Chamber of Manufactures Insurance Ltd. v. F.C. of T.
Judges:Brooking J
Court:
Supreme Court of Victoria
Brooking J.
This is an appeal by the taxpayer, The Chamber of Manufactures Insurance Ltd. (which I shall call ``the Company'') under sec. 187 and 197 of the Income Tax Assessment Act 1936 against the disallowance by the Commissioner of its objection against an amended assessment issued on 1st July 1982 in respect of the year ended 30th June 1980. The Company's taxable income for that year had previously been assessed at $6,013,133, but by the amended assessment this was increased to $10,676,517 in consequence of the inclusion in assessable income of the sum of $4,663,384, being the net profit on the sale of investments.
The Company was incorporated on 29th June 1914. The whole of its shares are beneficially owned by The Victorian Chamber of Manufactures. It holds 50% of the issued capital of a life company, but does not itself transact life insurance business. About 70% of the Company's business is represented by workers compensation insurance. It carries on a wide variety of other forms of insurance business, including fire, marine, loss of profits, plate-glass and burglary.
The objects of the Company, as stated in its memorandum of association, are essentially to carry on business as an insurer, although there is also a power, in the common form, to carry on other businesses (cl. II(q)). Clause II(i) is the investment power. Since no argument has been put to me on behalf of the Commissioner founded on the somewhat narrow scope of the memorandum, I shall say no more about it, although I suspect that it may be a relevant consideration.
Mr. Ormiston, Senior Counsel for the Commissioner, did not rely on either limb of sec. 26(a) of the Income Tax Assessment Act, but only on sec. 25(1), and put his case in two ways. In the first place, he relied on what have been described as the banking and insurance cases, notably
Colonial Mutual Life Assurance Society Ltd. v. F.C. of T (1946) 8 A.T.D. 137; (1946) 73 C.L.R. 604, contending that the acquisition and realisation of these assets was a normal step in carrying on the Company's insurance business, or in other words an act done in what was truly a carrying on of the business of the Company. In the second place, he contended that the decision in
London Australia Investment Co. Ltd. v. F.C. of T. 77 ATC 4398; (1977) 138 C.L.R. 106 showed that the profits made on the sale of these assets were income within ordinary usages and concepts.
I shall deal with these two contentions in the same order, but first I must return to the facts. A convenient starting point will be the Company's balance sheet as at 30th June 1980, for the realisations took place during the 1979/80 income year. This is the Company's position according to its balance sheet:
In this balance sheet the current assets include an item, ``Cash and deposits $6,751,070''. In the previous year the corresponding item is $8.6 m., and in 1978 it is $13.9 m. The notes to the 1980 accounts show that the item comprises cash at bank and in hand of $0.9 m. and cash on short term deposit of $5.8 m. This item insofar as it relates to deposits was described by George Provo Sutherland, the managing director of the Company, as the ``hard core'' of about $8 m. which was kept by the Company to pay claims and expenses. He said that it was ``invested in bank bills, letters of credit, deposits with Governments, with banks, with certain secure public companies'' and that it was ``kept very much on this 24 hour, 30 day call, type of money''. What he meant was that the Company paid claims and expenses out of this ``hard core'', which was fed from cash receipts and deliberately kept at a level of about $8 m. From his later evidence, and, indeed, from the documentary evidence, it is clear that the ``hard core'' included 90 day investments and, exceptionally, 180 day investments. In the course of a year, sums much in excess of $8 m. flowed in and out of this liquid fund. In 1980 ``claims paid and outstanding'' amounted to $25 m., while expenses came to $11.8 m.
The item ``Cash and deposits'' in the balance sheets includes, of course, cash at bank, which was on 30th June 1980 $0.9 m. Sutherland seems in his evidence to exclude cash at bank from the ``hard core'', as do the investment summaries prepared for the Board, which are concerned not with cash but with deposits. No doubt the Company kept the smallest amount possible on current account with its banker and placed the funds on deposit wherever possible.
In his evidence Sutherland distinguished the ``hard core'' from the Company's investments. These, he said, took three forms: real property, fixed interest securities and shares. A table, ex. ``B'', shows the constitution of the ``investment portfolio'' over the 24 year period from 1957 to 1980. Over that time the total cost of investments rose from $5.8 m. to $106 m.
1957 was the first year in which the Company invested in shares, and the value (at cost) of this part of the portfolio had risen from a negligible $10,000 in that year to $48 m. in 1980. The $48 m. included $39.3 m. of shares in listed companies and the market value of these was $65.5 m.
The figures for 1980 showing the constitution of the investment portfolio are as follows:
Cost Percentage
$
Fixed interest 37,499,000 35
Shares 48,419,000 46
Property 20,065,000 19
----------- ---
105,983,000 100
----------- ---
These figures are taken from the table, ex. ``B''. Owing to differences of characterisation, difficulties are experienced
ATC 4776
in reconciling these figures with those in the balance sheet, which shows investments of a total value (again at cost) of $90,949,352. Note 11 shows how this amount is made up: Investments $
Government and other Public Securities
(a) Government, municipal and other public debentures, stocks
and bonds - at cost 660,000
Shares
(b) Shares in corporations listed on prescribed stock exchanges
- at cost 39,317,259
Shares in other corporations - at cost 1,466,276
Shares in subsidiary company - at directors' valuation
1969 26,660
Shares in subsidiary companies - at cost 7,608,734
Debentures
(c) Debentures and notes in corporations listed on prescribed
stock exchanges - at cost 5,130,627
Debentures and notes in other corporations - at cost 18,479,598
Mortgages
Mortgage loans 4,950,516
Staff home finance scheme includes secured loans to the
managing director $3,905 (1979: $4,752) 1,040,220
Other Investments
Other loans 1,000
Loans to subsidiaries 11,782,462
Secured loan 486,000
----------
90,949,352
----------
Market Value of (a), (b) and (c)
(a) 505,986
(b) 65,468,285
(c) 4,928,709
As appears from this note, the company held three types of share: shares in listed public companies, shares in unlisted companies and shares in its own subsidiaries. Folio 31 of ex. ``A'' shows the shares in unlisted companies, while folio 32 names the subsidiaries. The unlisted companies include the life company, F.M.L. Assurance Ltd., to which I shall refer again later.
The total value of all categories of share listed in note 11 corresponds to the value assigned to shares in ex. ``B''. The Government and other public securities, debentures and mortgages in note 11 have a total value of $30,260,961. This includes moneys lent under a staff home finance scheme. Assuming that the whole of the $30,260,961 forms part of the fixed interest securities, I am unable to say precisely what investments make up the difference between that amount and the amount of $37,499,000 shown in ex. ``B''. I find the same difficulty in identifying with precision the ``property'' worth $20,065,000 shown in that exhibit. Note 14 shows loans to subsidiaries of $11.8 m., made up of a loan of $10.2 m. to C.M.I. Services Pty. Ltd. (the paid up capital of which is only $5,000) and five loans to other companies (ex. ``A'', folio 16). C.M.I. Services Pty. Ltd., according to Sutherland, invests in office buildings, factories and the like. The Company is said by Sutherland to own six hotels, which were acquired by share
ATC 4777
purchase transactions. These hotels must have been owned by some or all of the last six subsidiaries named on folio 32 of ex. ``A''. Note 10 to the balance sheet shows that the fixed assets (which are principally land and buildings) include one hotel. It is not possible to say to precisely what freeholds the $20,065,000 item in ex. ``B'' relates. A note to p. 6 of the investment summary submitted to the Board on 11th January 1980 suggests (as one would expect) that all loans to C.M.I. Services Pty. Ltd. are treated as investments in real property.After the appointment of a full-time investment officer, it became the practice for the Board, at the beginning of the calendar year, to approve an investment policy or programme for that year. That policy or programme was for the investment of a given amount during the coming year, with proportions laid down for real property, fixed interest securities and shares. The total amount to be invested was determined by reference, not to anticipated profits, but to anticipated cash flow. The investment officer reported to the Board from time to time on the implementation of the programme. Every quarter since about 1975 the Board has reviewed the portfolio of shares and fixed interest securities. An investment summary was submitted to every Board meeting, and the investment manager attended all Board meetings. About one-third of the time at Board meetings was spent considering investments.
A great deal has been said in this case about diversification. In 1964 the Company purchased a panel beating works, evidently by acquiring the whole of the issued capital of Southern Panel Beating Works Pty. Ltd. The market value of these shares as at 30th June 1980 is shown as only $45,093, although goodwill had been written off in 1969. Presumably the profits generated by that company are not large. It paid no dividend in 1980 and the consolidated accounts show small amounts for stock and work in progress. In about 1971 the Company bought one-third of the issued capital of a life company; in about 1980 this shareholding was increased to 50%. In 1971 the Company set up a wholly owned subsidiary, C.M.I. Services Pty. Ltd., to invest in office buildings, factories and the like. Then, in October 1976, the Company bought a large part of the issued capital of Innkeepers Ltd., which operated a chain of motels. Sutherland spoke of the acquisition in 1976 of just under 50% of the capital, but ex. ``G'', which deals with the later sale, suggests that it was a further purchase in May 1979 which took the Company's holding to just under 50%. The shares in Innkeepers Ltd. were sold in January 1980. The Company had obtained representation on the Board of Innkeepers Ltd.
In about 1978 the Company bought a 15% shareholding in Rocla Industries Ltd., which it held for about 3½ years. The company does not appear to have obtained further Board representation as a result of this purchase; the two companies already had a common director. In about August 1979 the Company acquired the Sovereign chain of six hotels at a cost of $8.4 m., by buying the issued capital of the companies which owned them. In relation to these hotels, the role of the Company or its subsidiaries (the subsidiaries have since been wound up) was simply that of landlord. In 1980, and before 30th June, the Company incorporated a wholly owned subsidiary named Domain Investments Pty. Ltd. Sutherland described this as an investment company, but he also said that it was formed so that any share trading could be done through a subsidiary. The minutes of 22nd February 1980 describe it as a vehicle for trading in the short term investment area.
In his evidence Sutherland time and again spoke of diversification in relation to the outlay of funds by the Company in various ways in the last 25 years. But it would be a mistake to treat the Company as having in the last two or three decades diversified its business by branching out into a wide variety of other business activities, carried on either directly or by means of subsidiaries. The 50% shareholding in F.M.L. Assurance Ltd. may be put to one side, since the business of that company is life insurance. When the rest of the so-called diversification is examined, it is found that only in one case is the Company, directly or indirectly, carrying on an additional business, that being the modest panel beating enterprise of its wholly owned subsidiary. In addition, for about 3½ years the Company had a shareholding which rose to almost 50% in Innkeepers Ltd. and which had cost it in all $915,000, and was
ATC 4778
represented on the Board of that company, which operated a chain of motels. In view of the size of the shareholding and the fact of Board representation, this transaction does stand out. But whatever may be said of the Innkeepers transaction, for the rest, there is nothing more than a diversification, not in relation to business directly or indirectly carried on by the Company, but in relation to its investments, and when that diversification is further examined, it is found to come down to this: in the last 25 years the Company, instead of investing only in fixed interest securities and real estate, has invested also in shares and may (this is not clear) also have widened the scope of its investment in real estate. Exhibit ``B'' shows that even in 1957 the Company had 18% of its investment portfolio in real estate. Exhibit ``C'' is of some assistance in relation to subsequent changes, but the constitution of the 1957 $1 m. does not appear. It may be that in recent years the Company has widened the spread of its real estate investments, but the evidence here is not very satisfactory. In 1964 and 1965 the Company's real estate investments rose to 34 and 39 per cent respectively of its portfolio.As to shares, the Rocla holding was of 15%, but there is no suggestion that the Company played any part in the conduct of Rocla' affairs, and I think I make take judicial notice of the fact that large holdings are not uncommon as a result of the investment activities of life offices, superannuation funds and the other big investors commonly described by financial journalists as ``the institutions''. What does stand out is the growth of the Company's share portfolio since its inception in 1957, and especially its growth between about 1964 and 1974, when it reached a peak from which it has since somewhat declined. Generally speaking, what the Company has done in the last 25 years is diversified not so much its business as its investments.
Sutherland produced, and went through in detail, a collection of extracts from the Company's tax returns from 1957 to 1979, showing sales of shares and fixed interest securities. Some of these sales resulted from take-over offers. He went through the sales one by one, commenting on them. Very few sales took place in the early years. Even in the middle of the period the sales were few in relation to the size and spread of the portfolio. As late as 1971 there were, for practical purposes, no sales. In 1972 the Company employed for the first time a full-time investment officer, and in that and the following year quite a number of sales took place; but the amounts concerned were relatively small. Realisations led to small profits in 1974 and 1975, but in 1976 a net profit of $287,000 was realised. In the following year the loss was $20,000. In 1978 the figures stand out as large, profits amounting to $443,000 and losses to $137,000; some of these investments were sold within twelve months of their purchase. In that year the total value (at cost) of shares and fixed interest securities held was $84 m. In 1979 14 sales led to a profit of $595,000 and three sales to a loss of $101,000.
Now comes the year of income. The sales appear from the first schedule to the notice of objection. Shares in 20 companies were sold for a total of $9.9 m. to yield a profit of $4.8 m. Shares in ten companies were sold for $1 m., leading to a loss of $0.16 m. Of the $9.9 m. realised by the sale of shares, $1.9 m. represented the proceeds of sale of the shares of Innkeepers Ltd., and that sale alone accounts for $0.9 m. of the total profit of $4.6 m. made on the sale of shares. That company was not a listed public company. Fifteen fixed interest securities were sold for a total of $3.7 m., the profit being $0.11 m., and nine such securities were sold for $1.3 m. in all, realising a loss of $0.08 m. Overall, shares yielded a profit of $4.6 m. and fixed interest securities a profit of $0.03 m.
These profits and losses were shown as extraordinary items in the accounts and the net profit was transferred to the capital profits reserve. Up to and including 1972, the Company had transferred the profit or loss on the sale of investments to the general reserve, but from 1973 on the transfer was to the capital profits reserve.
The sale of fixed interest securities for a total of $5 m. was made in about September 1979 in order to provide the bulk of the price payable on the acquisition of the Sovereign hotel chain by means of a purchase of shares.
Figures extracted from the Company's return for the year of income (1980) and the two immediately preceding years give this picture.
There was thus in the year of income a dramatic fall in the operating profit before tax. Net profit, however, continued to advance. But the net profit for the year of income was achieved only after bringing to account the profit of $4.7 m. on the sale of investments that has given rise to this appeal. It is tempting to speculate about whether the sale of the shares, which accounted for almost the whole of the $4.7 m., was affected by a desire to improve the result for the year. But this matter was not explored in cross-examination, and it remains in the forbidden realm of speculation.
I turn now to the law. The facts of the Colonial Mutual case need not be rehearsed. Dr. Spry sought to distinguish that decision as concerned with life insurance, but I am satisfied that this is no valid ground of distinction. The language used shows that the Court concerned itself with the business of insurance generally. So (8 A.T.D. at pp. 143-144; 73 C.L.R. at p. 618) their Honours said that the sounder view was that profits and losses on the realisation of investments of the funds of ``an insurance company'' should usually be taken into account in the determination of the profits and gains of the business. Again, at 8 A.T.D. p. 145; 73 C.L.R. p. 619, the reference is to the carrying on of business by ``an insurance company, whether a mutual company or not'', and on the next page a passage from Konstam, which speaks generally of insurance companies, is cited, and the judgment goes on to decline to distinguish between the business of an insurance company and a bank. While observations in judgments are to be read in the light of the facts, I cannot imagine that the use in the Colonial Mutual case of the two expressions, ``insurance'' and ``life assurance'', is not deliberate. Moreover, the insurance decisions on which the Court relied in reaching its conclusion were not confined to the field of life insurance, and this is significant both as helping to indicate the scope of the principle which the High Court intended to lay down and as affording additional support in the authorities for a principle of general application. One of the decisions relied on by the High Court was
Northern Assurance Co. v. Russell (1889) 2 T.C. 551, where the Scottish Court of Exchequer, in its fifth proposition, appearing at p. 578, upheld the decision of the Commissioners that profits on investments realised were assessable income. The important thing for present purposes is (as appears from p. 571) that the company carried on both life and fire business and that its invested funds were allocated to the life and fire departments respectively and were known as the life fund and the fire fund. Another case relied on by the High Court was
Liverpool & London & Globe Insurance Co. v. Bennett (1913) 6 T.C. 327. There the company had investments in the United States, Canada and Australia. In all three countries it transacted only fire insurance business, although in two of them it had formerly transacted some life business; there were still some life risks running in those two countries, of negligible amount. A third case referred to by the High Court is
Royal Insurance Co. Ltd. v. Stephen (1928) 14 T.C. 22, where, as appears from para. 2 of the case stated, the relevant business of the company was that of fire, accident and general insurance. True it is that the only question there was whether there had been a realisation, but at p. 27 Rowlatt J. said that the Crown's concession that a loss realised on investments would be deductible in ascertaining profits was based on the principle in the Northern Assurance case, supra; and in the High Court the concession was regarded as correct (8 A.T.D. at pp. 143-144; 73 C.L.R. at p. 618). A fourth case considered by the High Court was
I.R. Commrs. v. Scottish Automobile and General Insurance Co. Ltd. (1931) 16 T.C. 381. The Court of Session refused to disturb a finding that a profit on the realisation of investments was not a profit of trading. The correctness of this decision seems to me to be have been doubted by the High Court. Be that as it may, what is important is that the case concerned funds invested by a company which carried on various kinds of insurance business, other than life.
Moreover, the principle on which the Court proceeded in the Colonial Mutual case
ATC 4780
suggests that the references to insurance in the passages now in question were not intended to apply only to life insurance. The Court accepted Konstam's view that the buying and selling of investments was a necessity of insurance business. In the Liverpool & London & Globe case (which may be regarded as concerned only with fire insurance: compare p. 368 of the report) the reasoning is applicable to all forms of insurance. Mr. Justice Hamilton (who was to become Lord Summer), at p. 357, regarded all insurance business, whether or not the contract was one of indemnity, as essentially the same in the sense that ``the whole business... consists in being ready to meet the liabilities if they accrue, out of one class of funds or another''. The practice of insurance companies, his Lordship continued, had always been to accumulate from the outset large accessible funds for the purpose of meeting losses. On appeal, the judgments in the Court of Appeal and the speeches in the House of Lords similarly treat the creation, maintenance and use of large reserve funds as an essential part of all insurance business.The Colonial Mutual case was applied in
Producers and Citizens' Co-operative Assurance Co. Ltd. v. F.C. of T. (1956) 11 A.T.D. 86; (1956) 95 C.L.R. 26. That was itself a life insurance case, but Webb J. mentions the reliance placed by the Full Court on the Northern Assurance and Liverpool & London & Globe cases and cites its conclusion that ``profits and losses on the realisation of investments of the funds of an insurance company should usually be taken into account in the determination of the profits and gains of the business''. The Colonial Mutual decision was applied again in another life insurance case,
Australasian Catholic Assurance Co. Ltd. v. F.C. of T. (1959) 11 A.T.D. 577; (1959) 100 C.L.R. 502. Again, Menzies J. referred to the Northern Assurance case, describing it as concerning ``an insurance company'', and the Liverpool & London & Globe case, and cited from the Colonial Mutual decision the passage which equates the position of ``an insurance company'' to that of a bank (11 A.T.D. at pp. 578-580; 100 C.L.R. at pp. 506-507). It may also be noted that Barwick C.J. and Jacobs J. have in this connection referred to the ``banking'' and ``insurance'' cases and to ``banking or insurance companies'' and to ``a banking or insurance business'', while Gibbs J. has spoken of ``the business of banking or insurance'' (
London Australia Investment Co. Ltd. v. F.C. of T. 77 ATC 4398 at pp. 4401-4402, 4404 and 4410; (1977) 138 C.L.R. 106 at pp. 112-113, 118 and 129).
A number of the decisions, including the Colonial Mutual case itself, were considered by Foster J. in
General Reinsurance Co. Ltd. v. Tomlinson (1970) 1 W.L.R. 566, where his Lordship applied the principle illustrated by those cases to the investments of a reinsurer. In
Ipec Insurance Ltd. v. F.C. of T. 75 ATC 4137 at pp. 4148-4149; (1975) 5 A.T.R. 387 at p. 400 Zelling J. treated the principle as applicable to a company carrying on the business of general insurance, but not life. The view taken by the High Court in the Colonial Mutual case was anticipated in Hannan, Principles of Income Taxation, pp. 166-167, in a passage which draws no distinction between life and other forms of insurance. It is also adopted in Mannix and Harris, Australian Income Tax Law and Practice, vol. 1, 25/22.
The decision in the Colonial Mutual case does not depend on any consideration peculiar to life insurance, such as the need for an actuarial investigation to ascertain the solvency of the company, or the tendency of life companies to make longer term investments, or the fixed amount of the annual premium, or the means employed to calculate premiums. I also reject the argument that all the funds of life companies (subject in the case of non-mutual companies to payment of limited dividends in accordance with sec. 50 of the Commonwealth Life Insurance Act 1945) are held for the benefit of policy holders and so resemble circulating capital. The decision is grounded on no such conception, and the notion is itself unsound.
In the present case the shares and other securities had been acquired by the Company as investments and the case does not raise the question of the position of an asset acquired for some other purpose, for example, a freehold bought for use as a head office or as a residence for the managing director; compare Producers and Citizens' Co-operative Assurance Co. Ltd. v. F.C. of T., supra, at A.T.D. pp. 89-90; C.L.R. p. 33.
ATC 4781
There is at least one passage in the Liverpool & London & Globe case (in the judgment of Hamilton J. at p. 357) which might be thought to suggest that all, or substantially all, the assets of an insurance company should be regarded as held by it for the purpose of meeting claims in a different sense from that in which the assets of any person are ultimately available to meet the claims of his creditors. One anonymous commentator (Australian Federal Tax Reporter vol. 1 p. 7226) has indeed raised the possibility that under the Colonial Mutual principle a profit on the sale of an insurer's head office building might be assessable, although he suggests it would not.
Dr. Spry submits that it cannot be said that a company which carries on a general insurance business can never acquire a capital asset, and I accept this submission. In the Colonial Mutual case itself the High Court, at A.T.D. pp. 143-144; C.L.R. p. 618, laid it down that profits and losses on the realisation of investments of the funds of an insurance company should usually be taken into account in the determination of the profits and gains of the business.
Dr. Spry relies on the fact that (putting to one side for the moment the special case of the sale of shares in the year of income and the immediately following year) shares and fixed interest securities had never been sold by the Company to enable claims or expenses to be paid. And he relies on the evidence of Sutherland concerning the intention with which investments in shares and fixed interest securities were made.
In one of the banking cases (
C. of T. (N.S.W.) v. The Commercial Banking Co. of Sydney (1927) 27 S.R. (N.S.W.) 231 at p. 234) Street C.J. spoke of the temporary investment of funds which the bank did not immediately require for other purposes; but it is clear that the degree of probability that the funds will have to be withdrawn from the investment need not be high. In the Liverpool & London & Globe case the following finding was made:
``Generally it has not hitherto been necessary for the Company to realise or expend any part of these moneys for the immediate purpose of carrying on their business as insurers, but they are available like any other property owned by the Company for such purpose or any other purpose of the Company whenever the Company may think fit or necessary.''
A further finding was as follows:
``As a general rule the liabilities of the Company accruing in the United States of America and the Dominion of Canada can be met out of the profits the Company has there, that is to say, the dividends or interest received from the moneys invested... and the premiums which are paid to it. But should extraordinary circumstances arise the Company could and would meet the claims made upon it by drawing upon its investments.''
Mr. Justice Hamilton made at p. 358 in relation to these findings the following observation:
``... the companies have under all imaginable contingencies large available funds in different parts of the world readily realisable in case of need. As it appears from the case of the Liverpool and London Globe that emergency practically does not arise''
(my emphasis).
Lord Justice Fletcher-Moulton, at p. 374, having referred to the findings of fact set out above, remarked that the investments were available, if circumstances so required, to meet the company's liabilities. Lord Shaw, at p. 377, mentioned the finding that the investments were available, like any other property of the company, for any other of its purposes, whenever it might think fit or necessary. Again, Earl Loreburn, at p. 378, adverted to the fact that, should extraordinary circumstances arise, the company could and would meet the claims upon it by drawing on its investments; his Lordship went on, at p. 379, to reject the analogy of the individual who carried on business as a banker and whose private fortune would in the last resort be available to pay his banking debts, an analogy also rejected in the decision next to be cited. Lord Mersey, at p. 380, spoke of a ``standby in the event of sudden claims''.
Another decision which is illuminating in this regard is
Frasers (Glasgow) Bank Ltd. v. I.R. Commrs. (1963) 40 T.C. 698. Two matters were there relied on by the Commissioners. The first (not presently relevant) was that the investment in question
ATC 4782
had been made by the Fraser bank in order to support in the market the shares of the House of Fraser, upon whose success the trading operations of the Fraser bank depended. The second was that the investments of the Fraser bank had to be used in reduction of its own overdraft as occasion demanded. As to this, the report shows (p. 701) that the sale in question was the only sale of stock or shares in the history of the Fraser bank. The sale realised £23,199 and this was used to reduce the £50,000 overdraft. In the Court of Session Lord Guthrie dissented on the ground that the sale was made, not to meet the demands of customers, but to meet an emergency, the demand of the National Bank for a reduction of the overdraft; but the Lord President and Lord Carmont both took a different view. It seems that the Fraser bank's investments were confined to stock and shares. When to this is added the finding that the Fraser bank had on no previous occasion sold stock or shares, it is clear that when Lord Carmont, at p. 706, referred to its investments having to be used in reduction of the overdraft as occasion demanded, his Lordship was referring not to any actual earlier transaction, but merely to what the circumstances made possible. Both the Lord President (at p. 704) and Lord Carmont (at p. 708) declined to accept the analogy of a trader who sold his dwelling to meet his business obligations, an analogy which commended itself to the dissentient, Lord Guthrie (at p. 710). An appeal to the House of Lords was dismissed.Mr. Justice Kitto, in distinguishing the ``banking'' and ``insurance'' cases, said of the transaction in question: ``The purchase of the shares bore no resemblance to an investment of banking funds, made to earn income pending a need for their deployment in the making of advances and the like; it bore no resemblance to an investment by way of erecting a second or third line of defence against a time of stringency or emergency'' (
National Bank of Australasia Ltd v. F.C. of T. 69 ATC 4042 at pp. 4047-4048; (1969) 118 C.L.R. 529 at p. 538). This would seem to accept that the Colonial Mutual principle may operate where the funds are invested against an improbable contingency, and I can see no reason why this should not be so.
In
General Reinsurance Co. Ltd. v. Tomlinson (1970) 1 W.L.R. 566 the reserves took three forms: moneys on either current account or deposit with banks, short and long term bonds, and shares. Claims were normally paid out of the current or deposit bank accounts, and it was only about five or six times a year that short term bonds, which were held for that purpose, were sold. The case stated contains no finding that the long term bonds or shares had ever been sold to pay claims. The profit on realisation of investments was held by the Commissioners to have arisen from acts done in the carrying on of the trade, notwithstanding that claims were normally met from moneys on deposit and current accounts, and Foster J. considered that this conclusion was inescapable.
That reserve funds are essential to the proper conduct of an insurance business has often been stressed. It has been pointed out in the cases that these funds perform a number of functions. In the first place, a proper reserve fund ensures that, notwithstanding hard times or even catastrophe, claims will be paid in full from funds set aside for that purpose. And because the fund does fulfil this first function, it also comforts the existing customer and attracts the wavering prospect. In the third place, the fund provides an income which can if necessary be used to meet claims before recourse is had to the investments themselves. Fourthly, the income from the fund provides an element of relative constancy in a business built upon uncertainties, tending to avoid great fluctuations in the results of the business from year to year and increasing the prospect of satisfactory dividends. These advantages, and, indeed, the necessity for a reserve fund, have often been remarked upon, for example, in the Liverpool & London & Globe case, supra, at pp. 357-358 per Hamilton J., at p. 369 per Cozens-Hardy M.R., at p. 371 per Fletcher-Moulton L.J., at pp. 376-377 per Lord Shaw of Dunfermline, at pp. 379-380 per Lord Mersey and at p. 381 per Lord Parker of Waddington; the Colonial Mutual case at p. 620, citing Konstam; and
General Reinsurance Co. Ltd. v. Tomlinson (1970) 1 W.L.R. 566.
In my opinion the shares and fixed interest securities did constitute or form part of a reserve fund in the sense in which that expression is used, for example, by Lord Mersey in the Liverpool & London & Globe
ATC 4783
case, at p. 380. They constituted the most readily realisable of the assets described as investments in the Company's balance sheet. They were liquid assets. They were of course available to meet the claims of policy-holders, not in the sense that the latter could have direct recourse to them, but in the sense that there was no legal impediment (by reason of the giving of security or otherwise) to their use by the directors for that purpose. They were, as liquid assets, the source to which the directors would obviously be expected to turn first if realisations to meet claims became necessary. Any person familiar with the practices of insurers, and, indeed, any intelligent businessman, would regard those shares and fixed interest securities as the assets which would be sold if receipts from trade debtors (that is, unpaid premiums) and receipts of future premiums, augmented by recourse to cash and deposits, proved insufficient to meet the demands of policy-holders. Moreover, an insured person or a reinsurer, or a person contemplating doing insurance business with the Company (including business as a reinsurer), who made even a cursory examination of its accounts would be likely to be struck by the deficiency of working capital, which in the 1980 accounts is of the order of $59 m. and in the 1979 accounts about $62 m. No sensible person who had any familiarity with balance sheets would be likely to insure with such a company unless he saw that the deficiency was met by readily realisable assets.Sutherland was not asked what the effect on the Company's business would have been if the 1980 balance sheet, instead of showing that the Company had $39.3 m. in shares of listed public companies at cost, the market value being $65 m., $1.5 m. in shares of other companies (not being subsidiaries), $0.7 m. in public securities and $23.6 m. in debentures and notes, had shown that the Company had those amounts tied up in broad acres, or in some long term real estate joint venture, or even in a head office building. These investments in shares and fixed interest securities must have helped the Company attract and retain customers and must (I think I may infer) have helped it in making its reinsurance arrangements. Insurance business must peculiarly depend upon confidence in financial stability and the ability to meet obligations.
In addition, the shares and fixed interest securities have in fact performed other functions which the Courts have viewed as part of the functions of reserve funds. In 1980 investment income was $7.4 m. and the operating profit before tax was $4.4 m.; had it not been for the investment income, there would have been an operating loss of $3 m. A dividend was paid in that year. The sum of $7.4 m. is of course the investment income of the Company from all sources.
Even if the Board did not intend the shares and fixed interest securities to serve as a reserve fund for the payment of claims, I think the inference must be drawn that those assets were in fact serving as such a fund, even though none of them was ever realised with the proceeds being used to meet a claim. (I shall deal later with the share realisations which were made in the year of income and the immediately following year.) The investments in question in fact functioned as a reserve, whether or not the Board intended them to do so. I am, moreover, not prepared to make the finding which Dr. Spry sought in relation to intention, that is, a finding that when the Company acquired the shares and fixed interest securities the Board did not intend that they should serve as a reserve fund to meet claims. Indeed, I go further and find affirmatively that when the Company acquired the shares and fixed interest securities the Board did intend that they should serve as such a fund.
The securities sold in September 1979 were sold to assist in financing the purchase of the Sovereign chain of hotels. On that I have already remarked.
According to Sutherland, there were two main reasons for the high volume of sales of shares in the year of income; in saying this, I do not overlook what he said in detail in relation to particular sales, including the Innkeepers transaction. The first reason given was that the share market was high and the second was concern about the future of workers compensation insurance. It is clear that the Board had for some time been concerned about the danger that workers compensation business might cease to be available to private insurers, and in a report submitted to the Board on 6 June 1980, ex. ``H'', Sutherland expressed the opinion that the business would cease to be available in less than ten years. The Minutes of the Board
ATC 4784
Meeting of 20 June 1980 record that the decisions to sell shares and invest the proceeds in fixed interest securities made at that meeting were taken in the light of the effect on the Company's liquidity which could result should the Company lose workers compensation business, as outlined in ex. ``H''. Workers compensation, it will be recalled, represented about 70% of the Company's business. The loss of that business would have reduced the Company's premium income by about 70%. A return of those parts of premiums paid which related to the unexpired period might have been necessary. According to Sutherland's evidence, the transfer of funds from shares to fixed interest securities safeguarded the Company's position in relation to the possible loss of workers compensation business in more ways than one. The Company was no longer exposed to the fluctuations of the share market, so far as the value of the asset was concerned. Income from the funds in question rose to a higher rate, and became definite. By the selection of different terms, principal could be made to fall due predictably year by year.A large number of the fixed interest investments so made have now matured, since the terms were mostly from two to three years. On maturity, the proceeds were invariably invested in fixed interest securities in order, so Sutherland said, ``to maintain the spread of moneys falling due each year... in case of any problem of workers compensation leaving the private sector''.
There was another factor. Between 1977 and 1980 what was described as ``cut throat competition'' was occurring in relation to premium rates. The Company stood aside from this and its volume of business was adversely affected in consequence, in most fields, but especially in that of workers compensation. In the year of income no one knew how long this competition would continue; Sutherland said that the industry had had its ups and downs over many years. Concern about future consequences of continued cut throat competition was, according to Sutherland, another reason why the Company, in the 1979-1980 year, decided to sell shares and put the proceeds of sale into fixed interest securities.
And so, while the high level of the share market was a factor, the other two factors which induced this transfer of funds from shares into fixed interest securities (concern about possible total loss of workers compensation business and actual loss of business due to cut throat competition) both related to the danger that loss of business might have a very serious effect on the cash receipts of the Company by way of future premium income and make it necessary to use invested funds in order to meet claims or make a partial refund of premiums.
I have referred to Sutherland's report, ex. ``H'', and to the Board Meeting of 20 June 1980. In one part of his evidence in chief, Sutherland, in dealing with the sales of shares recorded in ex. ``G'', might be understood as saying that, of the sales of shares in the year of income, the only sales which resulted from a policy of selling shares in order to invest in fixed interest securities were the sales of shares in Enacon Ltd., Jennings Industries Ltd., Pacific Film Ltd., Watts Holdings Ltd., and possibly Amatil Ltd. But when his evidence is read as a whole, including references in cross-examination to the reasons for the sale in the year of income of ``many'' of the Company's shares, he seems to me to be saying that a considerable number of other shares sold in that year were sold for reasons which included the danger of a complete loss of workers compensation business and the existence and possible continuance of cut throat competition.
Moreover, not only did these factors influence the sale of large quantities of shares in the year of income, they influenced the sale of large numbers of shares in the immediately following year. For the Enacon, Jennings, Pacific Film, Watts and Amatil shares I mentioned a little earlier represented only a small proportion of the sales resolved upon at the Board Meeting of 20 June 1980, which were in all expected to raise about $7.5 m. These sales were made and the proceeds were invested, and have since been kept, in fixed interest securities.
It can be said of the Enacon, Jennings, Pacific Film, Watts and Amatil sales (with which, of course, this appeal is in part concerned) that they have been specifically identified in the evidence as sales connected with the possible need for cash to meet claims, or refund premiums. But these particular sales have a more general
ATC 4785
importance, which they share with all the other sales of shares the subject of the decision taken on 20 June 1980 and the unspecified sales in the year ended 30 June 1980 which were influenced by the workers compensation and competition considerations. This more general significance is, of course, the light which sales actually made in the years ended 30 June 1980 and 1981 throw on the role which the Company's investments in shares and fixed interest securities actually played and were intended by its Board to play. For what took place in those two years was, in effect, the putting of part of the Company's reserve funds on standby to meet the possible calls upon it which were occasioning the directors concern.Sutherland gave a good deal of evidence about whether the Board intended or contemplated that shares or fixed interest securities would or might be sold in order to pay claims or expenses. It was not always clear whether he was professing to state the intention of the Board (either at the time of purchase or generally) or his own view on the likelihood, having regard to the financial position of the Company, that a need to realise investments would arise. His evidence does establish that shares and fixed interest securities have at no time been sold in order to meet claims or pay expenses. (I put to one side the sales of shares in the year of income and the immediately following year, which may be said to stand in a special position, as sales which took place with a view to the possible future use of the resulting new investments for payment of claims or expenses.) While Sutherland's evidence varied to some extent and while, as I have said, it is not always clear whether he was purporting to say what was actually intended or contemplated as to use or merely to say what the probabilities were as to use, the gist of his evidence is that it was not contemplated or possible that shares would ever be sold to pay claims or expenses and that it was contemplated or possible that, in an emergency, part (but only part) of the fixed interest investments might be sold for that purpose. One thing that he does stress is that, if any realisation had taken place for that purpose, it would have been, not of shares, but of fixed interest securities.
The only direct evidence of intention is that of Sutherland. His evidence must be weighed against what the material as a whole discloses regarding the Company's financial position and the vicissitudes to which insurers in general and the Company in particular were subject and against the evidence of sales of shares which actually took place in the year of income and the immediately following year, and the reasons for those sales. In 1980, current assets were $22.7 m. and current liabilities $81.3 m., a deficiency of $58.6 m. In 1979 and 1978, the deficiency was $61.7 m. and $55.9 m. respectively. Here, as in several other places, one is handicapped by the absence of the tax returns of earlier years; according to David Gary Boymal, the accountant called by the Commissioner, the accounts going back to 1976 show a consistent pattern in this regard. In all the circumstances (including the risk and actual existence of cut throat competition and the risk of a complete loss of workers compensation business), I think the Board must at all times have realised that, notwithstanding that the investments had so far been kept inviolate, there was a possibility, not some fanciful or extremely remote possibility, but a real possibility, that shares and fixed interest securities would have to be sold to pay claims or expenses while the Company continued trading. In other words, the possibility that I think must have been recognised was something quite different from the administration of assets which takes place under, or under the ultimate sanction of, the Insolvency laws. I do not accept Sutherland's evidence to the extent to which it conflicts with this finding and I observe that, on one or two occasions, he did himself go close to admitting that the position was as I have found it to be. I am also not prepared to accept Sutherland's evidence to the extent to which he said that it was fixed interest securities, not shares, that would have been realised in a sufficient emergency. This evidence is not supported by any minutes or other record, although as to this, it must be borne in mind that the Company's case, put at its highest, is that realisation of investments to pay claims or expenses was simply not contemplated. Sutherland impressed me as a shrewd man who was almost without exception well aware of the possible taxation implications of his answers to questions in the witness box. Having regard to the fact that shares account for all but $28,000 of the profit of
ATC 4786
$4.7 m. made from realisations during the year of income, it is very much in the Company's interests to jettison fixed interest securities if something has to be thrown overboard.Shares of listed public companies are a somewhat more liquid asset than fixed interest securities, and, leaving aside the subsidiaries, at 30 June 1980, shares in listed public companies accounted for about 96% in value of the Company's share portfolio. Speaking generally, I should have thought that a desire not to throw a portfolio too much out of balance would tend to lead to sales of both shares and fixed interest securities if cash was needed, and that an important consideration would be the strength of the market for each type of investment. It is a relevant consideration that, when the Company on 20 June 1980, resolved to raise $7.5 m. it was shares that were selected for sale.
The probabilities are that the Board at all times realised the need for an appropriately large reserve fund to meet claims and intended that shares and fixed interest securities should serve that purpose.
The Board must have intended that persons dealing with the Company would regard those investments as a reserve fund to meet claims. It must also have intended that the income from those investments be used, if necessary, to meet claims. And the Board must at all times have intended that those investments would, if necessary, be realised and used to pay claims, while the Company continued in business.
I have referred to shares and fixed interest securities in many places without distinguishing between shares in subsidiary companies and other shares and without singling out the 50% shareholding in the life company, F.M.L. Assurance Ltd. Nor have I made special reference to the holding of almost 50% in Innkeepers Ltd., to the profit on the sale of which the amended assessment in part relates. As to this last, I am of opinion that, for present purposes, it stands in the same position as the other shares sold. It is unnecessary to consider whether the shareholding in the life company stood in a different position, for that was not sold. The same may be said of the shares in the wholly owned subsidiary which carried on the panel-beating business. The subsidiaries which owned hotels were wound up at some stage after the end of the year of income; I should have thought that, while those companies existed as mere vehicles for the ownership of the hotel freeholds, their shares stood in the same position as other share investments. But these questions do not arise. Nor is it necessary to consider what the position would have been, had a sale taken place of the shares of C.M.I. Services Pty. Ltd., whose property purchases seemed to have been financed by loans from the parent. It is enough to say that in my judgment all the sales which gave rise to the amended assessment are caught by the principle illustrated by the Colonial Mutual case.
By sec. 29 of the Commonwealth Insurance Act 1973, the Company's authority to carry on insurance business is subject to the condition that the value of its assets shall at all times exceed the amount of its liabilities by 15% of its premium income during the last preceding financial year. This means, for example, that during the year of income, the Company's net assets had to amount to about $5.7 m. (The detailed provisions of sec. 30 need not for present purposes be considered.) The Company's net assets are shown by the balance sheet as worth $41.7 m. If the $48.4 m. invested in shares had been removed from the balance sheet, the Company would not have been authorised to carry on insurance business.
I have already referred to the difficulty, due to differences in characterisation, of reconciling the balance sheet figures with those in ex. ``B'', showing the composition of the investment portfolio. Exhibit ``B'' shows the cost of all three categories of investment as $106 m. The balance sheet gives $123 m. as the total value of the assets. The total liabilities are $81 m. It is apparent that if the Company's assets are to exceed its liabilities by $5.7 m., total assets of the order of $87 m. are required, and this means that, on the characterisation of assets as investments adopted in ex. ``B'', about $70 m. of the $106 m. invested is, so to speak, devoted to the maintenance of the statutory ratio. Compare the class A and B investments in the Liverpool & London & Globe case, supra, which Hamilton J. at pp. 358-359, described as ``a key which unlocks the gate into a closed place of trade''. If one
ATC 4787
took as the value of the investments, not the $106 m. shown in ex. ``B'', but the balance sheet figure of $91 m., one could say that $55 m. of the $91 m. of investments shown in the balance sheet was devoted to the maintenance of the statutory ratio.It is scarcely an exaggeration to say that, on the case put forward for the Company, it has no reserve fund. The soundness of this observation depends on what is meant by a reserve fund. The Company keeps a metropolitan reservoir of highly liquid assets, of substantial size certainly, but not so large in relation to its volume of business or current liabilities. Into this reservoir are piped cash receipts and out of it is pumped money to pay expenses, meet claims and make investments. The cash flow has always been such that the reservoir has never run dry, although its level has varied greatly. It has never been necessary to allow funds to gravitate back into the metropolitan reservoir from the more inaccessible and much larger investment dams, to which those funds had been pumped. The ``hard core'' is not so much a reserve fund as a virtual current account, in daily use, notwithstanding the varying degrees of liquidity, ranging (for practical purposes) from call to 90 days. If a reserve is intended to provide a proper safeguard against unlikely contingencies, then it is tempting to say that, on the Company's argument, it had none. If someone enquiring about the reserves had been referred only to the ``hard core'' he might have replied, ``That is all very well, but where are your reserves?''.
In 1979 and 1980, the Company's working capital ratio was 0.28. It is of passing interest that the Board required to be told the working capital ratio of companies regarded as approved borrowers and that the minutes of 7 March 1980 show, for 26 companies, deficiency in three cases only, the ratio in no case approaching 0.28.
In its most extreme form, the Company's case is that the deficiency in working capital was to be met entirely from future premium income, its investments being available only in effect if it were to be wound up. But is this a satisfactory explanation of its position, financially or commercially? Insolvent companies so often promise their creditors that, while they cannot pay their debts now, they will trade out of their losses. They mean by this that they will generate profits and so pay off old scores. But here the Company seems not even to be telling its creditors that claims will be met out of future profits; it promises to pay the reckoning out of future cash flows. If this is too harsh a view of the argument, then at least the Company, if cut off from its investments, must make the typical answer of the insolvent trader.
According to Sutherland, the ``hard core'' usually stood at about $8 m. He did not demur, in answering a question from the Company's own counsel, which described it as $8 m. ``a little more or less''. But the documents show that at times it was a great deal more than $8 m. Unfortunately, the balance sheets of the Company are in evidence for only two years, 1979 and 1980, although the 1978 figures may be derived from the former. It is true that cash and deposits stood at $6.8 m. and $8.6 m. in 1980 and 1979 respectively. But the figure for 1978 is much larger, $13.9 m., and the minutes, ex. ``E'', show that between June and August 1976, the amount ranged from $11.6 m. to $15.3 m. According to the minutes, ex. ``F'', the ``hard core'' was $11 m. in October 1979 and rose to $14.4 m. in the course of that month; it was then brought back to $8.4 m. By May 1980, the figure was down to $5.9 m. (I have already drawn attention to the fact that the balance sheet item ``cash and deposits'' includes cash at bank, while the investment summaries and minutes are concerned not with cash at bank but with deposits.)
No doubt fluctuations in a fund of this kind are to be expected, as, indeed, Sutherland said, but the ``hard core'' of August 1976 is more than two and a half times that of May 1980, and almost double what is said to be usual. The Board met once a fortnight and had a full time investment officer and gave close attention to the investment of the Company's funds. Market conditions might, I suppose, make it prudent at any given time to defer the investment of surplus funds in shares or fixed interest securities, but I cannot help wondering whether Sutherland's evidence, by not indicating the extent of the fluctuations, does not give an impression of a fund set apart and fairly stable in point of amount which the facts do not warrant.
For the greater the fluctuations, the harder it is to say that the Board drew a hard and
ATC 4788
fast line and regarded the ``hard core'' as dedicated to expenses and claims and the ``investments'' as dedicated to shareholders. As I have said, the accounts for earlier years are, unfortunately, not in evidence, and I do not know much about the Company's trading in, say, 1976. Exhibit ``B'' shows that its investments have steadily grown over the years. Sutherland spoke of a ``hard core'' of about $8 m. when dealing both with the present and with what the minutes disclosed about earlier times. He nowhere suggested that, for example, in 1976 the circumstances were such that a much larger fund was necessary. If $8 m. was the appropriate fund in 1976, then in June and August of that year the fund consisted in part of ``hard core'' but also in large part of surplus moneys awaiting investment; the same can be said of October 1979. If, on the other hand, the ``hard core'' of $15.3 m. in August 1976, or of $14.4 m. in October 1979, was all properly so described, that is to say, represented liquid funds set aside to pay claims and expenses, then, unless circumstances had changed at other times so as to require a smaller fund (and Sutherland does not suggest this), when the fund was reduced to $8 m., let alone the $5.9 m. of May 1980, the directors must have contemplated that part of the ``investments'' would be used to pay claims or expenses if necessary, that is to say, if the cash flow and ``hard core'' were not sufficient. The fluctuations in the fund revealed by the documentary evidence suggest to my mind that it is artificial and wrong to regard the directors as having, at any given time, appropriated, so to speak, to the last dollar, the ``hard core'' as it then stood, as a fund for the payment of claims and expenses and as having dedicated everything else to the shareholders.I have already said that, in determining, at the beginning of each year, how much would be invested in the course of that year, the Board had regard, not to anticipated profits, but to anticipated cash flow.
The acquisition and subsequent realisation of all the shares and fixed interest securities to which this appeal relates were acts done in what was truly the carrying on of the insurance business of the company. The Colonial Mutual case governs the present appeal, and I need not consider the separate argument put to me founded upon London Australia Investment Co. Ltd. v. F.C. of T. 77 ATC 4398; (1977) 138 C.L.R. 106.
The company has failed to satisfy me that the amended assessment is excessive. On the contrary, I am satisfied that it is not excessive.
The sole remaining question is whether the Company is shown to have made to the Commissioner a full and true disclosure of all the material facts necessary for its assessment, with the result that, under sec. 170 of the Income Tax Assessment Act, the Commissioner was prevented from amending the assessment. This question can be briefly disposed of. Has it been shown that if the Company had sought advice whether the sum in question was a taxable profit, the person from whom that advice was sought would not have required more information than this return, together with the earlier returns and the correspondence, ex. ``D'', disclosed to the Commissioner (
Austin Distributors Pty. Ltd. v. F.C. of T. (1964) 13 A.T.D. 429 at pp. 432-433)? As with the substantive question of the correctness of the amended assessment, so with this question, not only has the Company failed to persuade me, but I am satisfied that full and true disclosure was not made. The facts that ought to have been, but were not, disclosed include the following:
That the Board at all times intended that the shares and fixed interest securities should serve the purpose of a reserve fund to meet claims;
That the Board intended that persons dealing with the Company should regard shares and fixed interest securities as such a reserve fund;
That the Board intended that income from shares and fixed interest securities be used, if necessary, to meet claims;
That the Board at all times realised that there was a real possibility that shares and fixed interest securities would have to be sold to pay claims or expenses while the Company continued trading;
That the Board at all times intended that shares and fixed interest securities would, if necessary, be realised and used to pay claims while the Company continued trading;
That in determining how much to invest in the coming year, the Board had regard, not
ATC 4789
to estimated profits, but to estimated surplus cash;That the profit made on the sale of investments in the year of income was not an extraordinary item;
That a considerable number of the shares sold in the year of income were sold, and the proceeds invested in fixed interest securities, partly because of the Board's fear that complete loss of workers compensation business or partial loss of that and other business might render the Company's cash flow inadequate to meet claims and expenses;
That on 20 June 1980 the Board decided to sell for an estimated total of $7.5 m. shares, which included the shares sold on 30 June 1980, that all those sales were made, and the proceeds invested in fixed interest securities, and that these sales and investments were made partly because of the Board's fear to which I have just referred.
Since the amendment of the assessment was authorised by sec. 170(2), the appeal must be dismissed with costs to be taxed.
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