Elsey v. Federal Commissioner of TaxationJudges:
These are two appeals by a taxpayer, Bernard Elsey, against assessments of income tax for the years ended 30 June 1965 and 30 June 1966 respectively. With the assent of the parties I heard the appeals together on the basis that evidence in one should, so far as relevant, be taken as evidence also in the other. Immediately the hearing of these appeals finished I heard three other matters,
Bernard Elsey Pty. Ltd. v. F.C. of T., 69 ATC 4126. They are appeals by a taxpayer company against assessments in respect of the years ended 30 June 1964, 30 June 1965 and 30 June 1966 respectively. I shall give a separate judgment in those matters, the taxpayer being different and those cases being heard separately from the two I am now considering. But they are not unrelated. Bernard Elsey Pty. Ltd. is a company which at all relevant times was wholly under the control of Bernard Elsey. He holds 99.5% of the shares in it; he regards its affairs and its business as his business; his mind is its mind; and for practical purposes it is simply the name and the agency by which he carried on one of his businesses at relevant times. In these circumstances it was agreed that, although the company's cases were to be kept distinct from his own cases, evidence shewing the general background against which both his and the company's cases arose, which was relevant in them all, might be considered by me without witnesses being recalled to repeat it. When the same persons gave evidence relevant in both sets of cases, I must necessarily, in judging of their credibility, take into account the impressions which I gained of them in the whole of the seven days during which the hearing lasted.
The main issue in all the cases is whether moneys gained by Elsey, or by his company, from the sale of various parcels of land were the results of realisations of capital assets or were assessable income, either according to a general concept of income or specifically according to para, (a) of sec. 26 of the Income Tax Assessment Act. The lands in question are all situated in the well-known tourist area of Queensland known as the City of Gold Coast extending from Southport to Coolangatta.
The first (No. 4 of 1969) of the two appeals with which I am now dealing concerns a sale of a parcel of land at Surfers Paradise sold by the taxpayer to the Esso Standard Oil Co., which it will be convenient to call the Esso land. The second (No. 5 of 1969) concerns a sale of land at Surfers Paradise near the Esso land, which I shall call Lot 7; and also sales by the taxpayer of land at Coolangatta adjoining the border between New South Wales and Queensland. I shall for convenience call this the border land, to distinguish it from neighbouring lands at Coolangatta with which the company's appeals are concerned. Although the moneys received on the sale of the Esso land fall into one year and those received on the sales of Lot 7 and the border land in the other, it is convenient to deal with the Esso land and Lot 7 first and the border land as a separate question.
The cases were carefully presented by counsel on both sides. They left no turnable stone unturned. In the result I heard much oral evidence and received a mass of exhibits. Some of this seemed to me in the end barely relevant. However, when the question at issue involves considering with what purpose property was acquired some years ago and what is the nature of any undertaking or scheme, the decision may depend upon inferences from many facts seen against a wide background. I do not think I need in this judgment to set out the evidence in detail. It will, I think, be enough if I state the skeleton facts as I find them.
The appellant is a property owner and vigorous business entrepreneur. His activities have not lacked publicity in the press. He started in business on the Gold Coast in about 1950 as a launch proprietor. A year or so afterwards he began business as the owner of accommodation houses there for travellers and tourists. His businesses have prospered with the growing luxury and playtime popularity of the Gold Coast, he himself promoting this by the provision of good motels. His enterprises have been costly and on the whole profitable. He seems on occasions to have been moved by optimism, impulsive but not altogether uncalculated, which has, generally speaking, turned out to be justified by events. He has at times seen and grasped opportunities as they arose rather than following consistently any single long-range plan. His undertakings have in general been financed initially by borrowed money. He has not always had money readily available for commitments as they have had to be met. He has conducted many of his undertakings by the agency of private companies which he has controlled and virtually owned. A summary of his main activities, in a general way relevant to the present cases, as given by him in evidence is as follows.
In 1952 or 1953, he bought land at Main Beach, Southport, and built there a holiday building called ``Surfrider''. This he sold after about 18 months for £37,500, a considerable profit on the cost. In 1955, he bought land at Surfers Paradise for £44,500 and by an additional expenditure of £30,000 built there the Beachcomber Private Hotel. This he still, at the date of the hearing, owns, the business there being conducted by one of his companies as a lessee. In 1961 or 1962, he bought other land at Surfers Paradise and built a motel called ``Beachcomber Ski Lodge''. This he sold in December 1968 for £82,000-he says at a loss. In September 1963, he built a motel called ``Beachcomber Tiki Village'' at Surfers Paradise, which he still owns, the business being conducted by Beachcomber Motel Pty. Ltd, one of his companies, as a lessee. It is in connection with this undertaking that the questions of the Esso land and Lot 7 arise. Also in September 1963, his company, Bernard Elsey Pty. Ltd., established the Beachcomber Motel at Coolangatta. I say nothing more of that in this judgment, because it is from transactions connected with it that the other set of appeals arises and in those I am giving a separate judgment [Bernard Elsey Pty. Ltd. v. F.C. of T., 69 ATC 4126][*]
ATC 4118Island Resort'' off the coast of North Queensland conducted by his company Daydream Island Pty. Ltd. as his tenant. His occupation is stated in his income tax returns as ``hotel proprietor''. With that as the background I turn to look at the Esso land and Lot 7.
Elsey had before 1963 had in mind establishing a motel at Surfers Paradise in an area south of where his Beachcomber Ski Lodge was. He knew of proposals for changes in the road system in the area to provide a wider, one-way highway for northbound traffic to the west of the Pacific Highway. This has since then come about. He made some approaches to the owners of an area of land called Ashley's land, with a view to purchasing it for a motel near the new road which was in contemplation. He gave evidence that he had conceived the idea of a new kind of motel, which he described as of an A.G.I.P. type, such as he had seen in Italy and at Miami Beach in America. These letters, it seems, stand for Azienda Generale Italiana Petroli, the name of the distributing organisation in the nationalised oil and petrol trade in Italy. To Elsey, the central feature of his idea was the combination in one establishment, and preferably under one roof, of a motor-car service station and a motel. This he says he had seen as meeting a need of the travelling public-a place where the motor-car traveller could leave his car to be washed, filled with petrol and otherwise attended to while, in the same establishment, he went off to eat and sleep. I see no reason to reject his evidence that he was moved by this idea. Although, as will appear, I do not accept without qualification everything that he said, or all the inferences I was invited to draw from his evidence, I yet consider he was, generally speaking, a truthful witness. Moreover, his idea of a hostelry does not seem to me remarkable. I do not think that a visit to Italy or America would be needed to conceive it. I would think that the advantage of having a service station in juxtaposition to a motel must have occurred to many people. Anyone who remembers travel by horse and buggy would not think that facilities at a country inn for feeding and baiting the horses and parking the buggy would not be expected by travellers.
The taxpayer's thought of buying Ashley's land came to nothing; but at about the same time an area of land nearby was put up for sale by auction by a finance company as mortgagee. This land had an area of 246 perches. It consisted of areas which, according to standard descriptions used in Queensland, were subdivisions 1 to 7 inclusive of resubdivisions 7 and 8 of subdivision 2 of portion 30. For convenience I shall call them Lots 1 to 7 inclusive. The property was not sold at the auction, which was held on 3 August 1963; but a few days later Elsey bought it by private contract for £47,500. On 30 August he applied to the Gold Coast City Council for permission to use the land for a service station. It is obvious that the whole land would be more than was needed for a service station; but exactly how the road would run was then uncertain. The permit in fact issued in respect only of Lot 1 which faced a main road which soon thereafter was widened to become the by-pass northern highway.
Elsey had no definite arrangement for financing his purchase and bringing into existence a motel in the form he had envisaged. He had to borrow somewhere the money he needed. The details of abortive proposals he made and negotiations he had to meet this position are, I think, mainly irrelevant. It is suggested, however, that from some aspects of them I can draw an inference that he had always in mind reselling at a profit part of what he had purchased and that that was his purpose when he purchased the whole.
In his cross-examination of Elsey, counsel for the Commissioner asked him questions based on an entry in a diary kept by the manager of the Surfers Paradise branch of the Commercial Bank of Australia Ltd. He later tendered a copy of this. The copy is an incomplete extract from the diary. It finishes at the bottom of a page. The next page is now, it seems, missing from the original book. The passage tendered has the heading ``Elsey, Bernard 3/8/63''. It includes, among other things, this sentence-
``Mr. Elsey has received verbal approval from Caltex to buy front portion from him for £30,000, and he has a buyer for one allotment of the river frontage for £5,000. This means he will be getting the whole of the balance of the P/y for £10,000.''
Elsey admitted that he had had conversations with the bank manager about his purchase of the land. He would not admit that he had told him that he had any firm arrangement with Caltex (meaning Caltex Oil (Australia) Pty. Ltd.) to sell any part of the land to it or that he had received any offer for it. When counsel for the Commissioner tendered
ATC 4119the copy document, Mr. Kelly, who appeared for the taxpayer, did not object to my receiving it in evidence, remarking only that it was incomplete and that the taxpayer denied that he had told the bank manager what appears in it. I therefore admitted it as an exhibit and read it. I questioned its admissibility. It was urged for the Commissioner that it was made admissible by the Bankers Books Evidence Act of 1949 (Qld.), it having been proved that it was an entry in a book ``used in the ordinary business of the bank'' and by sec. 4 of the Act made ``evidence of the matters, transactions and accounts therein recorded''. I said at the time, and I now repeat, that in my opinion this took too much from the Act. The principal purpose of the Act is to allow copies of entries in bankers' books to be received to overcome the inconvenience which would occur if books in current use had to be brought to court. Differing judicial opinions have been expressed as to whether the Act goes further and creates an exception to the hearsay rule, by not only allowing the original entries to be proved by the production of an authenticated copy, but also by making those entries direct evidence of the transactions to which they relate. This matter was adverted to in
Myers v. Director of Public Prosecutions (1965) A.C. 1009 where (at p. 1028) Lord Morris of Borth-y-Gest said: ``The Bankers' Books Evidence Acts did more than merely avoid the need to have actual books in court'', and Lord Hodson (at p. 1033) spoke of the copies as ``admissible in evidence to prove the transactions recorded in the books''. But, however that may be, the Act does not, I think, make all statements of any kind in any book which a bank manager keeps in the ordinary course of his business admissible as evidence of the truth of those statements. It seems to me that, at the most, the entries are evidence of matters and transactions in which the bank was a party: see
Hart v. Minister for Lands (1901) 1 S.R. (N.S.W.) 133. Counsel for the Commissioner referred me to the decision of Stable J. in
Re L. G. Batten Pty. Ltd. (1962) Q.W.N. 2. This certainly supported his proposition that a banker's diary can be within the enlarged definition of ``bankers' books'' in the present Queensland Act. But that I do not question; and otherwise the case seems to me to have no bearing on the matter before me. It deals with the admissibility of a record in a banker's diary of the terms of an arrangement made between the bank and its customer. Assuming that the present entry can be read as recording something which Elsey told the bank manager-which from its terms is by no means clear-what then? It does not record any transaction into which the bank entered. The entry in the diary could perhaps be read as meaning that Elsey had said something to the bank manager that is inconsistent with his testimony in the witness-box when he swore that he had not made any offer to sell any part of the land to Caltex or received any offer from Caltex. I would not be surprised if, when seeking finance to complete his purchase of the land, he had made some lavish statements to the bank as to its value. Evidence which he gave in another context makes me think that on occasions his optimism about his ventures could override strict scruples about accuracy. But, although I strongly suspect that the entry in the bank diary was not made without some foundation, I cannot accept it as evidence against Elsey's denial. The document is not evidence of what is stated in it. And, even if it were, I do not think that I would be justified in concluding from it, and from the fact that Elsey had some fruitless dealings with Caltex, that his purpose in buying the land was to make a profit by selling it off in parts. The whole of the admissible evidence is to be considered. A conclusion cannot be reached from part of it in isolation-and that part of at least questionable admissibility.
Elsey gave evidence of what his purpose was in buying the land, of the use he planned to make of it, of the kind of motel incorporating a service station which he envisaged. To support his testimony evidence was tendered by Miss Joy Collins. She was asked to narrate what he had said to her of his intentions, his plans and his purposes. This was objected to, and naturally. The taxpayer's statements to Miss Collins cannot be said to form part of the transaction by which he acquired Lots 1 to 7 or of the subsequent transactions by which he sold parts, the Esso land and Lot 7. Their conversations were pressed on the basis of the general evidential value of statements of intention accompanying acts done: and paras. 222-224 in Phipson on Evidence, 10th ed. (1963) were referred to. But I do not think that what Elsey told Miss Collins about the land at Surfers Paradise can be regarded as part of the res gestae of its purchase or of the sale of any part of it. Nevertheless I held that statements he made to her in 1963 and 1964
ATC 4120as to his then purposes and intentions with regard to the land were, on other grounds, admissible. His evidence in the box was directed to verifying the main events in a long circumstantial narrative he had sent to the Commissioner with his notice of objection. Mr. Row for the Commissioner said that any inferences from this, or from his statements in the witness-box, as to his intentions and purposes in relation to the land were not true. As I understood him, his case was that these untrue suggestions and statements had first been put forward after officers of the Taxation Department had begun an investigation of the taxpayer's dealings. That being the Commissioner's contention, stated by counsel and foreshadowed in his cross-examination of the taxpayer, it was, I considered, proper to admit evidence in the taxpayer's case of his previous consistent statement, in anticipatory rebuttal as it were, of the suggestion of recent fabrication. Counsel for the Commissioner acquiesced in the admissibility of the evidence on that ground. Some of the matters then elicited strayed rather far. But parts did, having regard to the time and circumstances in which the conversation occurred, rationally tend to answer the Commissioner's attack: see
Nominal Defendant v. Clements (1960) 104 C.L.R. 476 especially per Dixon C.J., at p. 479.
Furthermore, Miss Collins has for some eight years or more been closely associated with Elsey in his business affairs, and she has been much in his company and completely in his confidence. He has habitually discussed his business affairs and plans with her. She is, at all events nominally, a director with him of at least one of his companies. She has been the manageress of motels for him. She is at present manageress of his tourist resort at Daydream Island. By suggestions, criticisms and assistance in various ways she has participated in the planning of his ventures and in the execution of the plans. Clearly she is not to be regarded as an indifferent or disinterested witness: her evidence requires close scrutiny: but that does not mean that it must be rejected or disregarded. So far as she deposed to what was said by Elsey as to his intentions in purchasing the land at Surfers Paradise, I accept her evidence as rebutting the suggestion of recent fabrication by him. I think too that on some aspects it goes further and that it was directly relevant in the consideration of what he had in mind. It seems to me that his utterances at the time he was discussing with her the form the projected motel was to take, and of incidental matters when they were jointly engaged in preliminary planning of it, are evidence of what he had then in mind, and within the general principle as recognized and stated by Lord Moulton in
Lloyd v. Powell Duffryn Steam Coal Co. Ltd. (1914) A.C. 733, at pp. 751-2. These acts and utterances occurred before the question of a liability to tax as now claimed had arisen. The taxpayer has ``the burden of proving that the assessment is excessive'' (sec. 190). But, unless it appears that there were facts on which the Commissioner could properly rely for including a particular receipt of money as part of the taxpayer's assessable income, that burden is, I consider, discharged. I do not think the Act requires one to start with a presumption that all moneys which a taxpayer receives from any source form part of his assessable income. However, I can leave aside any question of the burden of proof because, on the facts proved, I can make a positive finding on the issues in this case. I turn now from what Elsey said to Miss Collins to what he actually did about the land.
At some stage, probably soon after he had agreed to purchase it, he saw Mr. Gardiner, a representative of the Caltex Oil Company, hoping to interest that company in his project. Gardiner gave evidence. His evidence was to the effect that the negotiations were not on the basis of the oil company buying any land. He said that the proposal was that it should be given a lease of land for a service station and in return should make a loan to the landowner. This apparently was the ordinary policy of the company, although a purchase by it of land it leased might follow after five years. The proposal, whatever it was, fell through as the Caltex company declined to proceed. The taxpayer had been in touch with other oil companies too. In the upshot he entered into an agreement with the Esso company, as a result of which in December 1964 he sold to it Lots 1, 2 and 4 for a service station. The parcel of land he sold is at the corner of what is now Ferney Avenue, formerly Whelan Street, and Cavill Avenue. The sale price was £30,000. Details of the location, descriptions and area of the land which was ultimately transferred to Esso are a little confusing because a widening of the road led to a re-subdivision and because, in
ATC 4121March 1965, the Esso company transferred part of the land it had acquired back to the taxpayer for a nominal sum. But these details do not matter.
The Esso company built a service station on the land it had acquired. The taxpayer built the motel known as ``Tiki Village'' on other parts of his original purchase, namely on Lots 3, 5 and 6, and on those parts of the former Lots 2 and 4 transferred back to him. The building began in January 1966 and the motel was open in August. Elsey had first planned a more or less rectangular building with one open side facing the Nerang River. The service station would have been an integral part of this building: and the building would have occupied most of the land except Lot 7 which was to be a car park. However a different design was adopted. The service station, although very close beside the motel building, is separate from it and stands entirely on land belonging to the Esso company. The motel building, as finally built, consists of wings facing the river which are not set at right angles to one another. Thus they do not occupy the whole of Lots 3, 5 and 6. There is some vacant space available for parking cars. The whole of Lot 7 remained vacant until September 1965 when the taxpayer sold it to Freehold Development Pty. Ltd., a company with which he had no connection. The sale price was £15,000.
In appeal No. 4, the Commissioner claims that by the sale to Esso the taxpayer made a profit of $39,134, which he says formed part of the taxpayer's assessable income for the year 1964-1965. In appeal No. 5, he claims that the sale of Lot 7 yielded the taxpayer a profit which he aggregated with what he claims is an income profit from the sale of the border land as part of the taxpayer's assessable income for the year 1965-1966. I was told that, separately considered, the Commissioner attributes a sum of $7,677 as profit on the sale of Lot 7.
In my opinion the taxpayer's objection to the claims of the Commissioner arising out of the sale to Esso and the sale of Lot 7 must both be sustained. I do not question that, as is illustrated by
Chapman v. F.C. of T. (1968) 41 A.L.J.R. 315; 15 A.T.D. 21, an area of land may be bought for the purpose and with the intent of realising particular parts of it to yield a profit and retaining the rest. But that was not this case. I find that on the evidence the taxpayer's purpose was larger and more complex than that. His aim was to set up a motel with a service station physically associated with it. It was, of course, a profit-making scheme. He had evolved it for the purpose of making money by conducting a motel having an adjoining service station as an additional attraction. This was not a scheme for making a profit by selling bits of land. In his original plan, Lot 7 was to be parking space, which, according to the practice of the Gold Coast City Council, must be provided for a motel. Elsey sold it because in 1965 he was in need of ready money. The design of the building has enabled parking space to be now provided elsewhere than on Lot 7. Elsey's evidence, of which there was some corroboration, was-
``I wanted to retain that for parking, but money pressure was great, and I regretfully decided to relinquish it. I tried to get out of it [the contract] a few days later; but he [the purchaser] would not let me.''
I am satisfied that Lot 7, along with the rest of the land-which has a frontage to the Nerang River-was bought by the taxpayer for the erection of what he called a ``boatel-motel'' with service station facilities attached. The sale to Esso was ancillary to carrying out the larger scheme. The sale of Lot 7 was an adventitious sale of part of a capital asset.
I should add that no question was raised by the notice of objection or by counsel as to the Commissioner's manner of assessing what he said was profit from the sales to Esso and of Lot 7. Nevertheless, if I had thought that there was in the prices realised any element of assessable income, I would be far from satisfied that it was correctly calculated. The Commissioner seems to have assumed that the price which the taxpayer paid for Lots 1 to 7 inclusive represented an average of so many dollars per perch and that he could attribute this to the two areas sold and then subtract the result in each case from the price realised. That seems to me artificial. The case is quite unlike a sale of agricultural land of a more or less uniform kind-which can be seen as a sale at an average price per acre. It is also quite unlike a sale of vacant land having a frontage to a street and a uniform depth-which can be seen as a sale at a price of so much per linear foot. Here part of the total area had a river frontage, parts a frontage to a main road, parts to a side road, parts, Lots 5, 6 and 7, were accessible through a cul-de-sac. To regard
ATC 4122each perch of the whole as equal in value to every other perch and as bought for the same price seems to me an altogether untenable proposition. However, the difficulties that would arise, if I took a different view of the main facts, do not arise on the view I take.
I turn now to the border land at Coolangatta. The Commissioner claims that a profit made by the taxpayer by buying and afterwards selling this is assessable income. The taxpayer appeals on two grounds, each stated in his notice of objection. The first is based upon sec. 170(3) of the Act: he says that the assessment, being an amended assessment made after the Commissioner's officers had completed their investigation, was not permissible, because he claims to have made to the Commissioner a full and true disclosure of all material facts; and he says that the amended assessment was not made to correct an error in calculation or a mistake of fact. Secondly, he says that whatever profit he derived from the sale of the land now in question was not income for the purposes of the Act. I shall consider this question first. The relevant facts I find were as follows.
There was at one time a railway line-State-owned-from Brisbane to Coolangatta on the Queensland-New South Wales border. In 1963 this line had been for some time disused beyond Beenleigh. The rails had been taken up and the Government was offering for sale various parts of the former railway land. In September 1963, Elsey purchased part of the land at Coolangatta where the railway had been. The purchase was made in the name of and for his company Bernard Elsey Pty. Ltd. On part of the land thus purchased the company built a motel known as the Beachcomber Motel, Coolangatta. This motel, conducted by the company, was one of the taxpayer's enterprises. It was in fact under his direction and control and conducted for his profit. The circumstances of the acquisition of the land on which the motel stands, and of other parts adjoining which were afterwards sold, form the subject-matter of the appeals by the company, in which I shall give a separate judgment [Bernard Elsey Pty. Ltd. v. F.C. of T., 69 ATC 4126][**]
Between the land on which the motel stood and the border, there was a further section of the former railway land. Until April 1965 this was still vacant. It had an area of 54 perches. Having been used simply to carry a railway, it was a long narrow block about 150 feet wide at its greatest width and with a frontage of about 300 feet to Griffith Street. There had been a proposal which had attracted interest and some public support that this land should become a public park, and that it should carry some sign informing road travellers coming from the south that they had crossed the border and welcoming them to Queensland and the Gold Coast. The Queensland Government was not agreeable to giving the land to the Council as a park: like the rest of the railway land it must be sold: the Council was told that if it wanted it, it could bid for it. On 17 April 1965, the land was put up for public auction. Elsey had been an advocate of the park proposal. He had a fancy for a fountain and an arch as a welcoming sign for visitors. I have no doubt that he had in mind that this would be an ornament for his motel; that it would have an attractive appearance if in front of it there was a well-kept park. On the other hand, if the land were sold for commercial use he feared, as he frankly said, that tall buildings on it would obscure the approaching traveller's view of the motel-and, worse still, that there might even be another motel erected, which, not his, would be the first across the border in Queensland. He therefore conceived the idea of buying the land, having in view the possibility of thereafter selling it to the Council for a park. Friends he had among the aldermen and others had, he said, encouraged him to think this was a practicable plan. There had, it seems, been talk of the Council resuming the land for a park. Resumption of the land by the Council was the phrase commonly used. It is strictly an inapt expression; for the land never had been vested in the Council. But what was meant was well understood. It was a compulsory acquisition of the land for public purposes.
Elsey attended the auction. Bidding by an agent, he obtained the land for £19,000. There was one other bidder, not the Council. The evidence is conflicting as to some incidents before and after the auction. I do not think that these are of much significance and I need mention only one. Elsey in his evidence said that before the auction began he called out to the auctioneer asking whether
ATC 4123the Council had power to resume the land from a buyer. He says that the auctioneer hesitated and then answered in the affirmative. The auctioneer gave evidence. He emphatically denied that any such event occurred. He said that Elsey did not ask nor did he answer any such question. It may be that Elsey did say something intending it to be overheard: but if so I am satisfied that the auctioneer did not hear it. I accept his evidence.
Having bought the land, Elsey suggested that the Council take it over from him at the price he had paid for it. But the Council, if it formally considered the matter at all, did nothing. It had failed to get the land by free grant from the Government. It did not wish to buy it. Elsey could not afford to wait long in the hope that he might sell the land to the Council. He had to borrow money to pay the purchase price. The manager of a finance company with which he dealt in the matter was called as a witness for the Commissioner. In the course of his evidence he said, and I think it was a discerning assessment: ``At the time Mr. Elsey's plans were obviously flexible''. The most that can be said with assurance is that Elsey did not intend to make any use of the land himself. His purpose in buying it was to dispose of it as soon as possible in some way advantageous to himself and at no cost to himself. If he could get the Council to take it over, he would gain a park setting for his motel and frustrate any use of the land which would have been hostile or harmful to him or his company. If he could not without any cost to himself have achieved these advantages, he was prepared to sell the land for the best price he could get. It was a valuable piece of land. Disappointed or disillusioned by the Council's unreadiness to buy it, he, within a fortnight of the auction sale, consulted land agents about selling it in subdivision. Two forms of subdivision were mooted-one into 10 small lots; the other into two lots. The land was levelled at Elsey's expense to make it more saleable. The plan of subdivision into two lots was adopted by him and approved by the authorities and he put the land in the hands of agents for sale. At one stage he tried to interest the Council in another scheme he had conceived. He suggested that he give the Council the lot nearest the border as a ``welcome park'' and that in exchange the Council convey to him a Council-owned small park adjoining the land on which his motel stood, but on the far side. This plan would have had advantages for him. The land he sought to get in exchange for the suggested park could have been used in conjunction with the motel. But nothing came of this idea and Elsey was thrown back upon selling. In January 1966, he sold one lot for £13,500, and in the next month he sold the other for £26,000. The Commissioner claims to bring to tax, as part of the assessable income pursuant to sec. 26, the profit which the taxpayer gained by these sales. Whichever branch of para. (a) of sec. 26 be invoked, the ``profit arising'' would not be simply the amount of the difference between the price paid for the land and the amount realised upon the sale of it, £39,500. The cost of levelling it and other outgoings have to be taken into consideration.
In my opinion the Commissioner's claim must be upheld-under the second branch of para. (a) of sec. 26, not under the first branch. I say this because I do not think that the land was ``acquired for the purpose of profit-making by sale''. That expression predicates, I consider, that the sole or dominant purpose for which a taxpayer acquired property which he later sold was to sell it at a monetary profit-that is to say, to sell that very property for more than he paid for it. In the present case the taxpayer's purpose in buying the land would have been satisfied if he had been able to sell it to the Council for what he had paid for it, that is to say without his gaining any monetary profit. I think that therefore it cannot be said that the property was acquired by him for the purpose of profit-making by sale. However, in conjunction with a readiness to sell to the Council without profit he had a purpose that if a sale to the Council did not eventuate, he would sell on the open market at the best price he could get. That is what in fact occurred. When the Council did not buy the land he embarked upon a contingent profit-making undertaking or scheme. To see what was the ``profit arising from the carrying out of this profit-making undertaking or scheme'' the outgoings and obligations incurred in carrying it out would have to be set against the receipt of £39,500. These would include the cost to the taxpayer of levelling the land, of surveys and obtaining approval of the subdivision, agents' charges in respect of the sales, and I think too interest on moneys borrowed to enable the scheme to be carried out. There is no doubt that the carrying out of the scheme did yield a profit for the taxpayer; and, whatever was its amount properly calculated, it was I consider a profit
ATC 4124caught by the description in the second part of para. (a) of sec. 26.
I turn now to the taxpayer's objection that it was not open to the Commissioner to amend his original notice of assessment so as to increase the taxpayer's liability. The taxpayer, it is said, had made a full and true disclosure of all material facts. This proposition, based on sec. 170(3) of the Act, depended on a written statement which the taxpayer had sent with his income tax return for the year in question. This dealt with his acquisition of the land and purported to shew his plans for its development. It contained several quotations of tendentious paragraphs which had appeared in newspapers. These were expressed to be reports of the taxpayer's wish to have at least some part of the land taken by the Council as a park, with complaints of the failure of the Council to adopt this proposal. The Commissioner naturally did not accept these paragraphs in newspapers as evidence of the intentions and purposes of the taxpayer. Moreover, if he did take notice of them, he could not have failed to notice that a newspaper, published on the day after the auction, stated that the taxpayer had said that he wanted to have only the corner of the land near the border ``developed as an attractive park with a sign welcoming tourists to the Gold Coast'' and that: ``Mr. Elsey said he planned to erect business premises on the remainder in keeping with the appearance of his nearby Beachcomber Motel''. If he did say this, his statement contradicted the claim that he had bought the whole of the land with a view to selling it all to the Council as a park. In addition to the quotations of what various newspapers said the taxpayer had said on various dates from April 1965 to January 1966, the document he sent to the Commissioner with his tax return contains also paragraphs which are not hearsay but his own statements. One reads as follows-
``Immediately prior to the commencement of the auction I asked the auctioneer, Mr. Adrian Marr `was it true that the Council had announced their intention to resume this land as a park, and did the Council have the necessary power'? He answered `yes' to both questions.''
I have already said that I am not satisfied that this occurred. Moreover I cannot see why, if it did, it establishes or tends to establish that the taxpayer made a full disclosure of all material facts. If he had really wanted an answer to the questions he says he asked, I do not understand why he waited till the auction and asked them of the auctioneer. If he did so, it must have been, as indeed he frankly said in his evidence, to discourage others from bidding and thus to keep down the price for which the land would be sold. But that to my mind does not of itself shew, or tend to shew, anything more than that he wanted to get it as cheaply as he could. His document concludes:
``I state with regard to this land:-
(a) that I had no intention to buy it for the purpose of resale.
(b) that I made public statements of my intentions to buy the land with a view to offering it to the Gold Coast City Council at my purchase price, i.e., no profit gain on the deal.
(c) that I ultimately sold the land nine months after date of purchase, because the Gold Coast City Council refused to take the land from me at my cost in accordance with the arrangements that I consider were made between us.''
The first statement above is, strictly speaking, belied by the second. He did buy the land for the purpose of resale-although he thought the resale might be by virtue of a compulsory acquisition at the price he had paid. The third statement above is, as I find the facts, only a partial disclosure. I accept that the taxpayer did not decide to sell the whole of the land to private buyers until after his proposals to sell it to the Council, or to exchange part of it for Council land, had failed: but I do not accept that he ever had an arrangement with the Council: and I am satisfied that his intention was that, if the Council did not take the land from him, he would make what he could by selling it; and that very soon after he bought it he set about carrying out this scheme. In short, the defensive statement which he sent to the Commissioner was not I think a full and true disclosure of all material facts. The inconsistencies on the face of it must, I assume, have been themselves enough to alert the Commissioner to the need to make an investigation of the actual facts. It was a result of this investigation that the original assessment was amended. I find that the taxpayer cannot rely upon sec. 170.
The results of the two appeals are therefore in my opinion as follows.
No part of the price which the taxpayer received from Esso Standard Oil Co. Ltd. for the land at Surfers Paradise that he sold to that company is assessable income.
No part of the price the taxpayer received for the sale of Lot 7 adjoining Tiki Village motel is assessable income.
The profit arising from the taxpayer's buying, preparing for sale, subdividing and selling the border land at Coolangatta is assessable income.
The first of these findings is made in Appeal No. 4 of 1969; the second and third are made in Appeal No. 5 of 1969. The two cases were heard together; but they were not consolidated: I shall therefore make separate orders in each.
Section 199 of the Act provides that I may confirm, reduce or vary an assessment. In my view, neither of the assessments under appeal can stand. Each must be reduced. But I have no material which enables me to determine by how much. I must therefore remit the matters to the Commissioner to enable him to calculate the tax payable in respect of each of the years in question and amend his assessments accordingly. Counsel for the taxpayer, although he disputed the Commissioner's ruling that the items of profit in question were assessable income, said expressly that he did not dispute the actual monetary amounts which the Commissioner put on those items. The figures which the Commissioner adopted were not challenged in the taxpayer's objection and he cannot now dispute that aspect of the Commissioner's decision. However, it seems to me that, for reasons I have already given, the amount to be included in the assessable income by reason of the taxpayer's dealings with the border land is the profit arising from the carrying out of a profit-making undertaking or scheme. This profit is to be determined having due regard to all just allowances. I shall therefore simply declare that this profit is included in the assessable income, leaving it to the Commissioner to determine it having regard to what I have said and, having done so, to assess tax accordingly.
I shall reserve the question of costs so that I may hear any submissions the parties may wish to make as to that after they have had an opportunity of considering this judgment. As I see the matter at present, the taxpayer has succeeded in one appeal and the Commissioner should pay his costs: in the other appeal the taxpayer has succeeded on one issue, the Commissioner on another: I think that in the circumstances there should be no order as to costs in that case, as I do not think it probable that the costs can be attributed to the two issues separately. But that obviously does not dipose of the difficulty of apportioning the total costs between the two appeals. At the hearing, the evidence of some of the witnesses related wholly, or substantially wholly, to one or other of the appeals. The evidence of others, including the taxpayer himself, was in parts relevant to both appeals: and other parts were relevant to issues in each appeal respectively. In respect of those witnesses who gave substantial evidence relevant for both appeals, the cost of producing that evidence was, it seems to me, spread more or less equally between them. Without wishing to influence the parties in any submissions they may wish to make, I should say that it seems to me that a simple and suitable order would be that the Commissioner pay to the taxpayer one half of his total costs of the two appeals.
ORDER (No. 5 of 1969):
Declare that no part of the moneys received by the taxpayer upon the sale of land at Surfers Paradise, Queensland, being subdivision 7 of resubdivision 9 of subdivision 2 of portion 30, was assessable income of the taxpayer. Declare that the profit gained by the taxpayer by purchasing, improving, subdividing and selling in subdivision land at Coolangatta, Queensland, purchased by him at auction on 17 April 1965 was assessable income of the taxpayer. Case remitted to the Commissioner to amend the assessment of tax accordingly. Costs reserved until further order. Usual order as to exhibits.