Estate of Ball v. Federal Commissioner of Taxation.

Mason J

Wilson J
Brennan J
Deane J
Dawson J

Full High Court

Judgment date: Judgment handed down 15 November 1984.

Mason, Wilson, Brennan, Deane and Dawson JJ.

The ground argued in support of this appeal from a judgment of the Full Court of the Federal Court [reported at 82 ATC 4701] in favour of the respondent Commissioner is that the Federal Court misapplied the decision of this Court in
F.C. of T. v. Lutovi Investments Pty. Ltd. 78 ATC 4708; (1978) 140 C.L.R. 434, it being a condition of the grant of special leave to appeal that the correctness of Lutovi should not be re-argued. Alternative submissions are put forward by the appellant: first, that all the material parts of the agreement or arrangement to which sec. 44(2D)(b) of the Income Tax Assessment Act 1936-1973 (Cth.) (``the Act'') makes reference, including the issue of the shares, must have the purpose of enabling the company to make a payment, transfer or application by one of the stated means; and secondly, that shares of no greater value than the amount of any money etc. paid etc. to a taxpayer as a result of the agreement or arrangement should be deemed to be redeemable shares when the subsection is applied to an issue of bonus shares ``in pursuance of, or as part of'' any agreement or arrangement within the subsection.

The first submission finds no support in the language of sec. 44(2D)(b) of the Act, as Mr. Merralls Q.C. for the appellant frankly concedes. The subsection attaches the relevant purpose to the agreement or arrangement, rather than to each of the several steps adopted to carry the agreement or arrangement into effect. That is the interpretation which the majority gave to the subsection in Lutovi - see ATC pp. 4713-4714 and 4718; C.L.R. pp. 446 and 453, and, accordingly, the appellant's interpretation is inconsistent with the reasoning on which the decision in that case was explicitly based. The appellant made reference to comments made by the Treasurer in his Second Reading Speech when, in 1965, the Act was amended so as to provide for the inclusion of the subsection. The comments then made, which seem to have been reflected in the explanatory memorandum issued at the same time, cannot, however, be relied upon to give a different operation to one aspect of the subsection which is plainly expressed, namely, that it is the purpose of the agreement or arrangement, not the purpose of the issue of the shares, that is the critical factor.

The effect of the second submission, if accepted, would be that shares of no greater value than 99 cents for each share held on 4 May 1973 should have been deemed to be redeemable shares issued to the taxpayer by Henry Jones (IXL) Limited and the assessment should be reduced accordingly. The problem we have with this submission is that there is no sufficient foothold in the subsection for it. The subsection is directed to all the shares which are issued in pursuance of a relevant agreement or arrangement. We do not see that there is a sound basis for distinguishing between some shares and others when all have been issued in pursuance of the one agreement or arrangement. The subsection does not contemplate such a differentiation.

In the result we agree with the conclusion reached by the Full Court of the Federal Court and with the reasons which it expressed for its conclusion.

The appeal is dismissed.

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