J. Rowe & Son Pty. Ltd. v. Federal Commissioner of Taxation

Judges: Barwick CJ
McTiernan J
Menzies J

Gibbs J

Court:
High Court (Full Court)

Judgment date: Judgment handed down 31 August 1971.

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Gibbs J.: I have had the advantage of reading the judgment of my brother Menzies and need not repeat what he has said in relation to this appeal. However, since in some respects I do not find it necessary to go quite as far as he has gone in his judgment, I would briefly state my reasons for agreeing with his conclusion.

The appellant, a trader, sold goods on terms and the consideration for each sale comprised two components, one representing the sale price and one representing an additional consideration for the deferring of payment of the price. The expert evidence, which my brother Walsh accepted, showed that, from an accountancy and commercial point of view, it is unusual to bring into the accounts of a trader making sales on terms only the payments received or receivable in the year in question, and that to do so does not reveal the true position of the trading, whereas the Commissioner's method, of bringing into account, at the time when a contract of sale was made, the whole of the component representing the additional consideration unless received or receivable during the income year, is in conformity with general accounting principles. The appellant contended that the evidence of the experts in accountancy showed a basis for arriving at profits but not a basis for determining the amount of ``gross income derived'' within sec.25 of the Income Tax Assessment Act 1936, as amended ( Cth ). However, for the reasons given by my brother Menzies, I agree that for taxation, as well as for business, purposes income of a trading business is derived when it is earned and the receipt of what is earned is not necessary to bring the proceeds of sales into account. When the Act gives no directions on the point, the question when income is earned, and the method of accounting to be adopted for the purpose of ascertaining the income, depend upon business conceptions and the principles and practices of accountancy (see The Commissioner of Taxes (South Australia) v. The Executor Trustee and Agency Company of Australia Limited (Carden's case) (1938) 63 C.L.R. 108 at pp. 152-6 and
Arthur Murray (N.S.W.) Pty. Ltd. v. F.C. of T. (1965) 114 C.L.R. 314 at p. 318 ). The method adopted should be that which is ``calculated to give a substantially correct reflex of the taxpayer's true income'': Carden's case, at p. 154.

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ATC 4161

My brother Walsh regarded, and was on the evidence entitled to regard, the method adopted by the Commissioner as providing, in the circumstances of the case, an appropriate basis for determining the true income of the appellant and, in my opinion, there is nothing in the Act to preclude the adoption of that method.

These considerations are enough to dispose also of the alternative argument of the appellant, that income should be treated as being derived as and when it emerged, so that so much of the income from a transaction is to be treated as derived in a particular year as is contained within the instalments received and receivable during that year. Profit may be ascertained on an emerging basis in appropriate cases arising under sec.26(a) of the Act but I need not consider whether the income of a trader who sells on terms may ever appropriately be determined on such a basis, because the evidence did not show that the method suggested by the appellant would produce a satisfactory result or would lead to a more accurate determination of the appellant's income in the present case than the method adopted by the Commissioner. The conclusions of my brother Walsh as to the effect of that evidence are, in my opinion, correct.

I would dismiss the appeal.

ORDER:

Appeal dismissed with costs.