Forwood Down & Co Ltd v. Commissioner of Taxation (Western Australia)
53 CLR 403(Judgment by: Dixon J)
Forwood Down & Co Ltd v. Commissioner of Taxation (Western Australia)
Court:
Judges:
Rich J
Starke J
Dixon JEvatt J
McTiernan J
Subject References:
Taxation and revenue
Dividend duties
Sale of lease and machinery
Profit from sale taken into profit and loss account
Legislative References:
Dividend Duties Act 1902 (WA) No 32 - Section 5; Section 6
Judgment date: 26 August 1935
PERTH
Judgment by:
Dixon J
I agree that the appeal should be dismissed.
The decision in W. Thomas & Co v Commissioner of Taxation (W.A.) [F1] restricts the application of the expression occurring in s. 6 of the Dividend Duties Act 1902-1931, "all profits made by such company," to profits arising from the trading or business operations of the company and excludes profits such as increments arising from the appreciation in the value or the realization of capital assets of the company.
The question in the present case is whether the value of shares in a mining company acquired by the taxpayer company in consideration of the transfer of some mining leases and plant answers the description profits arising from the trading or business operations of the company. The taxpayer company conducts a business of general and structural steel engineers and manufacturers and dealers in machinery. In the course of this business, the company bought mining machinery as it stood on the mines, where it had been in use. In the case of mines that had closed down, it found it convenient to purchase at the same time the mining lease. It could then leave the machinery in situ until a favourable opportunity occurred of disposing of it. After the removal of the machinery, the taxpayer company would ordinarily surrender or abandon the lease. But, in 1923, in conjunction with one Ridgway, it acquired a mining lease which in the event was disposed of in a different manner. Probably the purpose which the taxpayer company had in view was substantially the same. But it began by attempting to resell the whole undertaking as an entirety. Then it let a tribute in respect of the sands. Some machinery was removed, but the inference is open, or, at least, not negatived, that the balance sufficed for the proper working of the mine. Dwyer J. has found that throughout there was a purpose of reselling the mine.
On an appeal under s. 30 of the Dividend Duties Act 1902-1931 I think the burden of proof is on the taxpayer, and this view of the company's purpose cannot, in my opinion, be considered disproved by the evidence. But, in any case, on the view of the company it acquired the lease in the ordinary course of its business as a necessary accompaniment of the machinery. It did not acquire it as premises it intended to occupy indefinitely. The lease was paid for by expenditure chargeable against revenue. It was, on the company's contention, a valueless concomitant of the machinery it bought, to be held only until the machinery was disposed of and removed. On removal it would be abandoned, if it was not resold; not worked as a fixed asset in the undertaking. There never was any use on the part of the taxpayer company of the mine or the plant thereon, and, I think, never any intention to use it. It did not represent fixed capital devoted to the production of profit by means of operation or use. The transaction by which it was disposed of was not, it is true, ordinarily within the scope of the company's trading operations. It is suggested that the shares received as consideration for the sale cannot be regarded as more than a change in the form of the company's legal and commercial title to the property; that the transaction by which the lease and machinery was transferred for shares was not part of the conduct of the trade or business of the taxpayer (see Doughty v Commissioner of Taxes [F2] ). But, both in the statement of facts and in the profit and loss account, a definite value is assigned to them. No proof was led upon the manner in which this value was arrived at. For all that appears, the shares may have possessed a value on the market which made them the equivalent of so much money. They may have been immediately convertible.
On the whole of the somewhat meagre facts, I do not think the taxpayer company has shown that the profit appearing in its accounts is not an actual profit from the trading and business operations of the company.
The appeal should be dismissed with costs.