Moana Sand Pty. Limited v. Federal Commissioner of TaxationJudges:
Full Federal Court
Sheppard, Wilcox and Lee JJ.:
By its application in this matter the applicant (``the company'') appeals against the decision of the Administrative Appeals Tribunal given on 18 February last [reported as Case V40,
88 ATC 340] in which the Tribunal dismissed an appeal brought by the company against the disallowance of an objection to an assessment of income tax for the year ended 30 June 1980. The objection related to the inclusion in the company's assessable income of an amount representing a surplus received by the company when land owned by it on the coast south of Adelaide was resumed. The amount paid by the resuming authority was $500,000. Of this $370,000 was paid during the year ended 30 June 1980; the balance was paid in the following year. The Commissioner sought to bring to tax the whole of the sum of $500,000 less the cost of the land and certain expenses in the 1980 tax year. The Tribunal decided that only the sum of $370,000, less costs and expenses, should be brought to tax in the 1980 tax year. No appeal has been brought by the Commissioner from that part of the Tribunal's decision. The amount of the additional income included in the company's return which is in dispute is $367,435. The most substantial item deducted from the amount of the proceeds was $2,151. The area resumed comprise an area of 50 acres which was part of an overall area of 93 acres acquired by the company in 1958 for $4,000 (£2,000). The cost of the land was ascertained by multiplying the price paid by the fraction 50/93. This yielded $2,151.
The principal of the company is Mr Roche. The land was originally acquired in 1941 by
ATC 4899another company with which Mr Roche was associated. In 1951, the land was transferred to Mr Roche as nominee for a family syndicate. The land is situated on the outskirts of Moana. It has a beach frontage. It has a large sandhill on its beachside boundary which runs across the property at a height of up to seven metres. Further back from the line of that sandhill there is another line of sandhills which also runs across the property. Behind the two lines of sandhills there is some rural land which has been leased from time to time for some horticultural and grazing purposes.
The company was incorporated on 30 March 1955. Its memorandum of association contained only one object which was to acquire, purchase and take over certain lands for the purpose of carrying on the business of working and/or selling the sand thereon ``and to do all things necessary for carrying out the above...''.
On 30 June 1958 the company entered into an agreement to buy the land from the family syndicate for the sum of £2,000 of which £400 was to be paid by way of deposit and the balance by yearly instalments of £400, the last being payable on 30 June 1962. The contract empowered the company, notwithstanding that the contract had not been completed, to ``sell, dispose or otherwise get rid of the surplus sand which is now upon certain portions of the said lands...''
There was apparently some uncertainty in the evidence whether the contract was executed, but the Tribunal concluded that it was, because the sale and purchase of the land were reflected in the accounts of the company at about this time. The parties proceeded upon the basis that the acquisition date was 30 June 1958 and we should do the same.
The Tribunal entered upon a lengthy analysis of the evidence given concerning Mr Roche's, and thus the company's intention for the future of the land. Mr Roche said that the intention was to sell the sand and thereafter to hold the land until a time ``down the track'' when the land might become ``ripe'' for subdivision, and then to sell the land to another family company set up for subdivisional purposes or, alternatively, to sell to a third party for subdivision if such a sale would be of greater financial advantage to the company. Mr Roche agreed that the sale of the sand had a twofold purpose, firstly, as a means of providing cash flow to the company and, secondly, as a means of removing the sandhills. The sandhills would need to be removed before any subdivision of the land could be undertaken. Mr Roche also said that in 1958 subdivision would not have been a possibility. There was not only the problem created by the sandhills; the local council would have had to approve the subdivision and would probably have required the building of an esplanade along the beach boundary together with a bridge across a creek which ran through the area.
The essential findings made by the Tribunal are to be found in para. 57-59 inclusive of its decision. There is a question what the effect of these findings is but there was no submission that the findings were not open to the Tribunal on the evidence which it had before it. That is subject to one qualification made in relation to one of the submissions made by counsel for the company to which reference will later be made. Paragraphs 57-59 of the decision are as follows [at pp. 351-352]:
``57. Turning firstly to the time when the applicant initially acquired the subject property; we accept the evidence of Mr X (Mr Roche) that the memorandum of association of the applicant indicates that the subject property was purchased by the applicant for the purpose of carrying on the business of working and/or selling the sand thereon. However, we do not accept that that stated object was the only purpose for which the company purchased the land. It is clear that the previous owners of the land. It is clear that the previous owners of the land, being Mr X as nominee for the family syndicate [XFS] had intended to hold the property for the purpose of eventual sale in the future, preferably by subdivision, and hopefully for a profit. Mr X submitted that one of the reasons for involving the applicant in the activities associated with the extraction of the sand was to limit the exposure to financial risk to the individual members of his family and this we accept. However, that acceptance does not alter our view that the applicant, through the agency of Mr X, acquired the property with a twofold purpose of both working and/or selling the sand and thereafter holding the property until some time in the future when it became appropriate to sell the property either to a company of Y Co. (an associated
ATC 4900company which owned the land prior to its being transferred to the family syndicate) specifically set up for the purpose of subdivision or, alternatively, to a third party subdivider, whichever gave the greatest financial return to the applicant. In our view, however, the dominant purpose of the setting up of the applicant company and its purchase of the subject property was not for sale of the property for profit-making; the dominant purpose was the working and/or selling of sand. The applicant company had been brought into existence for the purpose of working and/or selling sand, but secondary to that, the applicant, through the agency of Mr X, maintained a further purpose of at some time in the future selling the land for profit when the time became ripe for subdivision.
58. That one of the purposes for acquisition of the land by the applicant company included its sale at some future time for a profit is probably best exemplified by Mr X's evidence at p. 168 of the transcript:
- `Q: I am asking you whether you considered in 1958 at the time this agreement was drawn that at some time in the distant or not-too-distant future, this land might be usable as subdivided land?
- A. - Yes I suppose if you look at - I don't know what the time rate would be but I suppose someone with my involvement in real estate might think that x years down the track you could do something with this land.'
59. We specifically reject any suggestion made that letters written by Mr X as either director of Y Co. or as director of the applicant company which expressed plans for subdivision of the subject property, were simply efforts made by Mr X to either thwart a mining claim or alternatively negotiate with the council in a manner such that the value of the property would be increased or at the very least, not diminished. We do not accept Mr X's evidence that the references to subdivision in correspondence were merely for the purpose of business negotiation and did not express the intent and purpose of the applicant at the time. Whilst no doubt a number of the letters written by Mr X may have been a `gilding of the lily', in that they indicated far more specific proposals than the applicant had in mind at that time, this did not mean that the underlying purpose and intention of the applicant were not accurately expressed. On the contrary, in our view those letters were a true reflection of the applicant's aims at the time they were written. Whilst it may not have been possible to subdivide the subject property at the time it was acquired by the applicant, nor indeed during the period 1956 to acquisition in December 1979, this was still one of the aims of the applicant at the time of purchase of the subject property and remained a purpose up until the time of its compulsory acquisition.''
The letters referred to in para. 59 were letters written by Mr Roche prior to the acquisition of the land by the company. It is necessary to refer to the circumstances in which they came to be written and the principal purport of them. On 10 February 1956, over two years before the purchase of the land, Mr Roche received an unwelcome notice of application made pursuant to the Mining Act Amendment Act 1931 (S.A.) by an acquaintance who worked in a nearby office. Unbeknown to Mr Roche this acquaintance had applied to peg out an area to be worked under the provisions of the Mining Act Amendment Act 1931 on part of the subject land. Mr Roche was very angry about the matter. Enquiries revealed that a claim had also been pegged out in relation to another part of the land. The mining rights for it were held by the Crown rather than by Mr Roche so that Mr Roche had no control over them.
Mr Roche found out that he could object to mining on private land on a number of grounds which included a ground that the land was less than half an acre and was within a township.
Mr Roche wrote to the Department of Mines objecting to the claim, saying, amongst other things, that the land was held by him for the purpose of subdividing it into building allotments of the usual township size. The letter said that much preliminary work had been carried out in this connection and that final plans were due shortly to be lodged with the necessary authorities. There were further letters along these lines. The last referred to by the Tribunal was written on 1 November 1957. In it Mr Roche said that, as it was his intention to subdivide the land, he objected to any further
ATC 4901suspension of conditions and asked the Director of Mines not to grant any further claims for suspension.
The case made by the company at the hearing before the Tribunal involved its submitting that the letters were written to thwart the mining claim so that they were not indicative of Mr Roche's then real intention or purpose as to the future of the land. That case was rejected by the Tribunal as appears from its findings in para. 59 of its decision which we have quoted.
The Commissioner relied upon two provisions of the Income Tax Assessment Act 1936, subsec. 25(1) and para. 26(a). The latter provision has since been replaced by sec. 25A. In reliance upon sec. 25, the Commissioner sought to bring the amount to tax as income according to ordinary concepts or usages. The Commissioner did not rely upon the first limb of para. 26(a), but only upon the second limb which provided that the assessable income of a taxpayer should include profit arising from the carrying on or carrying out of any profit-making undertaking or scheme. It was the Commissioner's case that, upon the findings of the Tribunal which we have quoted, it was established that the company acquired the land with the twofold purpose of working and/or selling the surplus sand and thereafter holding the land until some time in the future when it became appropriate to sell it at a profit. Although the dominant purpose of the company in acquiring the land was not resale at a profit, subdivision with an ultimate profit to the company remained the company's purpose from the time of acquisition until resumption and therefore the carrying on or carrying out of a profit-making undertaking or scheme was established.
Counsel for the company disputed the Commissioner's interpretation of the Tribunal's findings. He contended that the Tribunal had found that the dominant purpose of its acquisition of the land was not the resale of it at a profit but the purpose of carrying on the business of working and/or selling the sand. The Tribunal's consequential finding that, secondary to that dominant purpose, the company, through the agency of Mr Roche, maintained the further purpose of selling the land for profit at some time in the future when the time became ripe for subdivision, was of no relevance to the assessability or otherwise of the profit. Putting the matter a different way, counsel for the company said that the sale transaction formed no part of any business being carried on by the company and no part of any plan or scheme, let alone profit-making scheme, undertaken by the company in respect of the land. Counsel said that, to the extent that the Tribunal found otherwise, the finding was not open to it on the evidence.
Despite the reference by both counsel to a large number of authorities dealing with the circumstances in which profits made from a sale of property may be properly regarded as income according to ordinary concepts or may be assessable because of the carrying on or carrying out by a taxpayer of a profit-making undertaking or scheme, it seems to us, as both counsel really acknowledged in the course of the argument, that the key to the case is the true meaning and effect of the Tribunal's findings as made in the critical paragraphs of its decision which we have quoted.
The findings of the Tribunal must be read as a whole and against the background of the findings of primary fact which they contain. They should be read constructively and not with an over-critical eye for inconsistencies. A key to what the Tribunal found is the fact that there is no reference in the early part of para. 57 to any purpose of the company being a dominant purpose. Rather there is a discussion which leads the Tribunal to the conclusion that the company had more than one purpose. Importantly, and again, before any mention of a dominant purpose, the Tribunal found that the company, through the agency of Mr Roche, acquired the property with the twofold purpose of both working and/or selling the sand and thereafter holding the property until some time in the future when it became appropriate to sell it either to an associated company for the purpose of subdivision or to a subdivider who was a stranger to the Roche group of companies. It was then that, for the first time, the Tribunal referred to the company's purpose of working and/or selling sand as a dominant purpose and rejected the proposition that the dominant purpose was the sale of the property for profit-making - the first limb of para. 26(a) of the Act. Paragraphs 61, 62 and 63 of the decision rejected the notion that the case was a case which fell within the first limb of the paragraph. Throughout the paragraphs which we have quoted, there runs, however, a clear
ATC 4902indication that a purpose of the acquisition was the ultimate sale of the land at a profit. Similar statements are to be found in para. 63 [at p. 353] where the Tribunal said:
``... one of the purposes of the creation of the applicant company and the transfer of the property to it, was for the exploitation of sand. However, for reasons we have previously expressed, we do not consider that the intention of the applicant in purchasing the land was limited to that object although, in all of the circumstances, we are prepared to accept that the dominant purpose was for the exploitation of sand and not for the purposes of eventual profit-making by the sale of the property.''
The Tribunal went on to conclude that the first limb of para. 26(a) had no application.
All this, in our opinion, indicates that the Tribunal referred to one of the company's purposes as a dominant purpose and another as not being a dominant purpose in order to dispose of the possible view that the case fell within the first limb of para. 26(a). We were informed that the Commissioner had not relied upon the first limb when the matter was before the Tribunal. Nevertheless, the Tribunal decided to deal with that part of the paragraph and to reject its possible application. It did so by determining that the winning of sand, and not the sale of the land, was the dominant purpose. It follows, in our opinion, that the references to dominant purpose and secondary purpose appear only because of the Tribunal's view that, notwithstanding the absence of any argument by the Commissioner based on the first limb, the Tribunal should make it clear that no such case would have succeeded. The scheme of the Tribunal's approach to the matter was then to go to the second limb and ultimately to the question whether the profit arising from the sale was income according to ordinary concepts.
Having considered the whole of the Tribunal's decision and having paid particular attention to the critical findings made by it in the paragraphs which we have quoted, we have reached the conclusion, contrary to the submissions made by counsel for the company, that the essential finding relevant to the cases made by the Commissioner both under sec. 25 and the second limb of para. 26(a) is the statement in para. 57 that the company, through the agency of Mr Roche, acquired the property with the twofold purpose of working and/or selling the sand and thereafter holding the property until some time in the future when it became appropriate to sell it either to an associated company set up for the purpose of subdividing the land or, alternatively, to a third party subdivider, whichever gave the greatest financial return to the company.
The relationship between subsec. 25(1) of the Act and the second limb of para. 26(a) thereof has been discussed in a number of authorities; see, for example,
F.C. of T. v. Bidencope 78 ATC 4222; (1978) 140 C.L.R. 533 and
F.C. of T. v. Whitfords Beach Pty. Ltd. 82 ATC 4031; (1981-1982) 150 C.L.R. 355; particularly per Gibbs C.J. at ATC pp. 4035-4037; C.L.R. pp. 363-366 and per Mason J. (as he then was) at ATC pp. 4044-4047; C.L.R. pp. 379-383. In recent times the view has been expressed that the two provisions are true alternatives; reference may be made to
Kenneth A. Summons Pty. Ltd. & Ors. v. F.C. of T. 86 ATC 4979 at pp. 5003-5004; (1986) 86 F.L.R. 408 at p. 439 and to
Crow v. F.C. of T. 88 ATC 4620 at p. 4626. However, much of what the High Court has recently said in
F.C. of T. v. The Myer Emporium Ltd. 87 ATC 4363; (1987) 163 C.L.R. 199 must be taken into account and the position is, perhaps, not as clear as it may have been thought to be. In this case we need come to no concluded view about the relationship of the two provisions. A reading of many of the earlier cases discloses that that is not uncommonly the case. In this case we are satisfied that, whether one looks at the matter under sec. 25 or para. 26(a), the Commissioner is entitled to succeed.
The starting point for a consideration of whether a receipt such as that in question here is income according to ordinary concepts is the decision of the Court of Exchequer (Scotland) in
Californian Copper Syndicate v. Harris (1904) 5 T.C. 159. The test is whether the amount in dispute is ``a gain made in an operation of business in carrying out a scheme for profit making''; see p. 166. Reference may also be made to the decision of the House of Lords in
Ducker v. Rees Roturbo Development Syndicate Limited (1928) A.C. 132 at pp. 140-142. In F.C. of T. v. The Myer Emporium Ltd. the High Court said that the important proposition to be derived from the Californian Copper and Ducker cases was that a receipt
ATC 4903might constitute income if it arose from an isolated business operation or commercial transaction entered into otherwise than in the ordinary course of the carrying on of the taxpayer's business, so long as the taxpayer entered into the transaction with the intention or purpose of making a relevant profit or gain from the transaction; see ATC p. 4367; C.L.R. p. 211 and the earlier discussion at ATC pp. 4366-4368; C.L.R. pp. 209-211. Later the Court said (at ATC pp. 4368-4369; C.L.R. p. 213):
``The proposition that a mere realization or change of investment is not income requires some elaboration. First, the emphasis is on the adjective `mere' (Whitfords Beach, at ATC pp. 4046-4047; C.L.R. p. 383). Secondly, profits made on a realization or change of investments may constitute income if the investments were initially acquired as part of a business with the intention or purpose that they be realized subsequently in order to capture the profit arising from their expected increase in value - see the discussion by Gibbs J. in
London Australia, at ATC p. 4403; C.L.R. pp. 116-118. It is one thing if the decision to sell an asset is taken after its acquisition, there having been no intention or purpose at the time of acquisition of acquiring for the purpose of profit-making by sale. Then, if the asset be not a revenue asset on other grounds, the profit made is capital because it proceeds from a mere realization. But it is quite another thing if the decision to sell is taken by way of implementation of an intention or purpose, existing at the time of acquisition, of profit-making by sale, at least in the context of carrying on a business or carrying out a business operation or commercial transaction.''
The reference to London Australia is a reference to London Australia Investment Co. Ltd. v. F.C. of T. 77 ATC 4398; (1976-1977) 138 C.L.R. 106.
In our opinion it is clear that the amount received by the company in the present case, notwithstanding that it was received as the result of a single and, in a sense, isolated transaction, was assessable income according to ordinary concepts. After the deduction of expenses incurred in the acquisition of the land, the surplus was properly brought to tax.
Although it is unnecessary to do so, we turn to consider the question of the application of the second limb of para. 26(a). In the course of the argument, there was discussion whether, notwithstanding the language of the second limb of para. 26(a), there was the need for the taxpayer to have the dominant purpose of profit-making by sale before the second limb would apply. Mason J. left this question open in Whitfords Beach but referred to the judgment of Jacobs J. in London Australia Investment Co. Ltd. v. F.C. of T. (supra) at ATC pp. 4409-4410; C.L.R. pp. 127-128) where his Honour thought that the second limb would apply where profitable resale was a purpose, though not the dominant purpose. Mason J. said (Whitfords Beach (supra) (at ATC pp. 4045-4046; C.L.R. p. 381) that it seemed that Jacobs J. then had in mind resale in the course of the carrying on of a business by a taxpayer who acquires property with a dual purpose of enjoying it or its profits or of reselling it eventually at a higher price.
Earlier, in F.C. of T. v. Bidencope 78 ATC 4222; (1978) 140 C.L.R. 533, Gibbs J. (as he then was) said (at ATC p. 4234; C.L.R. p. 554):
``Schemes are various, and it is not necessarily possible to say that one purpose of a scheme is predominant; many schemes are designed to secure a number of purposes. If a scheme is designed to secure a profit, it is a profit-making scheme, although it has other purposes as well. This was I think recognized by Jacobs J. in London Australia Investment Co. Ltd. v. F.C. of T. 77 ATC 4398 at p. 4409; (1977) 15 A.L.R. 203, at p. 218, when he said that if the acquisition and disposal of property is part of a business of so doing, the purpose of resale need not be the sole purpose, or the primary or dominant purpose, as is the case under the first limb of sec. 26(a). The present is of course not a case in which property was acquired for resale, but once it is established that profit arose from the carrying on of a scheme, it is enough that the making of a profit of that kind was one of the purposes of the scheme. This question did not arise in
XCO Pty. Ltd. v. F.C. of T., ((1971) 124 C.L.R. 343), where the persons who acquired shares in the loss company arranged for the debts to be assigned to the taxpayer, and the proper conclusion was that
ATC 4904the intention to make a profit was not incidental to any other purpose of the scheme. The facts of that case distinguish it from the present, but the decision did not depend on the acceptance of the view that purpose of profit-making must be the dominant purpose of the scheme if it is to fall within the second limb of sec. 26(a). In the present case, one of the purposes of the scheme was to make a profit, and it can rightly be described as a profit-making scheme.''
The XCO case may have been regarded as an authority for the proposition that, for the second limb to apply, the taxpayer had to have profit-making as a dominant purpose. But, in the light of the explanation provided by Gibbs J. in the passage from his judgment in Bidencope just cited, it would seem that he was not of that view and that his considered view was as he has stated it in Bidencope. That indeed, accords, in our respectful opinion, with a more satisfactory construction of the paragraph which does not mention the word ``purpose'' at all. Obviously, however, the scheme could not be a profit-making scheme unless those devising it and participating in it had the purpose of profit-making as one of their purposes. Further references may be made to the judgments of the High Court in
Steinberg v. F.C. of T. 73 ATC 4030; 75 ATC 4221; (1972-1975) 134 C.L.R. 640;
Burnside v. F.C. of T. 77 ATC 4588; (1977) 138 C.L.R. 23 and
Macmine Pty. Ltd. v. F.C. of T. 79 ATC 4133; (1979) 53 A.L.J.R. 362.
In our opinion, subject to the separate submission shortly to be dealt with, upon the basis of the facts as found by the Tribunal, all these authorities lead to the conclusion that the surplus arising on the sale of the land was a profit earned as the result of the carrying on or carrying out of a profit-making scheme by the company, with the consequence that the amount of the surplus was properly brought to tax pursuant to the second limb of para. 26(a).
What we have referred to as the separate submission concentrates upon the fact that the land was compulsorily acquired at a time when much of the sandhills on it remained. It would appear that the company's attempts to sell the sand over the years had been only moderately successful and that the sandhills on the land at the time of the compulsory acquisition were substantial. Indeed this was the reason for the resumption which was implemented as part of the coastal protection policy of the South Australian Government. It seems that the land would not have been acquired if it had reached the stage where the sand had been substantially removed and the land levelled to an extent sufficient to enable building to take place on it. Unquestionably the company had not reached the stage of proceeding itself to subdivide the land or to transfer it for that purpose either to an associated company or, at a profit, to a stranger. In these circumstances counsel for the company submitted that the sale, forced as it was upon the company, was not a sale undertaken in the carrying out of the scheme but rather one which brought the scheme to an end. Likewise the sale was not one undertaken pursuant to any profit-making purpose or intention but was one thrust upon the company by force of law.
In support of his submissions counsel for the company relied on the decision of Menzies J. in
Kratzmann v. F.C. of T. 70 ATC 4043; (1970) 44 A.L.J.R. 293. There a taxpayer had purchased land to carry out a profit-making scheme involving the borrowing of money to erect a building and the realisation of units in the building to enable the repayment of the loans and the costs of the project, leaving him with a substantial asset which would constitute a surplus. For financial reasons he gave up the idea and sold the land at a profit. Menzies J. held that the profit on the sale did not arise from the carrying on or carrying out of a profit-making scheme and was not assessable income. Menzies J. said (at ATC p. 4045; A.L.J.R. p. 294) that the profit arose, not from the purchase of the land, but from its sale, and because the sale was not part of the profit-making scheme, the profit did not arise from the carrying out of that scheme. He added that the profit in question did not arise until the scheme had been abandoned.
In our opinion Kratzmann's case was decided upon its own special facts. The taxpayer succeeded because the profit-making scheme did not involve the ultimate sale of the land and had been abandoned. In
Hobart Bridge Co. Ltd. v. F.C. of T. (1951) 82 C.L.R. 372 Kitto J. said (p. 382):
``The profit arose to the appellant company from a compulsory acquisition of shares. Nothing turns, I think, upon any distinction between a conversion of shares into cash by
ATC 4905means of compulsory acquisition and a similar conversion by means of an ordinary sale: cf.
Smith v. F.C. of T. (1932) 48 C.L.R. 178. If the shares formed part of the stock-in-trade, as it were, of a business of dealing in shares in which the appellant company was engaged, the profit arising on their realization would be an income profit according to ordinary usages and concepts. If they were acquired by the appellant company for the purpose of profit-making by sale, the profit would be assessable income under the first limb of s. 26(a). If their realization brought to fruition the carrying on or carrying out of a profit-making undertaking or scheme, the profit would be assessable income under the second limb of s. 26(a).''
The matter was discussed by Stephen J. in Steinberg's case. Stephen J. said (at 75 ATC 4221 at p. 4240; (1975) 134 C.L.R. 640 at p. 710):
``The scheme began with the acquisition of one asset, continued with its translation into a different asset and was to have concluded with the profitable disposal of that latter asset. There was the `carrying into execution of a plan or venture which does not involve repetition or system' - (per Dixon J. in
Premier Automatic Ticket Issuers Ltd. v. F.C. of T. (1933) 50 C.L.R. 268 at p. 298) and that plan or venture had all the aspects of a `business deal' -
McClelland v. F.C. of T. 70 ATC 4115; (1970) 120 C.L.R. 487.
If this be so it is, I think, nothing to the point that the intervention of the Overseas Telecommunications Commission resulted in a premature conclusion to the scheme so far as half the land was concerned; this only meant that sooner rather than later a purchaser appeared on the scene prepared to buy at a handsome profit and without any need to incur full costs of subdivision - cf. Hobart Bridge Co. Ltd. v. F.C. of T. [supra].''
When dealing with another aspect of the Steinberg case, Stephen J. referred to Kratzmann's case (ATC p. 4242; C.L.R. p. 714) saying that, once it is determined that a scheme exists, the effect of supervening events which cause a departure from the original scheme will vary depending upon the view taken of those events. Later his Honour said (at ATC p. 4243; C.L.R. p. 716):
``Only rarely, I think, can it be said of a scheme for the acquisition of assets for profit-making simply by their resale (of which Kratzmann's case was not an instance) that a frustration of the planned mode of disposal, followed nevertheless by a profitable disposal, results in there being no scheme capable of attracting sec. 26(a) but only in a realization of a capital asset. Here the original object, a profitable sale of the land, was pursued and attained, although the mode of doing so may have been changed so as to accommodate to changing circumstances.
It follows that the fact that the profit was in fact realized in part from the unanticipated sale of half the issued capital of Malgor Pty. Ltd. and in part from the sale of land which came to the shareholders by way of a distribution in specie not perhaps originally contemplated does not of itself show the Commissioner's assessment to have been in error.''
It was said in favour of the company here that its scheme or plan had not advanced to the time when it would have contemplated a sale. Such an argument assumes that the company would not have contemplated a sale before the removal of the sandhills. There was no finding to that effect and, given the Tribunal's findings as to Mr Roche's intentions, it seems impossible to us to doubt that if a buyer had come along offering an attractive price for the land, in advance of its being ready for subdivision, the company would have entertained that offer upon its commercial merits. We think this case is distinguishable from Kratzmann's case, because sale of the land, albeit pursuant to the compulsory acquisition, was the fulfilment of the ultimate purpose of the company in relation to the land. We therefore reject the independent submission made by counsel for the appellant based on Kratzmann's case.
In the result we dismiss the appeal with costs.