Premier Automatic Ticket Issuers Ltd v Federal Commissioner of Taxation
50 CLR 268(Judgment by: Evatt J)
Premier Automatic Ticket Issuers Ltd v Federal Commissioner of Taxation
Court:
Judges:
Rich J
Starke J
Dixon J
Evatt JMcTiernan J
Subject References:
Taxation and revenue
Income tax
Patent rights
Licensee empowered to sell patent rights
Share of proceeds to taxpayer
Income or capital
Profit-making scheme
Legislative References:
Income Tax Assessment Act 1922 (Cth) - Section 4; Subsection 13(1); Section 16C
Income Tax Assessment Act 1930 (Cth) - Paragraph 2(c); Subsection 26(1)
Judgment date: 7 November 1933
SYDNEY
Judgment by:
Evatt J
The case stated for the opinion of the Full Court raises in a more elaborate form and, between the appellant and the Federal Commissioner of Taxation, the same questions as arose in the appeal of Commissioner of Taxation (N.S.W.) v Premier Automatic Ticket Issuers Ltd [F23] , judgment in which is also being delivered this day.
The first question, whether the sum of PD10,000 should be treated as part of the taxpayer's income, could not arise in such appeal because of the express admission made before the Court of Review that the sum was income of the taxpayer's business.
The additional facts before us in this case may be stated as follows. In October, 1917, the appellant company was incorporated in New South Wales. Its first object, as stated in cl. 3 (a) of the memorandum of association, was to acquire patent rights and, in particular, to acquire a certain patent for an invention in relation to ticket-printers or ticket-issuers, and to carry into effect the agreement specified in the articles of association. The second object was
"to use exercise develop grant licences in respect of or otherwise turn to account sell or dispose of any such patents licences concessions and the like and information aforesaid."
In the year 1921 one Setright invented another ticket-issuing machine. It was considered by those in control of the totalisator company and the appellant company that Setright's invention might prove to be valuable, and the agreement of November 16th, 1922, was then entered into.
Under the agreement referred to in cl. 3 (a) of the memorandum of association, the totalisator company used ticket-issuing devices, the patents of all of which belonged to or were made over to the appellant. The appellant also manufactured electro-types for the totalisator company for use in connection with the ticket-issuing machines, and the income of the appellant consisted of royalties from the totalisator company together with the proceeds of the sale to it of the electro-types.
The only step taken by the taxpayer in connection with the exploitation of its patent rights prior to the agreement of 1922 was a decision made in May 1919, appointing a certain person as agent for the sale of its patent rights for all territories outside the Commonwealth of Australia and New Zealand. Later on, in January 1927, the totalisator company caused its representative to visit France where he supervised the installation of a totalisator machine. From France he was invited by the English Jockey Club to visit England with a view to the installation of totalisators on English racecourses. After a long course of negotiation during which a bill authorizing the use of totalisators was successfully promoted before the Parliament at Westminster, the two contracts of sale referred to in my other opinion were entered into on May 17th and 18th, 1928. In these negotiations in England the appellant took no part whatever.
It also appears that, up to the year ending on June 30th, 1922, the totalisator company had installed and supervised totalisators in various places, and had paid royalties to the appellant in respect of the ticket-issuers used in these machines.
In my opinion, these additional facts reinforce the inference that the sum of PD10,000 was part of the income of the taxpayer during the year in question. Throughout its existence the taxpayer was engaged in the business of "turning over," "turning to account," or "exploiting," its patent rights, whichever phrase may be preferred: the legal result is to make the PD10,000 part of its business income. The agreement of 1922 did not result in the termination of the company's business though it had the effect, elsewhere pointed out, of restricting the company's business activities to the State of New South Wales. No doubt the disposal in one transaction of world rights in a patent tends to resemble what is called "an affair of capital"; but the question whether the receipts flowing from the transaction are capital or income necessarily depends upon the business which the owner of the patent rights is pursuing, and upon all the circumstances of the particular case. In the present case it is clear that, in making the agreement of November 1922, as in the business it conducted both before and after that date, including the year of income, the appellant was pursuing the object described in cl. 3 (b) of its memorandum of association, and was turning to account its patents as part of its profit-making business. Therefore the PD10,000 receipt is to be regarded as income derived from such business.
The second part of the case raises the question with which I havedealt with in Commissioner of Taxation (N.S.W.) v Premier Automatic Ticket Issuers Ltd [F24] . In my opinion the whole of the sum of PD10,000 was derived from sources in Australia, those sources consisting of the appellant's business activities in New South Wales, including the due execution by it, in the income year, of the agreement of November 1922.
I answer the questions:1 (a): No. 1 (b): No. 2: Yes. 3: No. 4 (a): No. The other questions, it is unnecessary to answer.