Brettingham-Moore v. Federal Commissioner of Taxation.

Judges:
Neasey J

Court:
Supreme Court of Tasmania

Judgment date: Judgment handed down 26 November 1981.

---

Neasey J.

The sole question in issue in this appeal is whether a compulsory acquisition of land from the taxpayer qualifies as a sale of land by him, within the meaning of sec. 26AAA of the Income Tax Assessment Act 1963-1973. The taxpayer and his wife bought the land in Battery Point, Hobart, jointly, by an agreement for sale and purchase dated 14th November 1975. Subsequently it was acquired from them compulsorily by the State pursuant to the provisions of Pt. II of the Lands Resumption Act 1957. Notice to Treat under sec. 12 of the Act, dated 21st June 1976, was served, and on 8th September 1976 compulsory acquisition of the land was completed by registration pursuant to sec. 14 of the Act of a notification under sec. 13. The effect of sec. 14 is that upon registration of such notification the land in question reverts to and revests in the Crown absolutely for the purpose specified in the notification, and the estate and interest of the person from whom it is acquired is converted into a claim for compensation. In the meantime, before the notification was registered, the taxpayer and his wife agreed with the Crown upon the amount of the compensation to be paid.

By reason of the amount received in compensation for the land, it is common ground that the taxpayer and his wife realised a surplus of $33,189.15 over and above the amount paid therefor. Half of that sum was, as against the appellant taxpayer, duly assessed under sec. 26AAA as income by the Commissioner, and the validity of that assessment is now in issue. At the commencement of hearing of the appeal, counsel for the Commissioner informed me that his client formally acknowledged that the amount in question was not assessable as income under the provisions of sec. 26(a), because he was satisfied that the property had not been acquired by the appellant for the purpose of profit-making by sale, or from the carrying on or carrying out of any profit-making undertaking or scheme. The taxpayer lodged notice of objection, the Commissioner disallowed the objection, and the taxpayer pursuant to sec. 187 of the Act requested the Commissioner to treat his objection as an appeal and to forward it to this Court for determination.

It is well settled that a compulsory acquisition of property from a taxpayer under statutory powers constitutes a sale of land by him within the meaning of sec. 26(a) of the Act -
Smith v. F.C. of T. (1932) 48 C.L.R. 178;
Coburg Investment Co. Pty. Ltd. v. F.C. of T. (1960) 12 A.T.D. 242. Counsel for the appellant contends, however, that a compulsory acquisition should not be so treated for the purposes of

---

ATC 4659

the expression ``the taxpayer has... sold the property'', in sec. 26AAA(2)(b). The arguments upon which this contention is based are twofold, as I understand them; namely, first, that while there is no relevant definition of ``sale'' in the Act, nevertheless the omission from subsec. (1) of sec. 26AAA of any mention of compulsory acquisition means that it is not intended to be included within the meaning of sale; and second, that in any event the policy exhibited by sec. 26AAA shows that the concept of sale is intended to be confined therein to a voluntary sale by the taxpayer.

I think there is no substance in either of these contentions.

As to the first, it is true that subsec. (1) does set forth some extensions of meaning of the words ``property'' and ``purchase''; and provides in subpara. (f), in effect, that a transfer of property from one person to another in exchange for other property or without consideration shall be deemed to constitute a sale. The evident purpose of those provisions, however, is to catch up transactions by which the taxing purpose of the section might be easily circumvented if they were not there, and in my opinion there is nothing in subsec. (1) which throws any light at all on the question in issue in this appeal. As to the second limb of the argument, again I am unable to see any consideration arising out of the form of sec. 26AAA, or from its relationship to the sections juxtaposed to it, or from the Act as a whole, to suggest that its proper interpretation requires that it be restricted to voluntary sales. The only purpose which is apparent to me from the apposition of sec. 26AAA with sec. 26 and particularly subsec. (a) of sec. 26, is that the former is intended to set up an arbitrary or automatic taxing provision whereby, in its simplest expression, if property is bought and sold within a twelve month period, any profit realised on the sale is to be taxed as assessable income, whether or not it was acquired for the purpose of profit-making by sale. Profit realised on the disposition of property purchased and sold within the arbitrary twelve month period is made taxable in any event; and thus it seems to me that sec. 26AAA is a provision which naturally finds its place in the Act alongside sec. 26(a), because it is designed by its reference to a fixed time scale to avoid much of the difficult and time-consuming inquiry often made necessary by the application of sec. 26(a) to the taxation of profit realised on the sale of property.

The two authorities above-mentioned, Smith v. F.C. of T., and Coburg Investment Co. Pty. Ltd. v. F.C. of T., make it plain in my view that a compulsory acquisition of property pursuant to statutory powers is ordinarily in its essential nature a ``sale'', even though as far as the owner is concerned the sale is not voluntary but is forced upon him. Those cases clearly establish that the aspect of compulsion did not prevent the application of sec. 26(a) or the similar provision in issue in Smith's case. In Smith v. F.C. of T., Rich J. (at p. 186 and ff.) said:

``The case is thus restricted to the question whether the word `sale' in the proviso as it stood before the amendment of 1930 includes compulsory sale. I must confess that if it had not been for the subsequent amendment I should not have hesitated in giving an affirmative answer. Sale is not a word of precise technical import.... Ever since the Lands Clauses Consolidation Act 1845 the alienation of property accomplished under its provisions has been regarded as an instance of sale. The very title under which the subject is discussed in legal compilations is compulsory purchase.... Swinfen Eady J. (as he then was), in In
re Cary-Elwes' Contract (1906) 2 Ch. at p. 148 said: `It is well settled that in cases of compulsory purchase, after notice to treat and ascertainment of the price, a contract is established, enforceable in a Court of Equity, and with regard to which both vendor and purchaser can enforce specific performance...' Many references will be found to the relationship established by notice to treat and ascertainment of the purchase-money in which it is called a quasi-contract, e.g., per Lord Watson in
Tiverton and North Devon Railway Co. v. Loosemore (1884) 9 App. Cas. 480, at p. 501, and as a purchase, e.g., by Lord Bramwell (ibid. at p. 511). It is true that the Queensland statute under which the land was taken from the Company does not proceed by notice to treat but by a Gazette notice of acquisition. Perhaps in England the procedure by notice to treat produced a greater similarity in

---

ATC 4660

conveyancing practice to the completion of a voluntary sale, but the difference is not material in considering whether agreement is an essential element in the connotation of the word `sale', or whether it is capable of including alienation of property for a money sum, when the alienee alone possesses freedom of action; see per Lord Macnaghten in
Williams v. Permanent Trustee Co. of New South Wales (1906) A.C. 249, at p. 252, where he says: `It is a compulsory purchase just as much in the one case as in the other.'... The fact that the fixed capital is recovered by a compulsory conversion as distinguished by [sic] a voluntary conversion of the asset into money is quite irrelevant to the purpose of the Legislature.''

The point made in that passage from the judgment of Rich J., that in a compulsory purchase of land under, usually, the Lands Clauses Consolidation Act 1845 in England, a contract or quasi-contract analogous to that between vendor and purchaser is set up, albeit not voluntarily on the part of the owner of the land, is established specifically in the Tasmanian Lands Resumption Act 1957 (in contradistinction with the Lands Clauses Consolidation Act 1845), because sec. 12(11) provides:

``The relationship between a person on whom a notice to treat has been served and the Crown is, except where otherwise provided in this Act, the same as it would have been if when the notice was served the person served therewith had agreed to sell to the Crown the estate or interest to which the notice related for an amount to be determined as provided in Part IV, but not so that either party has any right to enforce performance of the notional contract of sale created by this subsection otherwise than in the manner provided by this Act.''

It was submitted by learned counsel for the appellant taxpayer that the authority of the House of Lords in
Kirkness v. John Hudson & Co. Ltd. (1955) A.C. 696 supports the proposition that under sec. 26AAA the concept of sale in the context is confined to a voluntary sale. I do not agree. The same argument was put in a stronger form to Windeyer J. in Coburg Investment Co. Pty. Ltd. v. F.C. of T. (supra). Windeyer J. said there (at p. 248):

``This court has decided the very question, and decided it against the taxpayer's contention here, in Smith v. Federal Commissioner of Taxation... Mr. Gillard, however, submitted that that decision must be taken to have been now displaced by the decision of the House of Lords in Kirkness v. John Hudson & Co. Ltd.... In the latter case it was held by most of their Lordships that a sale in its true sense imports a mutual assent and that a transaction in which that is lacking is not strictly a sale. But it was also recognised that the word might be used with a wider meaning. In that case the question turned on the English Income Tax Act 1945, s. 17(1)(a). It arose because under the Transport Act 1947 the property in all privately owned railway wagons that at the time were under requisition under the Defence (General) Regulations 1939 was transferred to the British Transport Commission, and compensation was thereupon payable in accordance with a fixed scale based upon the age and type of the wagons without reference to their state of repair or actual value. The question was whether the wagons were `sold' within the meaning of s. 17(1)(a) of the Income Tax Act 1945, a provision dealing with cases `where... machinery and plant is sold'. That case has little resemblance to this. There, there was a general statutory expropriation of chattels with compensation to be paid at a schedule rate irrespective of the actual value of the particular chattel. Here there was a resumption of particular land by the ordinary procedure of notice to treat and a price thereafter arrived at by negotiation. In
Henty House Ltd. v. Federal Commissioner of Taxation (1953), 88 C.L.R. 141 at p. 155, this court said that the decision of Upjohn J., the judge of first instance in Kirkness v. John Hudson & Co. Ltd., supra, was not inconsistent with Smith v. Federal Commissioner of Taxation... I think that the actual decision in Smith's case is consistent also with what was said in their Lordships' speeches: and it governs this case. In
Nalukuya v. Director of Lands (1957) A.C. 325, at p. 332, the Privy

---

ATC 4661

Council said: `It is perhaps worth noticing that several of the speeches in Kirkness v. John Hudson & Co. Ltd. recognize that in the field of compulsory acquisition of land such words as `sale' and `purchase' are frequently used in connexion with transactions by which the transfer of ownership in land takes place in the absence of the element of mutual assent'. In my view, s. 26 of the Income Tax and Social Services Contribution Act can be taken as containing an example of such extended use.''

I respectfully adopt and follow his Honour's exposition of the reasons why Kirkness v. John Hudson & Co. Ltd. is to be distinguished from Smith's case. His Honour said that the decision in Smith's case applied to sec. 26, and in my opinion it governs sec. 26AAA also. In my view, no sound reason has been put forward or appears why the concept of a sale of property by the taxpayer should be treated differently as between sec. 26AAA and sec. 26; and indeed it would be anomalous if in the former it should be construed to refer to a voluntary sale only, whereas the element of voluntariness is, as has been held, immaterial in the latter. I hold, therefore, that the Commissioner rightly disallowed the appellant's objection, and his assessment should be confirmed.