Milton Corporation Ltd. v. Federal Commissioner of Taxation.Judges:
Supreme Court of New South Wales
These matters relate to four appeals to this Court under Div. 2 of Pt V of the Income Tax Assessment Act 1936 (as amended) by Milton Corporation Limited (called the taxpayer) a public company duly incorporated in this State and listed on the Sydney Stock Exchange, it being a taxpayer dissatisfied with the decision of the Commissioner of Taxation (called the Commissioner) upon its objection against assessments of income tax derived respectively during the years 1978, 1979, 1980 and 1981 and subsequently referred to this Court pursuant to that Statute. By consent the four appeals were heard together, the same considerations and particulars being applicable to each.
The onus of proof is on the taxpayer and this is kept in mind although in some instances for convenience and clarity the submissions of the Commissioner may first be considered and examined.
The appeals arise out of an assessment issued by the Commissioner in respect of each of the years in question whereby he brought into the taxable income of the taxpayer pursuant to an adjustment sheet, profits on the sale of securities as per an attached schedule, as being assessable income in terms of sec. 25(1) of the Income Tax Assessment Act. Objections taken in each case were disallowed. It is to be added that certain other items were also assessed as income and were objected to but these have been resolved between the parties and accordingly form no part of these appeals.
The amounts in question in respect of the years are as follows:
$ 1978 104,129 1979 119,453 1980 64,567 1981 84,940
At the outset it is important to keep in mind the history of the taxpayer and that the amounts in question are fairly to be regarded as modest in comparison with the assets and the activities small, but nevertheless, the principles involved are important.
By way of explanation, the taxpayer had built up over the years a substantial share portfolio. Its selling activities were small as to numbers and amounts and in past years the taxpayer never treated such surplus on sale as operating profits but as capital and passed the same to the credit of an Investment Fluctuation Reserve. Although the Commissioner had not done so in the past, in the subject years the Commissioner has brought to tax the surplus as income under sec. 25(1), whereas the taxpayer has maintained it to be capital. This in short terms, is the issue between the parties. No reliance is placed by the Commissioner on sec. 26A, or that the shares in question were bought for resale or that the taxpayer is a share trader. I am informed that insofar as sec. 26AAA may apply to some odd items, these can be adjusted between the parties and thus can be set to one side.
It is convenient to state what can be regarded as a statement of basic principle which stems from
Californian Copper Syndicate v. Harris (1904) 5 T.C. 159, approved and adopted by the Privy Council in
C. of T. v. Melbourne Trust Co. (1914) A.C. 1001 at p. 1010, and which is conveniently expressed in the following passage from the judgment of the Court in
Colonial Mutual Life Assurance Society Ltd. v. F.C. of T. (1946) 73 C.L.R. 604 at p. 614:
``Prima facie the depreciation in or accretion to the capital value of a security between the date of purchase and that of realization is a loss of or accretion to capital and is therefore a capital loss or gain and does not form part of the assessable income:
Lomax v. Peter Dixon & Sons Ltd. (1943) K.B. 671. But in the words of the Lord Justice Clerk in Californian Copper Syndicate v. Harris (1904) 5 Tax Cas. 159, at p. 166 which have been so often quoted, `it is equally well established that enhanced values obtained from realization or conversion of securities may be so assessable, where what is done is not merely a realization or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business.'''
Many subsequent decisions have been exhaustively canvassed but the basic principle nevertheless remains. It is interesting and probably significant by way of explanation for the assessment that the more recent decision in
London Australia Investment Co. Ltd. v. F.C. of T. 77 ATC 4398; (1976-1977) 138 C.L.R. 106 was delivered in 1977 and has been carefully examined by both parties before me.
As I have said, the basic principle nevertheless remains. The problem is its application. The remarks of Lord Denning in
Heather v. P.E. Consulting Group (1972) 3 W.L.R. 833 at p. 837 accept the difficulty:
``The question - revenue expenditure or capital expenditure - is a question which is being repeatedly asked by men of business, by accountants and by lawyers. In many cases the answer is easy; but in others it is difficult. The difficulty arises because of the nature of the question. It assumes that all expenditure can be put correctly into one category or the other; but this is simply not possible. Some cases lie on the border between the two; and this border is not a line clearly marked out; it is a blurred and undefined area in which anyone can get lost. Different minds may come to different conclusions with equal propriety. It is like the border between day and night, or between red and orange. Everyone can tell
ATC 4245the difference except in the marginal cases; and then everyone is in doubt. Each can come down either way. When these marginal cases arise, then the practitioners - be they accountants or lawyers - must of necessity put them into one category or the other; and then, by custom or by law, by practice or by precept, the border is staked out with more certainty. In this area, at least, where no decision can be said to be right or wrong, the only safe rule is to go by precedent. So the thing to do is to search through the cases and see whether the instant problem has come up before. If so, go by it. If not, go by the nearest you can find.''
Similarly, Sir Garfield Barwick in London Australia Investment Co. Ltd. v. F.C. of T. (supra) at ATC p. 4401; C.L.R. p. 112 referring to the above mentioned quotation from Californian Copper (supra) said:
``The oft citation of the truism there expressed has given it a delphic significance. But, in truth, what was there said furnishes no criterion for determining such a question as is now before this Court in this case. Of course, what is produced by a business will in general be income. But whether it is or not must depend on the nature of the business, precisely defined, and the relationship of the source of the profit or gain to that business.''
I come now to the history of the taxpayer and which I accept. It was incorporated on 11 November 1938. The original subscribers to the Memorandum and Articles being three solicitors in partnership, two being father and son. The initial capital of £800 was subscribed by the fathers of two of the solicitors. The fathers each advanced a further £800. Later further moneys were lent by the families and business associates to provide working capital. The intention was first to use it as a source of funds to which the legal firm could have access for mortgage loans to clients and, secondly, to use it as a vehicle for investment in such loans and also in the shares in public companies of surplus funds. By so investing through a jointly owned company the two families were able to share equally in the returns from investments. From the inception, the investment of the funds has been delegated to and placed in the hands of Mr F.J. Church, a solicitor and managing director and the son whose father was also his partner. Some few years later the remaining partner retired from the practice to engage in other pursuits in the law, as I am informed, and shortly after he and his family sold their interest in the taxpayer. Thereafter, in the course of time, applications were accepted from relatives, friends and business associates for shares and further shares were issued from time to time to shareholders. In 1958 the taxpayer's paid up capital was £80,000 and it obtained listing on the Sydney Stock Exchange. The present paid up capital of $8,800,000 has been reached by new issues to shareholders, placements, issuing shares in exchange for shares in other companies and by the issue of bonus shares. The activities of the taxpayer have been:
- (i) Lending money on the security of mortgages over real property, now conducted partly by the company directly and partly by wholly owned subsidiaries. Mortgages may be either to secure advances or to secure the taxpayer's liability on its acceptance of Bills of Exchange.
- (ii) Accepting money on deposit from investors for reinvestment.
- (iii) Investing on the short term money market.
- (iv) Investment in real estate, which has been only a small part of its activities and it presently owns only one property.
- (v) Management of the investment portfolios of superannuation funds and some client investors.
This latter is not an activity sought, approximately a dozen are involved, but the Board has agreed to undertake it upon request from investors and trustees with whom the members have business connections or other relationships.
As has been mentioned, the taxpayer has a number of wholly owned subsidiaries. Their activities range respectively for the individual companies, from personal loans, mortgage loans, investment in marketable securities, investment in marketable securities, investment in income producing real estate, share trading and sub-underwriting, real estate agency and valuations and a business of bituminous roofing and roof products. All are managed by the taxpayer's personnel including Mr Church so far as investment is concerned.
In 1960 the taxpayer merged with another company, Bligh Investments Limited. In 1950 the taxpayer sought permission under the National Security Capital Issue Regulations to make a new issue of shares which was refused. Thereafter, application was made for permission, which was granted to form a new investment company and to allow the issue of shares in it to be made. A company, Chatham Investment Company Ltd., was then formed and the initial capital was subscribed in part by the taxpayer and in part by an offer of shares to shareholders in the taxpayer. Chatham at all times has carried on the business of investor and has been managed similarly to the taxpayer by Mr Church. It was listed on the Sydney Stock Exchange in 1960. Ultimately it became a subsidiary of the taxpayer. Until then, the shares held by the taxpayer in that company were shown as part of the taxpayer investment in ``share quoted'' and subsequently they were shown as ``shares in subsidiary company quoted''. In a similar situation the taxpayer for many years held shares in Ormanoid Roofing and Asphalt Ltd., which increased over the years as members arose until in the year ended 30 June 1979 that company became a subsidiary of the taxpayer. A similar position took place with this company as with Chatham in reference to the balance sheet.
The taxpayer's share portfolio over recent relevant years has extended from 277 companies in 1978 to 212 in 1981. The portfolio has been selected and managed always by Mr Church and something needs to be said of him. He is a solicitor of this Court and an original subscriber to the taxpayer. He is a director of a number of public companies, some well-known, and over the years has taken an active part in their investment activities and investment decisions and in some cases, manages these activities. He is the president of a trust which is a Public Benevolent Institution under the Companies Act and he directs its investment activities. This has been an activity over a long period and I accept he is clearly well qualified, well informed and experienced and also well connected in matters relating to critical examination and appraisal of companies' affairs and in determining investment in company shares. Since the taxpayer's inception, there has been delegated to him the entire responsibility of managing and controlling and selecting the investments in the share portfolio, subject of course, to reporting to his Board. He regards this activity as his particular interest and as being of equal importance to and in recent relevant years greater than his legal practice. His affidavit sets out the basis on which his decisions are made to acquire such shares for the taxpayer, and the material from which he concludes a company being considered is a strong company. His objective is companies suitable for long term holding. No short term holdings are purchased. Occasionally, and there are not many such transactions, he will purchase a short term holding for a subsidiary where it is there recorded as a trading transaction. Even in the best managed investment share portfolio, shares could be sold and so it is with the taxpayer. The circumstances when this takes place are:
- (a) when a take-over offer to the investee company is made and accepted;
- (b) when a take-over offer is made for the investee company and the shares are sold on the market before the take-over is completed; and
- (c) on a review of the holding in the investee company.
These decisions are all taken by Mr Church. Shares are rarely sold if there is a fall in market value the belief being that they will recover if they are well chosen and well managed; where they have been sold it was because the holding was too small or there was dissatisfaction with the management. If it appears likely that a take-over will be successful, the shares are sold. If it is considered the offer will not succeed, the consideration is whether the effect of a take-over would change the management or structure so that it ceased to be a satisfactory investment by the taxpayer's criteria.
The taxpayer's portfolio is reviewed by Mr Church:
- (a) when there is a substantial amount of investable funds, with a view to ascertaining which of the taxpayers investments are suitable for further investment;
- (b) when the reports from investee companies are received to see whether further purchases are warranted;
- (c) when there is a change in management of a company; and
- (d) occasionally as a result of reading a review or research circular concerning the company.
As a result of a review of the above circumstances, a decision may be made to sell and the reasons are related to the matters above mentioned and are more fully set out in the affidavit of Mr Church. Many shares in the portfolio fluctuate widely in price without having been sold. It has never been a practice to sell at a high price and low yield with a view to buying back at a lower price. On the rare occasion when a share has been so re-purchased, it has always been for the reasons set out above relating to purchase.
It is appropriate to mention here that in June 1980 a substantial parcel of shares listed in the affidavit was sold at market value at a substantial loss to the taxpayer to a wholly owned subsidiary, it then being the intention that future share investments should be made in that company. The Commissioner had in the 1978 and 1979 years and which are the subject of these appeals, taxed the net increases in the Investment Fluctuation Reserve, so that these sales had the effect of reducing in the 1980 year the surplus in the Investment Fluctuation Reserve which would be liable to tax if the Commissioner adopted the same principles in that year as had been adopted by him in the two previous years.
The second affidavit of Mr Church also amplified reasons for sale of some of the items in the portfolio, e.g., debentures and notes were sold or redeemed on maturity, shares were sold to comply with statutory amendments limiting the number of shares which could be held by a shareholder.
Schedules to the first affidavit showed a proportion of the amount which shares sold bore to the total market value of shares held at the end of the respective financial years for each of the reasons advanced for sale, as outlined above. Full detail of this is scheduled but the percentage proportions for the various years ranged as follows for the six respective reasons:
- A - These are shares disposed of in each of the years ended 30 June 1978 to 30 June 1981 upon acceptance by Milton Corporation Limited of a successful take over offer.
- B - These are shares sold on the market in each of the said years in consequence of the making of a take over offer.
- C - The investments in the company were considered too small and either the taxpayer was unable to increase it or the company was not such as to warrant increase.
- D - An adverse view was formed about the management of the company either as to the personnel engaged in management or as to the conduct of the company's business, for example, an over gearing of the company or a change in its principal activities.
- E - For the reasons more fully set out in the affidavit but shortly being that the investment was unduly large; that the company was not trading or likely to continue to trade profitably, or the particulars for growth appear likely to have been lost; hearing unfavourable reports from the company; that the price was considered excessive having regard to the company's long term prospects.
- F - Sold to another major shareholder to equalise holdings; to reduce the holding below the statutory maximum; that it was not the taxpayer's policy to hold convertible notes; redemption of debentures, or group reconstruction.
A B C D E F 1978 2.6 1.5 0.5 2.5 0.4 0.03 1979 1.4 1.1 0.9 3.9 1.4 0.7 1980 3.5 2.1 0.4 0.2 1.3 0.4 1981 0.9 0.5 1.6 1.08 0.2
A schedule was made available by counsel for the Commissioner taken from the evidence and prepared on a different basis. It showed, inter alia, the following relevant material and the figures stated are to be read in respect of the years 1978, 1979, 1980 and 1981 in that order. The number of companies in which shares were held (quoted and unquoted on the Exchange), 277, 244, 275, 212. The approximate number of quoted companies, 247-257, 214-224, 245-255, 182-192. The number of companies in which shares sold, 36, 49, 30, 17. The approximate number of quoted companies in which shares sold, 34, 47, 28, 15. The percentage of shares sold to shares held during year, 12.9%, 20%, 10.9%, 8%. The proceeds of sale as a percentage of the market value of values as at 30 June, 9.5%, 11%, 10.7%, 5.5%. The market value of the portfolio as at
ATC 424830 June, $5,181,332; $6,229,270; $6,008,977; $8,023,370. The proceeds received from sales, $495,075; $690,757; $6,265; $446,546. For completion, I repeat the surplus for the year in question in the same order, $104,129; $119,453; $64,567; $84,940.
The Investment Fluctuation Reserve prior to 1957 was styled Capital Profits Reserve and the amount therein arose in the same manner as that in the Investment Fluctuation Reserve. In the subject years the capital and investments were as follows:
Year Paid Up Investments Capital 1978 $5,400,000 $5,472,497 1979 $5,465,000 $6,452,123 1980 $6,611,863 $5,905,819 1981 $8,000,000 $6,016,762
It should also be mentioned that the Investment Fluctuation Reserve is debited or credited as the case may be with the difference between the net sale proceeds and book value and the shares sold. On rare occasions book value has been written down where Mr Church considers a permanent diminution in value and an example of that was given where a value was written down ultimately to zero because he was of the opinion that the company was insolvent. He could not recall any case where the book value had been increased.
Mr Church was cross-examined before me and impressed me as a thoroughly reliable witness and I accept him completely. The taxpayer's secretary since 1970, Mr Adams, also deposed to an affidavit upon which he was cross-examined and likewise I accept him completely as a reliable witness. His affidavit deposed to the more mechanical and recording aspects of the taxpayer's affairs. He was unaware of any case of a decision to buy or sell so made other than by Mr Church. He had never heard of any statement or recommendation that shares be purchased for resale at a profit or to that effect; any discussion of share investments he had heard were in terms of potential for growth, yield and security of investment.
I shall deal with aspects of the cross-examination when I come to deal with the submissions, particularly those of the Commissioner. Enough has been said already of the factual material, however, all of which I accept and to which there was really no challenge. The cross-examination was basically directed to illustrate information or material to support or base the submissions.
At this point, it is convenient to state broadly the opposing contentions. The taxpayer submitted that the portfolio comprised an investment and that the surplus accordingly passed to capital. The Commissioner on the other hand submitted that the taxpayer was engaged, inter alia, in the business of activities akin to merchant banking and/or investing in which the portfolio was an integrated part of the whole with the result that the surplus was income of the business and passed to revenue.
This short expression of the contentions enables me to approach the cross-examination in a more meaningful way. The thrust of the cross-examination was to assert that the taxpayer was in effect a merchant bank, or at any rate, carried on in substance the activities of such a bank. So expressed, if accepted, the argument is that the matter would be then brought within what may conveniently be called the bank or insurance type cases in this field, and which have been put sometimes as special or exceptions to general principle, but not now so to be regarded (per Gibbs J., as he then was, in London Australia at ATC p. 4404; C.L.R. p. 118). Be that as it may, the line of authority points up the proposition that part of the nature of the business of banking, for example, is the receipt of deposits from which loans are made and profits result and the constant requirement to meet unexpected or unusual demands of depositors required and ever present, immediate availability of a degree of liquidity in some form or other; thus investments fell into this category as a form of liquidity or buffer against unexpected immediate demands and surplus from sale of such investment was not properly regarded as capital accretion but income. A similar approach can be seen in relation to insurance. The result flows from the nature of the business and the relationship of the source of the gains to those particular types of business.
I return to the cross-examination. It was put to Mr Church and accepted by him that one of the activities of the taxpayer was borrowing and lending money, i.e., the business of money lending, also the business of managing in a small degree investment portfolios. So much had been stated in his affidavit. He agreed the taxpayer never had lender of last resort
ATC 4249facilities with the Reserve Bank but did have stand-by facilities. These were stated as being primarily with the taxpayer's trading bank and merchant banks but it varied. These were identified as undrawn stand-by facilities apart from an overdraft. They were seldom if ever used, in fact the Merchant Bank facilities had never been availed of. He said the taxpayer did not work on a liquidity ratio as all its assets were readily saleable if it needed to or wanted to sell. It was accepted that in annual reports reference was made to very high liquidity being maintained. The shares in the portfolio were actively traded on the Exchange and readily saleable. Most liquidity comprised overdrawn loans and readily negotiable mortgages and bills. He did not accept the portfolio was under almost continuous review. He would not describe the taxpayer as a Merchant Bank but an investment company. Its borrowings were mainly from shareholders. He was cross-examined as to the decisions he made re shares. Material from the annual reports was put and relied on to support these contentions.
The submission on behalf of the Commissioner was that the business of the taxpayer fell squarely within the criteria of banking business as above illustrated and thus the surplus involved was income. Reliance was placed upon
Punjab Co-op. Bank Ltd. v. I.T. Commr (1940) A.C. 1055 at pp. 1072-1073 and which followed Californian Copper (supra) for the proposition that it was not necessary to show that there was a separate business either of buying and or selling investments or of merely realising them and that the realisation of some securities in order to meet withdrawals was, of course, clearly a normal step in carrying on the banking business. This ground of dealing with that case accorded with the finding that the purchase and sale of shares was so linked with deposits and withdrawals that it was part of the business.
The Chamber of Manufacturers Insurance Ltd. v. F.C. of T. 84 ATC 4315 was pointed to as a further illustration where an investment portfolio constituted a reserve fund to meet claims arising out of insurance business and was accordingly income (see also Colonial Mutual Life Assurance Society Ltd. v. F.C. of T. (1946) 73 C.L.R. 604 at pp. 615-616). Similar observations relied on are to be found in London Australia case (supra) per Jacobs J., at ATC pp. 4410-4411; C.L.R. pp. 129-130, where there is the further observation that in addition, the nature of banking involved more commonly the purchase and sale of properties whereby moneys obtained as part of the business but not as part of the original capital or its enhancement by accumulated net profits are used for short or long term, so that profits from that activity are profits of the business (see also
Union Bank of Australia v. C. of T. (1920) N.Z.L.R. 640 at pp. 655-656;
Ipec Insurance Ltd. v. F.C. of T. 75 ATC 4137; 6 A.L.R. 136). The submission urged that the question was whether in the instant case it was investing capital or the business of investing. It was accepted that the question following the accepted principle was a question of fact (Colonial Mutual (supra) per Starke J., at pp. 607-608, seq. quaere, London Australia (supra) per Jacobs J., at ATC p. 4409; C.L.R. p. 127).
Enough has been said as to the main thrust and basis of these submissions on the part of the Commissioner, it being put further that the taxpayer's business whether described as merchant banking or the borrowing and lending of money, fell within what might be called the banking or insurance cases.
The taxpayer, by its counsel, in its overall submissions, disputed this approach by the evidentiary material which, it was submitted, in no sense indicated that the share portfolio was used as a liquidity buffer or available fund. This was the evidence mainly of Mr Adams that at each meeting of the Board, which was regularly held, a liquidity statement was presented, showing on the one hand available assets and stand-by funds to meet such a run, on the other hand, the likely amount of a run, and it had always been considered that the ratio of liquid assets and stand-bys has always been more than adequate. These statements have always been more than adequate. These statements itemised the different sources of money available to meet any such demand and available illustrations of such documentation was produced. These were liquidity statements in respect of three dates, 12 April 1979, 12 September 1980 and 28 February 1982 and which became Exhibit ``N''. The document of 12 April is headed Merchant Group (ex Unity and Country and Federal) which were explained as being subsidiaries of the taxpayer for which separate liquidity funds were kept within those companies respectively. These documents as explained by the witness, show that in no case is any reference made to shares in the company's share portfolio as being within the
ATC 4250concept of available liquidity. The nature and amount of the liquidity available in each case is set out and where general such terms as ``Other Funds'' and ``etc.'', appear, acceptable explanations were given as to what was comprised in those terms, i.e., matters such as government stock, government or semi-government debentures or bonds, short term deposits, deposits at call, 7 or 14 days, etc. I accept this evidence of Mr Adams and the documents.
I am satisfied and find on this material taken in conjunction with the evidence of Mr Church and the nature of the sales and reasons for the same, that the share portfolio was not in any way used or contemplated as being available for withdrawals or for liquidity purposes. I am also satisfied that the portfolio and its surplus was not used in the business but were investments properly so called made by the taxpayer.
The further submission of the Commissioner was that the surplus was properly income obtained in the business being derived from the sale of shares. I accept, however, the submission of the taxpayer. I find the obtaining of the surplus is from a realisation of investments in the real sense and is not an act done in truly carrying on the business of the taxpayer. Putting it in other terms, I find that the business is one of borrowing and lending money, i.e., advancing funds on the security mortgages of real estate and bank bills and other securities in respect of which the taxpayer maintained an adequate degree of available liquidity at all times and standby funds available to it to meet any demands made upon it by depositors. In addition, it managed some very small number of portfolios for particular and limited persons. I find that the taxpayer also maintained a share portfolio as an investment asset, not as a business activity of investing for profit, and which was not used in that business and that the surplus, the subject of this litigation bore no relation to the business but was treated separately and independently of its business activities and was properly carried to a capital reserve, known as the Investment Fluctuation Reserve.
In my opinion, the conclusion to be drawn and which I find is that the surplus did not arise from sales which were part of the activities of conduct of that business, nor was the taxpayer in the business of investing or dealing in shares for profit but rather that the surplus arose from sales of part of the portfolio which in turn was within a continuing extension of the taxpayer's initial concept of an investment within the taxpayer structure and to maintain for its investors as an investment the assets in the portfolio being built up for that purpose.
In reaching these findings I accept and rely upon the supportive evidentiary material particularly being the extremely small scale and intermittent nature of the sales, the reasons advanced for the sales, the very small amount involved in relation to the overall value of the total portfolio, the history of the taxpayer, and the fact that its portfolio management was the sole and exclusive responsibility of one man. He was experienced, knowledgeable and trusted in the field of investment, not only with this company, but with other substantial and public companies, and his association with the taxpayer spanned virtually a professional lifetime, and whose constant policies, guidelines approach and determinations were directed to investment as capital and assets in no way were related to or part of the business activities carried on by the taxpayer. Much was said by both parties of the London Australia Investment case (supra). This involved a company admittedly investing in shares with a view to producing income and not with a view to making profits on sale or with the intention of selling. However, ``... as the maintenance of the subscribed capital and of a consistent yield upon it was also of the essence of the company's business, realisation of shares from time to time became necessary or advisable.'' (per Barwick C.J., at ATC p. 4401; C.L.R. p. 113): ``... the conduct of the investment business required that the share portfolio should be given regular consideration, and that shares should frequently be sold when the dividend yield dropped, which for practical purposes usually meant when the shares went up in value. The taxpayer systematically sold its shares at a profit for the purpose of increasing the dividend yield of its investments.'' (per Gibbs J., at ATC pp. 4403-4404; C.L.R. p. 117): and ``In order to produce this income, the appellant invested in... shares... from which it hoped or expected it could immediately or within a reasonable time obtain a dividend yield of four per cent or better.'' (per Jacobs J., at ATC pp. 4406-4407; C.L.R. pp. 122-123). Furthermore, per Jacobs J., at ATC p. 4411; C.L.R. p. 131, ``... when with such an investment policy which envisages regular and
ATC 4251frequent sales... operations are conducted on such a very large scale, the proper conclusion is that the acquisitions and disposal of shares were part of a business of acquisition and disposal''. The policy there referred to by his Honour on the same page was that ``... on a purchase of any particular parcel of shares the company had a then present purpose... of not awaiting an increase in dividends if the market price rose in expectation of such an increase but of anticipating the rise in dividend by realisation of the shares at an enhanced price''. This is a vastly different situation to the factual position here as I find it, different as to scale, systematic conduct, policy and above all, the nature of the business and the relationship of the source of the gains to the business. Further, the company was an investment company dealing solely in shares, quite unlike the taxpayer. The above-mentioned similar factual findings enabled Gibbs J. (as he then was) (ATC pp. 4403-4404; C.L.R. p. 117) to find that the sale was a normal operation in the course of carrying on the business of investing for profit and was not a mere realisation or change in investment similarly per Jacobs J., where much of the observations at ATC pp. 4409-4411; C.L.R. pp. 127-131 are directed to sec. 26(a) and its second limb. Nevertheless the conclusion at ATC p. 4411; C.L.R. p. 131 was that there was a business of acquisition and disposal. As I have said, this is distinguishable from the instant case where not only was the business as I have described, but further that it follows as I find that the realisation was at most merely incidental to that business and to the production of dividends from investment in shares as capital assets.
The appeal is upheld. The respondent Commissioner is ordered to pay the appellant taxpayer's costs. The exhibits may be returned.