Commissioner of Pay-roll Tax (N.S.W.) v. R.G. Elsegood & Co. Pty. Ltd.

Judges:
Hutley JA
Samuels JA
Mahoney JA

Court:
Supreme Court of New South Wales - Court of Appeal

Judgment date: Judgment handed down 29 March 1983.

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Hutley J.A.

This is an appeal from judgments of Hunt J., given on 16 March 1982, in which he declared that in relation to Pt. IVA of the Pay-roll Tax Act 1971, as amended in relation to the financial years ending 30 June 1976, 1977, 1978 and 1979, the two companies did not constitute a group, and directed that objections be allowed and tax assessed accordingly.

The effect of companies being held to constitute a group is to limit the deductions which are permissible for the purpose of assessing pay-roll tax. The provisions which govern these two cases are sec. 16D(2), which reads as follows:

``16D(2) For the purposes of this Act, where the same person has, or the same persons have together, a controlling interest under subsection (3) in each of two businesses, the persons who carry on those businesses constitute a group.''

and sec. 16D(3)(b), which reads:

``16D(3) For the purposes of subsection (2), the same person has, or the same persons have together, a controlling interest in each of two businesses if that person has, or those persons have together, a controlling interest under any of the following paragraphs in one of the businesses and a controlling interest under the same or another of the following paragraphs in the other business -

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(b) a person has, or persons have together, a controlling interest in a business, being a business carried on by a corporation that has a share capital, if that person or those persons acting together may (whether directly or indirectly) exercise, control the exercise of, or substantially influence the exercise of, 50 per centum or more of the voting power attached to voting shares issued by the corporation;''

The facts were summarised in the judgment under appeal and the summary, accepted as correct, is as follows:

``(1) Each of the two appellant companies carries on business within the meaning of Pt. IVA of the Act.

(2) At all relevant times in relation to R.G. Elsegood (Sales) Pty. Limited (`X Company'), Mr. R.G. Elsegood (`A') and Mr. A. Elsegood (`B'), whatever interpretation is given to sec. 16D(3)(b), have together had a controlling interest in that company's business.

(3) Neither A nor B alone has at any such time been able to exercise 50% of the voting power attached to the shares of X Company.

(4) At all such times in relation to R.G. Elsegood & Co. Pty. Limited (`Y

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Company'), A has exercised 75% and B 5% of the voting power attached to that company's voting shares.

The issue which has arisen is whether these two shareholders, A and B, have together had controlling interest in Y Company's business within the meaning of sec. 16D(3)(b). If they have, then the two companies have been correctly grouped together by the Commissioner for the purpose of calculating their liability for pay-roll tax.''

It was held that because in relation to R.G. Elsegood & Co. Pty. Limited one of the shareholders had so preponderant voting power (75 per cent) that it was not necessary for the other shareholder to be considered at all, it could not be said that the two shareholders acting together (my emphasis) may exercise the necessary voting power. It was contended that any other interpretation would make the word ``acting'' otiose.

The argument has a certain plausibility, but in the end I would reject it. It is clear that the object of the clause is to deal with combinations of voting strength and to identify combinations of selected persons common to companies which have preponderant voting power. It is conceded that acting does not refer to any actual willingness to act together. The personal relations between the individual shareholders in a group do not affect the taxability of the companies. Acting may, therefore, be an unnecessary word. However, it does not follow that it should be given a meaning which defeats the evident intent of the legislature to ensure that it has an independent effectiveness. The respondents have to give it a meaning equivalent to ``if required to act together to exercise 50 per cent of voting power'', in order to exclude it applying where one company has a shareholder with more than 50 per cent of the voting power. This is a much greater distortion of language than is involved in giving little weight to ``acting''. Both constructions have inconvenient possibilities. This very case is an example of a simple way available to defeat the evident purpose of the legislature if the respondents' construction prevailed.

The judgment under appeal suggests harsh possibilities if the appeal is allowed. The legislature has itself recognised that the Commissioner needs an administrative discretion to exempt businesses which, according to the strict interpretation of the requirements for grouping, would be caught. This does not exempt the Court from the burden of construing the words as they stand, but it does suggest that some of the fearful consequences envisaged by the respondents may not be real, in that the Commissioner will have power to alleviate them, and this limits the force of the argument from consequences.

Adhering to the plain language of the provision, the 75 per cent holding and the 5 per cent holding should be aggregated in order to determine whether the companies should be grouped. If this is done, argument is at an end.

The appeal should be allowed and the declarations and orders below should be set aside.

In the case of R.G. Elsegood & Co. Pty. Limited, it should be declared that in relation to the financial years ending on 30 June 1976, 1977, 1978, 1979 and 1980, the respondent and R.G. Elsegood (Sales) Pty. Limited constitute a group and the assessments should be confirmed. It should be ordered that the respondent pay the appellant's costs here and below and, if qualified, should have a certificate under the Suitors' Fund Act .

In the case of R.G. Elsegood (Sales) Pty. Limited, it should be declared that in relation to the financial years ending 30 June 1976, 1977, 1978, 1979 and 1980, the respondent and R.G. Elsegood & Co. Pty. Limited consitute a group and the assessments should be confirmed. It should be ordered that the respondent pay the appellant's costs here and below and, if qualified, should have a certificate under the Suitors' Fund Act .