Investment and Merchant Finance Corporation Ltd v FCT
(1971) 125 CLR 249(1971) 45 ALJR 432
(1971) 71 ATC 4140
(1971) 2 ATR 361
BC7100340
(Judgment by: Barwick CJ)
Investment and Merchant Finance Corporation Ltd
v FCT
Judges:
Barwick CJMcTiernan J
Menzies J
Walsh J
Judgment date: 18 August 1971
Judgment by:
Barwick CJ
The facts and circumstances relating to this appeal are to be found in the judgment of my brother Windeyer against which the appeal is brought (1970) 120 CLR 177 and in the reasons for judgment of other members of the Court. The appellant in the course of and as I think as part of its business as a dealer in shares bought certain shares for a total price of £86,504 Os Od. The company whose shares were thus bought in the month following the appellant's purchase declared and paid a dividend to its shareholders which brought to the appellant the sum of £81,900 Os Od. In the next tax year as that in which the shares were purchased the appellant sold the shares for a sum £86,483 Os Od. less than the sum paid for them.
If as I think the purchase of the shares was part of the appellant's business as a dealer in shares neither the purchase nor the subsequent sale of the shares was part of a capital transaction. The cost of the shares was an outgoing of the appellant's business properly deductible under s 51 of the Income Tax Assessment Act 1936-1969 (Cth) (the Act). Notwithstanding some expressions of judicial opinion in earlier cases, the shares purchased by the appellant, in my opinion, formed for the purposes of the Act part of the stock in trade of the appellant in its business of share dealing. Accordingly it was entitled for the purposes of the assessment of income tax to bring the shares to account at the close of the first of the two relevant tax years at their cost price, see s 31. The dividend received by the appellant constituted assessable income by virtue of s 44: but it was rebatable by virtue of s 46. When the shares were sold in the second of the tax years, there was a loss. As I have indicated it was not a capital loss. I can see no answer to the proposition that that loss was properly regarded as a loss incurred in carrying on the business of share dealing and therefore deductible under s 51.
The Commissioner sought to avoid this consequence by asserting that the purchase and sale of these shares was outside the scope of the appellant's share trading business and ought to be regarded as an isolated transaction. I am unable to agree with this proposition. It is based apparently upon the supposition that because the appellant saw fiscal advantages in buying the shares cum-dividend and disposing of them ex-dividend at a diminished price the transaction could not be regarded as a transaction of share dealing in the course of its business as a dealer in shares: but quite clearly neither the attainment of profit nor the expectation of it is essential for a particular commercial transaction to form part of the business of dealing in the commodity purchased. As I have already indicated, the share transaction was effected in the course of and as part of the appellant's business as a share dealer.
This conclusion in reality determines the fate of this appeal. However it was submitted by the Commissioner that the transaction fell within the terms of s 26(a) and, that viewed as a separate transaction it yielded a smaller loss than that claimed by the appellant, the dividends received being regarded as part of the proceeds of the transaction viewed as a whole. But I am unable to accept this submission.
In the first place it is an error in my opinion to think that the transactions of a business can be taken item by item and each treated as falling within s 26(a). The business must be regarded as a whole, its receipts being assessable income from which the permitted deductions are to be deducted. S 26(a) is intended in my opinion to deal with transactions which are entire in themselves and do not form part of a more extensive business. In that event they are regarded as yielding a profit which will be calculated according to the circumstances of the transaction, the profit only being assessable income.
In the second place, my earlier conclusion that the transaction formed part of the appellant's business of trading in shares denies any basis for treating it as an isolated transaction to which s 26(a) may apply.
I have had the advantage of reading the reasons for judgment prepared by my brother Menzies and those prepared by my brother Walsh. I agree with the conclusions to which they have come and that this appeal should be allowed.
In my opinion the appeal should be allowed.