Case M18

AM Donovan Ch

LC Voumard M
G Thompson M

No. 2 Board of Review

Judgment date: 21 March 1980.

A.M. Donovan (Chairman); L.C. Voumard and G. Thompson (Members)

The decision of this Board, as then constituted, in the references reported as Case H6,
76 ATC 23, concerned five members of a partnership (or syndicate). In the case of four of them the Board confirmed the Commissioner's assessments, treating each one's share of the profit of the partnership resulting from the sale of the partnership's right, title and interest in a mining claim as assessable income by virtue of the first limb of sec. 26(a) of the Income Tax Assessment Act. The objection of the

ATC 104

fifth member was allowed, because that member was not a party to the purchase and sale of the mining claim concerned.

2. Also included among the members of the syndicate was another partnership (``the H.B. Partnership'') in which the present taxpayer company, which we shall call H.I., had a one-sixth interest. H.I.'s individual one-sixth interest in that profit, which amounted to $1,983, was included in its assessable income of the year ended 30 June 1970, pursuant to sec. 92. It is the assessability of that amount which is now in dispute.

3. At the hearing, both parties agreed that the reported facts recorded in the earlier decisions of this Board (Case H6 supra) should be treated as the facts of this present reference. We therefore treat those facts as incorporated in these reasons. No evidence was given at the hearing of this reference, hence the facts of the earlier references are to be regarded as the exclusive facts on which to base our decision.

4. When the references of the five syndicators were before the Board, the Board found that the option to purchase granted to B on behalf of the syndicate on 24 November 1969, was not acquired for the purpose of profit-making by sale. Basing himself on this, the representative of the present taxpayer submitted that the exercise of the option to purchase the mining claim, and the disposal of the mining claim, should not be regarded as a dealing in property for the purpose of profit-making by sale; rather should it be regarded as a transaction which was aimed at effecting the most beneficial realisation of that which the taxpayer already held, namely the option (cf. per Barwick C.J. in
A.L. Hamblin Equipment Pty. Ltd. v. F.C. of T. 74 ATC 4310 at p. 4314). But we do not think the facts support such an interpretation of what in fact transpired. What the syndicators sold was their right, title and interest in and to the mineral claim. This had been acquired on their behalf not earlier than 7 March 1970, when B exercised the option to purchase, the transaction being completed by a transfer of G's interest in the mineral claim to B on 8 May 1970, and by a transfer of B's interest to T Ltd. on 15 May 1970. To say in these circumstances that it was the option to purchase that was dealt with and realised is to ignore the nature and effect of the two last mentioned transactions. The option to acquire the claim, and the claim when acquired, were not the same property.

5. A similar point was made in relation to the requirement that, for the first limb of sec. 26(a) to apply, there must be an identity between what was acquired for the purpose of profit-making by sale and what was sold. Taking the option to purchase as what was acquired, it was submitted that as it was the mining claim that was sold, the necessary correspondence was lacking. But in our opinion an option to purchase such as the one involved here, whatever might be its true juridical nature (for a brief discussion of which see the reasons of Mr. R.K. Todd (Member) in Case F47,
74 ATC 266 at pp. 269-271), is an offer by the grantor and, when the grantee accepts it in accordance with its terms, an enforceable contract is formed between them. Upon the exercise of the option, therefore, and not before, the syndicators acquired the mining claim, and it was this which was sold to T Ltd. The requirement of identity was therefore satisfied.

6. The taxpayer's representative sought next to relate the acquisition back to a date prior to the exercise of the option by submitting that the minutes of the meeting held on 18 January 1970, between the directors of T Ltd. and representatives of the syndicators constituted a contract between the parties to dispose of the option acquired, not for the purpose of resale at a profit, in December 1969. We have considered this, but find ourselves in agreement with the reasons given in the earlier references for declining to accept this view. As we have said, we regard the acquisition of the relevant property as taking place not earlier than 7 March 1970, and by that date it cannot be doubted that the syndicators' purpose in acquiring the mineral claim was that of profit-making by sale, the meeting of 18 January 1970 having clearly contemplated sale of the mine at a profit to the syndicators of $125,000.

7. Finally, it was submitted that the cost, as it were, of the claim acquired and sold included both the amount paid by the syndicators to the vendor and the value of the option immediately prior to its exercise, the latter figure being quantified at $125,000,

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although on what basis was not clear.
F.C. of T. v. Becker (1952) 87 C.L.R. 456, and perhaps Executor,
Trustee & Agency Co. of South Aust. Ltd. v. F.C. of T. (Bristowe's case) 2 A.T.D. 35, were said to support this. But, without considering the merits of this point, there is an immediate and fatal answer to it. The present taxpayer's notice of objection cannot, on any possible reading, be interpreted as embracing this ground, and, by sec. 190(a), the taxpayer is limited to the grounds stated in his objection. It has been held many times that failure of a notice of objection to avert to the point sought to be argued is fatal. Hence this particular submission must also fail.

8. For the reasons given, we are of the opinion that the taxpayer's claim must fail. The Commissioner's decision on the objection should be upheld and the assessment confirmed.

Claim disallowed

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