Dickenson v Federal Commissioner of Taxation
98 CLR 460(Decision by: Dixon CJ)
Between: Dickenson
And: Federal Commissioner of Taxation
Judges:
Dixon CJMcTiernan J
Williams J
Webb J
Kitto J
Subject References:
Taxation and revenue
Income tax
Income or capital
Legislative References:
Income Tax and Social Services Contribution Assessment Act 1936 - 83; 88; 260
Judgment date: 2 April 1958
SYDNEY
Decision by:
Dixon CJ
In my opinion each of the two sums of PD2,000, combining to form substantially one receipt of PD4,000, had the character of capital and not income. The documents embodying the transaction of which the receipt of this sum is the product, or perhaps one should say, an incident, have been described and discussed in the judgments of Williams J. and of Kitto J. which I have had the advantage of reading and with which I am in substantial agreement. I shall therefore do no more than state the essential reason which leads me to treat the transaction as one of capital. It appears to me that the sum or sums were paid as the quid pro quo for an effective tie of the appellant's business to one wholesale vendor of petrol. The appellant's business constituted a profityielding organization of a definite structure under his control and he received the money as part of an inducement to change a feature in it. The feature to be changed was the use of a plurality of petrols and oils, and this was replaced by a restriction to the purchase and sale of the products of one company. The same inducement caused him to limit himself in what he might do elsewhere than at his then present business site. At the same time, of course, the business obtained some assurance of a supply from the single source. It may be that in a sense the sum of PD4,000 was compensatory for the loss of future profits which the restriction might involve. It may be that it was meant as present payment by way of incentive to promote sales of the product derived from the single source. But if either or both of these elements formed part of the rationale of the payment, it amounted to a capitalisation of these elements. It is true that the restrictions were to operate only over limited periods but, once he had bound himself, a modification or readjustment of his business was effected. It could exist at the end of the term only in the altered form, although of course after five years he might consistently with the covenants start another business in the neighbourhood. But only by active steps could his present business be restored to its former character. There is nothing recurrent in the nature of the payment. It is not a normal or natural incident of carrying on such a business and it does not represent a purpose for which such a business is carried on. I think therefore that the sum ought not to be treated as a profit of the existing business.
As to the suggestion that the sum or sums constituted a premium payable on the grant of a lease within Div. 4 of Pt. III, it is enough to say that the lease and sub-lease formed no more than the mechanism to provide a legal foundation or assurance for the result for which the money was paid.
As to the suggested application of s. 260 of the Income Tax and Social Services Contribution Assessment Act, complicated, probably unnecessarily complicated, as the documents are, I do not think there is any warrant for the conclusion that they were designed to or did in fact lead to an avoidance of tax.
It is on these grounds stated succinctly that I think the appeals should be allowed.