Permanent Trustee Company of New South Wales LTD v The Commissioner of Taxation
(1940) 6 ATD 5[1940] ALR 291
(1940) 2 AITR 109
BC 4000012
(Judgment by: Starke J)
Permanent Trustee Company of New South Wales LTD
v The Commissioner of Taxation
Judges:
Rich J
Starke JMcTiernan J
Judgment date: 26 August 1940
Judgment by:
Starke J
I agree. It appears to me that this case must be determined upon its own facts, and involves no general principle of law.
The facts make it clear. I think, that the sums of £1461 15s. 2d. and £1073 13s. 7d., which have been assessed to income tax, were not income that had been realised or was realisable in the year of assessment. But the Commissioner relies upon s 19 of the Income Tax Act, which says that
income shall be deemed to have been derived by a person within the meaning of this Act although it is not actually paid over to him but is re-invested accumulated capitalised carried to any reserve sinking fund or insurance fund however designated or otherwise dealt with on his behalf or as he directs.
A further charge was given by one Whiteford to Prior deceased (whose personal representatives are the appellants), in which it is recited that in consideration of the further advance of a sum of money which includes the two sums mentioned, "paid to the mortgagor by the mortgagee upon or before the execution of these presents (the receipt whereof is acknowledged"), the mortgagor covenanted to pay the sum on the 15th February, 1934, with interest thereon, and secured them upon the property in the deed of mortgage mentioned in the further charge.
Now it appears to me that, despite the covenant, which on the face of it looks as if the parties had received the sums and had re-invested or capitalised them at interest, the true facts were, although that was the form of the transaction, that it was not the substance nor the truth of the transaction, and that all the mortgagee did was to take a further security for moneys that were owing to him. That seems to me to come precisely within the reasoning of Lord Macmillan in the Indian case which is cited in Cross v London and Provincial Trust Ltd ., [1938] 1 KB at p 798. The essence of the matter is that there was no actually realised or realisable income. In receiving the further charge the mortgagee did not thereby receive payment or the equivalent of payment of the sums assessed. What happened was that the mortgagee received a security for an existing debt. To give security for a debt is not to pay a debt. If the mortgagee had received payment in kind of the amounts assessed, in the shape, say, of realisable shares or bonds, the case might have been different, but they merely received better security for their debt.
That seems to me to be the truth of this case. The mortgagee capitalised nothing, re-invested nothing, but took further security for sums which he could not realise. Under these circumstances it appears to me in this case, and in the precise circumstances of this case, that the answer to the question stated should be in the negative.