Western Gold Mines NL v. Commissioner of Taxation (WA)

59 CLR 729
[1938] ALR 203

(Judgment by: McTiernan J)

Between: Western Gold Mines NL
And: Commissioner of Taxation (Western Australia)

Court:
High Court of Australia

Judges: Latham CJ
Starke J
Dixon J
Evatt J

McTiernan J

Subject References:
TAXATION AND REVENUE
Dividend duty
Sale of mining leases
Realization of capital

Legislative References:
Dividend Duties Act 1902 (WA) (No 32) -

Hearing date: 9 November 1937
Judgment date: 24 February 1938

Melbourne


On appeal from the Supreme Court of Western Australia.

Judgment by:
McTiernan J

In my opinion the appeal should be allowed.

The profits of the appellant company for the year ended 30th June 1934 were assessed by the respondent for the purposes of the Dividend Duties Act 1902 and amendments at PD42,736, and the duty payable in respect thereof at PD3,071 13s. The validity of the assessment turns upon the question whether the evidence shows that the profits arose from "the trading or business operations" of the company. The Act does not impose a liability upon a company in respect of profits of every description. For example, the increase in the value of its capital assets or a profit made on the realization of capital assets are not within the scope of the Act (W. Thomas & Co Ltd v Commissioner of Taxation (W.A.); [F19] Forwood Down & Co Ltd v Commissioner of Taxation (W.A.)). [F20]

The profits of the appellant which the commissioner has assessed for duty under the Act consist of the consideration in cash and the value of the shares, less deductions, which it received from Triton Gold Mines No Liability on the sale of certain gold-mining leases and other property which it had acquired on a working option. The cash that the appellant received was not more than the amount it had expended in exercising its option and thereby acquiring its interest in these leases and property. The shares which the appellant received have been retained by it. The evidence does not show that the appellant acquired the leases or the property with the intention of selling them to make a profit, or that it was any part of its business to acquire and sell mining leases and property. The appellant expended a sum of about PD15,000 in developing and working the leases.

The reason why the leases and the other property were sold to Triton Gold Mines No Liability was that the appellant's capital was insufficient to develop the property and it was necessary to form a new company with a nominal capital of PD600,000 to take over the property. The fact as stated in the evidence is that

"accordingly on the 26th day of September 1933 an agreement was entered into in Victoria between Western Gold Mines No Liability the appellant and Hugh Gerner Brain for and on behalf of a new company to be formed by which the appellant agreed to sell to such new company the said gold-mining leases and pipe track, water right and all other the premises mentioned in the option agreement dated the 8th day of November 1932 above mentioned and also portion of the mining reservations number 654H which had been acquired by the appellant company as above mentioned.
The consideration for the sale was that the new company should allot and issue to the appellant 200,000 shares of 10s. in its capital credited as fully paid up together with the sum of PD50,000 in cash being the amount of cash which the appellant was required to pay to the Mararoa Gold Mining Co No Liability upon the exercise of the option above mentioned. The new company was also required to take over the obligation to the Western Australian Government above mentioned."

The transaction was an exchange of capital assets. The profit arising from the exchange was an increase in the value of the appellant's assets. It was not a profit made in the course of the appellant's trading or business operations.

The question in the originating summons should be answered: No.

(1904) 5 Tax. Cas. 159

(1910) 5 Tax Cas. 658

[1914] A.C. 1001 ; 18 C.L.R. 413

(1928) 41 C.L.R. 148

(1931) 45 C.L.R. 539

(1935) 53 C.L.R. 403

(1928) 41 C.L.R., at pp. 151, 152

(1931) 45 C.L.R. 539

(1935) 53 C.L.R. 403

(1928) 41 C.L.R. 148

(1936) 55 C.L.R. 80

(1910) 5 Tax Cas. 658

(1921) 29 C.L.R. 484

(1931) 45 C.L.R. 539

(1931) 45 C.L.R., at p. 547

(1935) 53 C.L.R. 403

(1934) 50 C.L.R., at p. 139

[1921] 2 A.C. 171

(1931) 45 C.L.R. 539

(1935) 53 C.L.R. 403