Lilydale Pastoral Co. Pty. Ltd. v. Federal Commissioner of Taxation.Judges:
This is an appeal from the Administrative Appeals Tribunal in a taxation matter [reported as Case T93,
86 ATC 1149]. The case was heard by a Board of Review, on reference from the respondent, in April 1986, but decided on 29 September 1986, and is therefore caught by the provisions of the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986. Under sec. 223 of that Act, the proceedings on the reference, with effect from 1 July 1986, continued before the Administrative Appeals Tribunal and under sec. 224 the person requesting the review has "... subject to sub-section (2), instead of the right of appeal provided for by the Administrative Appeals Tribunal Act 1975, the same right of appeal that the person would have had if this Act had not been passed".
Had the 1986 Act just mentioned not been passed, there would have been a right of appeal from the Board of Review under sec. 196 of the Income Tax Assessment Act 1936, from any decision involving a question of law. That appeal would have lain to a Supreme Court, but by virtue of sec. 224(2) of the 1986 Act I have mentioned, the appeal now lies to this Court.
Because the appellant had the same right of appeal as there would formerly have been to a Supreme Court, the questions which may be agitated in the appeal are not confined to questions of law:
Ruhamah Property Co. Ltd. v. F.C. of T. (1928) 41 C.L.R. 148. The whole decision of the Tribunal is open to review (p. 151). Each side during the course of argument attacked findings made by the Tribunal, but neither sought to call additional evidence, the parties being content to have the appeal heard on the record of the proceedings before the Tribunal.
The case concerns a claim by the appellant, which borrowed money outside Australia in 1981, to exemption from withholding tax imposed under Div. 11A of the Income Tax Assessment Act. The appellant borrowed the money in question in July 1981 from European Asian Bank, which is apparently a trading name of European Asian Bank Aktiengesellschaft: I shall call it "E.A. Bank". The application for the necessary certificate having the effect of exempting the loan in question was made to the Commissioner as required by sec. 128H of the Act, whose provisions are analysed below. The Commissioner having refused, an objection was made and determined adversely to the appellant. Under sec. 128P, the provisions of Div. 2 of Pt V of the Act apply to refusal of an application for a certificate under Div. 11A as they apply to assessments; otherwise the case could not have been taken to the Board.
The provision principally in question, sec. 128H, requires that the Commissioner be "satisfied" of certain facts. It was not in dispute that he was not so satisfied, but by reason of sec. 43 of the Administrative Appeals Tribunal Act 1975 the Tribunal had the power to redetermine the whole question and decide whether it was satisfied in the requisite respects - cf.
Balmoral Building Co. Pty. Ltd. v. F.C. of T. 76 ATC 4058; (1976) 9 A.L.R. 593.
The case is not one in which it is convenient to begin by setting out the findings made by the Tribunal. That is so because, although in general correct enough, they appear to contain (with respect) some inaccuracies, and also because a principal argument raised before me by the appellant was one hardly canvassed before the Tribunal, namely that, for the purposes of the legislation to be analysed below, each separate payment made by the E.A. Bank under the contract of loan had to be considered as if it were a separate loan. The Tribunal discussed only the question whether the loan considered as a whole qualified for exemption.
The principal payments of loan moneys by the lender, the E.A. Bank, occurred on 23 July 1981 and consisted in disbursements from its solicitor's trust account.
The evidence of the lender's solicitor, Mr A. Kootsookos, was that on 23 July 1981 he paid $432,195.30 to the Australian Mutual Provident Society, $94,896.44 to A.G.C. (Advances) Limited and $1,244,346.26 to Tricontinental Corporation Limited, and transferred $13,921.06 to his general account.
A fortnight later, the E.A. Bank paid the solicitor a sum equivalent to $19,986.72, which he paid out on the same day to the appellant.
The payments related, in ways discussed below, to a number of pieces of real property, which were being or had been purchased by the appellant or entities associated with it.
It is desirable to set out in some detail the facts relating to each sum paid by Mr Kootsookos.
- (i) On 23 March 1981, H.A. Nowland, a director and controller of the appellant, entered into a contract to buy industrial property at Rocklea, Brisbane for $450,000. The Tribunal found the sum paid to the A.M.P. Society was the balance of the purchase price owed by Mr Nowland, and there is no reason to doubt the correctness of that finding.
- (ii) On 8 April 1980, H.A. and M.J. Nowland agreed to buy unit number 123 in a block of units at the Gold Coast called "Aquarius". According to the oral evidence, the transaction was settled in April 1981; on 3 April 1981, a mortgage securing a sum of $93,400 lent by A.G.C. (Advances) Limited to Mr and Mrs Nowland was produced at the Real Property Office. The Tribunal found that the sum of $94,896.44 paid by Mr Kootsookos went to discharge that mortgage, and again there is no reason to doubt the correctness of the finding.
- (iii) According to the Tribunal's finding, the sum of $1,244,346.26 was paid to discharge mortgages over property at Coopers Plains and Everton Park, suburbs of Brisbane.
- The Coopers Plains property was bought by the appellant under a contract dated 27 August 1980, which was settled in March 1981 with funds provided by Tricontinental Corporation Limited. A mortgage was given to secure the advance. On 23 July 1981, there were produced at the Real Property Office a release of the mortgage to Tricontinental Corporation Limited, and a fresh bill of mortgage to E.A. Bank. The inference is that Tricontinental gave up its security in respect of the Coopers Plains property in consideration of receiving the payment made on 23 July 1981.
- The evidence as to the Everton Park property, however, is not so clear. Pebble Investments (No. 9) Pty. Ltd., a company also controlled by H.A. Nowland, contracted to buy that property on 26 September 1980, and the transaction was settled on 13 February 1981, with the assistance of moneys provided by Tricontinental, which took a bill of encumbrance.
- However, a release of that bill of encumbrance was produced on 17 August 1981, unaccompanied by any bill of mortgage to the E.A. Bank; the latter document was not produced until 9 October 1981. An inference is clearly open that, for some reason, the Everton Park property was not treated in the same way as the Coopers Plains property. There is no explanation of the difference, nor of the fact that the mortgage in favour of the E.A. Bank over the Coopers Plains property was lodged for registration considerably later than the lodgment of the release by Tricontinental.
- On the day of the payment by the mortgagee's solicitor (23 July 1981), there was produced at the Real Property Office (in addition to mortgages in favour of the E.A. Bank covering the Coopers Plains and Rocklea properties) a mortgage over a property at Sumner Park, Brisbane. That was bought by the appellant under a contract made in 1980, and settled on 13 February 1981 at the same time as the settlement of the Everton Park property. A transfer was produced at the Real Property Office in June 1981 and registered in July; the property was unencumbered when the bill of mortgage in favour of the E.A. Bank was produced. That seems to have been so, as counsel pointed out, only because the mortgage to the E.A. Bank was produced before registration of a bill of encumbrance which had been lodged immediately after the transfer to the appellant, and which was, I infer, Tricontinental's security.
- Shortly prior to receipt of the loan from the E.A. Bank on 23 June 1981, the appellant wrote to Tricontinental saying that: "We anticipate that a payment of $1 million will be paid to your company to repay loans on three securities now held." The letter went on to list the Coopers Plains, Sumner Park and Everton Park properties.
- In my view it is probable that the sum paid to Tricontinental (considerably more than that mentioned in the letter of June 1981) discharged three securities, not two as found by the Tribunal and I so find. The third security was the unregistered bill of encumbrance over the Sumner Park property.
ATC 4238Counsel for the respondent contended that the evidence was too uncertain to enable one to be confident as to the use to which moneys advanced by Tricontinental and paid out by Mr Kootsookos were put. He pointed out that if one analyses the evidence as to the purchase of the three properties just discussed, and the evidence as to the purchase of the Rocklea property and the unit in Aquarius, the amount necessary to discharge the balance of all indebtedness was only $1,589,796.40. On my calculations that is not so; the amount appears to have been $1,630,296.44. However, the evidence as to the way in which the purchase price of these properties was made up was, in some respects, vague and unsatisfactory, and it may be that the discrepancy between the amount lent and the amount which should have been needed is partly due to errors in the evidence of Mr H.A. Nowland in giving (apparently from recollection only) financial details. There seems no reason to doubt the purpose of the payments to the A.M.P. Society and to A.G.C. (Advances) Limited. The doubt as to the application of the money advanced arises with respect to the sum paid to Tricontinental Corporation Limited. Before stating my conclusion on that point, it is desirable to set out the effect of the correspondence entered into by and with the appellant as to the purpose of the E.A. Bank advance; it tends to assist the submission of counsel for the respondent just mentioned.
- On 30 April 1981, after all three properties (Coopers Plains, Sumner Park and Everton Park) had been purchased and the transactions settled, the E.A. Bank wrote to the appellant offering a loan facility of $A1.3 million to finance the purchase of those three properties. On 5 May 1981 the appellant wrote to the manager of the Reserve Bank of Australia applying for exchange control approval for the then proposed borrowing; in that letter, the purpose was described as being "To finance borrowings used to purchase" the three properties just mentioned. On 6 May 1981, the appellant wrote to the E.A. Bank offering security over the three properties mentioned in addition to the Rocklea property and unit 181 in the block called "Aquarius". The letter said that: "To complete the purchase of these additional properties we would require an additional $A500,000..." On 7 May 1981 the appellant wrote to the Reserve Bank with reference to its application for exchange control approval in respect of the $1.3 million, saying that: "It was necessary to borrow funds to acquire various properties and this overseas Loan is being used to finance those Borrowings." On 17 June 1981, the E.A. Bank wrote to the appellant offering a facility of $A1.8 million to finance the purchase of the three properties at Coopers Plains, Sumner Park and Everton Park and a home unit at Aquarius. On 15 December 1981, the appellant made the application to the respondent which has led to the present litigation. That described the purpose of the borrowing as being to purchase the four industrial properties, at Coopers Plains, Sumner Park, Everton Park and Rocklea. On 4 March 1982, accountants acting for the appellant wrote again to the respondent, that letter including the paragraph:
"Amount of loan moneys contributed$ Sumner Park 211,000 Everton Park 320,000 Boniface Street 740,000 Reginald Street 435,000 Aquarius 94,000 ----------- $A1,800,000 -----------"
- (The Boniface Street property was the one at Coopers Plains and the Reginald Street property that at Rocklea.)
- The letter of 4 March 1982 does not appear to be an accurate account of the matter; one would deduce from it that the sum paid to Tricontinental was $1,271,000.
- There were some difficulties in rehearing this matter on the record. Had the witnesses been called before me, or at least had the principal witness, Mr Nowland, been called, it might have been possible for counsel to clear up some of the problems in analysing the evidence and reconstructing these transactions, which occurred in 1980 and 1981. But despite the uncertainties, it appears to me more probable than not that the Tricontinental debt was in truth incurred in the way mentioned in the evidence of Mr
ATC 4239Nowland - i.e. in the purchase of the properties mentioned above at Coopers Plains, Sumner Park and Everton Park and I so find. There was no suggestion that Tricontinental moneys were used for any other purpose.
- (iv) The next sum mentioned by Mr Kootsookos as having been expended by him from his trust account was $13,921.06 for costs and outlays. No comment on that point is necessary: see sec. 128A(5)(c).
- (v) The last sum disbursed by Mr Kootsookos was $19,986.72 paid to the appellant on 7 August 1981. Mr Ulrick argued on behalf of the respondent that the purpose of that disbursement was not explained by the appellant in any coherent way. It is enough to say that, having studied the evidence, I agree and hold that the appellant has not discharged the onus of proof as to that sum.
The statutory provisions - general
As I have mentioned, the legal dispute which arises concerns the application of provisions of Div. 11A of the Act which provide for payment of a withholding tax on, inter alia, interest falling into certain categories. It is unnecessary, for the purposes of resolution of the problems of interpretation arising in this case, to summarise the effect of the provisions of the Division which operate if no exemption is available.
In this section, there are dealt with all the matters which appear to be necessary to be dealt with, as to the application of the statute, other than the difficult question whether the various cheques should be treated separately. That is discussed below, under the heading "Receipt by borrower".
The central provision presently in question is sec. 128G(1) which has the effect that tax is not payable under the Division, in respect of interest on a loan raised outside Australia, where the Commissioner has issued a certificate under sec. 128H. Application under that section is to be made by an "entity" (a term defined so as to include natural persons and companies) that has raised a loan the interest on which could, subject to the issue of a certificate, be interest referred to in sec. 128G. The Commissioner must be satisfied in respect of four matters, three of which are set out as follows:
"(b) the loan moneys have been employed, and are intended to be employed, only for a qualifying use or for making moneys available for a qualifying use;
(c) in a case in which an amount being the whole or part of the loan moneys has been lent, or is intended to be lent, for use for the purposes of an enterprise in which there is substantial Australian participation, that amount did not exceed, or will not exceed, an amount that can reasonably be regarded, having regard to the extent of that participation, as an appropriate amount to be contributed (in addition to any other contribution) by the Australian entity or Australian entities concerned to the funds required for the purposes of that enterprise; and
(d) every entity (other than the applicant) that has lent or otherwise expended, or that will lend or otherwise expend, any of the loan moneys in the course of the arrangements by which any of the loan moneys have been or will be made available for the purposes of a qualifying use was or will be an Australian entity throughout the period 60 days ending on the sixtieth day before the day on which it received or receives the moneys that it so lends or otherwise expends."
The expression "qualifying use" is defined by sec. 128A(8) which reads, so far as material, as follows:
"For the purposes of this Division -
- (a) a reference to a qualifying use, in relation to loan moneys, shall be read as a reference to use of those moneys for the purposes of an enterprise at a time when the enterprise is or was (whether by reason of the transaction by which those moneys became available for that use or otherwise) an enterprise owned by an Australian entity or an enterprise in which there is substantial Australian participation;"
It will be noted that the use must be "for the purpose of an enterprise"; there is a definition of "enterprise" in sec. 128A(1):
"`enterprise means a business or other industrial or commercial undertaking;"
There is, then, no right to a certificate unless the loan moneys have been and are to be
ATC 4240employed for a qualifying use, which means for the purposes of a business or other industrial or commercial undertaking. An important exception relied on by the respondent, however, is in sec. 128A(7) which reads as follows:
"A reference in this Division to the use of moneys for the purpose of an enterprise shall be read as not including use of those moneys in the course of carrying on an enterprise -
- (a) by way of providing capital for another enterprise; or
- (b) by way of the making of loans."
It will be noted that use of moneys by way of making of loans is excluded, but sec. 128H(2)(b) and (d) seem, at first sight, inconsistent with that. It is plain from sec. 128H(2)(b) that the moneys may qualify if they are made available for a qualifying use and para. (d) contemplates that a use may qualify although the moneys are lent in the course of arrangements for making them available.
How to reconcile these two provisions? It appears that the intention is that where the Australian borrower from overseas does not itself use the money, but lends it on, the end use must qualify. The result is that if the Australian borrower is a business enterprise, but does not use the money itself and merely lends it to another entity, the use made by the second borrower must be considered.
The Tribunal made no reference to the possibility of "splitting" the loan so as to apply the provisions of sec. 128A(5)(b), which reads as follows:
"For the purposes of this Division -
- (b) subject to paragraph (a), each receipt of moneys by a borrower under a contract under which moneys are to be, or may be, advanced by way of loan shall be deemed to be the raising of a loan..."
Although I accept that the provision was mentioned by counsel to the Tribunal, it does not seem to me likely that any reliance was placed upon it there. The Tribunal treated the entire loan as a single sum and said (at p. 1152):
"The bulk of the borrowed funds were used either to make loans to directors of the borrower or to another entity (albeit a subsidiary of the borrower), and thus not used for the purpose of `a business or other industrial or commercial undertaking'... The business of the borrower at the relevant time involved the acquisition of industrial properties for their earning potential, not to discharge mortgages and/or to lend funds to directors or a subsidiary, activities which, in any event, are excluded from exemption from withholding tax by sec. 128A(7)."
In this section of the reasons, I proceed on the view, the reason for which is explained below, that the various payments by the lender's solicitor must be considered separately.
The first sum, paid to the A.M.P. Society, discharged the balance of the purchase price of property being bought at Rocklea. Between the purchaser, Mr Nowland, and the appellant, it was correct to regard the payment as a loan, as the Tribunal did. It was also correct that, therefore, the use of the moneys by the appellant was excluded by sec. 128A(7). However, the ultimate use of the money by Mr Nowland was, in my opinion, for the purposes of an enterprise owned by an Australian entity, i.e. a "business or other industrial or commercial undertaking" consisting in the proprietorship of the Industrial Rocklea property, which produced rental income. It does not appear from the evidence what other rented property Mr Nowland had, but even if he owned no other such property, the proprietorship of the Rocklea property was a commercial "undertaking", in my view. If the end use of the borrowed money is to acquire property for the purpose of producing rental income, that is, at least generally, enough: cf. the conclusion of the House of Lords as to the "undertaking" of a recipient of an annuity in
South Behar Railway Co. Ltd. v. I.R.C. (1925) A.C. 476.
The word "undertaking" may refer to a physical structure or to a total business: see
F.C. of T. v. Top of the Cross Pty. Ltd. 81 ATC 4563 at pp. 4564-4565; (1981) 37 A.L.R. 623 at p. 634 per Bowen C.J. and Ellicott J. In the definition here in question, it appears to me capable of covering either; it means "something undertaken or attempted; an enterprise" - Shorter Oxford English
R. v. Industrial Disputes Tribunal; Ex parte East Anglican Trustee Savings Bank (1954) 2 All E.R. 730 at p. 731 per Lord Goddard C.J. I think the purchase of property to rent out, whether or not after renovating it, and the proprietorship of that property, constitute an undertaking of a business or commercial kind.
ATC 4241Dictionary - and is a word having the widest connotation:
The second cheque, paid to A.G.C. (Advances) Limited, discharged the money due under the mortgage given by Mr and Mrs Nowland in February 1981, when unit 123 in Aquarius was acquired. It was admitted by Mr Harrison Q.C. on behalf of the appellant that the unit was used only for private purposes. It therefore was not, in my opinion, used for "an enterprise" as defined in sec. 128A. Mr Harrison Q.C. argued that there was a sufficient commercial purpose in paying out the A.G.C. (Advances) Limited loan, because the property in question was required as security by the E.A. Bank. In my view that is too remote a connection; the position was, in substance, that the cheque went to discharge a liability not incurred in relation to any business or industrial or commercial undertaking.
Counsel for the respondent criticised a finding by the Tribunal (para. 6 of its reasons) that the E.A. Bank "insisted" on security over the unit just mentioned. Mr Ulrick argued that, reading the evidence of Mr Nowland as a whole, the finding was an overstatement; counsel analysed that evidence in a helpful and comprehensive way.
I agree, with respect, with that criticism. Mr Nowland, when cross-examined on the subject, said:
"They did not insist on anything in particular, no, they just insisted that I had to give them security, otherwise they would not give me a loan."
In my view it was not open to the Tribunal to find that no other security than the Aquarius unit was available. The appellant's arguments with respect to the sum paid to A.G.C. (Advances) Limited must fail.
As to the third cheque, for the reasons discussed above, the proper view appears to be that the liability to Tricontinental which was discharged was incurred in respect of the purchase of three properties, two of which had been bought by the appellant and one by Pebble Investments (No. 9) Pty. Ltd., an associated company. It is correct, in my view, that in so far as the cheque to Tricontinental discharged the liability of Pebble Investments (No. 9) Pty. Ltd., that was a loan by the appellant to its associated company, as the Tribunal found. But the use Pebble Investments (No. 9) Pty. Ltd. made of the money was to discharge the liability incurred in respect of industrial or commercial property from which rental income was to be derived.
Had the money paid to discharge the Tricontinental loan gone, instead, directly towards the purchase of these three properties, then it would have seemed clear enough that the end use was of a kind required by sec. 128A. It should not make any difference that there was a two-stage financing process, and that the E.A. Bank loan went to discharge the Tricontinental loan, described as "bridging finance". As to each of the three properties, I am of opinion that the payment to Tricontinental involved the use of the money for the purposes of "enterprises" as defined, owned by Australian entities, namely the appellant and Pebble Investments (No. 9) Pty. Ltd.
Receipt by borrower
Under sec. 128H(2)(b), the Commissioner must be satisfied that the loan moneys have been employed, and are intended to be employed, only for a qualifying use or for making moneys available for a qualifying use. The use of the word "only" produces the result that where moneys supplied under a single contract of loan are paid out in fulfilment of a variety of purposes, a question must arise whether the loan is to be regarded as divided into the separate payments by which it is made. That problem is dealt with, and dealt with only, in sec. 128A(5)(b). It says that, subject to para. (a) which is irrelevant, "each receipt of moneys by a borrower under a contract under which moneys are to be, or may be, advanced by way of loans, shall be deemed to be the raising of a loan".
The provision uses the expression "deemed to be the raising of a loan" because that language matches the wording of sec. 128H(1): "An entity that has raised a loan the interest on which could, subject to the issue of a certificate under sub-section (2) in respect of the loan, be
ATC 4242interest referred to in section 128G may apply to the Commissioner in writing for the issue of such a certificate." That is, if a receipt is deemed to be the raising of a loan by the operation of sec. 128A(5)(b), then there may be an application in respect of that receipt under sec. 128H(1) and, to justify its issue, the Commissioner need be satisfied only that the particular money received (and not the whole of the loan) has been employed and is intended to be employed only for a qualifying use or for making moneys available for a qualifying use.
No doubt the draftsman had in mind that it is common in commercial life for a single loan contract to produce a number of distinct payments by the lender. For example, assuming a financier is providing funds for a construction project, the loan contract might say that the financier is to make the loan by a series of payments to the builder at the borrower's request - perhaps on an architect's certificate. Such payments are undoubtedly loans, but are the moneys received by the borrower? To use the precise language of sec. 128A(5)(b), would an individual payment to the builder be a "receipt of moneys by a borrower under a contract..."? If not, then there is no such receipt. On that assumption - i.e. that each payment by the lender to the builder at the borrower's request is not a "receipt of moneys by a borrower" within the meaning of sec. 128A(5)(b) - the Act is silent on what might be called the question of divisibility of the payments under the single loan contract. Putting that more generally, unless payments under the loan contract to a person designated by the borrower are taken to involve receipts of moneys by the borrower, the Act has nothing to say on the point whether in that situation there is one loan, or more than one, for the purposes of sec. 128H. On that assumption, the legislature has made specific provision about divisibility, where the loan moneys paid from time to time are paid to the borrower, but has made no such provision where the money is paid by the lender to another at the borrower's request. It seems unlikely that had the legislature adverted to this problem, it would have drawn the statute in such a way as, with respect to divisibility, to distinguish between the two cases - i.e. that in which the separate payments are made to the borrower, and that in which they are made to a third party at the direction or request of the borrower.
The distinction just mentioned would appear particularly unlikely to have been intended where there are, for example, only two loan payments, the first made to the borrower and the second to a person nominated by him. On the narrower reading of sec. 128A(5)(b), the former payment, but not the latter, is "deemed to be the raising of a loan".
The expression "receipt of moneys by a borrower" should at least be read as including receipt by another as agent for the borrower: cf.
O'Reilly & Ors v. Commr of the State Bank of Victoria & Ors 82 ATC 4671; (1982) 153 C.L.R. 1, in which the High Court held that a particular reference, in the Income Tax Assessment Act, to the Commissioner meant to refer to the Commissioner or his agent. If, as happens commonly enough, a loan payment is made by the financier directly into the borrower's bank, a question might arise as to whether the bank takes the money as agent for the borrower. Here also, a possible view of the facts is that the repayments discussed above should be taken to be received by each respective payee as agent for the appellant, but I find it unnecessary to decide that question.
Gresham Life Assurance Society Ltd. v. Bishop (Surveyor of Taxes) (1902) A.C. 287 a question arose as to the meaning of the expression "received in the United Kingdom", under English income tax legislation. An English taxpayer received income abroad and part of it was applied abroad, but all was taken into account, of course, in ascertaining the annual profit. Reversing the Court of Appeal, the House of Lords held that there was no receipt in England, Lord Brampton saying (p. 294) that he did not understand what a "constructive receipt" might be; but Lord Lindley remarked (p. 296) that he was not prepared to say "that what amongst business men is equivalent to a receipt of a sum of money is not a receipt within the meaning of the statute...". The latter approach helps the appellant here and is one which I find attractive.
A problem which appears to me of a similar kind was dealt with by the Privy Council in
North Sydney Investment and Tramway Co. Ltd. (in liq.) v. Higgins (1899) A.C. 263, where a transaction which did not, in the literal sense, involve any payment in cash, was held to amount to a payment in cash within the meaning of a statute: p. 273. Lord Davey there
ATC 4243said: "... it was not necessary that the parties should go through the form of handing the money over and receiving it back, or giving cross cheques." If the respondent's view of the matter is correct, in this case the appellant should have gone through the form of having each of the three payments physically made to it, and then passed on to its intended destination. Subject to a possible qualification to be discussed below, that purely formal distinction appears to me unlikely to have been within the legislature's contemplation; that is, I am of the view that "each receipt of moneys by a borrower" was intended to refer to each payment under the loan contract to a person receiving the money on behalf of, or at the direction of, the borrower. Although that involves some straining of language, it is a more plausible view of the true application of the statute than that contended for by the respondent, namely that here none of the loan paid on 29 July 1981 was ever received by the borrower within the meaning of the statute. It should be noted that sec. 128H(2)(d), quoted above, refers to the possibility of entities other than that which "raised the loan" expending "any of the loan moneys".
The qualification just mentioned is that it was argued that where the loan moneys are distributed by a number of cheques paid at, or substantially at, the same time, one cannot treat the several receipts as each constituting the raising of a loan. The explanatory memorandum circulated by the [then] Treasurer, the Honourable B.M. Snedden, when the legislation was introduced, said with respect to what became sec. 128A(5)(b):
"Paragraph (b) covers situations such as those in which a contract is made for a loan of a stated sum, but drawings of parts of the total amount are made from time to time as the need to use funds arises..."
Counsel for the respondent drew attention to the words "from time to time" and argued that one could not bring the provision into operation merely by splitting a loan into a number of cheques paid to the borrower at the same time.
In my view the memorandum does not assist the respondent. Although there may be instances in which it is questionable whether there is in truth more than one receipt, here, there is no doubt that there were separate receipts. Each of the three payments went to a different destination. If the law is that an artificial splitting of a single loan into a number of contemporaneous payments, for no purpose other than to bring the matter within sec. 128A(5)(b), would be ineffective, that does not help the respondent here.
Despite the Treasurer's use of the expression "from time to time", it is not possible to read sec. 128A(5)(b) as excluding all instances in which there is no substantial gap in time between the various receipts. Here, presumably, the three cheques from Mr Kootsookos were each received within a fairly short time, but they were undoubtedly separate receipts.
It should be added that it was argued on behalf of the respondent that Mr Kootsookos, the E.A. Bank's solicitor, received the money into his trust account as agent for the borrower. That is plainly not so.
I therefore conclude, on the broad reading of sec. 128A(5)(b) which I have adopted, that the receipt of each of the three sums I have mentioned, paid by Mr Kootsookos to the three payees designated by the borrower, is deemed to be the raising of a loan. For that reason each had to be examined separately in order to determine whether it was employed and intended to be employed only for a qualifying use, or for making money available for a qualifying use.
It should be added that it was not suggested on behalf of the respondent that the argument just dealt with was not open to the appellant because it was not raised with the respondent or the Tribunal. The respondent argued the matter on the merits. In those circumstances, I have not regarded it as necessary to consider whether any such contention would have been correct, but have noted that the application originally made was "for exemption of withholding tax", which would presumably have allowed the Commissioner to issue more than one certificate, or to deal separately in his certificate with each of the payments.
- (i) Each of the payments made by the lender's solicitor must, in this case, be considered separately to determine whether the moneys included in it were employed for
ATC 4244a qualifying use or for making moneys available for a qualifying use.
- (ii) Of those payments, two fall within that description, namely that of $432,195.30, and that of $1,244,346.26 mentioned above; the others do not.
The appeal must therefore be allowed with costs limited to one day's hearing. It will be ordered that the matter be remitted to the respondent with a direction to issue to the appellant a certificate in respect of each of the two said payments complying with sec. 128H(2) of the said Act.
THE COURT ORDERS THAT:
1. The appeal be allowed.
2. The respondent pay the applicant's costs of and incidental to the appeal, limited to one day of hearing.
3. The matter be remitted to the respondent with a direction to issue to the applicant a certificate complying with sec. 128H(2) of the Income Tax Assessment Act 1936 in respect of each of the two payments (of $432,195.30 and $1,244,346.26 respectively) referred to in the reasons for judgment.