Federal Commissioner of Taxation v. Westraders Pty. Limited.

Judges: Barwick CJ
Mason J
Murphy J
Aickin J

Wilson J

Court:
Full High Court

Judgment date: Judgment handed down 5 August 1980.

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Wilson J.

I have had the advantage of reading the judgments of Barwick C.J. and Mason J. With one important exception, I agree with what their Honours have said in relation to the different issues canvassed in the case. However, the matter upon which I have come to a different conclusion is fundamental to the resolution of the appeal, with the result that I think it should be determined in favour of the Commissioner.

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ATC 4371

In my opinion, sec. 36A, on its proper construction has no application to transactions in the ordinary course of business. It seems to me that there are two possible routes by which one might arrive at this conclusion, a narrow way and a broad way. The narrow way is the route considered and rejected by Rath J. and the learned Justices in the Federal Court. That is the way of reading para. (a), (b) and (c) of sec. 36(1) into sec. 36A(1), a task which gives rise to extraordinary complexity if only because the latter provision has already in its own words covered the ground which forms the subject matter of para. (a) and (b). I do not attempt to travel by that route.

However, Mr. Priestley Q.C., Counsel for the Commissioner, pointed us also to the broad way, a route on which it appears that I may travel alone. This route takes for its signpost not simply sec. 36 and 36A in isolation, but it places them in the context of the general charging sections of the Act in their application to trading stock. That context exhibits the features that purchases are allowable deductions under sec. 51, sales constitute income under sec. 25, and the position of stock on hand at the end of the financial year is regulated by sec. 28 and 31. In my opinion, there is nothing to be gleaned from sec. 36A or any other section of the Act to yield a legislative intent that these sections to which I have just referred are abrogated in their application to transactions in the ordinary course of business which possess the added feature that the purchaser is a partnership of which the vendor is a member. Section 36A on its proper construction has no application to such transactions.

There is a further consideration in support of this construction. Given the conditions of its application, sec. 36A(1) applies the legal consequences of sec. 36 to the change in ownership but on the basis of a fiction that the disponor had disposed of the whole of the property. The effect of so applying sec. 36 is to include the value of that property in the assessable income of the taxpayer, and the disponee shall be deemed to have purchased it at a price equal to that value. In my respectful opinion, the effect of these provisions is to emphasise that these fictions are introduced in order to adapt a disposition that is effected otherwise than in the ordinary course of business to fit into the general scheme. There is neither necessity nor occasion to ``deem'' anything in the case of transactions in the ordinary course of business. Resort to a fiction is unwarranted in such circumstances, resulting from a misconception of the true operation of sec. 36A.

It remains for me to point out the consequence of this conclusion in the present case. The sale of the shares from Jensen to Jenspart was, as found by the primary Judge, a transaction in the ordinary course of Jensen's business as a share trader. The sale was effected at market value, and I am unable to appreciate why the fact that the purchaser was a partnership which included the vendor as a member should have destroyed its evident character. Indeed, from a tax point of view, the transaction brought to an end the entire interest of Jensen as an individual trader in the trading stock in question. Henceforth, its interest for tax purposes in that stock fell to be determined pursuant to the provisions of Div. 5 of Pt. III of the Act.

In my opinion, the taxpayer was not entitled to the benefit of an election under sec. 36A(2), and the Commissioner acted correctly in disallowing the claimed deduction.

I would therefore allow the appeal.

ORDER:

Appeal dismissed with costs.