Californian Oil Products Ltd v. Federal Commissioner of Taxation

(1934) 52 CLR 28
(1934) 8 ALJ 195
[1934] ALR 339
(1934) 3 ATD 10

(Judgment by: Evatt J, McTiernan J) Court:
High Court of Australia

Judges: Gavan Duffy CJ
Starke J
Dixon J

Evatt J

McTiernan J

Subject References:
Taxation and revenue
Income tax
Agreement for company to carry on agency
Cancellation of agreement
Company wound up
Money paid in consideration of cancellation
Income or capital
Proceeds of profit-making scheme
Licence

Legislative References:
Income Tax Assessment Act 1922 (Cth) No 37 - Section 4; Section 16; Section 93A

Hearing date: 2 August 1934; 3 August 1934; 7 August 1934; 24 August 1934
Judgment date: 24 August 1934

SYDNEY


Judgment by:
Evatt J

McTiernan J

In our opinion the questions should be answered as follows:(1) Yes. (2) No. (3) Yes.

Although the objects for which the appellant was incorporated covered a very wide scope, the only business which it carried on was the distribution of products for the propulsion and lubrication of motor vehicles under the terms of the agreements, described in the special case, which it entered into from time to time. By these agreements it procured the right to sell the products of the Union Oil Co of California. It is unnecessary to set out in detail the terms of the various agreements under which the appellant carried on such business, nor the terms of the agreement of 11th October 1928 whereby the last of such agreements was cancelled. The agreement which was thereby cancelled was entered into on 16th November 1927 between the appellant and the Atlantic Union Oil Co , which had been incorporated in New South Wales to import and distribute the products of the Union Oil Co , and by this agreement the Atlantic Union Oil Co appointed the appellant as its sole agent for a defined area in New South Wales for a period of five years from 1st April 1928.

The agreement of 11th October 1928 provided for the cancellation of the earlier agreement in consideration of the payment by the Atlantic Oil Co of PD70,000 by ten half-yearly instalments of PD7,000 and the appellant covenanted that, as from the signing of the agreement it would not directly or indirectly handle, trade or deal in petroleum products of any kind. The main contention of the Commissioner is that two sums of PD7,000 which the appellant received in the year ended 30th June 1931 pursuant to the agreement of cancellation answer the description of "the proceeds of any business carried on by the taxpayer," which is contained in s. 4 of the Income Tax Assessment Act 1922-1932 The Commissioner also relied upon par. (ba) of the definition of "income" in the Act These sums are part of the moneys paid in consideration of the appellant's agreeing to cancel the agreement under which it carried on its business. In our opinion neither description relied on by the Commissioner includes the moneys now in question. Such moneys are not the proceeds of the business carried on by the appellant. The only business which it carried on was the disposal of the commodities mentioned in the agreement of 16th November 1927 pursuant to the terms thereof. There is no evidence that the appellant ever carried on the business of making and disposing of agency contracts, and the case is therefore distinct from Premier Automatic Ticket Issuers Ltd v Federal Commissioner of Taxation [F20] . (Cf. Chibbett v Joseph Robinson & Sons [F21] , per Rowlatt J.)

If it be true, as contended, that the sum of PD70,000 is the estimated amount of profits which would have been derived by the appellant from carrying on its agency business for the remainder of the agreed period, it does not follow that such money represents the proceeds of carrying on such business. The adoption of this method of calculating the value of the agency is insufficient to impress the sum with the character of income. In truth and in substance the sum of PD70,000 is the amount agreed to be paid in consideration of the termination and liquidation of the agency as distinct from the mere restriction of the appellant's trading activities. No part of the PD70,000 is therefore assessable income within the meaning of s. 4 ( Glenboig Union Fireclay Co v Commissioners of Inland Revenue [F22] ; Burmah Steam Ship Co v Commissioners of Inland Revenue [F23] , at pp. 72, 75).

There is no substance in the argument that s. 16 (d) of the Income Tax Assessment Act can operate to bring the sum in question within the definition of assessable income.


(1922) 12 Tax Cas. 427


(1930) 16 Tax Cas. 67, at pp. 72, 75; (1931) S.C. 156


(1922) 12 Tax Cas., at p. 464


[1932] A.C. 441


(1927) 12 Tax Cas. 955; 136 L.T. 689


(1927) 12 Tax Cas., at p. 973


(1924) 9 Tax Cas., at p. 61


(1932) 16 Tax Cas., at p. 653


(1927) 12 Tax Cas. 955; 136 L.T. 689


(1927) 12 Tax Cas. 1102


(1930) 16 Tax Cas. 67; (1931) S.C. 156, and see particularly Lord Sand's judgment


(1933) 50 CLR 268


(1928) 41 C.L.R., at p. 151


[1914] A.C. 1001


[1931] A.C. 224


(1921) S.C. 400; (1922) 12 Tax Cas. 427; (1922) S.C. (H.L.) 112


(1922) S.C. (H.L.), at p. 115; 12 Tax Cas., at p. 463


(1930) 16 Tax Cas. 67; (1931) S.C. 156


(1922) S.C. (H.L.) 112; 12 Tax Cas. 427


(1933) 50 CLR 268


(1924) 9 Tax Cas., at p. 61


(1922) 12 Tax Cas., at p. 463


(1930) 16 Tax Cas. 67