Premier Automatic Ticket Issuers Ltd v Federal Commissioner of Taxation
50 CLR 268(Judgment by: Rich J)
Premier Automatic Ticket Issuers Ltd v Federal Commissioner of Taxation
Court:
Judges:
Rich JStarke J
Dixon J
Evatt J
McTiernan 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:
Rich J
This is a case stated by Dixon J. under s. 51A of the Income Tax Assessment Act 1922-1930 after a hearing upon evidence. The question whether the appellant taxpayer was liable to State income tax in respect of the receipt of the same moneys as are involved in this case came up before us in an appeal by the Commissioner of Taxation for the State of New South Wales from a judgment of the Full Court of New South Wales, which held that such moneys were not chargeable with State income tax. The facts in the special case upon which the Full Court gave this decision were not very fully stated, and as the liability of the moneys to assessment depends upon the same considerations under both Federal and State statutes it seemed better for the appeal against the Federal assessment to be brought to a hearing and for the facts to be stated for the consideration of this Court before we disposed of the State appeal. In that appeal the parties had limited themselves to the question whether the profits under consideration arose from a source in New South Wales, and in the peculiar circumstances of the case, which are fully set out in the case stated by Dixon J., a decision of this question against the taxpayer seemed to make it easier for the taxpayer to contend that the profits were of a capital nature. This contention the taxpayer has now raised.
The taxpayer is a company incorporated to take over and use to advantage certain patent rights. The question whether the profits are capital or income depends upon the nature of the business the company carried on, which formed the source of the profits. The locality where the profits arose was determined by the place where the source was situated. The interdependence of the two questions results from the circumstance that if the activities in New South Wales are considered to be the source of the income it must be upon the ground that the profits are all attributable to the agreement made by the company in November 1922. If this is so, the question whether the company was carrying on or carrying out a profit-making scheme consisting of the acquisition and disposal of patent rights must be determined by what it did up to and before that date. The agreement of November 1922 is one of a very peculiar character. The decision of the Full Court depends almost entirely upon the effect ascribed to it. Their Honours took the view, to state it briefly, that it was a pooling arrangement by which the taxpayer contributed its patent rights to a pool into which the other two parties to the agreement contributed their patent rights for the purpose of disposal as a joint enterprise. As the patent rights were ultimately sold in Great Britain, and as this view of the agreement meant that the source of the profit from which the taxpayer derived its share was that sale, it followed that the profit arose from a source out of New South Wales and also of Australia. I have been unable to adopt this view of the agreement. I think its true effect, so far as material, was to confer an exclusive licence upon Automatic Totalisators Ltd to exercise the taxpayer's inventions and patents and to give Automatic Totalisators power to sell the inventions and patents as their own, the consideration for these rights being a royalty and a payment of ten per cent of the proceeds of the sale. When the taxpayer company made the agreement it had in effect handed over its entire beneficial interest in, and power of disposal of, the patents. If, in common with the patents of Automatic Totalisators, they were advantageously sold, a consideration of ten per cent of the price would become payable to the taxpayer, but the sale would be quite independent of the taxpayer and would not be effected on its behalf as a principal. I recognize that the agreement is in many ways difficult to construe and that obscurities and inconsistencies abound in it, but I can find in it no trace of partnership, joint enterprise or agency. I think that in substance it invests Automatic Totalisators with complete control over the patents, exercisable on its own behalf as a principal, reserving only the considerations I have mentioned, which are, of course, contingent in their character. The profits were derived by the taxpayer from its enforceable right, conferred by the agreement in the events which happened, to a sum amounting to ten per cent of the purchase money. The source of this right was the making of the agreement which took place in New South Wales. For these reasons I think that as a matter of law the profits arose from a source in New South Wales.
The question whether the making of the agreement so far as it related to the disposal of the patent was a transaction directed to revenue or to capital has caused me much difficulty. I think that it is a necessary consequence of what I have already said that all the activities of Automatic Totalisators should, for the purpose of this question, be excluded from consideration. Under the definition of income now contained in the Income Tax Assessment Act 1922-1930 any profit is included which arises from the sale by any person of any property acquired by him for the purpose of profit-making by sale or from the carrying on or carrying out of any profit-making undertaking or scheme. The company was incorporated in 1917, and, before the agreement of November 1922, it had taken but few steps towards the realization of its patents. The nature of its business must, however, be gathered from its memorandum of association, from the character of the patents which it acquired, as well as from its subsequent acts. I think that the fact was that the company was incorporated to deal with the patents and the rights in relation to the invention and any future similar invention so as to make money out of them in any way which was considered most advantageous. In Australia it may have been thought wiser to exercise the patents; in some foreign countries there can be but little doubt that the company from the first contemplated selling its patent rights; in others it probably looked forward to making more complicated arrangements by which royalties or shares were obtained. But I do not think that the agreement of November 1922 can be considered as a disposition or arrangement in relation to the company's fixed capital. It was an affair of circulating capital or income.
For these reasons I think the first question should be answered: No, the second: Yes, and the third: No. The fourth question is directed to the difficulties created by s. 16C of the Income Tax Assessment Act 1922-1929, but, in the view I have taken, these do not arise and it is unnecessary to answer the question.