Point Cook Pastoral Company Pty. Ltd. v. Federal Commissioner of Taxation.

Judges:
Murphy J

Court:
Supreme Court of Victoria

Judgment date: Judgment handed down 29 August 1979.

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Murphy J.: Point Cook Pastoral Co. Pty. Ltd. (hereinafter called the appellant) appealed to this Court from the decision of the Deputy Commissioner of Taxation of 350 Collins Street, Melbourne upon an objection lodged by the appellant against an assessment of income tax relating to the year of income ended 30 June 1974.

During that year the appellant had in October 1973 sold a farm of some 646 acres for the sum of $360,000. This farm it had purchased in 1968 for the total sum of $199,185. After appropriate deductions to allow for commission and legal expenses, the resultant profit was $149,663.

The Commissioner's assessment included this sum as part of the appellant's assessable income for the year and the assessment of tax was made accordingly.

The appellant contends that no part of this sum fell to be considered as assessable income, and that accordingly the assessment was excessive.

The burden of proving that the assessment is excessive rests upon the appellant in this appeal. Section 190(b).
McCormack v. F.C. of T. 79 ATC 4111;
Macmine v. F.C. of T. 79 ATC 4133.

The Commissioner contends that sec. 26(a) of the Income Tax Assessment Act 1936 as amended (hereinafter termed ``the Act'') is applicable and that the profit in question arises ``from the sale by the taxpayer of (any) property acquired by him for the purpose of profit-making by sale, or from the carrying on or carrying out of (any) profit-making undertaking or scheme''. (Section 26(a) of the Act.)

The question then is: ``Is the sum of $149,663 or any part thereof to be included in the assessable income of the appellant because it falls within the terms of sec. 26(a) of the Act?''

The appellant is a company, which was incorporated on 4 December 1968. Two shares only were issued, one to Robert Charles Stephenson, described as a farmer, the other to an accountant described as Mr. Stephenson's nominee, and acquired on 26 February 1973 by his married daughter Julie Ann Hooper.

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ATC 4421

The objects of the appellant as set out in cl. 2 of its memorandum and in so far as relevant were as follows:

``2. The objects for which the company is established are:

• (a) To carry on all or any of the trades and businesses of farmers, graziers, breeders of and dealers in livestock, market gardeners... and any other trade or business in connection with... agriculture.
• (b) To breed, preserve and deal in... domestic and other animals of every description...
• (c) To purchase... manage, work, develop the resources of... lands...''

The appellant acquired a farm at Point Cook, hereinafter termed (``the farm'') soon after its incorporation on 4 December 1968. The farm was over 600 acres in size. It was situate a few miles from Werribee south of the Maltby Werribee By-pass and Sneydes Road and on the eastern side of Hackett's Road opposite the State Research Farm.

There was a house situate on the land, of modest dimension. It was rented, when the freehold was acquired by the appellant.

Before me the appellant was represented by Dr. I.C.F. Spry of Counsel and the Commissioner by Mr. C.A. Sweeney of Counsel.

The Commissioner's file (Exhibit 1) was by consent tendered before me.

Viva voce evidence was led on behalf of the appellant from Robert Charles Stephenson, Julie Ann Hooper, John Stewart Cox, Stanley Stewart Payne, Geoffrey Duncan Fankhauser, Ronald Charles Stephenson and Robert William Stenbridge.

The Commissioner called Ernest Miller Kennard and Ronald John Colston to give evidence.

The case, on its face, presented an interesting problem for resolution but, as the evidence unfolded and cross-examination clearly brought forth facts otherwise clouded in the mists of speculation, I found that the abstract difficulties were resolved.

I found the following facts and drew the following inferences of fact on a consideration of all the evidence:

Background

1. The managing director and the ``brains'' of the appellant's company was Robert Charles Stephenson, born in 1924 and now ``a retired farmer'' aged fifty-five. Through his life after leaving school aged thirteen, he had been the proverbial ``Jack of all trades'', an assistant in a bicycle shop, a carpenter's apprentice, an employee in the Commonwealth Aircraft factory, a soldier, a sub-contractor carpenter, a builder, a store keeper, a bulldozer operator, a milk bar proprietor, an orchardist, a driving school proprietor and a farmer.

I find that he had a natural ability to compete and make his way and that most things that he turned his hand to, turned out successfully. He had friends who ``kept an eye out for him'', like Mr. Herb Crilly of Dennys-Lascelles at Horsham, who found for him a 300 acre farm at Cobden in September 1959. It was a bush block. Mr. Stephenson cleared the block with a bulldozer he'd bought when he was doing his building contract work, carpentering throughout the countryside. Whilst clearing the block, he also worked making roads for the Country Roads Board at Heytesbury Settlement.

He built sheds on the block, and had almost completed a house on the block when, according to Mr. Stephenson, a Mr. Jim Andrews, his neighbour (who was not called as a witness), came and said to him, ``You've got a nice block here, my son is getting married - Why don't you sell me that farm... You've got a nice looking house there''.

Now it happened that Mr. Stephenson's wife to whom he'd been married since nineteen forty-six and who was herself a daughter of a farmer, and had come down from Harrow from time to time to see the block, ``was not very interested in living there'' (p. 28 transcript).

So ``in a few minutes talk'' with this next door neighbour Mr. Stephenson discussed the price and he sold the land with its improvements. This was in 1962.

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ATC 4422

2. They came to Melbourne then, and Mr.Stephenson didn't know what to do. He owned the store at Harrow. The building trade in Melbourne had changed, and so he bought a milk bar at Burwood and a home in the Burwood Mt. Waverley area. His wife picked the house she liked.

On the sale of the milk bar the agent told him that he had a ``strange'' business to sell, a driving school, so Mr. Stephenson bought it, and conducted it for three years, 1962-1965.

3. The orchards

During this time, he got to know some orchardists as clients and the agent said he'd keep his eye out for an orchard. On 10 April 1964 Mr.Stephenson and his wife purchased a 20 acre orchard in Highbury Road, Glen Waverley - being lots 4 & 5 comprising 20 acres for $32,000.

They were to sell it a little over four years later by contract dated 24 September 1968 for $152,000.

In 1965 by contract dated 10 September 1965 he purchased another 10 acres of orchard over the road, in Highbury Road, East Burwood. This orchard cost him $24,000 and was bought, this time in his own name.

I conclude that it must have been obvious to him at this time that the land had dramatically increased in value over one year.

He was to sell this block on 1 October 1969 for $77,000.

On 28 October 1966 Lot 3, Highbury Road, Glen Waverley the block next door to his first purchase, was bought by him personally for $40,000. It was 10 acres in size. Two and a half years after his first purchase of 20 acres for $32,000 he had had to pay $40,000 for ten acres; he must have realised then that the first 20 acres he purchased with his wife for $32,000, was a very good business transaction. By parity of values, it was worth $80,000, two and a half years later.

All this time he kept the orchards working - spraying the trees and harvesting the fruit, Jonathans, Granny Smiths, Gravensteins, Packham pears and plums.

But, as Mr. Fankhauser, a life long orchardist, who leased a property opposite Mr. Stephenson in Highbury Road, said in evidence, ``He tried very hard but his trees were not big enough''.

Mr. Fankhauser, himself now a market gardener, (his land in Glen Waverley having been purchased by Australian Road Research Board) said in substance:

``To buy 10-11 acres of land which had 5 acres of fruit trees - as I know Mr. Stephenson did next to me, for $24,000 - that's pretty expensive. It would be impossible to make a go of it from fruit trees. To pay $40,000 for 10 acres you'd have to live in high hopes.''

Even this 10 acres (Lot 3) was sold less than two years later for $63,000.

But the final purchase, which was the link in the subdivision plan, which was to be drawn up, was Lot 2 Highbury Road, Glen Waverley which was bought by a company, Callow View Pty. Ltd. on 19 April 1968 for $77,050. It again was 10 acres in size. It was sold on 24 September 1968 for $93,500, on the same date that three of the other 10 acre blocks were sold, two by Mr. Stephenson personally, and one by Mr. Stephenson and his wife.

The shareholder in the company, Callow View Pty. Ltd. was Mr. Stephenson.

Thus over 4 years exactly between April 1964 and April 1968 Mr. Stephenson had in effect purchased for cash and on terms five blocks of orchard comprising in all 50 acres in Highbury Road, Glen Waverley for $173,050.

He sold four blocks, two within four years five months of the date of purchase, one within one year and eleven months and the fourth within 5 months, for $308,000.

The fifth block owned personally by him was sold 2 years and eleven months after purchase for $77,000.

The gross profit on the sale of land over five and a half years was $211,950.

The full details of Mr. Stephenson's acquisition of the last block of land, through the company, Callow View Estate Pty. Ltd., have not been disclosed to the Court. It

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ATC 4423

apparently was the key block in the planning subdivision submitted to and passed by the Council.

Mr. Stephenson told the Court a story, which was calculated to paint a picture in broad generalization and to suggest that one day, whilst he was working, garnering Granny Smiths in his orchard and without any thought of selling, Mr. Callow and a surveyor approached him, asking would he be prepared to allow Mr. Callow the neighbouring orchardist, to include a portion of Mr. Stephenson's land in a tentative plan of subdivision being submitted to the Council for approval. ``They asked would I mind and I said `No, I wouldn't mind, I don't suppose it would hurt'.''

In some way, the details of which have not been fully revealed, some months later Mr. Stephenson found himself the proprietor of Callow View Estate Pty. Ltd., and of the land that it owned.

(Neither Mr. Callow nor the surveyor were called to give evidence.)

Accordingly it was put, Mr. Stephenson became, almost unwittingly, enabled to achieve the financial coup referred to earlier.

Originally the purchase monies on the sale of the orchards were to be fully paid within three years, but the contracts when drawn up, extended the time for payment of the balance of purchase money for five years, that is to say to 1973.

Mr. Stephenson said that he intended at the time of acquisition of each of these orchards, simply to grow apples, pears and plums, and that only the last acquisition, by Callow View Estate Pty. Ltd., was made for the purchase of profit making by resale.

I do not accept his evidence as to his intention at the time of acquisition of any of these properties.

Nor did the Deputy Commissioner, who assessed tax on the profits as being exigible under sec. 26(a). The taxpayer objected, and settlement of the consequent disputes was effected in 1973, the taxpayer agreeing to pay tax on the profit made on the sale of Lot 2, Highbury Road, East Burwood, Lot 3, Highbury Road, Glen Waverley, and Callow View Estate Pty. Ltd. paid tax on the profit made on the sale of Lot 2, Highbury Road, Glen Waverley.

I do not conclude from the fact that the taxpayer agreed to pay tax on these lots, that he thereby admitted that he had purchased the properites in question for the purpose of profit making by sale. I consider that a settlement of a matter ought never to be taken to amount to an admission of the truth of the facts averred by the other side. Nor can the fact that the Commissioner settled for less than he originally claimed constitute an admission by him that he was not entitled to make his original claim.

I draw no inference from these settlements against Mr. Stephenson. He says that he settled on advice, and I accept that he probably did.

However, I am persuaded independently on the probabilities that the properties were each acquired by him for the purpose of profit making by sale.

It does not follow at all that the farm at Point Cook was acquired by the appellant for a similar purpose.

The importance of recounting the details of the orchard transactions is -

• (a) that they establish to my satisfaction that Mr. Stephenson was alert to the opportunities of profit making from the purchase of land in broad acres and its sale in broad acres for subdivisional purposes, after holding it for a few years,
• (b) that Mr. Stephenson was required to pay monies to the Deputy Commissioner, which monies he had believed or anticipated in 1968, would become available to him in 1973,
• (c) that the taxpayer's credit on matters affecting taxation was suspect, to say the least.

Another fact of some importance, emerging from the orchard transactions, was that the contract of sale dated 28 October 1966 (Exhibit 13) whereby Mr. Stephenson personally purchased Lot 3, Highbury Road, Glen Waverley required the payment of $10,000 on possession and the balance of purchase money, $30,000, in five years. This contract contained three special conditions, numbers 5, 6 and 7, which were inserted in

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ATC 4424

the contract at the request of Mr. Stephenson's solicitor, Mr. John Stewart Cox a member of the firm of Wisewoulds.

Clause 7 read:

``7. If at any time or times during the course of this contract the Purchaser wishes to subdivide the land sold or any part thereof into allotments the Vendors shall give all necessary consents and make available the Certificate of Title to enable any such Plan or Plans of subdivision to be sealed and registered provided that the Purchaser shall bear all legal costs or other expenses incurred by the Vendors in connection with any such subdivision.''

Exhibits 14 and 15 being a letter dated 23 August 1966 and a diary note written by Mr. Cox respectively, along with the viva voce evidence given concerning them, support the view that Mr. Stephenson asked his solicitor to include this clause or a similar clause in the contract. Despite Mr. Cox's hesitation on the matter when giving evidence I am satisfied on the balance of probabilities that this was so.

Mr. Stephenson, when giving evidence, denied any knowledge of this matter. Again, I do not accept that his memory of such a material matter has gone.

Throughout the giving of his evidence Mr. Stephenson appears to me to have suffered convenient lapses of memory at many stages, blaming his health, which was said by him to be poor, due to encephalitis.

Dr. Spry submitted as a generalization that Mr. Stephenson in giving evidence attempted to reconstruct matters, and presumably to recount them as though the reconstructions were events remembered. I formed the view that Mr. Stephenson was at all times, quite well aware of the matters which might go against him, alert to avoid committing himself, quick to assert matters seen by him to be self-serving, and as a consequence rather unreliable.

4. The Point Cook farm

In his evidence in chief Mr. Stephenson said that whilst operating the orchards and particularly during the last twelve months, he had purchased some Freesian heifers, intending to grow them out and sell them to dairy farmers as milking cows.

Before he signed the contracts of sale of the orchards in September 1968 he went looking for further broad acres. He had seen an advertisement in the Weekly Times or in The Age newspaper.

He went to an Estate Agent, Stan Payne Real Estate of Footscray. Mr. Payne was handling the estate of a Mr. Green, who had set up a foundation. There were a number of properties in the estate.

One was at Point Cook.

Mr. Stephenson gave evidence that he was shown a number of other properties before he saw the Point Cook property.

When he was shown over the Point Cook property, he said there was good rye and clover, and a road on two sides. When he saw it, he said to himself, ``This'll do me''. He gave evidence further that he thought it was too good to be true, an ideal dairy farm. He asked for a week's option, so that he could arrange finance.

There was a livable weatherboard house, leased to the State Werribee Research Farm for one of their men. He said in evidence ``I had to have a house, if I was to satisfy my wife''.

He asserted in evidence ``I was not looking for a place to subdivide''.

He was given an option for three days (Exhibit B). It is dated 6 September 1968. The price was $193,955.63 being $300 per acre for 646 acres 2 roods 13 perches. There were some eleven certificates of title.

Then he spoke to his solicitor, Mr. Cox, told him of his plan, and asked about finance. Mr. Cox undertook to find the money, saying that it should be all right.

Mr. Stephenson said that during his inspection of the farm and afterwards at his offices the estate agent suggested to him that there was a chance of getting irrigation water, and he, Mr. Stephenson, knew that if that happened the value of the land would increase tremedously because productivity would be enhanced. At the time of purchase there was water per courtesy of a M.M.B.W. line to Cheetham salt works. It was Mr. Stephenson said, ``stock water'' (p. 47 transcript).

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ATC 4425

He was then asked by his Counsel:

``Q. Can you recall anything being said at the solicitor's office about the possibility of subdivision, subdividing the property, selling it off and subdividing it?

A. No, not at the meeting about the finance. I don't think there was anything discussed there.

Q. With the solicitor?

A. There would have been later meetings. I might have seen him the next day or the next week. I am not sure. I would have gone back to see him again. I had only seen him for a few minutes. I am sure I actually seen him. I might have talked with him on the phone that day, but I did see him pretty soon after, and Stan Payne told me if I got water - now you are asking me about development well I would have told the solicitor about this.

His Honour: What did Stan Payne tell you?

A. Stan Payne told me there was a possibility of getting water as I was adjoining the scheme.

Q. What has that got to do with subdivision?

A. Well, nothing to do with subdivision, your Honour.

Dr. Spry: Can I put it this way. It is a long time ago. I appreciate that but was anything said to you by either of the estate agents about the subdivision?

A. Yes. I believe they showed me a plan of blocks from it which wouldn't have meant nothing to me...

Q. Why do you say believe?

A. I don't recall, but they told me they said they have plans they said they would've shown me. At a later meeting with John Cox I would've told him if I got water I could really develop the place because water is very essential to any farm.

Q. Did you have in mind at that stage developing the property by subdividing it?

A. No, no intention at all. It had I think they told me it had about eleven, twelve or thirteen titles at the time, which meant nothing to me.''

All of this evidence was given in examination in chief, before cross-examination revealed the extent and detail of his earlier activities, including his purchases and sales of the orchards.

Later evidence established to my satisfaction, that the estate agent, Mr. Payne, had used as his chief selling point to Mr. Stephenson, the fact that there was in existence a plan of subdivision of the farm into 49 lots of between 10 to 20 acres. I find that Mr. Stephenson had been given a copy of that plan and had performed on the back of it several arithmetical exercises to calculate the profit which would arise on selling the land in different ways at different prices.

I find that Mr. Stephenson's evidence in chief upon this matter generally was not reliable. In my view it was too often made up of statements calculated to mislead.

I find on the probabilities that on or about 6 September 1968 Mr. Stephenson was made well aware that the Point Cook property (the ``farm'') had considerable subdivisional potential and that the provision of water (of which there was quite a good chance) would remove any impediment standing in the way of subdivision. As Mr. Payne said when giving evidence that I accept, ``that was one of the main selling points, as a matter of fact''.

I find that Mr. Stephenson was interested in the farm because of the subdivisional prospects and that the purpose of profit making by sale at a later date was the dominant purpose prompting this purchase.

He was I find given a copy of the proposed plan of subdivision for which a permit for subdivision had been issued by the Council. The sole condition attaching to the permit was:

``Roads and services, including water reticulation to the estate shall be provided in accordance with Council requirements.''

(see Exhibit 5)

I find that he was also given a synopsis of the estate agent's selling details relating to the farm (Exhibit 11).

This is a most important document.

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ATC 4426

It read as follows:

``5 September 1968

Re: Property approximately 647 acres, Sneydes Road, Werribee.

Location: This property is situated on the corner of Sneydes Road and Hacketts Road and is approximately 15 miles from Melbourne. Both roads are sealed and the frontage to each road is about 1 mile. Of course, with the advent of the Lower Yarra Bridge the distance from Melbourne will only be about 12 miles.

Farmlets Demand: During the past two years we have had a constant demand for farmlets ranging from 10-20 acres and from these enquiries we would estimate that a price that could be asked would be $800 - $1,000 per acre.

Cost of Development: The road construction necessary to subdivide the property into 49 farmlets as shown on the enclosed plan, has been estimated at $15 per foot, resulting in an overall cost of some $110,000. This provides for a sealed road and giving every farmlet a direct entrance.

Water: M.M.B.W. water is already available on the property.

Price: This property can be purchased for $300 per acre cash or $400 per acre on terms, one-third deposit, balance in three years.

General Opinion: It is considered that this particular property which can be subdivided as shown on the plan is one that merits immediate consideration. As mentioned above the demand for small farmlets is quite enormous in this area and we feel that any purchaser desirous of a ready money-making subdivision would have a real interest in this.''

An even more revealing document is Exhibit 2, which is the copy plan of subdivision given to Mr. Stephenson himself by the agent, Mr. Stan Payne.

On the back of it, in writing admitted by Mr. Stephenson to be his own, appear the following figures and words:

                                                              647 acres
                                                        Cash $    300
                                                             --------
                                                             $194,100
                                                             --------
             49 Blocks
             10,000 cash
             -----------                                ---------------
             490,000                             647    100,000 Deposit
  Road Cost  110,000                             350
             -------                           ------
             380,000                           32350
  Purchase                                     1941
                                               ------
  Price     $194,000                           226450
            --------                           ------
             186,000                           194100
             --------                          ------
             380,000       Borrow 94,000       32,350
             --------                8
                                  ------
                                  $7,520
                                per year
      

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ATC 4427

I find that these figures relate:

• (1) to a working out by Mr. Stephenson of the resultant profit which could be made by selling the forty-nine blocks in the subdivision at $10,000 each, and after deducting road-making costs of $110,000 (mentioned in Exhibit 11) and the purchase price of the farm, $194,000, the resultant profit would, according to the figures, be $186,000.
• (2) to the amount of interest which would be payable annually on a borrowing by Mr. Stephenson of $94,000 at 8% interest per annum such borrowing being made to enable him to pay the purchase price of the farm.
• (3) to the profit which would be made if the 647 acres were sold as a whole at $350 per acre. The resultant profit on resale would be $32,350.

In other words, at the time he wrote these figures, Mr. Stephenson performed the exercise of calculating the profit that could be made on a sale of the farm following subdivision, and alternatively on a sale as a whole at $350 per acre, should subdivision be not possible or not practical.

In both cases, the profit on sale was calculated by him having regard to the purchase price of the farm at $300 per acre.

It was, I first thought, of some importance to know exactly when these calculations were done.

But, as counsel pointed out, it will be seen that the appellant company was not incorporated until December 1968, three months after the September 1968 negotiations were entered upon by Mr. Stephenson. The appellant acquired the farm some time between 4 December 1968, when it came into existence, and 11 December 1968, when it executed a mortgage on the land. It is not possible to be more precise as to the date of acquisition, on the evidence that has been led.

Dr. Spry, for the appellant taxpayer, conceded that December 1968 was the appropriate date to consider, and thus anything happening before that date in December 1968, could be extremely relevant to the issue as to the intention of the appellant at the date of acquisition. Nothing turns on whether the precise acquisition date is the 4th or the 11th December 1968.

Returning to the calculations made in the writing of Mr. Stephenson on Exhibit 2, (the plan of subdivision) he said in cross-examination when first questioned about them late on a Friday afternoon, that he must have had access to some figures during the three months when he was negotiating the loan, for it was only in relation to the loan that he would have been in any way interested in these matters.

It was he said, for the purposes of the loan that he wrote to Mr. E.M. Kennard the valuer some time before 19 October 1968, suggesting that Mr. Kennard would receive the copy plan of subdivision from ``Mr. Coulson'' (actually Mr. Colstan) of the firm of Vaughan and Associates and enclosing the Council's letter regarding the proposed subdivision.

Mr. Kennard was a valuer engaged by Messrs. Corr & Corr to effect a valuation of the property on behalf of Corrbun Nominees, who were the persons advancing the loan monies.

All of this evidence was given on Friday afternoon, 10 August 1979.

On the following Monday morning 13 August 1979, Mr. Sweeney for the Commissioner, returned to the attack.

Mr. Stephenson then volunteered that he had had trouble with the Taxation Department concerning the sale of his Mount Waverley land, and that that was the reason why, if he'd been told that there was a plan of subdivision of the farm, he would have had an adverse reaction to the farm. It would have been like water off a duck's back. He would not have been interested.

This reasoning was, in my opinion, quite fallacious.

Mr. Stephenson had no trouble with the Taxation Department concerning the sale of the Mount Waverley land until after filing his 1969 Income Tax return. This was long after the farm at Point Cook had been purchased in 1968. It could not have had any influence on his attitude at the time of purchase of the farm.

Whether this is properly to be described as an ``anachronic'' mis-statement by Mr.

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ATC 4428

Stephenson, as Mr. Sweeney chose charitably to term it, or whether it is better described as but another example of Mr. Stephenson's mental adroitness, it is unnecessary to determine. It was a false statement, calculated I find to mislead the Court.

It was on this Monday morning that Mr. Sweeney also extracted from Mr. Stephenson, the details of the several orchard purchases and sales at Mount Waverley, to which I have already referred.

As to his letter to Mr. Kennard in which he referred to the Council's reply to the application for permission to subdivide, and to the plan, Mr. Stephenson said that he did not remember writing to Mr. Kennard, the valuer for Corr & Corr solicitors, - (he said he'd never heard of the man), - and he also said that he probably got the arithmetical calculations appearing on the back of Exhibit 2, (to which I have referred) from Mr. Payne. This was but one of many explanations put forward.

He denied that the land was sold to him as land with potential to subdivide into 49 farmlets, a denial which I find to be false.

It will be seen that Exhibit 3 has a note on it which Mr. Kennard said that he made on 19 November 1968. This was made after the letter was written to him by Mr. Stephenson, and some weeks before the acquisition of the land by the appellant.

Mr. Stephenson also said that he did not know when he wrote the arithmetical calculations set out on Exhibit 2, nor why he wrote them. He referred to them as mere ``doodling''. Again I do not accept his evidence.

At another time he said that the calculations were made ``probably to show how much I thought I'd saved on the purchase'', but I think that this is highly improbable, and I do not accept it.

He also said that he got the information that he needed to perform the arithmetical exercises ``on the phone probably'' (p. 122 transcript) and that he did it to make the property more valuable (pp. 123-124).

He said, on an examination of the figures whilst in the witness box, that he did not know what they referred to. He said to me ``Bit of a puzzle to me, your Honour. I don't know what it means. I wrote a lot of figures down because I can't remember in my head... It is hard to work out''. (See p. 131.)

He said that he would have told Mr. Cox his solicitor about the subdivisional potential of the farm at the time that he got the copy plan of subdivision. (pp. 133-4.) I accept this. I also find that he got the plan at the time that he got the option.

Exhibit 2 a copy letter written by Mr. Cox on 6 November 1968 to a Finance Consultant, (through whom he hoped to obtain the finance required) contained the following passage:

``Mr. Stephenson proposes to run the property as a farm for at least three years and possibly up to five years, when he will be able to pay out the mortgage and look to the question of development of the land.''

This statement does not readily allow of any other interpretation than that a contrast was being drawn between, on the one hand, running the property ``as a farm'' and, on the other hand, developing the land. Anyone reading the letter would so interpret it. I interpreted in this way.

All of the evidence supports such an interpretation, save the evidence of Mr. Stephenson and of Mr. Cox. I found neither of them to be persuasive. Indeed, Mr. Cox was quite uncertain about the matter. He was, as I said during the hearing, at the very least, quite nervous about the matter, and advanced certain unsatisfactory arguments which did not impress me. Having regard to the balance of the evidence I reject such positive evidence as Mr. Cox gave as unreliable.

Mr. Stephenson's dealings with Mr. Colstan, who was a surveyor, and to whom the farm plan of subdivision was sent by Mr. Stephenson in the early stages, (before the appellant acquired the land) were consistent with the view that Mr. Stephenson desired to know what the potential for subdivision was. It was attempted to explain this early reference of the plan to Mr. Colstan, (who was, it seems, a surveyor in some way connected with the subdivision of the orchards at Glen Waverley) by suggesting that Mr. Stephenson was interested only in the levels of the land, for some reason

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ATC 4429

connected with possible irrigation of the farm.

Again, I found this explanation quite unconvincing. Mr. Colstan himself was equivocal and purported to have little memory for detail.

I find that the arithmetical calculations in Mr. Stephenson's handwriting were on the plan before it was sent to Mr. Colstan, and were performed by Mr. Stephenson before the appellant acquired the land.

In my opinion, it is unnecessary to go to the circumstances in which Mr. Stephenson alleges that the appellant came to sell the land at $600 per acre in 1973, being twice the price at which the appellant had bought it in December 1968.

It is sufficient to say that I do not accept the story that, just as Mr. Stephenson was about to sell, and was anxious to sell the land, at $450 an acre, two unknown men appeared one night at his door and offered $600 per acre.

These two men, (it appeared from cross-examination) have been closely associated with Mr. Stephenson's purchases (since the sale of the farm) in many guises, of up to forty blocks at a time of subdivisional land in the Geelong area. These two men were not called as witnesses.

Mr. Stephenson admits that his many dealings since 1973 have been directed to profit making by sale. He has bought houses and done them up - selling them at a profit. He has bought land, hoping to subdivide it and sold it. He has done this, in his own name, in the name of a firm that he controls, and in the name of Callow View Estate Pty. Ltd.

I draw no inference from these transactions which would operate, as it were, retrospectively against Mr. Stephenson.

However, I remain quite satisfied on the evidence that when Point Cook Pastoral Co. Pty. Ltd. acquired the farm in December 1968 it did so with the dominant purpose of profit making by sale.

The farming operations carried on by Mr. Stephenson, may well have been close to his heart. His wife, no doubt, refused to go to live there. The seasons probably were not easy. Brucella abortus or brucellosis (as most cattle breeders call Bang's disease) may have ravaged his herd.

All of these matters were, I find, mere incidents occurring during the appellant's planned term of ownership of the farm from December 1968 to 1973.

I am satisfied on the whole of the evidence led that the dominant purpose in the mind of the appellant company (of which Mr. Stephenson was at all times, the ``brains'') at the time of acquisition of the farm was profit making by its sale at some time in the future.

I am satisfied that the profit in fact made on the sale of the farm was profit which fell within sec. 26(a) of the Act and was part of the assessable income of the appellant in the relevant year.

I am not satisfied that the assessment objected to was excessive.

The appeal will stand dismissed.