Victree Forests Pty. Ltd. v. Federal Commissioner of Taxation.

Judges:
Jenkinson J

Court:
Supreme Court of Victoria

Judgment date: Judgment handed down 30 May 1977.

Jenkinson J.: Appeal under sec. 196(1) of the Income Tax Assessment Act 1936 from a decision of a Board of Review.

The decision of the Board confirmed an assessment of the appellant's income derived during the year of income ended 30th June 1971. The appellant's objection to the assessment was grounded upon the contention that an amount of $100,000 alleged to have been paid by the appellant to Victree Timber Products Pty. Ltd. (hereinafter called "Timber Products) was an amount paid by it to acquire rights to fell standing timber which, as the appellant maintained, it had acquired. If that contention - and the allegation as to payment - had been accepted, sec. 124J of the Act would have afforded the appellant an allowable deduction from its assessable income of the year under consideration. Neither the Commissioner nor the Board accepted the contention and in making the


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assessment no deduction was allowed under sec. 124J.

At all material times sec. 124J read:

``124J. Where -

(a) a taxpayer has acquired -

  • (i) land carrying standing timber and part of the price paid for the land is attributable to that timber; or
  • (ii) a right to fell standing timber; and

(b) during the year of income, the whole or a part of the timber is felled -

  • (i) for sale, or for use in manufacture, by the taxpayer for the purpose of producing assessable income; or
  • (ii) in pursuance of a right to fell timber granted by the taxpayer to another person in consideration of payments to be made to the taxpayer as or by way of royalty,.

so much of that part of the price so paid by the taxpayer to acquire the land, or so much of the amount paid by him to acquire the right, as the case may be, as is attributable to the timber felled during the year shall be an allowable deduction.''

The appellant and Timber Products were at all material times subsidiaries of another proprietary company. In January 1969 the Secretary of the Victorian Forests Commission granted to Timber Products three licenses (numbered 505, 506 and 507) to cut and take away logs for sawmilling and veneer production purposes. Those grants were in exercise of powers conferred by sec. 52 of the Forests Act 1958, subsec. (3) of which reads:

``No permit or licence granted under this Act shall be transferable except with the authority in writing of the Commission or of a forest officer authorised in that behalf by the Commission.''

At a meeting of the appellant's directors on 14th May 1969 resolutions were passed of which the following are the minutes:

``Mr. J.F.L. Wright advised that Victree Timber Products Pty. Ltd. has offered to sell to the Company on 2nd June, 1969, the following assets at the values stated below: -

      Plant:
      G.M.C. Truck           $  558
      Rotoboom               $1,726
                           --------
                             $2,284
      Timber Jack             3,785
      Two Chain Saws            333
                            --------
                                          $6,402
      Forest Road Expenditure              7,282
      Log Licences Nos. 505,
        506 and 507                      100,000
                                       ----------
                                        $113,684
                                       ----------
          

RESOLVED -

To accept the offer of Victree Timber Products Pty. Ltd. to sell the above assets to the company on 2nd June, 1969.

RESOLVED -

That Messrs. Abbott, Stillman & Wilson be instructed to draw up the necessary agreement to assign the licences as of 2nd June, 1969 and that the Forests Commission, Victoria, be advised of the assignment and that their approval to the assignment be requested.''

Each licence was for a period expiring on 31st December, 1970; and each licence specified an area of land to which it related, the volume and species of timber the felling and removal of which it authorised, and the royalty rates payable in respect of the timber removed. The practice of the Commission was to renew licences of the kind which Timber Products held and it was the expectation of renewal which induced those who sought to take transfers of such licences to offer substantial prices for transfer.

Subsequently the appellant and Timber Products executed a deed in these terms:

``THIS DEED is made the 3rd day of September One thousand nine hundred and sixty-nine BETWEEN VICTREE TIMBER PRODUCTS PROPRIETARY LIMITED of Francis Street, Footscray West (hereinafter called `the Assignor' of the one part and VICTREE FORESTS PROPRIETARY LIMITED of Francis Street, Footscray West (hereinafter called `the Assignee') of the other part WHEREAS the Assignor is the holder of three Log Licences granted by the Forests Commission of the State of Victoria which


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are described in the Schedule hereto AND WHEREAS the Assignor did agree on the 14th day of May One thousand nine hundred and sixty-nine to assign the said licenses to the assignee on the 2nd day of June One thousand nine hundred and sixty-nine in consideration of the payment by the Assignee to the Assignor of the sum of One Hundred Thousand Dollars ($100,000) NOW THIS DEED WITNESSETH: -
  • (1) That in consideration of the payment by the Assignee to the Assignor of the sum of Thirty-thousand Dollars ($30,000) the receipt whereof is hereby acknowledged and of the agreement by the Assignee to pay to the Assignor forthwith upon the written demand of the Assignor the sum of Seventy-thousand dollars ($70,000) the Assignor DOTH HEREBY GRANT CONVEY ASSIGN AND SET OVER unto the Assignee all the estate right title and interest of the Assignor in the said Licences respectively TO HOLD unto the Assignee absolutely for the balances of the respective terms of the said Licences to come and unexpired from and after the said 2nd day of June One thousand nine hundred and sixty-nine; and
  • (2) That in consideration of the premises the Assignee DOTH HEREBY COVENANT with the Assignor as follows: -
    • (a) To perform and observe each and all of the obligations of the Assignor contained implied or included in the said Licences respectively;
    • (b) To indemnify and keep indemnified the Assignor against all actions suits claims demands and damage hereafter to arise as a result of any failure on the part of the Assignee to perform or observe any of the said obligations;
    • (c) At the expense in all things of the Assignee to execute and deliver to the Forests Commission all such deeds covenants agreements or other documents as the said Commission may require as a condition of its consenting to this assignment and accepting the Assignee as a Licensee in place of the Assignor.

    IN WITNESS whereof these presents were executed the day and year first hereinbefore written.

SCHEDULE

  • (a) Licence No. 505 - Duration 1st January 1969 to 31st December 1970 - Volume super feet 1,500,000 - Logging area the Waarre Plantation;
  • (b) Licence No. 506 - Duration 23rd October 1968 to 31st December 1970 - Volume super feet 1,183,969 - Logging area the Aire Valley Plantation;
  • (c) Licence No. 507 - Duration 23rd October 1968 to 31st December 1970 - Volume super feet 2,126,452 - Logging area the Aire Valley Plantation.''

Timber Products sent a letter dated 27th June, 1969 to the Secretary of the Commission on or about that date, in these terms:

``We hereby make application for any logging rights pertaining to this company be transferred to VICTREE FORESTS PTY, LIMITED, a wholly owned subsidiary of J. Wright & Sons Pty. Ltd., in common with the ownership of this company.''

On 23rd July, 1969 the Commission made decisions which were recorded in the Commission's records in these terms:

``A.

All logging rights held in the name of Victree Timber Products Pty. Ltd., in the Gellibrand Forest District, are terminated.

B.

Approved grant of log licences to Victree Forests Pty. Ltd. on the same basis as formerly enjoyed by Victree Timber Products Pty. Ltd.''

The parties to this appeal by their counsel agreed that the evidence upon which the appeal should be decided is that which was adduced before the Board of Review. So much of that evidence as was adduced in oral testimony is recorded in a transcript which is exhibit ``AA'' in the appeal. There is nothing in the evidence to suggest, nor was it submitted, that anything had occurred to justify termination without Timber Products' consent of any of the licences which had been granted to Timber Products and to which


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reference is made as ``logging rights'' in the record of the Commission's decision which I have quoted. The evidence was that the Commission's practice is, not to give the authority contemplated by sec. 52(3) to transfer of licences of the kind in question here, but to cancel the licence which is the subject of an application such as Timber Products made to the Commission by its letter dated 27th June, 1969 and to issue to the other party to the transaction which occasions the application a licence which will expire on the date on which the cancelled licence would have expired, which limits the quantity of timber to be taken by the licensee to that part which has not been taken by the prior licensee of the quantity allowed by the cancelled licence, and which contains covenants, terms and conditions similar to those of the cancelled licence. The evidence justifies the inference, and I find, that the Commission was following the practice I have adumbrated when it made the decisions to which I have referred.

The Commission's decisions were communicated to the appellant by a letter dated 1st August, 1969, in which the reference to a letter of 27th June, 1969 may be to Timber Products' letter of that date, which I have quoted. The Commission's letter reads:

``In reply to your letter of 27th June, 1969, you are advised that the Commission has terminated all logging rights held in the name of Victree Timber Products Pty. Ltd. in the Gellibrand forest district and approved the issue of log licences to Victree Forests Pty. Ltd. on the same basis as formerly enjoyed by Victree Timber Products Pty. Ltd.

You are requested to arrange for a security of $4,400 to be lodged in the name of Victree Forests Pty. Ltd. so that the necessary licences may be issued. This security may be in the form of a cash deposit or a bank guarantee. A bank guarantee pro forma is attached for your guidance.

It is pointed out that Victree Timber Products Pty. Ltd. has a bank guarantee for $4,400 lodged with the Commission which is no longer required and will be cancelled and returned on receipt of the replacement security.''

Timber Products acquiesced in the Commission's decisions and on 3rd September, 1969 three licences were granted to the appellant in implementation of those decisions. Licence numbered 638 was said to have been issued in place of the cancelled licence numbered 506. Each of those two licences commences with the words:

``This licence is granted to (the named licensee) to cut and take away logs for sawmilling and veneer production purposes subject to the provisions of the Forests Act 1958 and the schedule hereunder, and to the additional covenants, terms and conditions imposed by the Commission and annexed hereto. In the event of a breach of any prescribed or imposed covenants, terms and conditions the licence may be suspended or cancelled.''

Section 52(1) of the Forests Act 1958 provides:

``Subject to such covenants terms and conditions as are prescribed and to such additional covenants terms and conditions as the Commission thinks proper to impose in any particular case and subject also to the payment of such rent fees royalties or charges as the Commission determines the Commission the Secretary of the Commission or any person authorised by it in that behalf may grant to any person for any term not exceeding three years -

  • (a) a licence of or permit with respect to any Crown land within any reserved forest -
    • (i) of any area for the grazing of cattle;
    • (ia) to graze cattle under agistment;
    • (ii) to occupy a special area not exceeding 2,000 hectares for the exclusive cutting of timber;
    • (iii) to thin out and remove trees;
    • (iv) to cut dig and take away any specified forest produce;
    • (v) to occupy for residence an area not exceeding 0.4 hectare;
    • (vi) for any of the purposes for which a licence may be granted under subdivision two of Division nine of Part I. of the Land Act 1958; or
    • (vii) for any other purpose

      ATC 4240

      whatsoever relating to or connected with a State forest or forest produce; or
  • (b) a licence or permit to enter upon any protected forest to cut dig and take away forest produce.
  • (c)...''

By sec. 3(1) of the Forest Act 1958 the expression ``Forest produce'' is defined: ``Where used in reference to in connexion with or as to anything in any reserved forest'' to include the following things namely: - Stone, gravel, limestone, lime, salt, sand, loam, clay, brick, earth, trees, timber, branchwood, firewood, chips, sawdust, plants, grass, creepers, fibres, leaves, blossom flowers, ferns, grass-trees, fruit, seeds, roots, bark, bulbs, galls, gum, kino resin, sap, charcoal, honey or beeswax or oil distilled from any species of eucalyptus or from any other tree or plant but does not include any gold or silver or metal or mineral."

When licence numbered 506 was granted, on 7th January 1969, the ``covenants terms and conditions... prescribed'', to which the licence was made subject by sec. 52(1), were those which had been prescribed by regulations made on 7th April 1925 (Government Gazette 17th April 1925, pp. 1187 et seq.). When licence numbered 638 was granted, on 3rd September 1969, the prescribed covenants terms and conditions were those which had been prescribed by regulations made on 15th July 1969 (S.R. 1969, No. 134). The two sets of prescriptions are not identical.

There are other differences between those two licences. And between each of the other two licences granted to the appellant in September 1969 and the cancelled licence with which it was said to correspond there are both the difference in prescribed conditions and other differences. None of the differences were said by either party to the appeal to be of any practical substance.

It was the submission of Dr. Spry of counsel for the respondent, and the ground of the decision by the Board of Review upon the reference, that none of the rights to fell standing timber which the appellant had acquired by grants of the licences issued to it in September 1969 was a right to acquire which the amount of $100,000, or any part of that sum, had been paid by it to Timber Products. The amount paid by the appellant to Timber Products was paid either to acquire the rights to fell standing timber which the licences in existence on 2nd June 1969 conferred, or in consideration of Timber Products' consent to the termination of those licences, it was submitted, and could not be regarded as having been paid to acquire the rights which in the result the appellant did acquire. By reason of those circumstances, it was submitted, no deduction under sec. 124J was allowable in respect of the payment of $100,000 which the appellant claimed to have made.

The argument presented on the respondent's behalf does not depend for its acceptance, nor was it premised by Dr. Spry, on a conclusion that any term or condition or covenant associated with the rights to fell timber which the later licences conferred was not to be found in identical terms associated with the rights to fell timber which the cancelled licences had conferred, nor on a conclusion that any term or condition or covenant associated with the rights conferred by the cancelled licences was not exactly reproduced in association with the rights conferred by the licences granted to the appellant. The argument proceeds in three steps. The first step may readily be accepted. It is that the grammatical structure of sec. 124J requires that in any reading of the section the right to acquire which an amount is paid must be the right which is acquired. The second step is to assert that only an amount which is paid as consideration for acquisition of the right acquired answers the statutory description ``the amount paid to acquire the right''. That is the step by which is excluded from the statutory description an amount paid for the purpose of acquiring the right, not as consideration for the right acquired, but as consideration for some act or forebearance which will enable the right to be acquired. Acceptance of this second step in the respondent's argument cannot be achieved unless the words ``paid by him to acquire the right'' are denied a meaning which in standard English usage they are commonly employed to convey. There are, however, indications in sec. 124J that the description which those words express does limit to payments in consideration of, or in exchange for, the right which para. (ii) of subsec. (a) has identified. That limitation certainly seems to attach to the words ``so paid by the taxpayer to acquire the land'', in relation to the land identified by


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para. (i) of that subsection. The word ``price'', to which the words ``so paid by the taxpayer to acquire the land'' are adjectival, itself imports the limitation. Not only is consistency of usage to be expected within the one section; the assertion which I have called the second step in the respondent's argument seems to me also consistent, on a general view, with terminological usage elsewhere in the Act.

The third step in the argument is to assert that the rights to fell standing timber which the appellant acquired were not the rights in consideration of which, or in exchange for which, money was paid by the appellant to Timber Products. Payment of $100,000 was promised, it was submitted, in consideration of transfer or assignment of the rights which Timber Products held when the promise was made. No such transfer or assignment was effectively made.

Before the date on which the deed of assignment was executed - a date of which the deed itself affords the only evidence - the rights which the deed purported to transfer had ceased to exist. I conclude that the appellant and Timber Products agreed, before 3rd September 1969, that in lieu of performance of the terms of their agreement for transfer of Timber Products' licences, the appellant should receive new licences from the Commission, that Timber Products should acquiesce in the termination of its licences and that any amounts aggregating the $100,000 paid or to be paid by the appellant to Timber Products should constitute consideration for this later agreement. Of the later agreement there was no evidence, except the conduct of the parties to it, from which conduct the agreement is in my opinion to be inferred. Execution of the deed is perhaps inconsistent with such an inference, but may be explained as having resulted from misapprehension by the parties' agents concerning the legal significance of what was being done.

If before the making of the later agreement any amount was paid in performance of the promise to pay $100,000 which was a term of the first agreement - and there was evidence that $30,000 had been paid before 30th June 1969 - that payment could not, in the respondent's submission, be characterised after the later agreement was reached as having been made in consideration of, or in exchange for, the rights which the appellant acquired by grant of licences from the Commission. The later agreement was that the payment already made was in consideration of, and in exchange for, the consent of Timber Products to termination of the rights which its licences conferred on it.

The distinction which the respondent's argument draws between the right acquired and the right for which the appellant promised as a term of the first agreement to pay $100,000 is more easily perceived and accepted if the licences granted to Timber Products are regarded as conferring proprietary interests and not merely personal rights of the kind which might be derived from contract. If the right of the holder of a licence granted under sec. 52 is regarded as a proprietary interest capable of assignment, the contrast clearly appears between payment for assignment of the interest on the one hand and payment for its ``surrender'', or for consent to its extinction, on the other. Analogies with recognised proprietary interests may then be invoked in aid of the distinction which the respondent seeks to draw. One such an analogy was noticed by the Board of Review in relation to sec. 85(1)(a) of the Income Tax and Social Services Contribution Assessment Act 1936-1956 (See Case K7
(1959) 10 T.B.R.D. 46).

In my opinion, however, sec. 124J(a)(ii) comprehends by the words ``a right'' more than proprietary interests which can be assigned by act of parties inter vivos. The variety of the categories of right comprehended by sec. 124J(a)(ii) may be appreciated by reference to the English & Empire Digest (title ``Agriculture'', Part V), to
McCauley v. F.C. of T. (1944) 69 C.L.R. 235 and the cases there cited, and to
Lowe v. J.W. Ashmore Ltd. (1971) Ch. 545.

It is not difficult to imagine a transaction in which there is involved no interest or right assignable without breach of contract, and which results in the acquisition of a right to fell standing timber, and in the course of which the person who acquires that right makes payment of an amount, not to the person by whom the right is granted, nor in consideration of - nor in exchange for - the right acquired, but in consideration of, and in exchange for, the consent of the payee to the extinction of a right which was enjoyed by the payee and the existence of which was legally inconsistent with the vesting in the payer of the right acquired. Suppose a contract under which A was granted for valuable consideration a


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licence by B, whether for a specified period or until revocation, to fell and remove and take the property in so much of the timber standing in a specified area as A should choose to fell and take, whether all or only some of the timber standing in the area. Suppose further a term of the contract that A should not in any way assign any of his contractual rights. If C were to pay an amount of money to A in consideration of A's entering into a novation of the contract so that it was constituted between C and B, the conclusion might be reached, if the respondent's construction of sec. 124J were applied, that the amount paid by C to A was not, within the meaning of sec. 124J, ``the amount paid by him to acquire the right'' to fell standing timber which by the novation he had acquired. Such a conclusion strains belief in the correctness of the construction advanced and tempts towards a construction more conformable with idiomatic usage. The same temptation is induced if the payee be a person who enjoys under a contract the right to take some product of a stand of timber (fruit or leaves, for example) under circumstances such that no right to fell any timber in that stand could be granted without breach of the contract, when an amount is paid in exchange for the payee's consent to the extinction of his right so that the owner of the land on which the timber stands may lawfully and without breach of his contract with the payee grant the payer a right to fell the timber.

The temptation to reject the respondent's construction of the section may be strengthened by comparing the words of sec. 124J with those of the sections which it superseded in 1956, when the Income Tax and Social Services Contribution Assessment Act (No. 3) 1956 repealed sec. 69 and 70 and inserted Division 10A, of which sec. 124J forms part. Sections 69 and 70 of the Income Tax and Social Services Contribution Assessment Act 1936-1956 had, until the commencement of that amending Act, provided:

``69. Where the taxpayer has acquired land carrying standing timber for the purpose of felling that timber for sale and part of the price paid for the land is attributable to that timber, so much of that part as is attributable to the timber felled in the year of income shall be an allowable deduction.

70. So much of the amount paid for a right to fell timber for sale as is attributable to the timber felled during the year of income shall be an allowable deduction.''

It may be that the use of the words ``to acquire'' in lieu of the word ``for'' indicates no more than a change of fashion in drafting, but the change in verbiage might be thought to be an attempt to express a connection between the payment and the right acquired which is not confined to exchange of the one for the other.

Each of the supposititious transactions I have mentioned involved payment in consideration of which an act was done without which the right acquired could not lawfully, that is without breach of contract, have been acquired. (Other transactions can be imagined in which trust interests are bought out.) The question then arises as to whether sec. 124J allows deduction in respect of an amount paid, not in consideration of an act or forebearance which makes lawful the acquisition of a right, which acquisition would otherwise be legally impossible or unlawful or would involve breach of contract or trust, but in consideration of an act or forebearance which enables acquisition of a right, which acquisition would otherwise be in a practical sense impossible or, perhaps, commercially unrealistic. It may be - although the evidence is exiguous - that it would have been in this case impossible to persuade the Commission, either to authorise assignment of Timber Products' licences to the appellant, or to grant to the appellant the licenses which were in fact granted to it except on termination of Timber Products' Licences or of some other persons' licences. Yet the Commission had the power to take either course, if it saw fit, without any breach of the law which the evidence discloses. There may have been disclosed convincing reasons for the Commission's practice of refusing to authorise assignment of such licences, and for the inability of any person to obtain from the Commission in 1969 a licence of the kind granted to the appellant except in substitution, pro tanto, for existing rights to fell timber in the area to which the licence related (see Exhibit ``AA'', p. 36), if testimony of any substance concerning those reasons had been adduced. It may be that those reasons could have been shown to be such as to justify the conclusion that acquisition of rights of the kind which the appellant's licences conferred was in a practical sense impossible except by taking the course which was in fact adopted.


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But in determination of the proper construction of the words ``amount paid by him to acquire the right'', consideration ought to be given, in my opinion, to the consequences of so construing those words that they comprehend not only payments for that without which acquisition of the right would involve breach of contract or trust or other law, but also payments for that without which acquisition of the right would for other reasons be impossible. Such a construction would enable a case such as this is, or as this may be supposed to be, to be comprehended by sec. 124J. But it would not exclude a case in which the payment was a bribe (to an officer or servant or other agent or relative of the grantor of the right acquired, or of the payee) without which the right could not be acquired, nor would it exclude a case in which the payment was the price of the issued capital of a company, the only asset of which was the right acquired and the shareholders and directors of which were unwilling to permit acquisition of the right otherwise than by sale of the shares. Contemplation of the bribe and the price of shares, as examples of payments comprehended by the words ``amount paid... to acquire the right'', recalls sharply to mind idiomatic usage of this and like expressions, whereby the purpose to serve which an act has been done is the primary communication achieved by the expression. Ordinary speech ought not, I think, to be allowed so great an influence in the construction of these words as it has had in the construction of some expressions in the Act. (See, for example,
F.C. of T. v. I.C.I. Australia Ltd. 72 ATC 4213, (1972) 127 C.L.R. 529 and the cases therein cited.) Having regard to the terminology of this Act, I cannot think that the words ``amount paid... to acquire the right'' in sec. 124J require no more than that the amount should have been paid with the purpose of acquiring the right. At one point in his submissions counsel for the appellant contended that ``it is a question of fact as to what the amount is paid for, and if it is all an integral part of one transaction then that is sufficient''. Perhaps the submission amounts to this, that an intuitive or discretionary judgment is to be made as to whether the relationship between payment and acquisition of the right is in all the circumstances within or without the undefined conception which the words of the statute express.

I cannot think a construction of the words ``amount paid... to acquire the right'' to be correct which commits discrimination between those amounts which are to be allowed within the section and those which are to be excluded to a discretionary judgment of the circumstances of the payment; or which allows an amount within the section by reason only of its having been paid in consideration of an act or forebearance without which acquisition of the right to fell timber, although lawful whether or not the act was done or the forebearance was exercised, could not have been achieved. Each of those constructions comprehends connections between payment and acquisition which are outside the bounds which in my opinion those words set in sec. 124J. If the words of the section do not require that the amount paid should have been paid as the whole or part of the consideration for the right acquired, as to which I express no opinion, they do in my opinion require, at the least, that the amount paid should have been paid in consideration of something without which acquisition of the right in fact acquired would have involved breach of the law, civil or criminal, or paid in satisfaction of a statutory exaction which precludes acquisition of the right except upon compliance with its requirements.

The opinion just expressed is not, I think, inconsistent with the reasons for judgment of Taylor J. in
Standard Sawmilling Co. Pty. Ltd. v. F.C. of T. 74 ATC 4084; (1974) 1 N.S.W.L.R. 217, except in one respect. The claims for deductions under sec. 124J considered and allowed in that case included amounts specified in those reasons as ``stamp duty and legal costs incurred in obtaining the transfers'' of certain forestry licences granted under the New South Wales Forestry Acts. Stamp duty payable in respect of a transfer by which the right to fell standing timber was acquired would no doubt be allowable under sec. 124J if the construction I have suggested is correct, but legal costs would not be, if the section were rigorously applied. It does not appear from the report of the case that any particular submission was directed to the legal costs and it seems to me possible that Taylor J. did not consider them separately.

None of the three submissions on behalf of the Commissioner of Taxation which are stated and rejected in the reasons for judgment of Taylor J. (74 ATC 4084 at pp. 4088-90; (1974) 1 N.S.W.L.R. at pp. 222-24) were advanced before me. The second submission


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was not justified by the facts in this appeal. I respectfully accept the reasoning of Taylor J. upon the other two submissions, which in my opinion raise considerations relevant to a determination of this appeal.

There is nothing in the evidence before me to suggest that the licences granted to the appellant could not without any breach of the law have been granted at any time while the licences held by Timber Products remained in force. My conclusion therefore is that, upon the construction I have proposed, no part of the $100,000 which was paid by the appellant to Timber Products was within the meaning of sec. 124J ``an amount paid... to acquire'' any of the rights which the appellant acquired upon grant to it by the Commission of the licences issued on 3rd September 1969.

Mr. Forsyth of counsel for the appellant submitted that the evidence disclosed the making on or about 14th May 1969 of a contract between the appellant and Timber Products which conferred, proprio vigore, ``a right to fell standing timber'' within the meaning of sec. 124J(a)(ii). That contract, for ``sale'', or ``transfer'', or ``assignment'' of the licences held by Timber Products conferred on the appellant, it was submitted, the rights of Timber Products which derived from the licences then in force and they were rights which, in Mr. Forsyth's contention, answered the description expressed in sec. 124J(a)(ii), notwithstanding that they were enforceable only against Timber Products. The sum of $30,000 paid by the appellant to Timber Products in June 1969 was, according to the submission, an ``amount paid by (the appellant) to acquire the right'', then vested in the appellant and then enforceable against Timber Products, to fell timber in accordance with the provisions of Timber Products' licences. Enjoyment of the right to fell the timber could have been assured to the appellant by appointment of the appellant by Timber Products as Timber Products' agent to fell the timber, it was said, until such time as the authority required by sec. 52(3) of the Forests Act should have been granted.

The distinction between a right to fell standing timber and any right with respect to the timber when it has been felled is one which is in my opinion contemplated in subdiv. A of Div 10A of the Income Tax Assessment Act 1936, in which sec. 124J finds its place: see the definition of ``timber operations'' in sec. 124E.

The only evidentiary sources from which the terms may be ascertained of the contract alleged for the purposes of that submission by Mr. Forsyth are the minutes of the resolutions of 14th May 1969 and the deed dated 3rd September 1969, both of which have been quoted. Those sources do not in my opinion justify an inference that the contract included a term that the appellant was entitled to fell timber, either before or after 2nd June 1969, before the authority contemplated by sec. 52(3) of the Forests Act should have been granted. Nor does the evidence as a whole justify implication of any such a term, in my opinion. (See Salmond & Williams on Contracts (2nd Ed.) Ch. 2) Timber Products had in my opinion no power to confer on the appellant any such a right as is suggested: the terms of sec. 52, and particularly sec. 52(3), are inconsistent with the existence of such a power and of such a right, even if the right is conceived as existing only as between the appellant and Timber Products. (Compare
I.R. Commrs. v. Joicey (No. 2) (1913) 2 K.B. 580.)

Mr. Forsyth also directed attention to evidence which, he said, justified a finding that Timber Products could have been certain in May 1969 that it would be able to persuade the Commission to vest in the appellant rights to fell standing timber similar to those which Timber Products' licences conferred on Timber Products. In his submission the contract between those two parties should be held to be, alternatively to include, a promise of payment of $100,000 in consideration of a promise to procure the vesting of rights of that description in the appellant. if the contract be so regarded, an analogy may be discerned between it and a contract for the sale of freehold land by a vendor in whom there is no legal title at the time of contract. The price paid under such a contract to the vendor would undoubtedly be ``the price... paid... to acquire the land'' which was the subject of the sale, notwithstanding that the conveyance or instrument of transfer might be executed by a third person in whom the freehold title was vested. So in this case, Mr. Forsyth submitted, transfer of Timber Products' licences to the appellant and grant of new licences to the appellant are but different modes of performing Timber Products' promise, in consideration of which payment of $100,000 to Timber Products was promised; and an amount paid in performance of the latter


ATC 4245

promise would be, within the meaning of sec. 124J, an ``amount paid... to acquire the right'' which the appellant acquired, by whichever mode of performance it was acquired.

The precise obligations which by law are attached to expressions indicative of a sale of freehold land have been formulated over centuries. Bargains involving licences under sec. 52 of the Forests Act 1958 have not been so long or so often under judicial consideration. I do not think that the evidence justifies the conclusion either that Timber Products in fact made a promise in the terms suggested by Mr. Forsyth, or that an obligation was by law imposed on Timber Products to the effect suggested in promissory form by him. No doubt there was to be inferred a promise by Timber Products to execute in appropriate form a transfer of the licences in accordance with the legal possibility which sec. 52(3) implies. No doubt there were to be implied promises by Timber Products to do such acts as might reasonably be required of Timber Products to procure the Commission's authority under that subsection. But in my opinion there was not imposed on Timber Products by the contract, in the event that the Commission should decline to give authority to transfer under sec. 52(3), any obligation (either promissory or implied by law) to offer to the Commission Timber Products' consent to the termination of its own licences in consideration of grant by the Commission of similar licences to the appellant. And that opinion would be unaffected by a finding as to whether or not the parties to the contract were aware, at the time it was made, that the Commission would not authorise transfer of Timber Products' licences; and by a finding that the parties believed at that time that it was certain that the Commission would grant similar new licences to the appellant at the parties' request if the Commission would not authorise transfer of the old licences.

In my opinion the only rights to fell standing timber which the evidence shows to have been acquired by the appellant and to have had a connection with the $100,000 are those rights which the licences granted on 3rd September 1969 conferred. In my opinion no part of that amount of $100,000 which was paid was an amount paid by the appellant to acquire any of those rights, within sec. 124J.

It remains to observe that, although I would be prepared to find that $30,000 of the $100,000 was paid by the appellant to Timber Products on or before 30th June 1969, no finding has been made concerning payment of the balance. The parties were content that the hearing and determination of the appeal should proceed to the point which has now been reached without such a finding.

The order of the court is that the appeal be dismissed.

There will be an order that the respondent's costs of the appeal be taxed and paid by the appellant.


 

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