwealth. If it resulted in a loss the United Kingdom had to bear the whole of the loss. Under the National Security (Wool) Regulations the Central Wool Committee had complete discretion as to the manner in which that profit was to be distributed. The profit was not to be paid into Consolidated Revenue. It was to be paid to the Central Wool Committee, and that fact, together with the classification of shorn wool as "participating wool", raised an expectation that, in accordance with the intention of the Central Wool Committee already mentioned, the Commonwealth's share of any profit to arise under the Wool Purchase Arrangement would be distributed amongst the suppliers of shorn wool. Under the Disposals Plan the Commonwealth agreed to contribute large sums of capital and to become the joint owner with the United Kingdom of the stocks of Australian wool then undisposed of, the 1945/46 new clip to be acquired by appraisement, and any other Australian wool purchased by the Joint Organization when the normal system of auction sales was resumed.
As a result of the plan the Joint Organization, on behalf of the United Kingdom and the Commonwealth Governments, became engaged in a huge business of reselling the carry-over wool, acquiring and realising the 1945/46 clip and purchasing new wool at auction and realising this wool. Out of these proceeds of sale, half the operating expenses were first to be paid and the United Kingdom and the Commonwealth Governments were then to be repaid their capital contributions in full if the proceeds of sale were sufficient for that purpose and, if they were not, pari passu .
The business might have made a profit or a loss. In fact, it will make a large profit. It will be a profit made out of the process of realising the whole of the wool in question. If the wool had been owned jointly by private individuals, these profits might have been liable to be assessed for income tax under relevant laws. But naturally the Governments did not want to tax themselves and the Disposals Plan contains the provision with respect to taxation already mentioned.
The Commonwealth Government decided to distribute its share of the profit amongst the persons who supplied "participating wool" for appraisement and for that purpose passed the Wool Realization (Distribution of Profits) Act 1948. It is intituled "An Act to provide for the Distribution of any ultimate Profit accruing to the Commonwealth under the Wool Disposals Plan, and for other purposes". The Act provides machinery for the distribution of this profit by authorizing interim distributions out of the expected net profit and a final distribution when that profit has been finally ascertained. Part III of the Act which is headed "Persons Entitled", containing ss. 7-14, defines the persons who are to share in these distributions. Section 7 is the leading section. Its text is as follows:
- "7(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."
Sections 28 and 29, which are not contained in Pt. III, should also be noticed. Section 28 provides that:
"No action or proceedings shall lie against the Commission or the Commonwealth for the recovery of any moneys claimed to be payable to any person under this Act, or of damages arising out of anything done or omitted to be done by the Commission in good faith in the performance of its functions under this Act."
Section 29 provides that:
"Subject to this Act and the regulations, a share in a distribution under this Act, or the possibility of such a share, shall be, and be deemed at all times to have been, absolutely inalienable prior to actual receipt of the share, whether by means of, or in consequence of, sale, assignment, charge, execution or otherwise."
The meaning and effect of Pt. III of the Act and s. 29 received the close attention of the Privy Council in Maslen's Case [F8] . It is clear from the judgment of Lord Porter that the Board were of opinion that the amount distributed to each supplier under s. 7 was a voluntary personal gift to that supplier and that, apart from any special provisions in the Act, it became his property to do with as he pleased. The Act contains certain special provisions where the supplier has become bankrupt, or has died, or the supplier was a trustee, or a company which has become defunct, or a partnership which has been dissolved. It also contains a special provision where a mortgagee supplied the wool pursuant to the terms of his security. For instance s. 10 provides that where participating wool was supplied for appraisement by a company which is defunct or by a partnership which has been dissolved the rights, duties and liabilities of a person to whom an amount is paid in respect thereof shall be the same as if it were part of the proceeds of a sale of the wool by the company or partnership made at the time of the supply of the wool for appraisement. Section 13 provides that where participating wool was supplied for appraisement by a mortgagee the mortgagee shall have and be subject to the same rights, duties and liabilities in respect of the amounts paid to him under the Act in relation to that wool as if that amount were part of the amount which was paid on the appraisement of the wool. This provision was obviously inserted so that the mortgagee would have to hand over to the owner of the equity of redemption in the wool the whole or such part of the amount he received as was not required to satisfy the mortgage debt.
None of these special provisions are directly relevant in the present case for the wool was supplied by the appellant company and this company is still a going concern actively engaged in the business of growing wool. In the absence of authority it might, however, be contended that these special provisions throw a light on the general intention of Pt. III of the Act and indicate that the Commonwealth Parliament intended that all distributions under the Act should be regarded as extra payments of price for participating wool. But this contention would not be consistent with the construction the Board placed on Pt. III in Maslen's Case. [F9] The Privy Council has held, it seems to us, that these special provisions are not sufficient, even in the particular cases to which they refer, to place the payments in the same category as those received as of legal right for the wool supplied. That was the argument for the respondents which their Lordships rejected. They decided that even in these special cases the provisions in question are directed only to identifying the persons who are to be the ultimate recipients of the personal gift. They did not go further and stipulate that they are to be regarded for all purposes as if they were the result of a contract or debt which came into existence when the wool was supplied for appraisement. "So to construe the wording would be to do violence to the admitted fact that it is a gift".
In Maslen's Case, [F10] Connolly and Laffer were carrying on in partnership a pastoral business in Western Australia under the name of the Mardathuna Pastoral Company and supplied participating wool to the Commonwealth under the National Security (Wool) Regulations. By a deed of assignment dated 17th June, 1946, Connolly assigned to the respondents all his right title and interest in ... the benefit of all contracts and engagements and book debts to which Connolly and Laffer might be entitled in connection with the said business together with all other assets of the business. By another deed dated October 2nd, 1946, Laffer assigned his half share to the first of the respondents. Connolly died on 28th December, 1946, and a sum of money was paid in 1949 by the Australian Wool Realization Commission to the appellants as the personal representatives of the assignor in his capacity as a former partner in a dissolved partnership as the share of that partnership in a distribution of sums under the Wool Realization (Distribution of Profits) Act in respect of participating wool supplied by it. The Privy Council held that the sum paid by the Commission under the Act was neither a debt nor an asset of the business, nor was it ever partnership property, but was a personal gift to the individual parties concerned and that accordingly it did not pass under the assignment to the respondents. ... "as their Lordships have said, the sum paid is neither a debt nor an asset of the business nor was it ever partnership property. In their view it is a personal gift to the parties concerned".
To our mind the construction which their Lordships have placed on Pt. III of the Act greatly assists the appellant here. The only provisions in the Income Tax Assessment Act which can be relied upon in support of the claim that the sum in issue is part of its assessable income are:
- (1)
- that portion of the definition of "income from personal exertion" which provides that such income includes the proceeds of any business carried on by the taxpayer; and
- (2)
- that portion which provides that such income includes any amount received as a bounty or subsidy in carrying on a business.
(This portion refers to s. 26 (g) of the Act which provides that the assessable income of a taxpayer shall include any bounty or subsidy received in or in relation to the carrying on of a business, and such bounty or subsidy shall be deemed to be part of the proceeds of that business.) The first provision does not mean that all the proceeds of a business are assessable income. All that it means is that the proceeds of a business which are assessable income by reason of some statutory provision or because they are income according to ordinary usages and concepts of mankind are to be classified as income from personal exertion and not as income from property. Colonial Mutual Life Assurance Society Ltd v Federal Commissioner of Taxation, [F11] at p. 615. The contention of the respondent is that the amount in dispute is assessable income because it is income according to ordinary usages and concepts; that it is, though voluntary, a payment for the wool supplied; that it is an addition to the compensation paid for the wool on appraisement and bears the same character as the payments made to discharge the appraised value; that it is, therefore, a further payment of income; that it is stamped with that character upon the proper interpretation of the Act pursuant to which it is paid; that it was received by the suppliers as further proceeds for their wool, and was a statutory payment made for the purpose of supplementing the price already paid so that the suppliers would receive full compensation for what turned out to be the value of their wool in the long run. We cannot accept this contention. The amount in dispute is not, in our opinion, of the same character as the payments made to discharge the appraised value. It is a gift and nothing more than a gift to the appellant. We refer to the illustration suggested by Williams J. to Mr. Adam during the argument of a wool grower who sold wool to a dealer who made a larger profit than he expected to make on the resale and sent the wool grower a cheque equal to portion of this profit accompanied by a letter explaining that he had done better than he expected out of the deal and would like to send the grower a further cheque as a gift in addition to the amount he had paid for the wool. In such a case the whole of the profit the dealer had made would clearly be part of his assessable income, part of the proceeds of the business he was carrying on, and the payment to the grower would be a voluntary personal gift proceeding from the bounty to the dealer and no more part of his assessable income than a personal gift actuated by any other motive. In Ryall v Hoare [F12] Rowlatt J. discussed the kind of casual profits that were taxable under Case VI of Schedule D. of the Income Tax Act 1918 (Imp.) (8 & 9 Geo. 5. c. 40). His Lordship said:
"The second class of cases to be excluded consists of gifts and receipts, whether the emolument is from a gift inter vivos, or by will, or from finding an article of value, or from winning a bet. All these cases must be ruled out because they are not profits or gains at all". [F13]
See also Ayrshire Pullman Motor Services v Commissioners of Inland Revenue; [F14] Waddington v O'Callaghan; [F15] Commissioner of Taxation v Happ. [F16]
The position of the Commonwealth in the present case approximates to that of the dealer and the persons who supplied the wool to that of the grower in the illustration. So far as any ultimate profit received by the Commonwealth Government under the Disposals Plan can be regarded as income, it is the income of the Commonwealth. The decision of the Commonwealth Parliament to distribute this profit among the suppliers of participating wool as a voluntary gift cannot make the distribution part of their assessable income just because it is a distribution of a profit on which the Commonwealth might have had to pay income tax if it had been a private individual. The suppliers were not engaged in the business that made the profit. The Governments of Great Britain and the Commonwealth were engaged in that business. The profit the Commonwealth made out of that business belonged to the Commonwealth to dispose of as it chose. The mere fact that it chose to distribute this profit amongst the suppliers of participating wool is not sufficient to make the payment part of their assessable income. There is nothing in the Wool Realization (Distribution of Profits) Act to make each payment more than "a true gift to the supplier of the wool". The only connection between the submission of the wool for appraisement and the payments is that the Act uses that criterion for ascertaining who are the donees of the Commonwealth gift and the extent to which they are to benefit. It does not make the payments part of the proceeds of the submission of the wool for appraisement. The only true proceeds of this submission are the compensation moneys. They are the only moneys the Commonwealth was legally liable to pay. Distributions under the Wool Realization (Distribution of Profits) Act are payments which the Commonwealth was at complete liberty to make to anyone, and they would be gifts to whomsoever they were made. The choice of a class of deserving donees, whose efforts in the past had made it possible for the profit to be realised, doesnot alter the character of the payments or make the distributions part of their assessable income. The Commonwealth Parliament could, if it had wished, have said that these distributions should be regarded as assessable income. But it has not said so, and the provisions of ss. 28 and 29 of the Wool Realization (Distribution of Profits) Act appear to us to indicate the contrary. If the distributions are intended to be extra payments of price for the wool supplied for appraisement, it is strange that the persons entitled to the payments have no right of action to recover them from the Commonwealth and such payments are absolutely inalienable prior to their actual receipt.
In the course of the argument we were referred to the long line of English cases which we had occasion to consider in the recent case Commissioner of Taxation v Dixon [F17] relating to the provisions of the English Income Tax Acts providing that all salaries, fees and other emoluments which come to a person by virtue of his office or employment are taxable even though they be paid voluntarily. This provision finds an echo in s. 26 (e) of the Income Tax Assessment Act (Cth.). The reasoning in these cases must, we think, be applied with caution when the question is whether a voluntary payment which has some connection with a business operation is part of the proceeds of the business. In Chibbett v Joseph Robinson and Sons [F18] the respondents, a firm of ship managers, were employed in that capacity by a steamship company, their remuneration consisting in part of a percentage of the company's annual net profits including interest on its investments which were considerable. The company went into liquidation and, inter alia, authorized the liquidator to transfer PD50,000 of 5 per cent national war bonds to the respondents as compensation for loss of office. In computing the liability of the respondents for income tax and excess profits duty, the sum of PD50,000 was included as part of the profits of their business as ship managers. On appeal the General Commissioners decided that it was not a profit and Rowlatt J. upheld this finding. In the course of his judgment his Lordship said: "Of course it is true that it is a trade receipt in this sense, that if these people had not been managers they never would have got it. It was not a gift to them as individuals or anything of that sort; it was because they were people of this kind". His Lordship said that the payment was in the nature of a testimonial for what the firm had done in the past. Three other cases to the same effect to which reference may be made are Beynon v Thorpe, [F19] Cowan v Seymour [F20] and Stedeford v Beloe [F21] where it was held that voluntary gifts given to a person in appreciation of past services were not taxable. In the last-mentioned case Lord Dunedin said, "Now ... it has been held again and again that a mere voluntary gift is not ... in the true sense of the word income. It is merely a casual payment which depends upon somebody else's good will". [F22] Nothing more appears than that the distributions under the Wool Realization (Distribution of Profits) Act are being made to the suppliers participating wool because they supplied that wool in the past. In the words of Rowlatt J. the distributions are gifts to them because they are people of that class.
In the first world war, as in the recent war, the whole of the Australian wool clip was delivered to the Government of Great Britain under the arrangement made with the Commonwealth Government. It was a term of that arrangement that any profit made by the former Government from the sale of surplus wool should be equally divided between the two Governments. The British-Australian Wool Realization Association, usually known as B.A.W.R.A., was formed to take over the Commonwealth's share of the profits, which were by direction of the Commonwealth divided amongst the wool suppliers in the shape of cash, priority certificates and shares in the company. It is unnecessary to set out the scheme in any detail. It is described in the judgment of Ferguson J. in In the Estate of W.O. Watt (Dec'd.) [F23] and in the cases that went to the Privy Council, Commissioner of Taxes v British Australian Wool Realization Association Ltd [F24] and Commissioner of Taxes v Union Trustee Co of Australia Ltd. [F25] Apparently Queensland income tax was paid on the shares received by the supplier in the latter case. But the Privy Council are careful to say "Whether rightly or not, however, these shares were for Queensland income tax purposes treated as part of the testator's income for the year 1921 in which they were received". [F26] In Watt's Case [F27] the wool profits were still in the absolute disposal of the Commonwealth, although it had decided what it proposed to do with them, when the testator died and it was held that the shares, etc received by the firm of which he was a member and by his executor after his death pursuant to wool supplied by the firm and the testator in his lifetime were not part of his estate for the purposes of death duty. Ferguson J. said: "As the Government had an absolute discretion in the matter, and might either have kept the money or have distributed it amongst whom they chose, the fact that they chose one set of people rather than another cannot change the essential nature of the transaction. When a man of his own free will hands his money over to another person to whom he is under no obligation, that is a gift". [F28] The decision of the Supreme Court was affirmed on appeal to this Court. [F29] This passage supports the view that the distributions under the Wool Realization (Distribution of Profits) Act are simply gifts to the designated persons and nothing more and should not be equated to the payments the suppliers were legally entitled to receive as compensation for the acquisition of their wool.
It is contended that this view is inconsistent with the reasoning in Ritchie's Case. [F30] In that case the trustees of a settled estate had from time to time submitted for appraisement under the National Security (Wool) Regulations wool produced on a pastoral property carried on by them under a power given by the trust instrument. It was held that moneys received, pursuant to the Wool Realization (Distribution of Profits) Act, by the trustees as the suppliers of the wool were income of the settled estate and should be treated as a receipt of the pastoral business belonging to the profit and loss account of the year in which they were received. The case does not appear to have been cited to the Privy Council in Maslen's Case. [F31] There are passages in the reasons for judgment which at first sight appear to assist the respondent. In particular it was said that the payments constituted receipts resulting from the operations of wool growing and it was contended that this meant they bore the same character as the appraisement moneys. This and other statements, like those in any other case, must be read "secundum subjectam materiam". The issue in Ritchie's Case [F32] was different from the issue in the present case. Admittedly the trustees were not beneficially entitled to the payments and the question was whether they should be treated as income or capital in the trust accounts. The fact that the court decided that, in order to determine the respective rights of the life tenant and remainderman, the payments should be treated as income does not mean that the payments were necessarily assessable income of the trust estate. On any view the payments were windfalls-mere casual payments such as a wool grower would seldom receive in addition to the ordinary proceeds of the sale of his wool-and the question has often arisen whether such payments belong to the life tenant or remainderman of a settled estate. In Halsbury, 2nd ed., vol. 29, p. 644, it is said: "A tennant for life of settled property is entitled both to the ordinary income of the property, including the income of a fund set aside to provide for portions payable on his death, and to all casual profits which accrue during the subsistence of his tenancy for life, unless the settlement provides otherwise". Many instances are noted in the footnote to which may be added In re Lindsay's Settlement (No. 1), [F33] in Re Pomfret's Settlement. [F34] The mere fact that the life tenant is entitled to a casual payment does not make it part of his assessable income.
There remains the question whether the PD22,851 was 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 Income Tax Assessment Act. That paragraph provides that such bounty or subsidy shall be deemed to be part of the proceeds of that business. In our opinion, this provision has no application to the present facts. The payments to which it refers are payments made for the purpose of assisting persons to carry on a business at the time the payments are made or, perhaps, to commence a business in the future. The appellant was, in fact, still carrying on a business of growing and selling wool in November, 1949. But it might not have been doing so. It might then have finally ceased to carry on business. Many suppliers who qualify for payments under Pt. III of the Wool Realization (Distribution of Profits) Act may have ceased to carry on business and the Act, as we have said, contains special provisions relating to suppliers who have died etc Distributions under the Act cannot be bounties or subsidies within the meaning of par. (g) in some cases and not in others. The distributions relate to business operations past and closed, not to current operations. They are not bounties or subsidies within the meaning of the paragraph.
For these reasons we would answer the first question in the negative and the second question does not arise.