Dickenson v Federal Commissioner of Taxation
98 CLR 460(Judgment by: Webb J)
Between: Dickenson
And: Federal Commissioner of Taxation
Judges:
Dixon CJ
McTiernan J
Williams J
Webb JKitto 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
Judgment by:
Webb J
These are two appeals from decisions of Taylor J. disallowing appeals by the appellant taxpayer against assessments to income tax and social services contribution for the years ended 30th June 1952 and 30th June 1953, respectively. The appeals arose out of the inclusion by the respondent commissioner in the assessable income of the taxpayer for each of these two years of the sum of PD2,000. These two sums were paid to the taxpayer by the Shell Oil Co under the following circumstances: In May or June 1952 the taxpayer, a garage and service station proprietor in the Sydney suburb of Kingsgrove, who sold various brands of petrol and other petroleum products and who owned the freehold of the land on which this business was conducted, agreed with the Shell company to sell that company's petroleum products exclusively. Thereupon the following documents were executed-
- (1)
- An agreement, referred to in the argument as the supply agreement, dated 11th June 1952 between the taxpayer and the Shell company whereby, inter alia, the company agreed to sell and deliver at the taxpayer's garage and service station at Kingsgrove at the company's usual list prices its petroleum products as required by the taxpayer's business; and the taxpayer agreed to purchase exclusively from the company for sale or consumption at the Kingsgrove premises specified minimum monthly requirements during the continuance of the agreement (cl. 1). The taxpayer agreed not to permit sale or consumption of other petroleum products at or upon the Kingsgrove premises whilst the company provided the supplies stipulated for (cl. 2). In consideration of the taxpayer observing these terms the company granted him a non-exclusive right of selling Shell products under its trade marks and agreed to make available to him technical assistance extended by the company to other buyers under the same franchise (cl. 4). The taxpayer also agreed not to buy petroleum products from any other source whilst the company was able to supply them (cl. 6). This agreement was to commence on 9th May 1952 and to continue for ten years and thereafter until the expiry of three months' notice by either party (cl. 7);
- (2)
- A lease by the taxpayer to the company of the Kingsgrove premises dated 30th June 1952 for ten years from that date at a yearly rental of PD1,040 payable in advance in equal monthly instalments;
- (3)
- A sub-lease of the same premises by the company to the taxpayer from 30th June 1952 to 28th June 1962 on the same terms as to rent and containing, inter alia, a covenant to carry out the supply agreement of 11th June 1952 and any variation "and in every way possible to promote extend and develop the sale of the products mentioned in such agreement" (cl. 2 k);
- (4)
- A deed of covenant dated 30th June 1952 between the same parties that in consideration of PD2,000 then paid the taxpayer would not during thirty months from that date within five miles of the Kingsgrove premises as owner part-owner servant employee or agent or as a director of any company or otherwise directly or indirectly open or carry on or conduct or be engaged or concerned or interested in any other garage or service station "unless and until arrangements satisfactory to the covenantee have been made whereby any such other garage or service station is or shall be operated and carried on in all respects as a garage and/or service station at and in respect of which the petroleum products of the covenantee or its successors in title are exclusively bought sold and dealt with";
- (5)
- A deed of covenant dated 1st July 1952 between the same parties and in the same terms except that the period of thirty months begins 31st December 1954.
I assume for the purposes of my reasons for judgment that these documents state the facts and that the real question is as to the proper inferences and conclusion to be drawn from the facts and the documents.
Taylor J. rejected the suggestion made by counsel for the commissioner that cl. 6 of the supply agreement contained a prohibition against all purchases, whether for the taxpayer's existing business at Kingsgrove or for any future business elsewhere. His Honour thought that this provision in cl. 6 was merely ancillary to those relating to the Kingsgrove business. I respectfully agree. But his Honour proceeded to say that the covenants, though expressed in negative form, were not designed to prohibit the taxpayer from engaging in the business of conducting garage or service stations elsewhere, but rather to ensure that if and when he did so he would deal exclusively with Shell products; and that in substance and effect the covenants were supplemental to the covenants in the supply agreement. I am not prepared to take a different view, having regard more particularly to the covenant in the deeds of 30th June 1952 and 1st July 1952 against the taxpayer becoming interested in any other garage or service station within the specified area or periods unless and until arrangements satisfactory to the company had been made for the sale of Shell products at any such other garage or service station. Whilst it is true that this qualification of the covenant at the instance of the company neither adds to nor detracts from the absolute nature of the covenant and its legal effect as between the parties, seeing that the parties can at any time agree to qualify even the most absolute covenant, still this particular qualification does, I think, reveal plainly enough the purpose of the payments each of PD2,000 to have been, not to provide consideration for the sale or for the sterilisation of a capital asset of the taxpayer, or otherwise for a limitation or modification of the taxpayer's profit-earning structure, but to provide consideration for the employment in a particular way of that structure as erected by the taxpayer from time to time within the specified area and periods. He was at liberty to open up or become engaged or employed in business of the same kind elsewhere so long as the company was satisfied, having secured the full protection of its interests in his extended operations, to permit him to do so. In other words the two payments each of PD2,000 were made for the services of the taxpayer in selling at Kingsgrove and thereabouts the petroleum products of the company exclusively; and so like Taylor J. I am unable to say that the commissioner was wrong in treating the two payments as assessable income and not as capital receipts of the taxpayer.
I would dismiss the appeals.