SUPREME COURT OF NEW SOUTH WALES

AUSTRALIAN KAFARSGHAB (LEBANESE) ASSOCIATION LTD v COMMISSIONER OF LAND TAX

WADDELL J

1 June, 5 November 1976 -

Waddell J The plaintiff company, the Australian Kafarsghab (Lebanese) Assocn Ltd, was assessed to land tax under the Land Tax Management Act 1956, in respect of land owned by it at midnight on 31 December 1973 being land known as No 181 Pennant Hills Road, Carlingford, upon which there has, at all relevant times, been a building which is owned and solely occupied by the plaintiff. An objection was lodged with the respondent Commissioner of Land Tax claiming that the plaintiff was entitled to exemption under s 10(1)(g)(iii) and (iv). The objection was disallowed, whereupon the plaintiff requested that it be treated as an appeal and forwarded to the Supreme Court. The plaintiff relies now only upon the exemption provided by s 10(1)(g)(iii).

The plaintiff was incorporated in 1955 as a company limited by guarantee. Its members are limited to persons who either are, or who are married to persons who are, direct descendants of persons who were born in the town of Kafarsghab in North Lebanon. Its principal object is "to establish, carry on and subsidize an association for the progress and benefit of the Kafarsghab community in Australia". Its income is derived from membership fees of $5 per annum paid by its members and from the profits of social and sporting entertainments. The premises mentioned above are used for the purposes of the plaintiff.

Among the objects stated in its Memorandum is:-

"2(s) To render or to give to any member or members of the association any support help or assistance from the funds of the Association by way of gift or gifts, gift of money, advance of money by way of loan with or without interest with or without security and with or without limit as to time for repayment or otherwise as the general committee shall in its absolute discretion from time to time determine, subject always to the terms of the Memorandum and Articles of Association of the company."

Clause 3 of the Memorandum provides:

"3 The income and property of the company, whencesoever derived shall be applied solely towards the promotion of the objects of the company as set forth in this Memorandum of Association; and no portion thereof shall be paid or transferred directly or indirectly by way of dividend bonus or otherwise howsoever by way of profit to the members of the company. Provided that nothing herein shall prevent the payment in good faith of remuneration or any honorarium to any officer, servant or member of the company or other person in return for any service actually rendered to the company; nor prevent the payment of reasonable interest on money lent or reasonable and proper rent for property or premises demised or let by any member to the company."

Article 62 of the Articles of Association provides:

"62(a) The income and property of the Association whencesoever derived shall be supplied solely towards the promotion of the objects of the company as set forth in the Memorandum and no portion shall be distributed paid or transferred directly or indirectly by way of dividend bonus or otherwise by way of profit to the members of the Association otherwise than in accordance with the provisions of cl 2(s) of the Memorandum of Articles of the company.

(b) "The general committee shall be empowered to render or to give to any member or members of the association any support help or assistance from the funds of the association by way of gift or gifts, gift or gifts of money, advance of money by way of loan with or without interest with or without security and with or without limit as to time for repayment or otherwise as the general committee shall in its absolute discretion from time to time determine in any sum of money or moneys worth not exceeding £100 in any one financial year."

Paragraph (c) of the article provides that assistance exceeding £100 in money or in moneys worth may be given if certain enquiries are made and a procedure followed as is therein set out. Since 1973 there have been amendments made to the Memorandum and Articles of Association but these are not relevant to this appeal. In one respect it was submitted for the defendant that assistance in the interpretation of article 62 was to be gained from the form to which it was subsequently amended but I think that it should be construed without seeking any such guidance.

It is common ground between the parties that the entitlement of the plaintiff to the exemption upon which it relies depends upon the provisions which have been quoted. It is also common ground that the plaintiff is a society, club or association within the meaning of s 10(1)(g)(iii). I shall refer to the plaintiff as an association which is, I think, the category into which it properly falls.

It is submitted for the defendant that the plaintiff is an association carried on for pecuniary profit within the meaning of the paragraph. It is said that the provisions of article 62 authorize the distribution "by way of profit" of the income and property of the association to one or more of its members in accordance with cl 2(s) of its objects. This, it is said, is sufficient to take the plaintiff out of the exemption, having regard to what was said by Sugerman JA, with whom McLelland JA agreed, in Theosophical Foundation Pty Ltd v Comr of Land Tax (1966) 67 SR (NSW) 70. In that case the foundation was held to be entitled to a reduction of land tax under s 10(1)(g)(iii)and 10(2)and (3). The foundation was a private limited company in which there were two shareholders. By the articles no dividend was to be declared except on shares held by associated bodies which it was conceded were not carried on for pecuniary profit (at 81, 85). The land on which the foundation had been taxed was the site of a building known as Savoy House, the greater portion of which was let commercially. The objects of the plaintiff and the bodies with which it was associated were concerned with the pursuit and dissemination of theosophy. In relation to s 10(1)(g)(iii) Sugerman J said: "In argument, attention was directed to the circumstance that this subparagraph does not refer to the pecuniary profit of members, but merely to pecuniary profit in general terms, whereas other parts of the section refer expressly to the pecuniary profit of the members of the body concerned. Thus s 10(1)(d) , 10(1)(g)(iii), 10(1)(g)(iv)and 10(2), on the one hand, may be contrasted with s 10(1)(h)and 10(1)(j) on the other. For this reason, it has been submitted, there can be no question of an exemption under s 10(1)(g)(iii) in favour of a society, club, or association whose activities are conducted for profit to it as such society, etc, as is the case with the respondent society which derives profits from the commercial letting of much the greater part of Savoy House.

"It is necessary to construe the language of the individual exempting provision, and, in general, little assistance is to be obtained from comparing or contrasting its language with that of other exempting provisions. In some instances, the factual background provides some explanation for the terms of the exemption. Thus s 10(1)(i) makes no reference at all to pecuniary profit, no doubt because the necessary licences for racing can only be granted to 'non-proprietary associations' (Gaming and Betting Act 1912, as amended, ss 52B(1), 53C(1)). So also it appears to me that there is a special reason for the absence of any reference to members in relation to pecuniary profit in s 10(1)(g)(iii). A club, for instance, may be a proprietary club, as distinct from a members' club, and the intention is, in my opinion, to exclude from exemption societies, clubs or associations which are carried on for the pecuniary profit of any person - not merely of the members, but also of any other person, such as the proprietor of a proprietary club.

"And some guidance is to be had from the general context of s 10. I agree with Mr Fox that in that general context the exclusion of pecuniary profit refers to the pecuniary profit of individuals. The object is to accord exemption to those societies, clubs and associations, and institutions and bodies of various kinds, whose profits, if any, are applied solely to the advancement of their objects and cannot find their way into the pockets of individuals. For instance, it is not, I think, required that a club, in order to gain exemption, should be carried on at a loss as regards its trading activities with its members or the paid services which it renders them, or should refrain from such activities and from charges to its members and rely for its support entirely upon membership subscriptions and donations. And, however that may be in general terms, it seems at least clear that the benefit of the deduction provided for by s 10(2), in combination with s 10(1)(g)(iii), is not lost because profits are derived from the commercial letting of part of the building referred to, since s 10(2) appears to contemplate that very situation."

(84-85).

Sugerman J concluded that it appeared that the profits which the foundation derived from its commercial letting of part of Savoy House could not find their way into the pockets of individuals and that the foundation was not "carried on for pecuniary profit" in the relevant sense. He expressed the view that any dividends which might be paid to shareholders under the articles would not become the pecuniary profits of individuals.

It is submitted for the defendant that in the light of the passage quoted it cannot be said that the plaintiff is "not carried on for pecuniary profit" when one of its objects is the application of its funds under cl 2(s) of the Memorandum for the pecuniary profit of such one or more members as the general committee may select under article 62.

It is submitted for the plaintiff that upon a true construction of the provisions of the Memorandum and Articles quoted above no part of the profits of the company may be applied to the objects stated in cl 2(s) of the Memorandum. The argument is that cl 2(s) is expressly made subject to the terms of the Memorandum and Articles of Association; that cl 3 of the Memorandum prohibits the payment or transfer of the income or property of the company by way of profit to the members and hence any income or property applied in furtherance of the object mentioned in cl 2(s) cannot validly be applied out of the profits of the company which expression, it is said, means net profits. It is submitted that the net profit of a company such as the plaintiff should be regarded as the surplus of income over expenditure including in expenditure sums which are applied in furtherance of the objects stated in cl 2(s). It is also submitted that if article 62(a) is to be regarded as authorizing any payment or transfer by way of profit under cl 2(s) it should yield to the express terms of cl 3 of the Memorandum and reliance is placed in this regard upon what was said by Hudson J in Re Buck (dec'd) [1964] VR 284 at 289. Accordingly, any moneys paid in pursuance of cl 2(s) are not paid by way of profit.

Clause 3 certainly prohibits the payment or transfer of the surplus funds or property of the plaintiff to the members or any of them. Clause 2(s) could not be used for this purpose. Its purpose is directed to assisting members not to distributing profits. It is no doubt true to say that in ascertaining whether the plaintiff has any surplus income or property the distribution or transfer of which is prohibited by cl 3, any payments made under cl 2(s) during the accounting period in question should first be deducted. This does not mean, however, that a payment made to a member under cl 2(s) is not to his profit. In order to come within the terms of cl 2(s) a payment must clearly be to the profit of the person benefited because the payment is by way of "support help or assistance", that is, it is not a payment for which the payee has given consideration to the plaintiff.

In reaching this conclusion I do not rely upon the terms of article 62 which assume that a payment made to a member under cl 2(s) would be a payment by way of profit.

The passage quoted from the Theosophical Foundation Case, above, establishes, in my opinion, that in order to come within the exemption relied upon it must be shown that the plaintiff company is not carried on for the pecuniary profit of any person. It is not sufficient to show that the distribution of its surplus funds or property by way of profit is prohibited. A payment made to a member under cl 2(s) would, in my opinion, be a payment to the profit of that member. Does the circumstance that such payments may validly be made mean that the plaintiff should be said to be "not carried on for pecuniary profit".

It is not contended for the plaintiff that this question should be answered by reference to the actual activities of the plaintiff. It is common ground that the question is to be answered by reference to the provisions of the Memorandum and Articles of Association quoted above. The question involves what is meant by the expression "carried on" within the meaning of the exemption.

It seems to me that as one of the objects of the plaintiff is the financial assistance of its members in terms of cl 2(s) of the Memorandum, it cannot be said "not to be carried on for pecuniary profit". The circumstance that such assistance is limited to members of the plaintiff is relevant to this conclusion. It is also relevant to observe that under cl 2(s) assistance is not limited to persons whose need is such that its alleviation would be charitable. The plaintiff might validly lend money to one of its members who required assistance in setting up a business. It may well be that if assistance could validly be given to persons who were not members and who were in needy circumstances the plaintiff could be said to be "not carried on for pecuniary profit" in the relevant sense. However, I do not express any view as to whether this would be so or not.

For the foregoing reasons it is my opinion that the land of the plaintiff in question is not exempt from land tax under s 10(1)(g)(iii) of the Land Tax Management Act. The summons is, therefore, dismissed.