Case B40

Judges: FE Dubout Ch

G Thompson M
N Dempsey M

Court:
No. 3 Board of Review

Judgment date: 30 June 1970.

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G. Thompson (Member): The question raised in this reference is whether pursuant to sec. 23F(16) of the Income Tax Assessment Act 1936-1966, the Commissioner acted correctly in not forming an opinion that it would be reasonable to exempt from income tax the sum of $400, being income derived by a certain Superannuation Fund by way of dividends on shares held by the Fund in a private company during the year ended 30 June 1966 and whether, accordingly, the Trustees of the said Superannuation Fund have been correctly assessed to income tax on the said amount of dividends received, pursuant to sec. 121CA of the Act.

2. I do not propose to recite the facts of this reference, which has already been done by my colleague, Mr. Dempsey, with whom I am in agreement.

3. It may be convenient to note that before the Commissioner, and on reference to it, this Board, may form the opinion that it would be reasonable so to exempt the said dividends from income tax, regard must be had, under the said sec. 23F(16) to the following factors -

(a) the paid-up value of the shares in that company that are assets of the fund;

(b) the cost to the fund of the shares on which the dividend was paid by the company;

(c) the rate of the dividend paid to the fund by the company on the shares in the company that are assets of the fund;

(d) whether the company has paid a dividend on other shares in the company and, if so, the rate of that dividend;

(e) whether any shares have been issued by the company to the fund in satisfaction of, or of a part of, a dividend paid by the company and, if so, the circumstances of the issue of those shares; and

(f) any other matters that the Commissioner considers relevant.

4. During argument various aspects of evidence were pressed upon us by both Counsel for the taxpayer, and the Commissioner's representative, under the sub-headings of sec. 23F(16) and their consequent effect. Counsel stressed the ordinary meaning of the paid-up value of shares in (a) as being its meaning in company practice, for instance, the paid-up value of a £ 1 share is £ 1, and does not mean the market value of the share. He further submitted that Board of Review No. 1 was in error in construing factors (a) and (b) together, with the result that it took into account the market value of the paid-up shares. Reference was made to the various decisions of that Board in Cases A38 to 41 inclusive, in 69 ATC 225 to 235. It is true that Board of Review No. 1 was influenced against exempting the Fund in question in some of those cases from income tax by considering factors (a) and (b) together, and where, as a result, it was thought that the Fund got too great an interest in the company concerned by the allotment of shares for too small an outlay. See in particular Case A39 and Case A40,
69 ATC 227-233 ( supra ).

5. In this particular case, as has been pointed out by Mr. Dempsey, the Fund acquired its shares in the private company at a cost of £ 5,089.10.0, whereas on the evidence of the valuer called by the Commissioner, these shares were worth approximately £ 28,400. This valuation was not really contested by Counsel for the taxpayer, despite the fact that the taxpayer's tax agent said that at the time of acquisition he valued the shares at the said figure of £ 5,089.10.0. This gentleman did not provide the Board with the basis of his valuation, and on the evidence I agree

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ATC 205

that the valuation of the Commissioner's witness should be accepted. This means that the Fund obtained at relatively low cost, shares worth a considerably larger amount.

6. In any event, whether or not this important factor comes within the language of factors (a) and (b) read together of sec. 23F(16) of the Act, I am clearly of opinion that it is relevant and should be considered under para. (f) above, which is cumulative to paras. (a) and (b) above, and speaks of any other matters that the Commissioner, and on reference, this Board, considers relevant. Learned Counsel for the taxpayer frankly conceded that para. (f) could not be construed ejusdem generis with the preceding paras. (a) to (e) of sec. 23F(16). It seems to me, therefore, that para. (f) casts a wide net, and catches all relevant matters. I have set out my view on this particular matter in more detail, out of respect for the detailed argument of Counsel for the taxpayer. Otherwise I agree with the reasons expounded by Mr. Dempsey, which I think accord in principle with the decisions of Board of Review No. 1 abovementioned.

7. I accordingly think that this important factor that the Fund acquired valuable shares at low cost must influence the Board to uphold the Commissioner's action in forming the opinion that the dividends received by the Fund should not be exempt from income tax.

8. I would, therefore, confirm the Commissioner's assessment.