Kilcare Investments Limited. v. Commissioner of Land Tax (N.S.W.).

Judges:
Lee J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 12 June 1981.

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Lee J.

This is an appeal by the plaintiff (hereinafter called ``the company'') against assessments of land tax under the Land Tax Management Act 1956 as amended in respect of a home unit owned by it at 95 Elizabeth Bay Road, Elizabeth Bay. The assessments cover the years from 1974 to 1980 and relate to Lot 34 in Strata Plan 3740 comprised in Certificate of Title Vol. 11014 Folio 34 and Lots 99 and 100 in the same plan comprised respectively in Certificates of Title Vol. 11014 Folios 99 and 100. Lot 34 is the residential portion of the home unit and Lots 99 and 100 are the motor vehicle garages for use in conjunction with the occupation of the residential portion. (Strata Titles Act 1973 sec. 95.) The Commissioner assessed land tax in respect of the home unit in each of the years mentioned. The appeal, when instituted, was an appeal against all of the assessments but during the hearing it has been limited only to the assessments for the years 1974 and 1975, the reason being that amendments made to the principal Act by Act No. 97 of 1975 made it impossible to contend that the company could thereafter be exempt from land tax.

The company claims that the home unit is exempt from land tax during 1974 and 1975 pursuant to the exemption given in sec. 10(1)(r)(i) (as it was immediately after the passing of Act 70 of 1973) which exempts from taxation:

``(r)(i) A strata lot used and occupied for residential purposes and for no other purpose, by the owner of the lot or where there are joint owners, for those purposes and for no other purpose by any one or more of them.''

By virtue of sec. 10(1E) of the Act a strata lot is a ``lot'' within the meaning of the Strata Titles Act 1973 and the lots comprising the home unit (34, 99 and 100) are ``residential lots'' within sec. 95(2) of that Act: these are, by virtue of subsec. 95(6), subject to land tax in accordance with the Land Tax Act 1956 and the Land Tax Management Act 1956. Until the commencement of the Strata Titles Act 1973 on 1 July 1974, the matter was governed by the Conveyancing (Strata Titles) Act 1961 sec. 2 and 22.

The facts proved in evidence show that the company purchased the home unit in question in 1968. It also purchased all household furniture and equipment necessary to make the unit habitable as a residence. The furniture and effects at all material times have been the property of the company and the balance sheets of the company show their value, depreciated in accordance with company practice, each year. The evidence shows that the company each year paid the council rates and water rates on the unit. Administration expenses and levies payable to the body corporate,

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according to the evidence, may have been paid by a subsidiary of the plaintiff company.

Since the company purchased the unit, Mr. B.J. McDonald, his wife and family have resided in the premises paying no fee or rent to the company. Mr. McDonald and his wife are jointly governing directors of the company during their joint lives (Art. 25(c)) and as such they are entitled to exercise all of the powers and authorities conferred on the company or its directors by the Memorandum of Association and the Articles (Art. 25(d)). Mr. McDonald and his wife and children are the only shareholders in the company and such voting rights as the children have cannot displace the authority of the governing directors. Mr. McDonald is a solicitor.

The objects of the company, as shown by the Memorandum of Association, are of the most far reaching kind and permit the company to carry on a multitude of businesses and activities and to acquire and deal with real and personal property as it sees fit.

The company is the owner of the strata lots and the first question which arises is whether para. (r) is to be read as applying to a company. Under sec. 3 of the Act ``owner'' and ``person'' are defined so as to bring a company within the word ``owner''. The expression ``used and occupied for residential purposes'' is used in sec. 10(1)(r)(ii) in relation to ``residential land'' and sec. 10(1D) expressly excludes from ``residential land'' land owned by a company. The expression ``used and occupied for residential purposes'' is also used in sec. 3(2) of the Act in relation to ``a residential unit'' and the Land Tax Act 1956 (as amended by Act 70 of 1973) provides that the reduction in tax applicable to ``a residential unit'' does not apply when a unit is owned by a company. There is thus clear indication in the Act that para. (r) is to be construed as contemplating that a company may use and occupy a strata lot for residential purposes.

``Use'' has regard to the purpose to which the premises are put (
Commr. of Land Tax (N.S.W.) v. Christie (1973) 2 N.S.W.L.R. 526 per Bowen J.A. at p. 533) and in the present case there can be no question that the unit is being ``used'' for residential purposes by the owner, the company. If it is also ``occupied'' by the owner, it will on the evidence here be ``used and occupied for residential purposes'' within the paragraph.

Is it occupied by the owner? The meaning of the word ``occupied'' in the Land Tax Management Act has been considered in a number of cases and I referred to some of those cases in
Pro-Campo Limited v. Commr. of Land Tax 81 ATC 4270, a case which dealt with the use of the word ``occupied'' in sec. 10(1)(g)(iii) of the Act. It is sufficient if I repeat the words of Bowen J.A. in Commr. of Land Tax (N.S.W.) v. Christie (supra) at p. 533 when that learned Judge said:

``Occupation is not synonymous with legal possession. It includes possession but it also includes something more (see
Newcastle City Council v. Royal Newcastle Hospital (1957) 96 C.L.R. 493 at p. 500). It involves an element of control of preventing or being in a position to prevent an intrusion of strangers (Newcastle City Council v. Royal Newcastle Hospital (1959) A.C. 248 at p. 255).''

Whether the plaintiff company occupies the premises for residential purposes is a question of fact to be determined from the evidence. What then does the evidence show? It shows that the company is the owner of the premises and that it has furnished the premises and kept them furnished since it acquired them. It pays all the expenses referable to the premises with the possible exception of the administration charges. One thus has the situation that a company owning premises, fully furnished and constantly maintained by it and with the right to enter by the officers or agents as and when it pleases, has through its governing directors permitted its governing directors to reside in those premises without charge and, in my opinion, the only conclusion open is that the company is to be regarded as the occupier of the premises.

It has been submitted on behalf of the Commissioner that the Court should look at the ``reality'' of the situation and recognise that the home unit is in truth the residence of Mr. and Mrs. McDonald and that they, and not the company, should be regarded as

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occupying the unit. But the company is a separate entity (
Salomon v. Salomon & Co. Ltd. (1897) A.C. 22) which owns and maintains the unit and I cannot see that I am entitled to ignore those facts and the fact that Mr. and Mrs. McDonald are its joint governing directors with unlimited powers.

In
Catherine Lee v. Lee's Air Farming Ltd. (1961) A.C. 12, the Privy Council considered whether a company, of whom the deceased was controlling shareholder and governing director with unrestricted control of the company's operations, could make a contract to employ the deceased as its chief pilot. At p. 30 Lord Morris of Borth-Y-Gest delivering the judgment of their Lordships said:

``There appears to be no greater difficulty in holding that a man acting in one capacity can give orders to himself in another capacity than there is in holding that a man acting in one capacity can make a contract with himself in another capacity. The company and the deceased were separate legal entities. The company had the right to decide what contracts for aerial top-dressing it would enter into. The deceased was the agent of the company in making the necessary decisions. Any profits earned would belong to the company and not to the deceased. If the company entered into a contract with a farmer, then it lay within its right and power to direct its chief pilot to perform certain operations. The right to control existed even though it would be for the deceased in his capacity as agent for the company to decide what orders to give. The right to control existed in the company, and an application of the principles of Salomon's case (1897) A.C. 22 demonstrates that the company was distinct from the deceased.''

In
Tunstall v. Seigmann (1962) 2 Q.B. 593 Omerod L.J. at p. 601 said:

``It has been argued in the course of this case that there have been a number of departures from the principle of Salomon v. Salomon & Co. Ltd. (1897) A.C. 22 in order that the courts may give effect to what has been described as the reality of the situation, and it is submitted in these circumstances that the court should look at the realities of the situation...

Whilst it may be argued that in the above circumstances the courts have departed from a strict observance of the principle laid down in Salomon v. Salomon & Co. Ltd., it is true to say that any departure, if indeed any of the instances given can be treated as a departure, has been made to deal with special circumstances when a limited company might well be a facade concealing the real facts.''

Willmer L.J. at p. 605 said:

``There is no escape from the fact that a company is a legal entity entirely separate from its corporators - see Salomon v. Salomon & Co. Ltd.''

In the same case, Danckwerts L.J. at p. 607, after referring to
Daimler Co. Ltd. v. Continental Tyre & Rubber Company (Great Britain) Ltd. (1916) 2 A.C. 307, said:

``But when the careful analysis of Lord Parker of Waddington in the Daimler case is read, it is, I think, apparent that the personality of those in control of the company was only to be regarded as material in special circumstances, such as a state of war, and only as indicating the nature of the company without really departing from the principle that a limited company incorporated under the Companies Acts is a distinct legal entity, differing from the individuals who hold the shares in the company or control it through the mechanism of the Companies Acts.''

In the present case, it can properly be said that Mr. and Mrs. McDonald control the company, but that does not alter the situation that the company is in possession of the unit and controls the premises through its governing directors, who reside in the premises.

In my view it does not advance a claim that the company is not occupier, to point to the fact that Mr. and Mrs. McDonald, being joint governing directors with unlimited power to control the company's affairs, are in a position where they can arrange the affairs of the company to suit their own personal wishes and thus can deal with the home unit in a way which will make it available to them as a residence. There is, it is true, no minute of the company in relation to Mr. and Mrs. McDonald residing in the unit nor evidence showing that the presence of

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Mr. and Mrs. McDonald on the premises in any way advances or relates to any particular purpose or activity of the company or the discharge of their offices as governing directors but this does not mean that the Court can dissociate Mr. and Mrs. McDonald from their positions as joint governing directors of the company and hold that the fact of them being in the premises is not required to be attributed to the authority which they, as joint governing directors, can exercise on behalf of the company so as to make themselves residents. They are not trespassers. The presence of Mr. and Mrs. McDonald on the premises at any given time in other than their capacity as joint governing directors can only be attributed to the permission granted to them by the company - through them, its joint governing directors - and that permission on the evidence here could only make them bare licensees; as such, they would have no rights to possession or control which could result in them being, in the eyes of the law, occupiers. Certainly their presence in the premises in their personal capacities at any given point of time cannot deny to the company the exercise of their powers as joint governing directors whenever they see fit in relation to the management of the unit. It is entirely for them to decide if they will, at any point of time, act in their capacities of governing directors or in their personal capacities, and this duality of capacity cannot, for present purposes, be regarded as subject to any external control. As governing directors, Mr. and Mrs. McDonald could, if they wished, whilst in the home unit, do acts or make decisions in regard generally to the company's business, which would bind the company, and equally they could decide what repairs needed to be done in the unit, what furniture needed to be replaced, or whether an additional phone should be installed and so on, and when they so decided they could see to it that these things were done at the company's expense: they would be acts of the company done on the premises. Whilst present in the unit they could, in their position of governing directors, take all measures necessary to protect the company's property and this, of course, would include the power to prevent strangers interfering. The company, through its joint governing directors, is at all times, whilst they are residing in the unit, in control of the unit in every respect. The fact that Mr. and Mrs. McDonald, because of their powers as governing directors, can perpetuate their stay indefinitely, does not convert their presence in the unit into possession of the unit by them, or confer on them any power of control to the exclusion of that exercisable by them as joint governing directors. The company is in possession of the unit with absolute control of it at all times and accordingly is in occupation of the unit.

Counsel for the Commissioner has drawn attention to the observations of Sheppard J. in
Voss & Securus Pty. Ltd. v. Commr. of Land Tax (N.S.W.) (1973) 3 A.T.R. 712, where his Honour was considering the expression ``used and occupied... solely as the site of a single dwelling house'' within sec. 9(3)(c) of the Land Tax Management Act. One of the owners of the land was a company. At pp. 714-715 his Honour said:

``It was said that the company occupied the premises by these persons as its agents, using that term in a general or informal sense. The trouble with this argument is that neither shareholders nor directors, by reason only of their capacity as such, are agents of a company, and just because the house is occupied by the company's directors and shareholders it does not follow that the occupation of the directors and shareholders becomes that of the company, especially when it is necessary in order that the subsection may operate for the company itself to use and occupy the land solely as the site of a single dwelling house.

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I should add that although I have reached the conclusion that the company in this case does not use and occupy the land as the site of a dwelling house, there could be cases where a company could be said to be so doing and occupying land. These would usually arise in commercial situations where companies owned houses for the purpose of providing accommodation - permanent or otherwise - for members of their staffs or for guests. It is in these circumstances that the use and occupation would be that of the company in question, and this is no doubt why the draftsman found it necessary in the last paragraph to take away the

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advantage from companies who are outside those persons whom the benefits of the subsection are designed to advantage.''

It was submitted that the present case did not fall within the ``commercial situation'' referred to by his Honour and that it was only in such a case that it could be held that a company occupied premises ``for residential purposes''.

His Honour, in that case, was not considering sec. 10(1)(r) of the Act and, in any event, it is clear that his words were not intended to be an exhaustive description of the circumstances in which a company may be said to be an occupier of a dwelling house. His words are clearly obiter. The question in every case involving a company and ``occupation'' of premises is whether the company has the required possession and control of the premises to lead to a conclusion that it, and not those who may be physically present there at any given time, is the ``occupier'' for the purposes of the Act.

My conclusion, therefore, is that in the present case the home unit was ``used and occupied'' by the company ``for residential purposes and for no other purpose'' and that the premises were not liable to land tax for the years in question, i.e. 1974 and 1975.

In assessing the company to tax, the Commissioner has charged interest in respect of all assessments from 1974 to 1979 and it has been submitted on behalf of the company that this Court should amend the assessments for the years 1976 to 1979 to delete the requirement that interest be paid. The interest was charged because the returns were not lodged until last year, it being thought by Mr. McDonald that the premises were not at any time liable to land tax. Section 72 of the Act has the consequence that failure to furnish a return as required by the Act results in additional land tax at the rate of 10 per cent per annum upon the amount of tax assessed becoming payable for the period of default. The section concludes ``Provided that the Commissioner may, in any particular case for reasons which he thinks sufficient, remit the additional land tax payable under this section or any part thereof.''

The section leaves it entirely to the Commissioner to decide if a remission is to be made and the only limitation upon the exercise of the discretion is that it be exercised bona fide.
Shrimpton v. The Commonwealth & Anor. (1945) 69 C.L.R. 613 at p. 620; Halsbury 4th ed., vol. 1, para. 60 and cases there cited. There is nothing before me to indicate that the Commissioner was ever asked to remit the tax or that, if he was, he did not give bona fide consideration to that request. In the circumstances no basis is shown for this Court to interfere.

The order of the Court will thus be that the appeal in respect of assessment numbers 58207 and 67969, being the assessments issued in respect of the years 1974 and 1975 respectively, are allowed and the notices of objection thereto upheld. The appeals in respect of the assessment numbers 52107, 52065, 48711, 43829 and 6698, being assessments issued in respect of the years 1976 to 1980 inclusive, are withdrawn dismissed. Each party is to pay its or his own costs.