M. Steinberg v. Federal Commissioner of Taxation.

Barwick CJ

Gibbs J
Stephen J

Full High Court

Judgment date: Judgment handed down 13 October 1975.

Barwick C.J.: The facts out of which this appeal arises are to be found fully set out in the reasons for judgment of my brother Mason, who found for the Commissioner in the proceedings before him. The appeals concern various transactions but can conveniently be said to directly or indirectly involve three parcels of land respectively at Innaloo, Wanneroo and Rockingham in the vicinity of Perth in Western Australia. My brother Mason found the first two parcels to have been purchased for the purpose of resale at a profit within the scope of the first limb of sec. 26(a) of the Income Tax Assessment Act 1936, as amended (the Act), and the last mentioned parcel to have been the subject of a scheme within the second limb of that section.

The appellants are Morris Steinberg in respect of the Wanneroo land and also in respect of the Rockingham land; the Trustee of Judith Steinberg, No. 2 Trust in respect of the transactions with the Innaloo land and in respect of the transactions with the Innaloo land and in respect of the Rockingham land; and Malcolm David Steinberg in respect of the Rockingham land.

The Innaloo Land

The Innaloo land was acquired in 1960 by a partnership, Murray's Furnishing Stores, of which Morris Steinberg was throughout a member. It was sold in March 1965 at a considerable profit upon its purchase price. Because of the limited terms of the taxpayer's objection, no point arises in the appeal upon the changes in the membership of the partnership which took place between 1960 and 1965.

There was ample material established in the course of the hearing of the appeal to justify the inference that the land was purchased for the purpose of reselling it at a profit. Mr. Steinberg gave evidence that the purpose for which the land was purchased was otherwise: but he was not believed.

Having fully examined the transcript of the evidence given before my brother Mason, I would not be prepared to disturb any findings of fact made by his Honour which depend to any extent on the credibility of Mr. Morris Steinberg. Notwithstanding the analysis of the evidence made by counsel for the appellant, I cannot take the view that it was erroneous not to accept the evidence of Mr. Morris Steinberg or to find any fact consequential on disbelief of that evidence. Unless the evidence of Mr. Morris Steinberg as to the purpose for which the Innaloo land was purchased were believed, there is no reason, in my opinion, to differ from his Honour's conclusion that the land was bought by the partnership for the purpose of resale at a profit. Accordingly, in my opinion, the appeal of the Trustee of Judith Steinberg No. 2 Trust, which is in respect of its share of that profit, was properly dismissed. I would dismiss his appeal to this Court.

The Wanneroo Land

In June 1965 Mr. and Mrs. Morris Steinberg acquired by purchase one half of the issued capital of Golden West Land Development Co. Pty. Ltd. (the company). The company's only substantial asset was an area of land (720 acres) for which subdivisional approval had been given by the appropriate local governmental authority. The approved lots were each of ten acres. This was the Wanneroo land. The remainder of the share capital of the company was acquired by brothers of Morris Steinberg and their wives. It may be accepted that the reason the shares were acquired, was the desire of the Steinberg brothers and their wives to control the disposition of the land which the company owned. It may also be accepted that their intention at the time of the acquisition of the shares was, in due course, to place the company in liquidation and to procure a distribution in specie of its assets. Mr. Morris Steinberg, in the only relevant evidence given, said that the intention of the shareholders when they had possession of the land was to lease the ten acre lots to tenant farmers for agricultural purposes. But his evidence was not accepted in this respect. I accept his Honour's disbelief of this evidence and approach the case on that footing.

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In October 1965, the company went into voluntary liquidation whereupon the assets of the company, principally the Wanneroo land, were distributed in specie to the shareholders as was permitted by the amended articles of the company.

In the early part of 1966 the Overseas Telecommunications Commission informed Mr. Morris Steinberg that the Commission desired to purchase one half of the Wanneroo land for the purpose of the erection of a radio transmitting station and that, if necessary, the Commission would compulsorily acquire the land in pursuance of powers in that behalf at its disposal. Subsequently, the six Steinbergs, under the persuasion of the likelihood of compulsory acquisition, sold one half of the Wanneroo land to the Overseas Telecommunications Commission for a total sum of $172,957, which was $25,343 in excess of the purchase price paid for the shares in the company.

At the time of the hearing of the appeal by my brother Mason, the remaining half of the Wanneroo land was unsold and in the ownership of the six Steinbergs. His Honour found that the share of Mr. Morris Steinberg in the excess of $25,343 of the sale price to the Overseas Telecommunications Commission over the price paid for his shares in the company was liable to tax as profit made on the resale of property acquired for that purpose within the scope of the first limb of sec. 26(a) of the Act.

There are some aspects of this part of sec. 26(a) which are now settled. In the first place, there must be an identity between that which is acquired and that which is sold; secondly, the purpose of resale to gain a profit, i.e. an excess sale price over cost of acquisition, must be present at the time of the acquisition: it must be the taxpayer who acquires with the stated purpose and who, in pursuance of it, subsequently sells.

It must be remembered that the Act is an Act with respect to taxation upon income. It is not in its general provisions an Act to tax capital gains. It respects and maintains the radical distinction between income and capital gain. However, sec. 26(a) departs to a limited extent from the general pattern of the Act. It treats the product of a transaction falling within its terms as income of the taxpayer. It does so because of the particular purpose for which property is acquired. It is thus appropriate that a transaction to come within the ambit of the section should be of a commercial character: to wear an aspect of dealing. The outturn of a transaction of that sort is readily treated as income and not as capital gain because of the purpose of the acquisition and the commercial nature of the transaction.

Further, there are certain principles to be borne in mind which are quite basic in the application of a law of taxation. First, the legal effect of transactions which are not pretended or illusory must be regarded and allowed to be effective: secondly, the separate identity of an incorporated company from that of its shareholders must be respected. I mention these matters specifically because of their importance in the resolution of the present appeals, both those with respect to the Wanneroo land with which I am presently dealing, and those with respect to the Rockingham land with which I have yet to deal.

It is to my mind apparent that the appellant, Morris Steinberg, did not acquire by purchase any part of the Wanneroo land. It cannot properly be said, in my opinion, as a matter of law that the purchase of shares in an incorporated company in order to gain control of its assets is an acquisition of those assets: or that the money expended on the purchase of the shares is a price paid for the assets of the company. These propositions are true whether or not the shareholding acquired is the total number, or a majority of the number, or only some of the shares of the company. There is, in my opinion, no doctrine of economic equivalence to be used in the administration of the Act. In relation to the first limb of sec. 26(a), there is no identity between the shares acquired and the assets of the company subsequently sold. Nor, in my opinion, is it right to conclude that the taxpayer acquired the land at the time he acquired the shares because he shared with others an intention to place the company in liquidation so as to secure, by a distribution in specie of the company's assets, a part of such lands. But to say that the taxpayer had these motives and intentions is to deny that he had any purpose of reselling the shares which he did acquire by purchase.

For these reasons alone, I am unable to share my brother Mason's opinion that Mr. Morris Steinberg's share of the gains from the disposition of one half of the Wanneroo land

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falls within the scope of the first limb of sec. 26(a).

But it was argued for the respondent that the distribution by the liquidator of the assets of the company could be regarded as an acquisition by the taxpayer of an interest in the land. Whilst the receipt of the interest in the land may be regarded as an acquisition of that interest, it is not, in my opinion, a purchase nor is there a price paid for the acquisition. Nothing said or decided in
Archibald Howie Pty. Ltd. & Ors. v. Commr. of Stamp Duties (N.S.W.) 77 C.L.R. 143 is, in my opinion, to the contrary. There what was received in distribution upon a reduction of capital was held to have been received for a bona fide consideration in money or money's worth, which is a different case to the present.

But in case it may be thought, contrary to my own opinion, that the taxpayer should be regarded as having acquired by purchase such part of the Wanneroo land as he received on the distribution by the liquidator of the company's assets, there are some observations I would wish to make.

Firstly, it is incorrect, in my opinion, to treat the price paid for the shares as the price paid for that part of or interest in the land which ultimately came to the taxpayer, as a basis for determining a profit made upon the disposal of that land. Further, if the value of the land at the time of the liquidator's distribution is regarded as relevantly the cost of the land to the taxpayer - which, in my opinion, it should not - not only is there no evidence of it in the case but also that value is unlikely to be substantially different from the price paid by the Overseas Telecommunications Commission soon after the distribution by the liquidator, that price being more likely than not to be below than above the market.

In the second place, there was, in my opinion, no evidence that the purpose of acquiring the land, if its receipt in distribution were a relevant acquisition, was its resale thereby to gain a profit. I accept my brother Mason's refusal to accept Mr. Morris Steinberg's evidence of what was his purpose in relation to the land and of his denial that that purpose was resale at a profit. But disbelief does not afford evidence of the contrary of what is disbelieved, leaving on one side a doubtful case of a situation of two mutually exclusive possibilities, which the facts of this case certainly do not raise. See
Jack v. Smail & Anor. (1905) 2 C.L.R. 684 at p. 698;
Scott Fell v. Lloyd (1911) 13 C.L.R. 230 at p. 241;
Lee v. Russell (1961) W.A.L.R. 103 at p. 109. The appellant, Morris Steinberg, made no relevant admissions.

Now, whilst it rests on the taxpayer to show that the assessment is excessive, if the facts established before the Court cannot support an inference of acquisition with the required purpose, the assessment cannot be supported under the first limb of sec. 26(a). In the case of the Innaloo land, its sale was sufficiently proximate to its acquisition, plus the undoubted activities of the taxpayer with respect to it meantime, to support such an inference and warranted his Honour's conclusions. But in the case of the Wanneroo land, all that can be pointed to on the established facts is that one half of the land was sold, in the circumstances in which it was sold, to the Overseas Telecommunications Commission. Of course, if the purpose to purchase for resale at a profit is otherwise made out, a sale under threat of compulsory acquisition will be a relevant sale and the gain made thereby properly brought to tax. But where there is no evidence of the relevant purpose, no inference of its existence at the time of acquisition should, in my opinion, be drawn from the fact of a compulsory sale. No doubt the sale of the thing acquired reasonably soon after its acquisition would afford evidence that the thing was acquired for the purpose of resale in order to make a gain. That inference is made because of evidentiary value of the voluntary act of sale. But the sale to the Overseas Telecommunications Commission was not of such a voluntary kind as to warrant the inference that if land was the thing acquired it was acquired for the purpose of resale. Consequently, in my opinion, there was no material in the proved and accepted facts which would support the inference that the appellant taxpayer acquired his interest in the land, if that is what he did, with the purpose of its resale to gain a profit. Section 190 places upon the taxpayer the obligation in an appeal against an assessment to show that the assessment is excessive. This is not limited simply to the amount of the assessment but extends to its propriety. Assessment does not consist merely in the nomination of a sum of tax to be paid, as contained in the notice of assessment. It is the process of the application by the Commissioner of the appropriate provisions of the Act to the taxpayer's return

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or to such further or different facts as the Commissioner has ascertained. The Commissioner is provided with officers highly skilled and experienced in the administration of the Act and in the discovery and elucidation of facts. Further, they are able to express and record both the facts upon which the assessment is made and the particular application of the Act to them which yields the amount of tax expressed in the notice of assessment. The Commissioner is, of course, entitled to place his ultimate assessment, i.e. ultimate at the time of the issue of the notice of assessment, upon alternative applications of the Act. But if he does so, that or those alternatives may be expected to be recorded in the files of the Commissioner. Thus, if those files are before the Court on appeal, as they should be, the basis of the Commissioner's assessment will appear. It is that assessment which is under attack on the taxpayer's appeal and which the Act says the taxpayer must show to be excessive.

It should also be said that, if asked by the taxpayer, the Commissioner should inform him of the basis of the assessment in cases in which the adjustment sheet served with the notice of assessment does not do so. Just as in other litigation, there must be issues in an appeal against assessment under the Act to which both parties are confined. As matters presently stand, the relevant file of the Commissioner and the objection of the taxpayer should be the source of those issues. It should not be the case that by reason of sec. 190 the appellant taxpayer must negative all possible bases upon which, having regard to the material adduced before the appellate tribunal, the statement of liability to tax in the notice of assessment might be based. So to use that section is, as I have said before, to make that section a scourge for the citizen rather than a reasonable protection for the revenue. It is high time that rules of court provided for the determination of the issues in income tax appeals and expressly confining both Commissioner and taxpayer to them in an appeal which is to be resolved by an adversary process and in which the contest should not be unequal.

Applying these considerations, however looked at, in my opinion, it ought not to be held that the appellant taxpayer acquired any part of the Wanneroo land for resale at a profit.

But, though my brother Mason did not so find, the respondent seeks to maintain the assessment upon the second limb of the section.

Because the Act by sec. 190 places the onus upon the appellant taxpayer of showing that the Commissioner's assessment is excessive, there are expressions to be found in cases decided upon the first limb of sec. 26(a) to the effect that there is a presumption which the taxpayer must overcome by the evidence accepted by the Court on this appeal. But, in my opinion, there is no presumption that property is acquired for profit-making by resale. The presence of sec. 26(a) in the Act does not mean that property cannot be acquired as an investment, as a hedge against the loss of value in the currency; or that the only investment advantage of the acquired property which is outside the reach of sec. 26(a) is the income it will produce. The retention of property in the hope or expectation that its value will increase is a justifiable form of investment. That the increased value may only be realised by sale does not deny that the purpose of its acquisition was investment or establish that the purpose of its acquisition was to use it as a subject of trade by reselling it at a profit. No doubt in borderline cases, the distinction may tend to become blurred but it is none the less a valid distinction and capable of resolution by the Court.

When the facts relating to the acquisition of the property are evidenced before the Court, the question is whether on those facts the necessary inference of purpose can be drawn. The evidencing of the facts and the inability to draw that inference from them, in my opinion, satisfies in this case the onus existing on the taxpayer. If, as I have said, those facts, including those the Commissioner establishes, do not warrant the inference of the requisite purpose, assessment based on the first limb of sec. 26(a) cannot be supported. The taxpayer will have discharged the onus on him whether or not the Court accepts his evidence of some purpose of acquisition outside the scope of sec. 26(a). Reference is made in argument to such cases as
Pascoe v. F.C. of T., 30 A.L.J.R. 402, and
Jacob v. F.C. of T., 71 ATC 4192, 45 A.L.J.R. 568, where expressions as to onus of proof are to be found. But in those cases the acquired property had been sold after a brief interval of time from the date of its acquisition. That fact clearly warranted a prima facie inference of the

ATC 4228

requisite purpose and did call for the displacement of that inference by the appellant taxpayer. These cases do not really proceed upon the footing that there is a presumption that property is acquired for the purpose of resale at a profit, so as to satisfy the first limb of sec. 26(a).

I turn then to consider whether the assessment could be supported on the second limb of sec. 26(a). It is quite clear to my mind that this limb of sec. 26(a) is closely related to the first limb of the section. Indeed, the Privy Council in
McClelland v. F.C. of T., 70 ATC 4115; 120 C.L.R. 487, thought that in relation to the facts of that case the second limb was but another way of expressing the same ideas as the first. The concept underlying the sub-section is that in an Act confined to the taxation of income there are some circumstances in which what are isolated and not repetitive transactions, which in other circumstances would yield a capital gain, can properly be regarded as producing income. One such circumstance is the acquisition of property by the taxpayer with the purpose of its resale at a profit in what is in truth a commercial dealing: that is the first limb of the section. The second limb, in my opinion, is founded upon the same notion but provides for the case where the property acquired is not itself the subject of resale but is intended at the time it is acquired to be the vehicle for making a capital gain, again in the course of an isolated or single though perhaps complex transaction in the nature of a commercial dealing. For there to be a scheme there must be a plan: it must be the taxpayer's plan and it must exist, in my opinion, at the time of the acquisition of the property: indeed, that acquisition, in my opinion, must be itself part of the scheme and the property acquired the intended vehicle for carrying the scheme into execution. Whilst it need not be fully conceived in all its details at the time of acquisition it must exist as a scheme which in principle embraces all the details yet to be worked out. It must, of course, be a profit-making scheme, that is to say, a scheme to make a capital profit, one which would not fall within sec. 25. If it were merely a scheme to make an income profit, then it will fall within sec. 25. Section 26(a), it seems to me, is aimed at transactions which will not fall within sec. 25 and which apart from sec. 26(a) would escape sec. 25 because the gain would not be an income gain.

It will not be sufficient, it seems to me, that the scheme is a scheme to resell that which was purchased at a profit. That, it seems to me, is simply another statement of the first limb of sec. 26(a). As I have already indicated, it seems to me that the scheme must be a scheme to use that which was acquired as a means of producing a capital gain, not by resale at a profit of that which was acquired. It is because such a scheme does exist at the time of acquisition that the subsequent gain, though by realisation of a capital asset, can properly be regarded as income. If no scheme for the use of the property has been formulated at least in definitive principle at the time of the acquisition, the acquired property becomes a capital asset of the taxpayer. Subsequent realisation to the best advantage ought not to bring any increase in its worth to tax. Indeed, that position is well authenticated in the decided cases. The realisation of an asset in an enterprising way and in order to obtain the maximum advantage therefrom does not make the proceeds liable to income tax. It follows, in my opinion, that a scheme of realisation of an asset not contemplated at the time of its acquisition but subsequently conceived and formulated, is not a scheme within the scope of the second limb of the section. Anything in the decided cases which would suggest that it may be such a scheme ought not, in my opinion, to be followed. I am unable, with great respect, to accept the views expressed by Sir Victor Windeyer in
Buckland v. F.C. of T. (1960) 34 A.L.J.R. 60, particularly at p. 62. The scheme, if there be one, must be more specific than an intention to turn to profitable account what is acquired. Of course, a scheme, entertained at the point of acquisition, may contemplate alternatives in its execution and, having determined the principles of the scheme, leave details for later decision. But, with due respect to what Sir Owen Dixon said in
The Premier Automatic Ticket Issuers Ltd. v. F.C. of T., (1933) 50 C.L.R. 268, there must be an identifiable specific scheme existing at the date of the acquisition of the property which is to be used to execute the scheme to make a profit. That case, it seems to me, was really a case of income derived in carrying on a business by use of the patent rights which had been acquired rather than a case falling within sec. 26(a).

Now, to apply these principles to the present case, it is necessary to observe the facts which remain as proved facts after Mr. Morris

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Steinberg's evidence has been rejected. He made no relevant admissions, that is to say, relevant to the use of the Wanneroo land entertained when the shares were acquired: nor, on the alternative view, when the interest in the land was acquired. There are many uses to which land or an interest in land may be put in order to profit by its possession. The mere fact of its acquisition does not itself dominate any particular purpose to which the land is to be put: nor itself raise an inference that it is to be resold at a profit. It seems to me, so far as the Wanneroo land is concerned, that all that is relevantly known is that the shares in the company were acquired with a view to gaining possession of that land by means of a liquidation and a distribution in specie of its assets. I have already indicated that I do not think that any relevant inference can be drawn from what was in truth a compulsory sale of part of the land to the Overseas Telecommunications Commission. Granted that there was a plan which would qualify as relevantly a scheme at the time the shares were acquired, a scheme which involved taking the various steps to obtain possession of the Wanneroo lands or of an interest in them, there is, in my opinion, no basis on which an inference can be drawn as to the particular use to which it was part of that scheme to put the Wanneroo lands. Of course, if it were possible to draw an inference that a part of the scheme was their realisation by sale at a profit, I would be able to conclude that there was, at the time of the acquisition of the shares, a scheme to use those shares as a means of making a capital gain by the sale of the Wanneroo lands. However, as I am unable to infer any particular purpose or end to which the Wanneroo lands were to be put when in the possession of the taxpayer, I am unable to conclude that there was a scheme within the meaning of the second limb of sec. 26(a). In my opinion, the appeal as to the Wanneroo lands ought to be allowed and the assessment set aside: the case does not fall within either limb of sec. 26(a).

The Rockingham Land

Mr. and Mrs. Morris Steinberg took up the whole of the issued capital in a company known as Malgor Pty. Ltd. (``Malgor''), which I am prepared to accept was formed at the instance of Mr. Morris Steinberg to acquire the Rockingham land. Again, I accept the finding of my brother Mason that the evidence of Mr. Morris Steinberg as to what it was then intended to do with the Rockingham land is not acceptable. We are thus left with no material as to the purpose for which the company acquired this land: for I do not see that any relevant inference can be drawn from the other evidence in the case. Subsequently, Mr. Morris Steinberg intended to give five hundred shares in this company to his son, Malcolm. The accountant's method of implementing his instructions from Mr. Morris Steinberg would make it appear that the gift was of money and the money was applied by Mr. Malcolm Steinberg in taking up the shares. But, whichever view is taken of the matter, that is to say, whether the gift to Mr. Malcolm Steinberg be regarded as a gift of shares or a gift of money so that Mr. Malcolm Steinberg acquired the shares by a cash subscription, there is no evidence, in my opinion, that the purposes which Morris Steinberg may have had in forming Malgor were communicated to, adopted and acted upon by Malcolm Steinberg as purposes of his own. I think it quite insufficient in matters of this kind that one should act upon suspicion. No doubt one may readily suspect that in family matters there may be free communication between the members of the family on matters of business. On the other hand, many men play their cards very close to their chest and do not even discuss their affairs with their wives, let alone their sons, notwithstanding the involvement of those members of the family in those affairs. Each of these appellants is to be treated, in my opinion, as an individual and not treated as if wholly involved in all the planning and purposes of Mr. Morris Steinberg. There is no suggestion that the gift, whether it be of money or of shares, by Mr. Morris Steinberg to Mr. Malcolm Steinberg was other than an outright gift and that he did not hold the shares beneficially.

After the acquisition by the company of the Rockingham land, a partnership was formed by Mr. Morris Steinberg and his wife and a trustee of eighteen discretionary trusts. The Malgor shares of Mr. and Mrs. Steinberg, but not those of Mr. Malcolm Steinberg, were transferred to this partnership known as ``M.J.S. Investments''. This transaction was part of an arrangement advised by an accountant to minimise income tax and estate duty.

Later, in July 1964, sufficient shares were sold to a Mr. Markham to constitute him a moiety shareholder in the issued capital of

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Malgor. This transaction was not in contemplation at any time prior to its actual occurrence. The reasons for it were unconnected with the formation of Malgor or the purchase of the Rockingham land, or with the subscription by Mr. and Mrs. Morris Steinberg for shares in Malgor. Because of changes in the law, the advantage sought to be obtained by the creation of the eighteen discretionary trusts disappeared: in consequence, the trusts were terminated. But, clearly, neither the formation nor termination of these trusts was in contemplation at the time of the subscription for the shares or in connection with the acquisition by Malgor of the Rockingham land. In the result, so far as presently relevant, the issued capital of Malgor came to be held as to one moiety by M.J.S. Investments and Malcolm Steinberg and as to the balance by Mr. Markham.

Some two years after this situation had arisen, Malgor went into voluntary liquidation and its assets, principally the Rockingham land, were distributed in specie amongst the shareholders. Thereafter Mr. Markham endeavoured on his account to sell his interest in the Rockingham land but succeeded only on the basis that his purchaser could acquire the interests of M.J.S. Investments and Malcolm Steinberg in that land. Accordingly, both sales eventuated. My brother Mason decided that the amount paid by Mr. Markham for the shares in Malgor less the amount subscribed for them and the amount received on the sale of the Rockingham land less the purchase price therefor were assessable under the second limb of sec. 26(a), the relevant scheme having in his Honour's view been made in 1960.

It is, in my opinion, plain that the shares in Malgor were not acquired by subscription for the purpose of their resale. To my mind, it is undeniable on the evidence that the transaction with Mr. Markham was not in contemplation at the time the shares were taken up: nor was any sale of them then in mind. Rather, they were to be used as part of the control of the Rockingham land.

Further, assuming that there was material to establish the purpose of Malgor in acquiring that land, there was no sale of it by Malgor. Thus, in my opinion, no case under the first limb of sec. 26(a) could be supported.

It was submitted that the distribution in specie of the assets of Malgor was an acquisition of the Rockingham land or of an interest therein of the partnership M.J.S. Investments. But, as I have already indicated in connection with the Wanneroo land, this receipt of the interest in the Rockingham land should not be regarded as a relevant acquisition, i.e. an acquisition at a price or cost. In any case, the value of that interest at the date of the distribution in specie is not evidenced and may not have been significantly different from the price obtained when the land as a whole was sold by the two contracts of sale, one in which Mr. Markham was vendor and that in which M.J.S. Investments and Malcolm Steinberg were vendors. There is, in my opinion, no basis in the evidence for concluding that the land was received by the taxpayers from the liquidator of Malgor with a view to its resale at a profit. The sales to which I have referred were some three years after the liquidator's distribution in specie and were the result of the initiative and efforts of Mr. Markham rather than of Mr. and Mrs. Morris Steinberg and Mr. Malcolm Steinberg. I do not think the necessary inference of the purpose attending the receipt of the interest in the land from the liquidator can be drawn.

I turn then to the submission that there was a scheme within the second limb of sec. 26(a). I have already indicated my views as to the essentials of such a scheme. In relation to the facts relating to the Rockingham land, the relevant date at which, consistently with the views I have expressed, the scheme should exist is the date of the subscription for the shares in Malgor. But I cannot find any evidence in the transcript that any definite scheme then existed for the use of those shares in order to produce a capital profit. Doubtless, whilst no credence is given to Mr. Morris Steinberg's evidence as to his proposals for the use of the Rockingham land, it might be concluded that there was an intention in some fashion to obtain and to turn to profit the ownership and possession of that land. But that must be true of every acquisition of an asset which is not intended for consumption in one form or another. Such an intention is insufficient, in my opinion, in connection with either limb of sec. 26(a).

Thus, in this case, as in the case of the Wanneroo lands, even if there were a scheme at the time of the subscription of the shares to employ them to obtain possession of the Rockingham lands or of an interest therein, it is not possible, in my opinion, to conclude that as part of that scheme, the Rockingham lands were to be sold at a profit in a commercial

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transaction. That they were to be employed in some fashion may be accepted. But some of the ways in which the land might have been used would not result in a capital gain by its sale in a commercial transaction, but perhaps only an income gain, by its use, of a different and, presumably, of a lesser amount.

In addition, there were in connection with the events following the subscription for the shares, several fortuitous events, such as the creation and termination of the discretionary trusts and the sale of the shares to Markham, which could not properly be referable to any plan existing at the time of the subscription for the shares but which played their part in the subsequent outturn of the transaction. As I have earlier indicated, if there were not a relevant scheme on foot at the time of the subscription for the shares, they become capital assets and available for realisation to the best advantage. That a plan or scheme of realisation or of employment was subsequently devised would not, in my opinion, bring the proceeds of the realisation to tax within sec. 26(a).

For these reasons, I would dismiss the appeal in connection with the Innaloo lands and allow the appeals which concern the Wanneroo and Rockingham lands.

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