Between: Commissioners of Taxation (New South Wales)
And: Meeks

Judges: Griffith CJ
Isaacs J

Gavan Duffy J

Subject References:
TAXATION AND REVENUE
INCOME TAX
Company
Profits
Source of income
Cancellation of contract

Legislative References:
Income Tax (Management) Act 1912 (NSW) (No 11) -

Sydney

Judgment by:
Gavan Duffy J

The respondent company is incorporated in England, but the Australian business is conducted in Melbourne. The practical operations of the company, which consist of mining, treating and smelting ore, are carried on in New South Wales. These operations include the production of slimes and their purification so as to produce concentrates. On 7th May 1912 the company in London entered into an agreement to sell and deliver a quantity of slimes concentrates to the purchasers. Delivery under the agreement was to be made at Broken Hill in New South Wales during periods extending over a space of four years. Part payment for the concentrates to be delivered during the year 1913 was to be made before 7th June 1912, and part payment for the concentrates to be delivered in 1914 was to be made by monthly payments between 1st January and 30th June 1913. A ton of slimes would not, of course, produce a ton of concentrates, but some less quantity, and the part payment in each case was to be made at the rate of 17s. 6d. a ton on the quantity of slimes necessary to produce the stipulated quantity of concentrates.

The contract provided that from time to time, as part payment was made, the purchasers should be entitled to a certificate that the quantity of slimes to which the payment related was held at their order, subject to payment of the balance due under the contract on delivery of the concentrates produced from such slimes. The purchasers did not take delivery of any concentrates, but on or before 7th June 1912 they paid the sum of PD47,250 on 54,000 tons of slimes, being part of the price of the concentrates to be delivered in 1913, and in January and February 1913 a further sum of PD15,750, being part of the price of the concentrates to be delivered in 1914 - making a total of PD63,000. This total appears as an item on the credit side in the balance sheet of the respondent company for the year ending 30th June 1913, but reduced, by deducting various charges, to the sum of PD61,425. The entry runs thus:

"By amount received from the Hydraulic Power and Smelting Co Ltd under contract for slimes concentrates, since cancelled - less commission and brokerage - PD61,425."

The words "since cancelled" in this entry, refer to an agreement made in London between the respondent company and the purchasers on 24th September 1913. Its effect, in my opinion, was to permit the respondent company to retain the sums it had received as part payment, and to release all parties from any other or further obligation under the contract of 7th May 1912. The moneys which the respondent company had received as part payment for concentrates still constituted part payment, the character of the payment was not altered, but no further payment could be enforced by the seller, nor could delivery of the goods be enforced by the purchasers.

The question asked by the special case is whether the said sum of PD61,425 is taxable income of the appellant company within the meaning of the Income Tax (Management) Act 1912 and the Income Tax Management (Amendment) Act 1914.

It was assumed before the learned Judge who stated the case, and before the Supreme Court, that if any part of this sum was taxable income it must all be so, subject to any deduction to be made for the cost of earning it; but during the argument my brother Isaacs pointed out that the proper inquiry, in view of the definition of income contained in s. 4 of the Income Tax (Management) Act 1912, was whether the whole or any part of it was income derived from any source in the State of New South Wales, and that on investigation of the facts it might appear that some part of it was such income and some was not.

Is this sum of PD61,425 or any part of it derived from any source in the State of New South Wales? In my opinion it is derived immediately from the contract of 7th May 1912, under which the part payment for the concentrates was made and under which the concentrates were to be produced and delivered in New South Wales, and mediately from the ordinary conduct of the company's business as a manufacturer and vendor of concentrates, and of that part of it-namely, the mining operations, the subsequent treatment of the product, and the delivery or transit for delivery of that product in the final shape of concentrates-which is carried on in New South Wales. Apparently the whole gross gain or profit arising out of the transaction is derived from a source in the State of New South Wales. It is the price actually paid under the contract for material to be mined and treated in New South Wales, and as such it is a gross profit made in the ordinary course of that part of the respondent's business which is carried on in New South Wales.

It would, in my opinion, be such a gross profit whether it was paid as the price of the concentrates or in settlement of the respondent company's claims under the cancelled contract and as the price of a release to the purchasers. In either view it would be earned by the respondent company in the course of the conduct of its business in New South Wales. It may be that some of the gain is attributable to operations conducted by the respondent company outside New South Wales, and it may be that a further sum should be deducted for the cost of earning the PD63,000. If the respondent desires to raise these questions the facts can be inquired into, and any necessary adjustment can be made under the relevant provisions of the Income Tax (Management) Act 1912.

Brissenden, for the appellants.

Langer Owen K.C. and Clive Teece, for the respondent.

Solicitor, for the appellants, J. V. Tillett, Crown Solicitor for New South Wales.

Solicitors, for the respondent, Norton, Smith & Co