Commissioner of Stamps (S.A.) v. Rivington Farms Pty. Ltd.

Judges:
Mitchell J

Court:
Supreme Court of South Australia

Judgment date: Judgment handed down 30 July 1981.

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Mitchell J.

The Pay-roll Tax Amendment Act 1975 by sec. 11a gave to employers liable to pay-roll tax certain relief by way of deduction from tax otherwise payable. By the same amendment Pt. IVA headed ``Grouping Provisions'' was added to the Act. Under those provisions the deduction allowed under the Act is granted only to one member of a group of businesses so designated under the Act. Section 18b of the Pay-roll Tax Act 1971-1980 provides:

``For the purposes of this Act, two corporations constitute a group if they are by reason of subsection (5) of section 6 of the Companies Act, 1962, as amended, deemed, for the purposes of that Act, to be related to each other.''

Pursuant to these provisions the respondent company (hereinafter called ``Rivington'') was one of a group of which Crompton & Sons Pty. Ltd. (hereinafter called ``Crompton'') was the parent company and 13 subsidiary companies were members. Section 18i(1) of the Pay-roll Tax Act provides:

``Where the Commissioner is satisfied, having regard to the nature and degree of ownership or control of the businesses, the nature of the businesses and any other matters that he considers relevant, that a business carried on by a member of the group is carried on substantially independently of, and is not substantially connected with the carrying on of, a business carried on by any other member of that group, the Commissioner may, by notice in writing served on that first-mentioned member, exclude him from that group.''

By letter dated 20 December 1979 Messrs. Deloitte Haskins & Sells, taxation agents for the Crompton group, applied to have Rivington excluded from the group for pay-roll tax purposes pursuant to sec. 18i of the Act. That application was rejected by the Commissioner and a claim for the deduction contained in the pay-roll tax return submitted by Rivington for May 1980 was disallowed in the assessment made by the Commissioner on 21 July 1980. Rivington thereupon lodged with the Pay-roll Tax Appeal Tribunal, constituted by sec. 35 of the Act, an objection against the assessment. Section 36 of the Act gives a person dissatisfied with an assessment two options, namely to lodge an objection in writing to the tribunal, as this respondent did, or to appeal to the Supreme Court. The tribunal is entitled ``after making such enquiries and obtaining such information and advice as it deems proper'' to confirm or modify the assessment (sec. 36(3)). Subsection (4) provides that the tribunal shall not be bound by the rules of evidence. Both parties have a right of appeal to this Court from the decision of the tribunal. The powers of the Court on appeal are to ``make such order with regard thereto and the costs thereof as shall be just'' (subsec. (7)). The decision of the tribunal was that Rivington was entitled to the deduction permitted to an employer not subject to the grouping provisions of the Act and therefore that the assessment should be modified. The Commissioner appealed against the decision.

The maxim expressio unius exclusio alterius must apply and, there being specific power given to the tribunal to take evidence and no power to the Court to do so, it seems to me that on this appeal the Court must reach its decision upon the evidence which was before the tribunal. Mr. Selway conceded that the Court could interfere only if the decision of the tribunal were clearly wrong. Whether an appeal stricto sensu or an appeal de novo is to be determined by an examination of the legislation itself: see
Builders Licensing Board v. Sperway

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Constructions (Sydney) Pty. Ltd. & Anor. (1977) 51 A.L.J.R. 260. The powers of the Court under sec. 36 of the Pay-roll Tax Act are to be distinguished from the powers given to the Court under sec. 124 of the Stamp Duties Act 1920-1949 (N.S.W.) which were considered by the Privy Council in
Commr. of Stamp Duties (N.S.W.) v. Pearse & ors. (1953) 89 C.L.R. 51. By sec. 124 the Court was given specific power to direct enquiries or the trial of issues in order to ascertain facts. The advice of the Privy Council contains at p. 61 the following sentence:

``When the wide powers conferred upon the Court by s. 124 are considered it is apparent, we think, that it was intended to make the decision of the Commissioner... subject to complete judicial review.''

Section 36 of the Pay-roll Tax Act does not give similar powers. Nor do I think that the powers of the Court under sec. 36 are to be equated with the powers upon an appeal from the Board of Review upon a taxation matter: see
F.C. of T. v. Sagar (1946) 71 C.L.R. 421 at pp. 423-424.

In
Mead Packaging (Aust.) Pty. Ltd. v. Commr. of Pay-roll Tax (N.S.W.) 78 ATC 4164 Rath J. discussed the nature of an appeal to the Court from the exercise of the Commissioner's discretion under the Pay-roll Tax Act 1971 (N.S.W.). In the circumstances of the case his Honour found it unnecessary to decide whether it was or was not an appeal by way of rehearing. In
Ballarat Brewery Co. Ltd. v. Commr. of Pay-roll Tax (Vic.) 79 ATC 4452 Gray J. held that the right of appeal given under sec. 33 of the Victorian Act ``should be regarded as bestowing a right of appeal in the strict sense''. His Honour added that ``this requires the appellant to establish that the decision appealed against was wrong at the time it was given upon the material before the tribunal'', but went on to suggest that there might be cases in which fresh evidence might be admitted so that the Commissioner could deal with the matter upon amplified evidence when it was sent back to him. Both the Mead Packaging case and the Ballarat Brewery Co. case were appeals direct from the Commissioner to the Court and there had therefore been no formal hearing, as in the case before me. I am satisfied that Mr. Selway was correct in making the concession which he did and that the appeal is stricto sensu.

There were 10 grounds of appeal set out in the notice of motion. They were:

``1. That the Pay-roll Tax Appeal Tribunal was in error in holding that the common shareholding of Rivington Farms Pty. Ltd. and Crompton & Sons Pty. Ltd. was not a factor to be taken into account in determining whether the benefits granted by sec. 18i of the Pay-roll Tax Act 1971-1980 were available to Rivington Farms Pty. Ltd. The Pay-roll Tax Appeal Tribunal should have found that common shareholdings of companies being members of a group is always a relevant consideration in determining if the benefits granted by sec. 18i of the Pay-roll Tax Act 1971-1980 are available to one of those companies.

2. That the Pay-roll Tax Appeal Tribunal was in error in holding that the word `independent' in sec. 18i of the Pay-roll Tax Act means `not depending on the authority of another; not in a position of subordination; not subject to external control or rule; self governing; free'. The Pay-roll Tax Appeal Tribunal should have found that the word `independent' in sec. 18i of the Pay-roll Tax Act 1971-1980 means `not dependent' and that such meaning includes `not dependent on another for support or supplies' and `not influenced or biased by the opinions of others'.

3. That the Pay-roll Tax Appeal Tribunal erred in finding that `it is difficult if not impossible to point to a limited group of shareholders and identify that group as dominating the ownership or dominating the control of the two businesses'. The Pay-roll Tax Appeal Tribunal should have found that the same 15 shareholders held 61.2 per cent of the shares in Rivington Farms Pty. Ltd. and 90.9 per cent of the shares in Crompton & Sons Pty. Ltd. and should have also found that Messrs. A.W. Crompton and Joseph Crompton together controlled the board of Rivington Farms Pty. Ltd. and four other companies in the group.

4. That the Pay-roll Tax Appeal Tribunal erred in finding that the nature or degree of ownership of the two businesses was diverse.

5. That the Pay-roll Tax Appeal Tribunal should have found that John William

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Crompton exercised the functions of farm manager of Rivington Farms Pty. Ltd. as an employee of that company and not as an officer of that company.

6. That the Pay-roll Tax Appeal Tribunal should have found that Mr. A.W. Crompton was managing director of Rivington Farms Pty. Ltd. and exercised powers of management on behalf of the board of Rivington Farms Pty. Ltd.

7. That the Pay-roll Tax Appeal Tribunal should have found that Mr. A.W. Crompton exercised powers of management in respect of Rivington Farms Pty. Ltd. because he was accepted by the joint shareholders and by the directors of the two companies as the head of the Crompton family financial interests.

8. That the Pay-roll Tax Appeal Tribunal erred in finding that the accountancy services provided for Rivington Farms Pty. Ltd. by Crompton & Sons Pty. Ltd., the common office of the companies and the common company secretary of the companies was not proof of a substantial connection between the companies. The Pay-roll Tax Appeal Tribunal should have found that the histories of the companies and the reasons for these common services showed that Rivington Farms Pty. Ltd. was substantially connected with and was not independent of the group of family companies.

9. That the Pay-roll Tax Appeal Tribunal should have found that Messrs. A.W. Crompton and Joseph Crompton together controlled the boards of Rivington Farms Pty. Ltd. and four other companies in the group of companies and that such control showed that the aforesaid companies were substantially connected with and were not substantially independent of each other.

10. That on the whole of the evidence the Pay-roll Tax Appeal Tribunal should not have been satisfied that the business of Rivington Farms Pty. Ltd. was carried on substantially independent of and not substantially connected with the business carried on by any other member of the group, the Pay-roll Tax Appeal Tribunal should have dismissed the appeal and found that the amount of pay-roll tax to be retained for the month of May 1980 be $480.10.''

Before proceeding to deal with the various grounds of appeal it is convenient for me to refer to the management and shareholding in Cromptons and Rivington and the nature of the business of Rivington. The parent company is that which was given the benefit of the exemption under the Act. The exclusion from ``grouping'' was sought only on behalf of Rivington and not in relation to any other company in the group. There are five directors of Cromptons and two of those are also directors of Rivington. The two directors common to both companies are Joseph Crompton and Alan Woodhouse Crompton. Three of the directors of Cromptons are not directors of Rivington and two of the directors of the latter company are not directors of the former. The secretary of both companies is one John Maddern and the registered office of both companies is at 64 East Ave., Beverley. Shareholders with 90.9% of the shares in Cromptons hold 61% of the shares in Rivington. Rivington is the registered owner of 851 ha of land at Inman Valley and runs three milk dairies, raises beef cattle and stud horses. It owns 155 ha of land at Strathalbyn on which fodder is grown to use for concentrates for the dairy and which is also used for paddocking of stock in conjunction with the Inman Valley property. The day to day management of the business is carried out by Mr. John William Crompton who lives on the Inman Valley property. The Crompton group of companies does not market any of the produce from Rivington nor does Cromptons run any similar business. John William Crompton holds shares in Rivington but not in Cromptons. Cromptons provides accountancy services for Rivington.

Evidence was given to the tribunal as to the relationships between the various members of the Crompton family and their relationship individually to Joseph Crompton deceased who established the Crompton business in the 19th century. It seems to me that the relationship to the founder of the various members of the family who have interests in the different companies is of no importance except in so far as it may tend to establish, for the purposes of sec. 18i, that the businesses under consideration are carried on substantially independently or otherwise. That question and the question whether one business is carried on substantially in

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connection with the other are the questions for determination under sec. 18i of the Act. In determining those questions the Commissioner must have regard to the nature and degree of ownership or control of the businesses, the nature of the businesses and any other relevant matters but, in the final analysis, what he has to decide is whether the businesses are carried on substantially independently and without substantial connection. It could be that the two businesses which are carried on by the same owners and the profits of which are shared equally between the owners are so conducted that sec. 18i applies. Nevertheless, in making the decision under that section, the Commissioner is charged to give attention to the ``nature and degree of ownership or control of the businesses''. The tribunal therefore, as it seems to me, was not correct when, after referring to the extent to which shareholders in the one company were identical with shareholders in the other, it said:

``It is the view of the Tribunal, therefore, that the common shareholding is not a factor, per se, to be taken into consideration when determining whether the benefits granted by s. 18i are available to a taxpayer.''

But that sentence must be read in conjunction with the sentences which followed it and which read:

``On the other hand, it is quite clear from a consideration of s. 18i that the `nature and degree of ownership' of the respective businesses and hence the nature and degree of shareholding is a matter which must be considered. To find otherwise would mean that s. 18i would never be available for the benefit of the taxpayer where there were common shareholders to both companies holding shares of such a number of such a value as gave the same group of shareholders the control of both businesses.''

Read literally the first sentence appears to suggest the tribunal should disregard the common shareholding in reaching its decision but, when the whole of the passage is read together, the first sentence must, as it seems to me, be construed as meaning that the fact that there is common shareholding taken alone is not sufficient to oust the operation of sec. 18i. It is clear that this is so. Section 18d applies to make persons who have controlling interests in each of two businesses a group for the purposes of the Act, but sec. 18i gives relief where the conditions of that section are met. The common shareholding therefore is not conclusive but it is always a factor to be taken into consideration. I think that it is clear from a perusal of the whole of the reasons of the tribunal that, notwithstanding the infelicitous wording of the sentence of which the appellant complains in the first ground of appeal, it did not in fact disregard the common ownership of shares in the companies.

Ground 2 criticizes the interpretation by the tribunal of the word ``independent''. Both Mr. Selway and the tribunal looked to the Shorter Oxford Dictionary for an interpretation of the word. Mr. Selway said that the tribunal should have taken the first definition appearing in the dictionary namely ``not dependent'' and then looked under the word ``dependent'' where it would have found, among other definitions, those contained in ground 2 of the appeal. I do not myself see much significance in the different interpretations. I point out that in the Shorter Oxford Dictionary the phrase ``independent of'' is said to equal ``independently of'' or ``without regard to or irrespective of''. I suppose that in sec. 18i one could substitute for the words ``substantially independently of'' the words ``substantially without regard to'' and give the words the same meaning. In any event the difference in interpretation suggested by Mr. Selway does not seem to me of importance in relation to the decision of the tribunal.

The third ground of appeal relates to the ownership of shares in both companies to which I have already referred and to the control of the boards of Rivington and of four other companies in the group by Messrs. A.W. Crompton and Joseph Crompton, directors of the companies. There is no doubt that the majority shareholders are the same in both companies and that is one of the matters to which the tribunal was bound to pay regard. There is some significance in the fact that Messrs. A.W. Crompton and Joseph Crompton have the control of the board of directors of Rivington and of four other companies in the group but if they had

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the control of Cromptons and of Rivington this would assume greater importance. In any event, while it is a matter to be given weight, it is by no means conclusive that where two persons have control of two or more businesses the businesses themselves will be carried on at all in conjunction one with the other.

I deal with grounds 5 and 6 together. The tribunal referred to the fact that Mr. A.W. Crompton is the managing director of Cromptons and chairman of directors of Rivington and said:

``This indicates a measure of connection in the conduct of the respective businesses of the companies. On the other hand John William Crompton is the general manager of Rivington and both he and Alan Woodhouse Crompton gave evidence to the fact that Alan Woodhouse Crompton's involvement in the business of Rivington was limited to the conventional role of the chairman of directors; in other words Alan Woodhouse Crompton played little part in the day to day management of the business of Rivington.''

Upon the evidence before the tribunal I see no basis for criticism of that finding, nor do I find that the tribunal ignored the matters set forth in grounds 5 and 6.

Ground 7 said that Mr. A.W. Crompton was accepted by the joint shareholders and by the directors of the two companies as the head of the Crompton family financial interests. I cannot see any relevance in this fact, if fact it be. The tribunal was concerned not with the way in which the family regarded Mr. A.W. Crompton, but with whether he, or anyone else, exercised such control over Rivington that it could not be found that the business carried on by that company was not carried on substantially independently of or substantially unconnected with any other business carried on by the group. Nor do I think that the histories of the companies referred to in ground 8 can be a determining factor. That ground, however, refers to facts which appear to me to have been highly relevant to the issues before the tribunal. The tribunal did find, rightly in my view, that the sharing of a registered office and of a company secretary and the performance of the accountancy services by the parent company were matters which showed a connection between the businesses.

The tribunal referred to five ways in which it could be said that the businesses were connected. They were:

• 1. That Mr. A.W. Crompton was managing director of Crompton & Sons Pty. Ltd. and the chairman of directors of the respondent.
• 2. That Mr. Joseph Crompton was a director of both companies.
• 3. That Mr. Maddern was the company secretary of both companies.
• 4. That both companies had the same registered office and the same telephone number in the metropolitan area.
• 5. That accounting services were supplied by Cromptons to the respondent.

Mr. Selway submitted that the following further matters should have been considered as connecting the businesses of Cromptons and of Rivington namely:

• 1. The common shareholding.
• 2. The family relationships of the shareholders.
• 3. The fact that Mr. A.W. Crompton as head of the family business has the general management and control of all companies and the financial management of Rivington.
• 4. The fact that Mr. John Crompton is the servant of the board in managing the property of Rivington.
• 5. The fact that Mr. A.W. Crompton and Mr. Joseph Crompton control the boards of Rivington and the businesses of four other companies.

All these additional matters were factors to be taken into account but, in the final analysis, the question for the tribunal was whether the business of Rivington was carried on substantially independently of and was not substantially connected with the business of Cromptons or any of its subsidiary companies. There was, as it seems to me, ample evidence to support the finding of the tribunal. I am unable to say that it was wrong in the decision which it reached. The share structure of the various companies, the composition of their boards and the

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relationship which some of the members bear to the others are all such that the business carried on by Rivington could at any time become to a substantial extent dependent upon or substantially connected with the business carried on by another company within the group. What the tribunal had to be satisfied upon was that, notwithstanding the matters which I have mentioned, there was at the time in question namely in May 1980 no such substantial dependence or connection. In my opinion the evidence amply justified the finding. The appeal will be dismissed.