The Squatting Investment Co Ltd v Federal Commissioner of Taxation

86 CLR 570
1953 - 0413A - HCA
[1953] ALR 366

(Judgment by: Fullagar J)

Between: The Squatting Investment Co Ltd
And: Federal Commissioner of Taxation

Court:
High Court of Australia

Judges: McTiernan J and Williams J
Webb J

Fullagar J
Kitto J

Subject References:
Taxation and revenue
Income tax
Assessable income
Acquisition of wool supplied by grower in course of business

Legislative References:
Income Tax Assessment Act 1936 No 27 - s 6; s 25; s 26(g)
Wool Realization (Distribution of Profits) Act 1948 No 87 - s 7; s 28; s 29
Wool Realization Act 1945 No 49 - s 9; s 10
National Security (Wool) Regulations 1939 SR No 108 - r 30

Hearing date: MELBOURNE 21 October 1952; 22 October 1952; 23 October 1952; 24 October 1952
Judgment date: 13 April 1953

SYDNEY


Judgment by:
Fullagar J

This matter comes before the Full Court on a case stated by the Chief Justice in an appeal by the Squatting Investment Co Ltd against its assessment to income tax on income derived by it in the year ended 31st December 1949. The calendar year is the company's accounting period for the purposes of the Income Tax Assessment Act 1936-1949. The appeal is concerned with certain sums received by the company during the accounting period in pursuance of the Wool Realization (Distribution of Profits) Act 1948.

The company is incorporated in Victoria, and carries on (inter alia) the business of a wool grower in New South Wales and Queensland. This business was carried on by it during the years 1939 to 1946 inclusive, and the wool grown by it in the seven "wool years" 1939/40 to 1945/46 inclusive was supplied for appraisement and acquired by the Commonwealth under the National Security (Wool) Regulations. These regulations were made by the Governor-General under the National Security Act 1939 in order to give effect to the "Wool Purchase Arrangement", which was made between the Government of the Commonwealth and the Government of the United Kingdom very shortly after the outbreak of war in September 1939. The effect of the Wool Purchase Arrangement, the main provisions of the regulations, the system of appraisement and the general course of dealing established under the regulations, the position which existed at the termination of hostilities in 1945 and the events which led up to the passing of the Wool Realization (Distribution of Profits) Act 1948, are examined and explained in the judgment of the Court in Ritchie v Trustees Executors & Agency Co Ltd. [F52] I also had occasion recently to examine these matters at length for a different purpose in Poulton v Commonwealth. [F53] For a general history of the vast undertaking involved I think it sufficient to refer, without repeating it, to what was said in Ritchie's Case, [F54] and to the very clear exposition of details which is contained in the present case stated. It is necessary, however, in order that the questions now arising may be understood, to refer briefly to certain points in that history.

For the wool supplied by it for appraisement during the seven wool years the company received the appraised price (in all except the last year in two instalments) and also a further sum by way of adjustment to what was called "flat rate parity". All amounts so received were assessed as income of the company, and were taken into account as part of its assessable income of the accounting periods in which they were respectively received. This appeal is not concerned with any such amounts, but with certain payments made to it by the Wool Realisation Commission out of profits mainly derived from wool acquired by the Commonwealth during the seven wool years.

The Wool Purchase Arrangement provided for the purchase by the United Kingdom from the Commonwealth of all wool produced in Australia (except wool required for purposes of local manufacture) at a specified average price per pound greasy. It also provided that the United Kingdom Government and the Commonwealth Government should divide equally any profit which might arise from the resale by the United Kingdom Government outside the United Kingdom of wool purchased by it under the arrangement. It was in view of this term of the arrangement that reg. 30 (2) of the Wool Regulations provided:

"(2) Any moneys which may be received by the Central Wool Committee from the Government of Great Britain under or in consequence of such arrangement over and above the purchase price payable by such Government thereunder for the wool and any surplus which may arise shall be dealt with as the Central Wool Committee shall in its absolute discretion determine".

This sub-regulation "conferred upon the Central Wool Committee a discretion to determine how the half share of profits payable by the United Kingdom under the Wool Purchase Arrangement should be dealt with and profits or moneys arising otherwise, as, for instance, from wool tops or wool for manufacture for export. The phrase `any surplus which may arise' covered profits or moneys of the second kind" (Ritchie's Case). [F55] It may be mentioned here that the Central Wool Committee, which was constituted under the regulations, was composed of members representative of the various sections of the Australian wool industry. The Central Wool Committee decided at a very early stage that the same course should be adopted as had been adopted in connection with the similar wool scheme of the war of 1914-1918, and that any profit which might ultimately become available under the arrangement should be distributed among suppliers of shorn wool (i.e. wool shorn from the living sheep) to the exclusion of skin wool (i.e. wool fellmongered from the skins of dead sheep). In pursuance of this decision wool supplied for appraisement was listed in the brokers' catalogues prepared for appraisement purposes as either "participating" or "non-participating". "Participating" meant "participating in any distribution of profit that may be made".

The wool purchased from the Commonwealth by the United Kingdom under the arrangement was dealt with in a variety of ways. Some of it was resold by the United Kingdom Government outside the United Kingdom. The accounts in respect of such sales were kept in England by the United Kingdom Government, and these included a "distributable profits account". In 1945, however, when the war with Germany came to an end, very large quantities of the wool purchased by the United Kingdom Government remained in store in Australia and elsewhere, and it was quite impossible to determine at that stage whether there would ultimately be any profits to be dealt with in accordance with the Wool Purchase Arrangement. One very serious problem which presented itself was the problem of disposing of the very large stocks of wool held by the United Kingdom Government without unduly disturbing the market or depressing the prices of future wool clips. As a result of negotiations conducted about the middle of 1945, a plan was agreed upon between the Governments of the United Kingdom and the Commonwealth for the winding up of the wool scheme. To this agreement, the Governments of New Zealand and South Africa (which had also sold their entire wool clips during the war years to the United Kingdom) were also parties, but the wool of each Dominion was kept separate and distinct. The plan was called the "Disposals Plan", and it is set out in the schedule to the Wool Realization Act 1945-1946. That Act received the royal assent on the 11th October 1945, and came into force by proclamation on the 16th November 1945, but the plan took effect as from the 1st August 1945.

It will, I think, suffice if I summarise the effect of the Disposals Plan, so far as it related to Australian-grown wool, very much as I summarised it in Poulton's Case. [F56] The stock of Australian-grown wool in the ownership of the United Kingdom at 31st July 1945 was transferred to the joint ownership of the United Kingdom Government and the Commonwealth Government, and was to be held and disposed of by a "Joint Organization", which was to be incorporated as a private company in England and was to have an Australian subsidiary. The Australian subsidiary was the Australian Wool Realization Commission, which was constituted and incorporated by the Wool Realization Act 1945 (see s. 9 (1)). The United Kingdom and the Commonwealth were each to take up fifty per cent of the original capital, which was represented by the opening stock of Australian-grown wool. The opening stock was to be taken into account at its original cost less the amount standing to the credit of the divisible profits account. (As to the effect of this, see Ritchie's Case.) [F57] Payment of the Commonwealth's share of the original capital was to be made in four annual instalments, but there was provision for each payment to be made out of current profits, if any. The ultimate balance of profit or loss was to be shared or borne equally by the United Kingdom and the Commonwealth. With regard to the wool year 1945/46 (described as the "interim period") it was agreed that the United Kingdom should purchase the whole clip in the same way as in the six preceding years, but it was to be handled by the Joint Organization, and the Commonwealth was to reimburse to the United Kingdom one half of the cost of so much of the clip as remained unsold at the end of the wool year. In the following year (1946/47) the normal system of selling wool by auction in Australia was resumed. Actually in that year the Joint Organization purchased a substantial quantity of Australian wool at auction sales. The plan provided that the operating expenses of the Joint Organization should be borne equally by "the industry" and the Joint Organization itself. The contribution to be made by the industry was provided for by Commonwealth legislation-the Wool (Contributory Charge) Assessment Act 1945 and the Wool (Contributory Charge) Act 1945.

Section 9 (3) of the Wool Realization Act 1945 provided:

"9. (3) The Commission shall have and perform all the duties, and shall have and may exercise all the powers, authorities and functions, of the Central Wool Committee under-(a) the National Security (Wool) Regulations; (b) the National Security (Wool Tops) Regulations; (c) the National Security (Price of Wool for Manufacture for Export) Regulations; and (d) the National Security (Sheepskins) Regulations, and for that purpose (i) the Commission shall, by force of this Act, be substituted for, and be deemed to be, the Central Wool Committee".

Section 10 provided:

"10. Any reference in the National Security (Wool) Regulations to the arrangement made between the Government of Great Britain and the Government of the Commonwealth shall include and shall be deemed at all times, on and after the first day of August, One thousand nine hundred and forty-five, to have included a reference to the Disposals Plan".

In the years following the year 1945/46 the Joint Organization made large profits from Australian-grown wool. These profits might perhaps have been dealt with by the Wool Realization Commission by virtue of ss. 9 (3) and 10 of the Wool Realization Act 1945 read with reg. 30 (2) of the Wool Regulations. But in fact the Commonwealth Parliament enacted legislation with regard to their distribution. That legislation is contained in the Wool Realization (Distribution of Profits) Act 1948, which came into force on 21st December 1948. This Act dealt with "the wool disposals profit", which it defined by s. 4 as including the Commonwealth's share of any profit ultimately arising from the operations of the Joint Organization and also any moneys received by the Commonwealth from the United Kingdom Government in pursuance of an arrangement which had been made for the sharing of profits arising from the disposal of sheepskins acquired under the National Security (Sheepskins) Regulations. "The profits in connection with sheepskins, a comparatively minor matter, are thus treated, as might be expected, as an accession to the wool profits" (Ritchie's Case). [F58]

Section 4 of the Act defines "the net profit" as meaning the amount remaining after deducting from the "wool disposals profit" the expenses and charges of the Commission in administering the Act other than commission payable to brokers. It defines "appraised value" as meaning, in relation to wool, the value at which the wool was appraised under the Wool Regulations. It defines "participating wool" as meaning wool appraised under the Wool Regulations, being wool which was listed as participating wool in the appraisement catalogue used by the appraisers for the purpose of that appraisement. The practice and purpose of cataloguing wool supplied for appraisement as "participating" or "non-participating" have already been explained. Section 4 also defines the expression "declared amount of profit" as meaning an amount which has been specified in a notice published in the Commonwealth Gazette in pursuance of s. 6 of the Act.

Section 5 of the Act provides that "As soon as practicable after the wool disposals profits has been ascertained, the Treasurer shall notify the amount thereof in the Gazette, and the amount so notified shall, for all purposes of this Act, be the amount of the wool disposals profit". Section 6 (1) provides that "At any time before the wool disposals profit has been ascertained, the Minister may, with the approval of the Treasurer and after consultation with the Commission, and if he is satisfied that the financial position under the Disposals Plan justifies his so doing, by notice published in the Gazette, declare an amount to be available for distribution under this Act out of the expected net profit". Sub-section (1) of s. 7 provides that, subject to the Act, an amount equal to each declared amount of profit shall be distributed by the Commission in accordance with the Act. Sub-section (2) of s. 7 provides that "There shall be payable by the Commission, out of each amount to be distributed under this Act, in relation to any participating wool, an amount which bears to the amount to be distributed the same proportion as the appraised value of that wool bears to the total of the appraised values of all participating wool". Sub-section (3) of s. 7 provides that, subject to the Act, an amount payable under the Act in relation to any participating wool shall be payable to the person who supplied the wool for appraisement. The words "subject to this Act", which occur in sub-ss. (1) and (3) of s. 7, refer to provisions of the Act which have no relevance in the present case.

By notice published in the Commonwealth Gazette on 24th November 1949 in pursuance of s. 6 (1) of the Act the Minister declared the amount of PDA25,000,000 to be available for distribution out of the expected "net profit". In pursuance of this declaration and of s. 7 of the Act, the Wool Realization Commission on 30th November 1949 paid to the appellant company a sum of PD22,581, being an amount calculated in accordance with s. 7 (2) of the Act as a percentage of the appraised values of wool supplied by the company for appraisement in the seven wool years and listed in the relevant catalogues as participating wool. The amount paid was arrived at after deducting a "broker's commission" of one half of one per cent in accordance with the Act. It is this sum of PD22,581 that is in dispute in the present case. The Commissioner contends that this sum is assessable income of the company. The company contends that it is a receipt of a capital nature. If it be determined that the sum in question is income, the further question will arise whether it is to be treated as income of the year in which it was received or whether it should be distributed proportionally among the years in which the relevant participating wool was supplied for appraisement.

The starting-point of the taxpayer company's argument is that the moneys in question were not paid in pursuance of any legal right vested in it or of any legal duty resting on the Commonwealth or the Central Wool Committee or the Wool Realization Commission. It was a mere voluntary payment-in substance a "gift". The Parliament of the Commonwealth chose, in the exercise of its constitutional powers, to direct the Wool Realization Commission to make the payment out of a particular fund in its hands. It, the company, is the mere recipient of a bounty, and such a bounty is not income any more than is a birthday present.

That the payment was not made in pursuance of any legal obligation must be immediately conceded. During the war of 1914-1918 the entire Australian wool clip of several years was purchased by the United Kingdom under an "arrangement" very similar to that which was made on the outbreak of war in 1939, and a scheme was instituted in Australia for the appraisement and acquisition of wool very similar to that which was instituted in 1939. The arrangement provided for the sharing of certain profits between the two Governments. Certain suppliers of wool claimed a right to share in profits ultimately realised, and in the litigation which ensued two things were decided by this Court and affirmed on appeal to the Privy Council. One was that the "arrangement" conferred no legal right cognisable in any court but was a mere political arrangement between Governments. The other was that no supplier of wool for appraisement acquired any right to share in any "profit" which might come to the hands of the Central Wool Committee. No such statute as the Act of 1948 having been passed, it was held that the distribution of profits was a matter for the "wisdom, fairness and discretion of the Central Wool Committee" see John Cooke & Co Pty Ltd v Commonwealth. [F59] That the position was the same under the scheme adopted in the war of 1939-1945 is not open to question, and it is expressly so stated in Ritchie's Case. [F60] It has been generally considered, I think, that suppliers of wool for appraisement acquired on appraisement a legal right to the appraised price. The moneys paid later for adjustment to flat rate parity have never been the subject of any decision, but one would think that the regulations gave no legal right to receive these. And it is entirely clear that there was no legal right to receive any share of any profit.

It by no means follows, however, from the fact that payments under the Act of 1948 must be regarded as "voluntary" that they do not possess the character of income. That payments, which there is no obligation to make to the recipient, may be income, is well illustrated by a long line of English cases of which Corbett v Duff [F61] is a recent example. Here "the proceeds of any business carried on by the taxpayer" is, by s. 6 of the Income Tax Assessment Act 1936-1949, expressly included in the definition of "income from personal exertion". If the receipt in question here is to be regarded as the proceeds of a business carried on by the taxpayer it will be income in his hands and assessable accordingly.

In the English cases, of which Corbett v Duff [F62] is an example, the question has been whether a voluntary payment is so connected with an office or employment as to be properly regarded as part of the remuneration of that office or employment. If so, it is a profit or gain of that office or employment, and therefore taxable as income. The test generally applied is that stated by Lord Loreburn in Blakiston v Cooper, [F63] at p. 107. In Corbett v Duff, [F64] at p. 740, Lawrence J. said:"if the payment, though voluntary, is remuneration for the office or employment, it is taxable, but, if it is personal in the sense that it is given to the person, not as the holder of an office or employment, but as a personal testimonial, it is not". A similar test should, in my opinion, be applied here. If a wholesale merchant gave a substantial Christmas present to his best customer, the value of the present would not be income. But, if A bought goods from B for PD1,000, expecting to resell them for PD1,500, and in fact resold them for PD2,500, and, if A's heart were so softened by this happy event that he sent to B a cheque for PD1,500 instead of PD1,000 B would properly take the extra PD500 into his profit and loss account as part of the proceeds of the goods and that sum would be liable to assessment as income. It would be part of the proceeds of his business.

The present case appears to me to be very much stronger than the example which I have taken, because, although the payment of a share of wool profit to the taxpayer was voluntary and not obligatory in a legal sense, there had throughout been an expectation and an understanding that the Central Wool Committee would make a distribution of any profit, which might ultimately be realised from the Wool Purchase Arrangement, among the suppliers of shorn wool for appraisement. It was in the light of this expectation and understanding that reg. 30 (2) was enacted. It was at least partly because of it that no wool moneys were ever paid into consolidated revenue, but the vast sums received and paid were received and paid by the Central Wool Committee and its successor, the Wool Realization Commission, each of which bodies was representative of wool interests. It was because of the same expectation and understanding that shorn wool supplied for appraisement was catalogued as "participating" and skin wool as "non-participating". "Participating" meant participating in profit. The fact that the understanding might have been dishonoured, and the expectation disappointed, and the suppliers of shorn wool left without legal redress, cannot alter the nature of the share of profit when the understanding is honoured and the expectation realised. When once the nature of the whole scheme is understood, it seems impossible to avoid the conclusion that the moneys paid under the Wool Realization (Distribution of Profits) Act 1948 were in the most real sense part of the proceeds of the wool supplied for appraisement, and therefore part of the proceeds of the business carried on by the taxpayer.

In Ritchie's Case, [F65] the question before the Court was not a question of liability to taxation, but I would regard the reasoning of the judgment in that case as decisive of the present case. In that case the trustees of the will of a testator, who died in 1905, were carrying on during the war a pastoral business, in the course of which they supplied wool for appraisement in each of the years 1939/40 to 1945/46 inclusive. The estate was settled by the will, which gave power to carry on the business. The trustees having received their due proportion in a distribution under the Wool Realization (Distribution of Profits) Act 1948, the questions arose whether the moneys so coming to their hands were income or corpus of the estate, and, if income, whether they were income of the year of receipt or ought to be distributed among the years in which the wool was supplied in proportion to the appraised value of wool supplied in each year. This Court, affirming the decision of the Full Court of the Supreme Court of Victoria unanimously held that the moneys were income of the estate, and income of the year in which they were received by the trustees. In the course of considering the first question, the Court said:"It is clear that from the beginning the distribution, in whole or in part, of the Australian share of any surplus arising on divisible profits account was contemplated. The decision was taken administratively that skin wool should be excluded and wool was accordingly submitted for appraisement and appraised as participating and non-participating. That of course implied that the basis of distribution would be appraised value of the wool submitted". [F66] After pointing out that there was no legal right to participate in profits the Court said:"But courts should not be unmindful of the fact that administrative measures and understandings may, according to circumstances, raise an expectation almost as assured of realization as if it rested upon a foundation of legal right". [F67] After referring to the contention of the appellants that the moneys belonged to corpus because they "formed an unsought and fortuitous accretion to the estate, the source of which lay in the bounty of the Commonwealth", the Court said:

"These contentions cannot be sustained. They are based upon isolated points in the transaction ending with the distribution of the wool disposals profit. The course pursued to give effect to the Wool Purchase Arrangement by the acquisition of wool from the grower must be considered as an entirety. The receipt of the payments is an actual consequence of the submission of wool for appraisement". [F68]

The Court added:

"It is, of course, true that the Parliament, in the exercise of its legislative power, could have dealt in any manner it chose with the fund. But that legal fact does not determine the character or the consequences of the course which the Parliament actually took or the nature, as between capital and income, in trusts for successive interests, of the amounts distributed. They constitute receipts resulting from the operations of wool-growing. As possible or contingent receipts they were in contemplation when the appraisements were made. The title to receive them when in the end it is placed on a legal basis consists in the submission of shorn wool for appraisement for the purposes of the Wool Purchase Arrangement. The amount is a percentage of the appraised value of the wool so submitted". [F69]

It is, of course, not impossible that moneys, which trustees must treat as income in their estate accounts, may constitute a capital receipt for taxation purposes. But the whole of the reasoning in Ritchie's Case [F70] is quite inconsistent with the view that the moneys now in question constitute a capital receipt for taxation purposes. The judgment is based from beginning to end on the view that those moneys were paid in respect of wool supplied for appraisement in the course of a business carried on by the taxpayer. They are attributable to that wool. They are paid because that wool has been supplied, and their amount is calculated by reference to the appraised value of that wool. They are proceeds of the taxpayer's business.

It was argued that, even if it might have been right to treat as assessable income a share of profit derived by the United Kingdom from sales outside the United Kingdom and distributed by the Central Wool Committee under reg. 30 (2), yet the profit, a share in which was actually distributed under the Act of 1948, was a different profit altogether and was outside the contemplation of the Wool Purchase Arrangement and the Wool Regulations. It is true that the Disposals Plan of 1945 did differ from the profit-sharing provision of the Wool Purchase Arrangement in a number of respects. But this cannot be regarded as affecting the conclusion that in substance and reality any amount distributable under the Act of 1948 in respect of wool supplied by the taxpayer company is part of the proceeds of that wool-part of what resulted to the taxpayer from the supplying of that wool for appraisement. Indeed, although the Disposals Plan involved a different method of pursuing a profit and a different source of profit, it was no more than a variation of the original profit-sharing arrangement, and s. 10 of the Wool Realization Act 1945, read with reg. 30 (2) of the Wool Regulations, really placed any profit arising from the Disposals Plan in the same position as any profit which might have arisen from the original arrangement. If the point now taken by the taxpayer against the Commissioner had been taken by the Commonwealth against the suppliers of shorn wool, it is safe to say that it would have been regarded as a gross breach of faith. There was a variation of the divisible profits clause of the arrangement between the two Governments, but, as was said in Ritchie's Case, [F71] "The source of the distribution is in effect the fund arising under the divisible profits clause in the Arrangement".

It was suggested by counsel for the company that the view taken in Ritchie's Case [F72] did not altogether square with, or must be regarded as modified in some way by, the judgment delivered by Lord Porter for the Privy Council in Perpetual Executors Trustees & Agency Co (W.A.) Ltd v Maslen. [F73] The suggestion is, in my opinion, entirely without foundation. The question in Maslen's Case [F74] turned largely on s. 10 (3) of the Wool Realization (Distribution of Profits) Act 1948, which makes provision for a case where wool has been supplied for appraisement by a partnership and the partnership has been dissolved before payment of the amount attributable to that wool. There had in the particular case been, some years before 1948, an assignment by one partner to another of his interest in all the partnership assets, including book debts. Their Lordships stressed the fact that moneys paid under the Act were paid by way of bounty, that they were, in effect, a "gift". The absence of any obligation of any kind to pay anything to growers out of profits has, of course, never been doubted since the decision in John Cooke & Co Pty Ltd v Commonwealth. [F75] In the view of their Lordships it assumed great importance in Maslen's Case, [F76] because it meant that it was impossible that the assignment could carry the share of wool profit which might ultimately be "given" in respect of wool supplied by the partnership. The share payable under the Act of 1948 went, therefore, to the individual partners (or their personal representatives) as the persons designated by the Act to receive it, and its destination was not affected by s. 10 or s. 11 of the Act. Thus their Lordships said: "The correct view ... is that it is a true gift to the supplier of the wool. It is not, and never was, part of the assets of the partnership". [F77] And again: "it is a personal gift to the parties concerned, not passing under either assignment, nor is its destination affected by the terms of sections 10 or 11 of the Act of 1948". [F78] The "voluntary" character of the payments was clearly and fully recognized and explicitly stated in Ritchie's Case [F79] in which an entirely different question arose. Neither case has, in my opinion, any bearing on the other, and there is nothing in Maslen's Case [F80] to derogate in any way from Ritchie's Case. [F81]

A word should be said in conclusion with regard to the "wool scheme" of the war of 1914-1918. In a matter of such great importance one would naturally look to see if any guidance could be there found, and although no binding authority is disclosed, the position is of interest. The Wool Purchase Arrangement of 1916, like that of 1939, contained a provision that the Commonwealth should be entitled to share in profits which might accrue to the United Kingdom Government on certain resales of wool by that Government. At the end of the war in 1918 a very similar position arose to that which arose in 1945, and a variation of the original agreement between the two Governments was agreed to. The scheme adopted was analogous to, but different in detail from, the Disposals Plan. In Commissioner of Taxes v British Australian Wool Realisation Association Ltd [F82] Lord Blanesburgh, to use his own words in another judgment delivered on the same day, "traced in outline the history of that great scheme". Its central feature was the formation of a company, which was incorporated in Victoria on 27th January 1921 under the name of British Australian Wool Realization Association Ltd , and which came to be generally known as "B.A.W.R.A." or "Bawra". The nominal capital of the company was PD25,000,000, divided into shares of PD1. The company took over for realization the whole of the surplus wool on hand, and, by direction of the Central Wool Committee, issued 12,000,000 shares and PD10,000,000 of what were called "priority wool certificates" to the Australian growers who had supplied shorn wool for appraisement. These shares and certificates represented, of course, the Commonwealth's half share in any profit that might accrue from the realization of the wool taken over by Bawra. For the sake of simplicity, I will refer only to the shares. The proportion of shares issued to each recipient was determined on precisely the same basis as was adopted by s. 7 of the Wool Realization (Distribution of Profits) Act 1948. The shares were listed on the stock exchanges and were readily transferable.

After the war of 1914-1918, as after the war of 1939-1945, there was no legal or equitable right in any supplier to share in any profits. As Lord Blanesburgh said, "no individual supplier, however important, ever had in the eye of the law prior to the formation of the Association a right to any part of the Commonwealth Government's share of profits". [F83] There was, however, the same expectation and understanding, and the shares were issued and received in full discharge of any obligation which might be held to subsist. The recipients were assessed to income tax in respect thereof by the Federal Commissioner and the State Commissioners, the shares being taken for the purpose of assessment at their market value, which was at the relevant times about 12s. 6d. They were assessed, of course, on the basis that the interest which they received in Bawra represented part of the proceeds of the wool supplied for appraisement-the proceeds of a business carried on. No objection was ever taken to any of these assessments, or, if any were taken, it was not carried to any Court, and the taxes assessed were paid. Very large sums were involved, and it may be safely assumed that this course was not adopted without taking the opinions of eminent counsel. Bawra ultimately sold the wool, which it had taken over, at prices totalling a sum very much larger than the value at which it had been taken into the opening accounts. No dividend was ever declared, but a series of reductions of capital were made, and confirmed by the Supreme court of Victoria. Ultimately the company went into liquidation, and a final distribution was made in the winding up. The Commissioners sought to tax the amounts received by shareholders in pursuance of these reductions, but the shareholders objected and appealed, and they were ultimately successful in the Supreme Court of Queensland and in the Privy Council: see Commissioner of Taxes v Union Trustee Co of Australia Ltd. [F84] The shares, when received, had been treated as income, but the moneys received were received by way of realization of those shares and were capital. The analogy in the present case is, of course, with the original receipt of the shares, and not with the amounts received on the reductions of capital.

The only remaining matter is the question whether the sum in question ought to be treated, as the Commissioner has treated it, as income of the year in which it was received, or ought to be distributed among the years in which the relevant wool was supplied for appraisement. I think this question also is covered by Ritchie's Case. [F85] The "criterion by which the question of beneficial right must be tested is to be found in the conceptions governing the ascertainment of the income of a pastoral business for a given year". There was no right to receive this sum or any sum. It could not properly be brought into the profit and loss account until it was received. There is no justification for any re-opening of past profit and loss accounts. For all purposes, including taxation purposes, it seems to me that it is "derived" in the year in which it is received.

The questions asked by the case stated should be answered as follows:

(i)
Yes.
(ii)
The year ended 31st December 1949.