J C Williamson's Tivoli Vaudeville Pty Ltd v Commissioner of Taxation
(1929) 42 CLR 452(1929) 36 ALR 14
(1929) 3 ALJ 276
(Judgment by: Knox CJ.)
J C Williamson's Tivoli Vaudeville Pty Ltd
v Commissioner of Taxation
Judges:
Knox CJIsaacs J
Rich J
Starke J
Judgment date: 7 November 1929
Judgment by:
Knox CJ.
The question for decision in this matter is whether the taxpayer is entitled, by virtue of the proviso to s 25 (i) of the "Income Tax Assessment Act 1922-1925," to a deduction of £17,000 in respect of the assessment of its income for the financial year 1926-1927. That proviso, so far as now relevant, is in the words following, viz: --
Provided that where it is proved to the satisfaction of the Commissioner that any taxpayer being the assignee or transferee of a lease has paid an amount for the assignment or transfer of a lease of premises used for the production of income, the Commissioner may allow as a deduction for the purpose of arriving at the taxable income the amount obtained by dividing the sum so paid by the number of years of the unexpired period of the lease at the date the amount was so paid.
In the year 1921 an agreement was made between the taxpayer and one Musgrove for the purchase by the taxpayer from Musgrove of all his estate and interest in certain sub-leases which he had acquired. This agreement contained the following, among other, provisions, viz: --
(2) Part of the consideration for the said sale shall be the sum of £170,000, which shall be paid and satisfied by the allotment to the vendor or his nominees of 170,000 fully paid-up shares in the Company of £1 each. (3) As the residue of the consideration for the said sale the Company will observe and perform all the terms and conditions in the said agreement contained and on the part of the vendor to be observed, and will keep the vendor indemnified against all actions, claims, demands and expenses which he may incur or sustain under or on account or by virtue of the said agreement or any non-observance thereof.
This agreement was carried into execution by the transfer of the leases to the taxpayer and the allotment to the vendor of 170,000 shares in the Company issued as fully paid up. It is common ground that the premises comprised in the leases were used for the production of income.
The first question for decision is whether the transaction, which consisted of the agreement above referred to, the transfer of the leases and the allotment of the shares, constituted a payment of £170,000 within the meaning of the proviso to s 25 (i) of the Act.
In order to answer this question it is necessary to determine what was the true consideration for the sale and transfer of the lease -- was it £170,000, or was it 170,000 shares in the Company of a nominal value of £1 each fully paid up? On this question the decision of the court in The Crown v Bullfinch Proprietary (W .A.) Ltd, 18 ALR 567 , 15 CLR 443 , is directly in point. In that case the question at issue was as to the amount of stamp duty payable on a transfer of certain mining leases. The consideration stated in the agreement for sale was £400,000, whereof the sum of £300,000 was to be paid and satisfied by the issue of 300,000 fully paid-up shares in the capital of the Company and £100,000 in cash on the completion of the transfer. The court held that the consideration for the sale was £400,000, and not shares in whole or in part. Higgins, J, said (at p 450) --
It is true that as to £300,000 part of the consideration, the vendors were to be paid and satisfied by the allotment and issue of 300,000 fully paid-up shares of £1 in the capital of the Company; and that as to the balance £100,000, which was to be paid in cash on completion of the transfer of the leases, the vendors were to apply for 100,000 shares and pay for them on application in full. But these collateral stipulations are quite consistent with the consideration being in truth and in fact, as expressed, a money price, £400,000. Shares cannot be issued at a discount; the capital, which they represent, has to be paid for in money or in kind; and in this case, it has to be paid in money -- the money which was to come to the vendors for the leases.
In that case, as in this, there was nothing to show that the consideration as stated in the agreement was fictitious or merely colourable. The contract in the present case was in substance that the Company should pay the vendor £170,000 as purchase money of the leases, and that the vendor should pay to the Company £170,000 in payment of £1 each on 170,000 shares in the Company to be issued to him as fully paid up. The transaction was carried out by appropriating the £170,000 payable to the vendor by the Company in payment of the £170,000 payable by him to the Company on the shares which he had agreed to accept in satisfaction of the amount payable to him as consideration for the sale of the leases. The £170,000 stated in the agreement as the consideration for the sale of the leases was paid by the Company by agreed set off against the amount payable by the vendor on the shares allotted to him. That discharge of an obligation by set off operates as payment, and even as payment in cash, is clear from the decision in Spargo's Case, LR 8 Ch 407. In my opinion the facts agreed on in this case show that the taxpayer paid £170,000 for the transfer to it of the leases in question, and that it is therefore entitled to the allowance of £17,000 which it has claimed, the unexpired period of each lease at the date of payment being ten years.
In this view of the case it is not necessary to express an opinion on the other questions discussed during the argument.
Order: -- The questions shall be answered as follow: 1. Yes, £170,000 was paid within the meaning of the Act, and satisfied by the allotment of 170,000 fully paid-up shares. 2. No 3. Prima facie, the paid-up value is the measure of the amount of the payment. Costs of reference to High Court to be paid by Commissioner.