Kenneth A. Summons Pty. Ltd. & Ors v. Federal Commissioner of Taxation.Judges:
Supreme Court of Victoria
Kenneth A. Summons Pty. Ltd. (``the company''), Kenneth Aubrey Summons and Joyce Summons (now Joyce Smith) have each appealed to this Court against assessments for income tax in respect of a number of years of income extending from the year ended 30 June 1974 to the year ended 30 June 1979. They concern generally a number of payments received by the company and which are alleged to have been passed on in large part by payments to the individual appellants. Each of the relevant transactions involved the participation of the company, originally incorporated as Associated Planning and Development Pty. Ltd. and then changing its name in the year 1965 to Kenneth A. Summons Pty. Ltd. The company was the means by which Mr Summons carried on what may be broadly described as a town planning practice but by which in addition shares were acquired in a number of companies involved in sub-developing outer suburban land.
The broad pattern should first be understood. In about August 1984 Mr Summons resigned from his position as Chief of General Planning and Acting Director of Development with A.V. Jennings Industries (Australia) Ltd. He intended to set up in professional practice as a town planner but with an entrepreneurial interest in subdividing suburban land. To this end he incorporated the company, in which he and his wife were both shareholders and directors but over which he had the effective and practical control. The significance of incorporating the business or practice was here no greater and no less than that which arises when any business or professional practice is incorporated in order to divide and reinvest income on behalf of a number of shareholding members of the family of the person setting up the business or practice.
In the present case the company was the vehicle for carrying on Mr Summons' town planning practice from 1964 until about the year 1973 when a disagreement with his wife eventually led him to their divorce in 1974 and resulted in the setting up of a new company called Protocol Pty. Ltd. for the purpose of carrying on his practice, while the company continued to carry out and conclude existing commitments. The day to day town planning practice of Mr Summons was conducted through one or the other company over the relevant years, but in order to achieve his professed aims from time to time Mr Summons found it desirable that the company invest in other companies, which loosely may be described as joint ventures and by which he and one or more other interested parties engaged in the subdivision and sale of suburban land. I shall return to the purpose for which the company invested in these joint venture companies but in substance Mr Summons said that these investments were intended not only to be a means by which he could ensure continued professional participation in the planning of the subdivisions but also as a means of sharing in the eventual profits from those ventures.
So the company came at various times to invest in the share capital of West Melton (Vic.) Pty. Ltd. (``West Melton'') and Viewbank Estates Pty. Ltd. (``Viewbank'') and also, in a rather different form, in Australasian Realty Corporation Pty. Ltd. (``ARC'') and Development Estates (Keilor) Pty. Ltd. (``DEK''). There is not the slightest doubt that these four companies, or at least the first two of them, were formed with the intention and for the purpose of acquiring subdivisional land for sale and, moreover, that any income derived by them from sales was income according to ordinary concepts. But no issue arises in the present appeals as to those matters for the questions to be considered involve the effect of the earning and distribution of that income at one or two removes.
The taxpayer company's appeals in respect of the years ended 30 June 1974, 1977, 1978 and 1979 relate to the proceeds of sale of the company's shares in Viewbank and West Melton. In each case the company sold the whole of its shareholding to its principal co-venturer in each company, Cambridge Credit Corporation Ltd. (``Cambridge''), in circumstances which I will describe. In the case of its shareholding in Viewbank the company's four B class shares were sold on 12 March 1974 for $100,000 and the Commissioner assessed the taxpayer company as having received an additional $92,573 taxable income being the profit on the sale of those shares. In the case of its shares in West Melton the company sold them to Cambridge on 29 April 1977 for $2,025,000 of which the Commissioner assessed as taxable income a profit of $1,950,255 spread over three years' assessments as follows: $505,621 for the year ended 30 June 1977 and $722,317 for each of the years ended 30 June 1978 and 30 June 1979, being the three years in which the consideration was in fact received by the company.
Each of the payments, or so much of them as represent net profit, is said by the respondent Commissioner to be income according to ordinary concepts, being gains made in realising assets of the company's business in the course of, and as part of, the carrying on of that business. Alternatively it is said that, pursuant to the second limb of the then applicable sec. 26(a) of the Income Tax Assessment Act 1936 (``the Act'') the amounts included in the assessments were profits, or part of the profits, arising from the carrying on or the carrying out of a profit making undertaking or scheme. In summary the undertaking or scheme was asserted to be one for the acquisition of the shares in question and their use in a number of ways as part of, and as a means of carrying out, the company's town planning business, with a view to the ultimate production of profits to the taxpayer company, whether by sale or by other means. The company, for its part, said that the shares in each were capital assets it acquired in order to carry on its business as a town planner and to derive income by way of dividends, or their equivalent upon liquidation, when those companies themselves made profits. So it argued that the profits arising on their sale arose from the mere realisation of these assets. I should add that some evidence and particularly cross-examination related to shares held, as was conceded on their behalf, by Mr Summons on behalf of the company in ARC and DEK, which apparently the Commissioner alleges were acquired and sold in a not dissimilar fashion to the shares in West Melton and Viewbank. The question whether the proceeds of sale or the profits on the sale of the shares in ARC and DEK was income is the subject of a separate appeal or appeals which were referred to a Board of Review and which will, I understand, now be heard by the Administrative Appeals Tribunal. Counsel for Mr Summons and Mrs Smith conceded for the purpose of the appeals relating to the assessments of those taxpayers that the profits arising from the disposal of the shares should be treated as the income of the company in order to resolve the matters to which I am about to turn. The company itself, through the very same counsel, stated that the concession was not made on its behalf and that it proposed to maintain its position that those profits did not constitute income of the company. Counsel for the Commissioner asserted that those sales and the nature and method of obtaining the profits on those shares were relevant to the appeals brought by the company, but I shall return to that question later.
The other principal issue in these appeals relates to what the Commissioner alleges is the next stage in the distribution of the income of the company by way of profits from the sale of the shares it held in DEK, Viewbank and West
ATC 4983Melton. In each case the Commissioner asserted that part of the profits of the company realised in this way were paid or distributed to Mr Summons and Mrs Smith by way of advances or loans or for their individual benefit and that he consequently formed the opinion, pursuant to sec. 108 of the Act that they represented distributions of income. By reason of that provision it is said that those payments should be deemed to be dividends paid by the company to each of the individual taxpayers and were properly included in a number of assessments as part of their taxable income. So far as the taxpayer, Mr Summons, is concerned part of the profits conceded by him for this purpose to have been made on the sale of shares in DEK was advanced or lent to him in the years ended 30 June 1973 and 1974. In each year adjustments were made to the taxpayer's taxable income upon the basis that certain loans and advances represented distributions of income which were deemed to be dividends for the purposes of the Act. The profits from the same sale of shares were dealt with in a similar but not identical way so as to make adjustments to the taxable income of the taxpayer, Mrs Smith, in the year ended 30 June 1974.
The alleged profits on the sale of the shares in Viewbank were advanced or lent to each of the individual taxpayers and their taxable income was adjusted on the same basis by the Commissioner, in the case of each of the individual taxpayers for the year ended 30 June 1974 and possibly for the year ended 30 June 1976. The alleged profits from the sale of the company's shares in West Melton were likewise dealt with by the Commissioner so as to adjust the taxable income of the individual taxpayers on a similar basis for the years ended 30 June 1977, 1978 and 1979 in each case. The calculations, including references to particular debit and credit entries, were rather complicated and were set out in exhibits ``AA'' and ``BB'', but I do not propose to repeat the details in this judgment as counsel for the taxpayers agreed that the calculations in the exhibits accurately reflected the relevant transactions, although he did not agree with the Commissioner's characterisation of those payments. As a result of those calculations relatively small adjustments were made in the taxable income of the two taxpayers for the years ended 30 June 1973, 1974, 1975 and 1976, but substantial sums were treated as distributions of income in each case for the years ended 30 June 1977, 1978 and 1979. It would be fair to summarise the figures by saying that substantially the whole of the relevant profits were distributed to the individual taxpayers in the manner set out in the two exhibits.
As I would understand the Commissioner's treatment of these payments, he first took the view that they were advances or loans made to each of the individual taxpayers, or at least that the moneys were paid by the company for their benefit. He then formed the opinion that those amounts represented distributions of income by the company upon the basis that the profits realized on each of the sales of the shares in DEK, Viewbank and West Melton constituted income of the company within the meaning of and for the purpose of sec. 108, because those profits were properly treated as the income of the company for the reasons he has advanced in relation to the company's appeals and, in the case of the sale of the DEK shares, because of the concession made by the individual taxpayers as to the nature of those profits for the purpose of the hearing of their appeals. The Commissioner having formed that opinion, he then deemed the amounts paid as dividends paid by the company and treated those dividends as having been paid out of the company's profits, so that they formed part of the assessable income of each individual taxpayer in accordance with the provisions of sec. 6(1) and 44 of the Act. In the alternative it was contended that each distribution or crediting came directly within the definition of ``dividend'' and was assessable pursuant to sec. 44.
For their part the individual taxpayers contended that it was not reasonably open to the Commissioner to reach those conclusions. In substance it was said in the first place that the Commissioner had not formed the requisite opinion as to the payments of specific sums but only in relation to balances of account calculated from the loan accounts of each taxpayer for the relevant years of income. Secondly it was said that the Commissioner was not entitled to form the opinion that the amounts represented distributions of income, in so far as they represented profits from the sale of the Viewbank and West Melton shares for the reasons the company advanced in relation to its appeals.
Next it was submitted that the payments could not be deemed to be dividends because they were not paid or could not be treated as having been paid out of profits as, in substance, no profits had been struck in each of the relevant years, nor were there profits available for dividend according to the law then applicable to companies and in accordance with ordinary commercial and accounting principles, at least to the extent that there was a failure to take into account the tax which the Commissioner was asserting that the company was liable to pay. Finally it was asserted that the payments in question, if they were truly payments, were genuine loans which the company could enforce against each of the taxpayers and which therefore were not intended to be the subject of sec. 108 of the Act, nor could they be dividends within the definition in sec. 6(1). It may be seen therefore that the answer to the question whether the Commissioner could reach a conclusion that the distributed profits represented ``distributions of income'' within the meaning of sec. 108 depends in the first place upon the answer raised by the company's appeals as to the assessability as income of the proceeds of sale of the shares in Viewbank and West Melton, although by reason of the individual taxpayer's concession as to the shares in DEK that answer will not affect the distributions made from the profits of sale of the latter shares.
The legal and factual issues raised by these appeals are thus relatively complex and in an important respect interdependent. They are further complicated by the fact that most of the events which led to the setting up of the company and the four joint venture companies took place some 15 to 20 or more years ago. It is nigh on impossible for witnesses to recall with precision events so long in the past unless there be direct contemporaneous documentary material enabling them to refresh their memories. From time to time it was said the essential facts were not in dispute and there was no issue as to credit, but there is no doubt that the parties took a different view as to the nature of the company's business and as to the purpose underlying some of the transactions of the company and the receipts and distribution of the profits arising from those transactions. As there is a relationship between the circumstances giving rise to these appeals in the manner I have outlined, I propose to summarise the events and circumstances established by the evidence relating to these appeals as a whole, before dealing with any inferences which should be drawn as to the specific issues raised by each of those appeals.
Those events and circumstances commenced effectively in 1964 when Mr Summons, after a number of years as a town planner with A.V. Jennings Industries (Australia) Ltd., decided to leave that company and start out on his own. Apparently he had worked with that company for a number of years before he obtained a postgraduate degree in town planning from the University of Melbourne in 1962. He had been involved in preparing schemes for the subdivision of residential land in the Melbourne suburban area, although he said that each of those subdivisions had been relatively small. He had had an ambition to be involved with larger subdivisional developments but was not satisfied that he could persuade Sir Albert Jennings to undertake them. So in 1964 he said he had looked for an opportunity to get out and build something of the type he had wanted to build, ``a city... with all the things that a city should have''. So on 30 April 1964 he caused the company, then called Associated Planning and Development Pty. Ltd., to be incorporated which was to be the means or ``vehicle'' by which he intended to go into private practice as town planner and land management consultant.
The objects of the company were conventional, to some extent, but included an object ``to carry on businesses of town planners and subdividers of real estate'' and ``to acquire by purchase lease exchange hire or otherwise lands and property of any tenure or any interest in the same in the Commonwealth of Australia and to hold or sell lease mortgage or otherwise deal with such lands''. He and his wife, Joyce Summons as the second individual appellant was then known, were the sole shareholders and directors of that company. He formed the company on the advice of his accountant for reasons which he says were not explained to him and it had and still has a nominal paid up capital. By August 1964 he was carrying on his town planning and consultancy practice through the company. He said that when he went out into business he was the only qualified town planner in practice exclusively as such, but it was apparent from that fact and from his evidence that the manner in which a town planning practice might be carried on could not
ATC 4985then be described with any particularity. Apparently the company commenced practice by Mr Summons performing planning services for fees, doing preparatory planning work either on an hourly basis or a fixed fee. He said that work was not very profitable in the sense that his preliminary design work was used by his clients but that he obtained no continuing planning work on those projects.
At that very early stage of the development of the practice, in fact in August 1964, he was approached by one Lawrence Darrell who asked for advice on some planning problems relating to land at Melton and then offered him a partnership which he declined. Mr Darrell was an estate agent who had some experience in selling outer suburban land, who had made some preliminary enquiries about subdividing land at Melton, then a village beyond the outskirts of the Melbourne metropolitan area. Within a short time Mr Summons and Mr Darrell had agreed to form a company in which the company and Mr Darrell's own company, Delphic Holdings Pty. Ltd. (``Delphic''), should have approximately equal shareholdings and for which each should perform differing but complementary services. He was to provide all town planning services, including the preparation of feasibility studies and a planning scheme, negotiations with the Shire of Melton for the rezoning of the land, the organisation of surveys, the co-ordination of professional services and management of subdivisional works.
Mr Darrell's company was to organise the provision of finance for the venture and to handle the sales of the houses and other buildings within the subdivision. The plan was a bold one in that it involved some 1,198 acres in the first place, later increased to some 1,700 to 1,800 acres, on which were to be erected some 8,000 to 10,000 dwellings as well as shops and light industrial buildings, in the end intended to cover an area with a population of some 60,000 to 65,000 people. The work was to be done in stages, although I am not clear how many stages were then envisaged, and would be spread over approximately 20 years. The profits on the sale of each stage were to be used in part to finance the subsequent stages of the project. Mr Darrell's company was to be remunerated primarily from fees it would charge as an estate agent on each sale. Mr Summons' company, on the other hand, was to be paid fees for specific town planning services, including fees for designing display homes and in addition, so far as I understood it, a percentage fee of 2% on the value of the land sold in each stage, 1% being paid as the plan of subdivision for the stage was approved and sealed by the shire council and the other 1% when the whole of the land within each stage had been sold. However, precisely when this method of charging for the company's town planning work was first agreed upon is not clear. In addition it was originally envisaged that the company would be engaged as the manager of the scheme at a fee which was at one stage to be $10,000 per annum but which was eventually deleted from the subdivision agreement. Finally each of the companies hoped to share in the profits in the later stages of the development which Mr Summons said he expected would be distributed either by way of dividend or upon the final winding up of West Melton.
To that end Mr Summons and Mr Darrell caused West Melton to be incorporated on 27 August 1964. On 7 December 1964, 1248 £1 ordinary shares were allotted to Mr Darrell's company, then called Darrell Holdings Pty. Ltd., and 1,250 allotted to the company. On 9 February 1965 two more allotments of 1,250 shares each were made to the two companies. As part of the overall scheme it was necessary to obtain options to purchase from the owners of the farming land in the area of the proposed subdivision west of the township of Melton and in the latter part of 1964 or early in January 1965 these options were obtained by West Melton. At about the same time Mr Summons and Mr Darrell saw the need to obtain outside finance in order to carry out their subdivisional scheme and they approached Cambridge Credit Corporation Ltd. (``Cambridge'') for that purpose. On 15 February 1965 West Melton made formal application to the Shire of Melton for the rezoning of approximately 1,100 acres of land over which it had options to purchase to enable the carrying out of the scheme. Almost immediately the Shire rejected the application because of lack of sufficient financial support to enable West Melton to carry out such a large development. The co-ventures immediately approached Cambridge in order to persuade it to buy shares in West Melton and to put up the necessary finance to enable the scheme to go ahead. Apparently Cambridge agreed to buy
ATC 498650% of the issued capital from the existing shareholders in return for the appointment of three directors. The details available to the Court in evidence of these plans were somewhat sketchy and it appears that those negotiations broke down and by April 1965 Cambridge withdrew from the proposed joint venture and its shares were bought back by the company and Delphic.
The attempt to interest Cambridge in the scheme continued almost immediately it withdrew but it was approximately a year before it could be persuaded again to come in to the West Melton project. The precise timetable is not now clear for a written agreement was not drawn up until about May or June of 1967, and a document put in evidence was not an executed copy. However, it is reasonably clear that Cambridge agreed again to participate in the scheme in the early part of 1966 so that West Melton could again apply for approval of rezoning upon the basis of financial support by Cambridge. It is not necessary to go through the various steps which delayed the preparation of a formal document, for even at the end there was some dispute as to the precise nature of the arrangement, which eventually led to litigation in 1973. In essence, however, Cambridge again agreed to acquire, and had transferred to it in June 1967, one half of the issued capital of the company, this time designated by changes in the articles as A class shares, while Mr Summons' company and Mr Darrell's company retained what were then called B class shares. Although it took only one half of the issued capital, Cambridge was entitled to 60% of the dividends and 60% of any surplus upon a winding up of the company, presumably because it was required to provide most of the risk capital by way of loan to West Melton. Cambridge effectively got the right to appoint the chairman of the company with a casting vote, although there was a dispute about this in the litigation to which I have just referred. Moreover, in the year which it took to resolve the formal agreement there were disagreements as to the day-to-day management of the company which was originally intended to be in the hands of Mr Summons' company and for which it was to be paid $10,000 a year. The final agreement had a clause to this effect deleted by having a line drawn through it. As part of the arrangements in 1966 one Walter James Archer, a solicitor, was appointed chairman, who both Mr Summons and Mr Archer himself thought to be independent of Cambridge, but in circumstances where Cambridge had the right to remove him and which was later a source of a dispute between the members of West Melton. A written agreement to give effect to these arrangements was drawn up by Mr Archer and it is believed was executed between 1 and 29 June 1967, although the copy tendered in evidence was not completely executed. Curiously it makes no provision for the 2% town planning fee referred to earlier and I am inclined to the view, from the schedule of the company's income put in evidence, that this fee was not agreed upon for some years.
Pursuant to oral arrangements, but before the written agreement was drawn up, the application for the rezoning of the land over which options were held was renewed with the Shire of Melton during 1966. At some time between April and August 1967 the Melton Shire Council finally approved rezoning of the land over which West Melton had options. On 29 June 1967 50% of the issued capital of West Melton was again transferred to Cambridge with the approval of West Melton's board of directors. Later that year, on 15 September 1967, for reasons which are not entirely clear, there were further allotments of shares. 17,500 $2 A class shares were allotted to a nominee of Cambridge, Travinto Nominees Pty. Ltd. and 8,750 $2 B class shares were allotted to each of Mr Summons' and Mr Darrell's companies. As part of the arrangements for the provision of loan capital by Cambridge a deed of indemnity was to be executed by Mr and Mrs Summons, Mr and Mrs Darrell and their two companies in favour of Cambridge, but this was not apparently done until 1971.
In due course it was possible to develop the land, by taking up the options and by detailed planning on the part of Mr Summons' company. It is not precisely clear when these steps took place but the evidence indicated that the first stage was ready to be sold by 1969. From that I assume that the options had been exercised, the detailed planning had been completed for that stage and West Melton was able to go into the market selling house and land packages to those who wished to buy from the West Melton Estate. Mr Summons said that immediately after the land was rezoned West Melton commenced its land development program. This required the company to carry out certain planning work, including detailed
ATC 4987designs for each relevant area. Mr Summons arranged for surveying, road design, and designing water supply, sewage disposal, underground electricity and the making of roads with kerbing and channelling. It was necessary to design and construct a sewage treatment plant and also a community centre. Towards the end of this first period, in 1968 and 1969, some six display homes were built, which Mr Summons said he was responsible for designing and supervising. By this time some planning fees had been received by the company. The accounting and administrative services were provided by Cambridge and although there were some differences between it and Mr Summons, the display homes were opened in about April 1969.
It was at this point that the marketing of the various stages was commenced. For this purpose it was necessary to buy the land which had been the subject of options and this was done stage by stage. It seems that the contracts of sale with the owners were terms contracts extending over 10 years, pursuant to which only interest was paid for the first five years and thereafter capital payments were made until the end of each 10 year contract. However, West Melton as the purchaser had the right to buy out a parcel as and when it sold house and land packages to purchasers. When each house was completed the land was transferred to the purchaser and when all the land had been transferred in any particular stage the company was entitled to and did receive the second 1% of its agreed planning fees. Various figures were given as to the number of houses built during the first few years after 1969 and it is likely that before the litigation with Cambridge began in 1973 some 350 to 450 allotments had been sold. Two stages had been completed by that time and the scheme had reached either stage three or four in 1977 when the company sold its shares in West Melton. It appears that this was the period when Mr Summons' company earned most of its fees from his planning work, partly from the preparation of specific designs for various purposes and partly as the result of receiving each part of the 2% fee. However, I shall summarise the company's other activities before coming to the circumstances which led to the sale of the shares in West Melton.
During the period from 1965 the company's planning practice was not, however, confined to work on the West Melton project. Again the precise dates and the extent of the practice are by no means clear from the evidence given 20 years later, but for that Mr Summons is hardly to be criticised. At about this time a Mr De Crespigny approached Mr Summons to prepare plans for the rezoning and redevelopment of land known as Viewbank Estate at East Rosanna which Mr De Crespigny's family owned. Other land was held either separately or jointly with the family of a Mr Bartram in the same area which was likewise the major subject of a plan for rezoning and redevelopment prepared by Mr Summons in the course of the company's town planning practice. In due course the land was rezoned but it seems that the De Crespigny and Bartram families could not afford to subdivide the land and were interested in selling the land to a developer who wished to do so. Shortly before February 1970 Mr Summons obtained an option to purchase the land and at about the same time a friend of Mr Summons, William Edward Rippon, expressed interest in the proposed subdivision. Again apparently Mr Summons' company and Mr Rippon's company did not have sufficient finance to embark upon the subdivision on their own account and in one way or another Cambridge also became interested in the proposal.
Within a few weeks an arrangement was entered into in February 1970 which involved the incorporation of Viewbank and a joint venture agreement between that company, Cambridge and Mr Summons' and Mr Rippon's companies, by which Viewbank was to acquire the land and sub-develop and sell it. The joint venture agreement was executed on about 27 February 1970 in a form not dissimilar to the West Melton agreement. Cambridge again was to hold half the issued shares, designated ``A'' class shares, but was to be entitled to 60% of dividends and of any surplus upon liquidation. The other shares, again to be designated ``B'' class shares, were to carry an entitlement of 20% of dividends and surplus for each of Mr Summons' company and Mr Rippon's company called Wm. E. Rippon Pty. Ltd. On this occasion there was virtually no paid up capital, the eight ``A'' class $2 shares being held by or on behalf of Cambridge and four ``B'' class $2 shares being held by each of Mr Summons' and Mr Rippon's companies. Working capital was again to be provided by Cambridge and on this
ATC 4988occasion some $1,854,000 was needed to purchase the land in question. The agreement formally provided for Mr Summons' and Mr Rippon's companies to guarantee 20% each of the amounts borrowed by Cambridge for the purpose. The directorship arrangements were not dissimilar. Cambridge was responsible for the accounting and secretarial work and was paid an annual fee of $8,000 and the company was on this occasion to be engaged to carry out full management services for an annual fee of $12,000. In addition the company was engaged by Viewbank as its planning consultant for which a town planning fee of 1% of the selling price of all land comprised in the project was to be paid. It was apparently agreed that the company should be paid stage by stage upon the sale of the lands in each stage. On this occasion, however, the land was not to be sold by house and land packages, for the land was considerably more valuable and individual lots only were to be sold to purchasers, subject to strict requirements as to design and use of the land. It is by no means clear what the role of Mr Rippon or his company was to have, as it appears that they undertook no obligations under the agreement apart from the provision of the guarantee or indemnity for the moneys borrowed by Cambridge. Nevertheless, notwithstanding that it had subscribed only $8 worth of shares, Mr Rippon's company retired from the scheme in March 1971 and its shares were transferred to Cambridge, leaving the company as the only other shareholder, with an effective 20% interest in Viewbank.
The overall scheme was smaller than at West Melton and in the first stage it appears that only some 200 or 300 acres were to be acquired covering some 350 allotments. It was expected that the total scheme would take some 10 to 12 years and there remained approximately 80% of the land which had not been made the subject of any rezoning application to the local planning authority, for which Mr Summons' company might have expected to obtain the work. So far as can be ascertained the land was acquired early in 1970 and in due course sub-developed by the provision of all necessary road, electrical, water and sewerage services. Mr Summons said that the first stage consisted of only some 30 and 40 lots and this had been finished and another stage started before the company sold its shares in 1974. Considerable planning work had been completed for the rest of the Viewbank subdivision, for when Mr Summons went overseas in May 1973 he said that he had left sufficient plans completed to cover the rest of the year. Mr Summons' company already had done some planning work and had received one fee before he sold his shares, although it is not entirely clear whether he had received any payments based on the 1% provision in the agreement. Likewise it appears that for some time the company carried out the management services contemplated by the agreement although it was suggested in evidence that that work was not carried out for the whole of the period the company held its shares. Mr Rippon's and his company's part in the venture ceased in about March 1971 when he resigned as a director and sold his shares to Cambridge. The evidence generally on the Viewbank Estate was not precise but it appears likely that the land was sold relatively slowly and after the sale by the company of its shares the development did not proceed at the speed originally anticipated. Again I shall turn to the circumstances surrounding the company's sale of its shares in Viewbank after summarising the evidence relating to the other activities of the company.
A number of other transactions which involved the company and Mr Summons personally were dealt with in the course of evidence, primarily in cross-examination by counsel for the Commissioner. It will be remembered that the individual taxpayers conceded for the purposes of this litigation that the profits on the sale of certain land by DEK were income for the purposes of the appeals brought by those taxpayers, but that the company did not concede that that transaction, and some others related to it or of a similar kind, resulted in the earning of assessable income by the company, for that is a matter presently subject to appeal before the Administrative Appeals Tribunal. Counsel for the Commissioner nevertheless said it was relevant to understand these other agreements and sales primarily to identify the nature of the business which the company was carrying on over the relevant years. It was asserted that the company in the course of the activities performed for the purposes of Mr Summons' town planning practice had taken what were described as strategic interests in entrepreneurial land subdivision schemes which led to the earning of income by the sale of the
ATC 4989shares in the companies set up to run those schemes.
I shall mention those schemes briefly, for their precise nature was by no means clear and the evidence was in some senses unsatisfactory, partly because the events occurred so long ago and partly because a number of documents and records were missing. The records were missing, not because of any failure by Mr Summons to produce them, but because they were in possession of companies which either had not retained them or had effectively gone out of business. Moreover I would add that, if my description of these schemes is bare or unsatisfactory, it is largely because I have formed the view that it is hard to see the resemblance between these schemes and the West Melton and Viewbank transactions described above. I would concede that they involved the subdivision of land, in which Mr Summons clearly was interested, both professionally as a town planner and as an entrepreneur in the sense that he invested in shares in those two companies. The other schemes were, with one possible exception, very different.
In the first place there was reference to investment in a company called Dalke Developments and Investments Pty. Ltd. in about 1964 or 1965 which involved land at St Helena near Greensborough and a joint venture with Mr Darrell and Cambridge. Mr Summons remembered little of it, although he conceded that some brief and equivocal answers in cross-examination during the course of an action during 1973 were accurate. The agreement certainly involved a joint venture and the rezoning and development of subdivisional land at St Helena, but it appeared to proceed only for a short time and apparently did not result in the sale at a profit of the company's shares in Dalke Developments and Investments Pty. Ltd.
The other series of transactions were far more complicated and involved land at Sydenham. Mr Archer appeared to be involved at the outset as was a Mr Hall, an employee of Savoy Corporation Ltd. (``Savoy''). The proposal sputtered along during the years 1966, 1967 and 1968 but by December 1968, an agreement was entered into between a number of investors, including Mr Summons on behalf of the company, and Savoy and ARC. Mr Summons and the company's principal interests in this arrangement appear to have been through a company formed and called H.A.S. Nominees Pty. Ltd. (``HAS''), which was a joint professional advice company set up to carry out, for a percentage fee, professional work involved in the rezoning and selling of land. This company of professional consultants included amongst its members Mr Summons as a town planner, Mr Archer as a solicitor and others as managers and surveyors and engineers. Savoy was to manage the Sydenham project, but in addition a number of individual investors joined what was described as a ``syndication'' agreement. The investors were a mixed group and included Travinto Nominees Pty. Ltd., Patrick Nominees Pty. Ltd., Bank of New South Wales Nominees Pty. Ltd., and a few others, investors including Mr Summons on behalf of the company. Those investors provided certain loan capital for which they had a right to participate in what was called the ``ultimate development and marketing'' of the Sydenham land and were to have the ``option of enlarging their interest in the further project'' in proportion to their investment in this first ``syndication'' agreement.
Pursuant to this agreement Savoy lent ARC sufficient moneys to buy about 1,233 acres at Sydenham from one Shaw and HAS succeeded in having the land rezoned by about the year 1970. As contemplated the land was not subdivided by ARC but a purchaser formed, namely DEK which in turn wished to buy and subdivide the land. It seems likely that fees were shared by the company, as a member of HAS, and that DEK paid the company as one of the investors in the first syndication agreement $25,000 for its share in ARC. At the same time DEK, a subsidiary of Savoy, bought the land from ARC pursuant to a complicated formula which enabled Savoy to obtain 40% of the profit pursuant to the first agreement.
The second ``syndication'' agreement was dated 9 June 1970 to which the parties were ARC, DEK, Savoy, U.S. Finance Corporation Ltd. and another group of investors which included Mr Summons on behalf of the company. DEK bought another 439 acres nearby from Lensworth Finance (Vic.) Pty. Ltd. Again there was an agreement for the rezoning and developing at a profit of the land, although it was contemplated that there might be yet another syndication agreement. The company acquired three shares in DEK for this
ATC 4990purpose. After a few years, in which there was little evidence of any activity, the company sold to Savoy its shareholding in DEK and its related rights in the second syndication agreement for $84,000 on 10 April 1973. One of the principal terms of the second syndication agreement was a term, not dissimilar to one appearing in the first syndication agreement, requiring each of the investors, including the company, to lend to DEK a sum specified in the schedule. The schedule could not be found and therefore formed no part of the exhibit put in evidence, but it appears from other material that the company was required to provide loan funds of $32,375 spread over a period by a number of calls. Once more the second syndication agreement was not to be the vehicle by which the subject land was ultimately to be subdivided, developed and marketed, and it expressly contained a condition similar to that contained in the earlier agreement by which the investors were to have a right to participate in the subdivisional development, and an ``option of enlarging their interest in the further project''. Finally, the second syndication agreement contained, as did the first, a provision enabling each of the investors to sell and transfer their shares and debenture stock certificates and obliging the directors of DEK to register such transfers.
As I have said, some planning work was performed for this venture, for which the company was entitled to payment either directly or through HAS. However, before the next stage of development was reached, further calls were due to be paid for the moneys agreed to be lent to DEK. At the beginning of 1973 Mr Summons had separated from his wife and was about to leave for his extended overseas journey. He said that he was unable to meet his commitment on the call, and felt compelled to sell. In fact, he found a purchaser in Savoy who paid the company $84,000 for its three shares in DEK and its debenture stock. It was suggested that Mr Summons may have been looking for an opportunity to sell the shares and debentures at a profit for some time because he obtained a valuation from a company called Mildenhall Properties Pty. Ltd. on 4 May 1972, by which a value was placed on those interests of $133,091. I am not convinced that there was necessarily a connection between the valuation and the sale at a different price a year later, although it is possible that Mr Summons was looking for such an opportunity earlier than 1973 because of the continued obligation to put in loan moneys and the somewhat unusual nature of the investment.
It may be conceded that the syndication agreements gave an opportunity for the company to earn town planning fees, albeit in a somewhat different, perhaps unusual, way through HAS, but these agreements merely contemplated the future subdivision and development of the land at Sydenham and had not gone to the stage of the further agreement contemplated in each case. Moreover, the structure and express terms of the agreement were such as to enable the named investors to dispose of their interests in the arrangement and their shares in each company without, it would appear, the customary restrictions imposed upon shares in proprietary limited companies. Whether or not such a sale was contemplated by Mr Summons and his company from the outset, the agreements were very different in nature from those applying to the West Melton and Viewbank ventures, and the company's interests in them were smaller and were capable of being more easily sold. I shall return in due course to the question whether these interests made any significant difference to the nature of the business in which the company was engaged over the relevant period.
I turn next to the circumstances in which the company sold its shares in Viewbank and West Melton. In the period leading to the beginning of 1973, relations between Mr Summons and his company and Cambridge had been steadily deteriorating, while at the same time, a not unrelated dispute had been arising between Mr Darrell and Cambridge. It resolved into a dispute as to who should have the right to control appointments to the board of West Melton. At about the same time, Mr Summons' relations with his wife had deteriorated and he had decided to take extended leave overseas from May of 1973. Shortly before his departure, disputes in the boardroom of West Melton accelerated, and it is not unreasonable to suppose that relations were also strained between Mr Summons and Cambridge in relation to the Viewbank Estate.
After Mr Summons went overseas, Cambridge, through a nominee, appointed two persons of their choosing as directors, and in turn one R.R.T. Hutcheson was appointed chairman. Mr Darrell took immediate exception
ATC 4991to this and commenced proceedings challenging the appointments and the validity of certain Articles of Association which Cambridge said had been agreed on and passed in 1967. After interim injunctions were obtained restraining the directors from acting, Cambridge relied on an alleged default in repayment of certain loans to it in order to appoint one Noel Rundle as receiver of West Melton. This led to a crisis in the management of West Melton which was moving from stage 3 to stage 4 in the development of the land. The action was heard by Lush J. in this Court in late October and early November 1973, during the course of which Mr Summons returned from overseas to give evidence at the trial. Not surprisingly, he supported Mr Darrell, although the plaintiffs remained West Melton, Delphic and Mr Darrell himself. Both actions, the first concerning the Articles and the appointment of directors, and the other the appointment of receiver, were lost and West Melton remained in receivership with the board remaining under the control of Cambridge.
Mr Summons was not unnaturally disappointed at the outcome, and reached the conclusion that he could no longer co-operate with Cambridge and its representatives on the boards of both West Melton and Viewbank. On the day judgment was given in Mr Darrell's actions, both the company and Delphic presented a petition for the winding up of West Melton relying on oppression and the just and equitable ground and founded upon the failure of the sub-stratum of the joint venture company and upon the deadlock between the shareholders in relation to control of West Melton. One of the conclusions expressed in the petition by the company and Delphic as petitioners was that they ``suspect and no longer trust Cambridge Credit's motives actions and objectives in its association with West Melton''.
Surprisingly, the first company Mr Summons sold out of was Viewbank. Perhaps the continuing receivership of West Melton made the management of that company academic for the time being, but it is more likely that the joint winding up petition initially encouraged his hopes of rescuing directly or indirectly more from West Melton by means of court proceedings. Since his departure overseas he had lost, for practical purposes, the planning work for both companies and he then spent some time in a conventional planning practice, while devoting more time and energy to preparation for the litigation. It seems that the first discussions about the company's interests in West Melton and Viewbank were initiated early in 1974 by a Mr Neepom, a Canadian lawyer who was then Cambridge's project manager, who wished to discover Mr Summons and the company's future intentions. Mr Summons said he wanted nothing further to do with Cambridge under its existing management, and told Mr Neepom his intentions were declared in the Court petition, at least as to West Melton.
However, Mr Neepom's enquiries about the company's interests in Viewbank led to further negotiations.
Mr Summons repeated his total disillusionment with Cambridge and its officers over the West Melton project, and affirmed that his mistrust of them meant that he wanted to do no more work on Viewbank nor have any further contact with Cambridge on that project. At one stage in his evidence he suggested that, as he did not care ``a damn'' about the shares, he agreed to sell them. Later in the evidence it appeared that Mr Neepom had asked what he was going to do about the company's shares. Mr Summons had said he was not interested in them any longer as the planning work was no longer available. He said that, as he refused to work with Cambridge, he could not do the planning and executive work on the Viewbank project and had no interest in waiting for the profits on the investment as that was ``a long way up the road''. He was asked if he would sell the company's four shares and he said he had replied ``put a price on them and get rid of them''. In answer to this request to Cambridge to put a figure on the shares, he said that Mr Neepom came back, either that day or later with an offer of $100,000.
Although there was a suggestion that there were no negotiations about the price, it is clear that Mr Summons did not immediately respond. For one thing, half the company was owned by his wife from whom he was by then irrevocably estranged. A directors' meeting took place on 14 February 1974 with both his and his wife's solicitors present, and the solicitors were authorised to attend a meeting of Viewbank to negotiate a sale of the shares for not less than $100,000. How they arrived at this figure is not clear, and how the shares had increased in
ATC 4992value so quickly is likewise not explained by the evidence, although it is likely that somewhere between one and two stages of the subdivision had been planned and developed ready for sale. By 19 February the company had agreed to execute an agreement to sell its shares for $100,000, subject to a number of terms relating to the company's and Mr and Mrs Summons' interests in both Viewbank and the project, and including a term by which the company was to be paid $7,751.25 as the balance owing for planning fees. Mr and Mrs Summons attended a meeting of Viewbank on 12 March 1974 at which it was resolved to execute the formal agreement. The agreement which bore that date effected a sale of the shares to Cambridge for the agreed $100,000 on the terms agreed and bound the company, Cambridge, Viewbank and Mr and Mrs Summons.
It is surprising that the company's shares in West Melton were not sold for another three years, although I have suggested some possible reasons for that delay. The petition to wind up that company remained on foot. In the meantime, the individual taxpayers were divorced in March 1974, and in early 1975 Mr Summons moved to Albury where he took up a position as deputy chief designer with the Albury-Wodonga Development Corporation. Almost at the same time, in March 1975, Cambridge itself went into receivership and Ernest Harding Niemann appointed receiver. Shortly afterwards, Mr Summons went to see a Mr Reilly, an employee in Mr Niemann's accounting firm, to offer again his services as planner for the West Melton project, but his offer was brusquely rejected.
Late in 1976, after speaking to his solicitor, Mr Summons contacted a Mr K.W. Austin, who had been managing director of a company in the Savoy Corporation Limited Group. He said his original intention in doing so was to buy out Cambridge, and Mr Austin's evidence indicated that he and Mr Archer were engaged to negotiate on behalf of Mr Summons and the company. When I say that Mr Summons wished to buy out Cambridge, it would be more accurate to say that he was looking for a financier who would buy out and take the role of Cambridge which remained in receivership. Mr Austin was a private financial consultant and he said that he went to a public company which was prepared to participate by buying out the receiver, so that Mr Summons and his company could continue or at least resume their roles. The details of the negotiations were curiously vague. It is said that there were some negotiations between Mr Austin and Mr Archer, on behalf of the company, and the unnamed financier at which the proposal, to purchase Cambridge's interests was discussed but the only figure mentioned in evidence was an offer of either $10 million or $11 million. I was not entirely happy with the evidence which related to this in the sense that it seemed that no valuations were obtained and no firm basis was chosen for the figure of $10 or $11 million, although it was not Mr Summons' offer in reality, but that of an outside finance company. Perhaps the truth of the matter was that there was very little discussion of any figure and that Mr Reilly on behalf of the receiver turned down the proposal quickly. Thereafter it was suggested that Cambridge would be prepared to buy out Mr Summons' company but again the negotiations which led to the ultimate offer of $2,025,000 were curiously vague. It seems there was some discussion of the amount of fees to which the company was entitled by reason of the continued development of the land and it seems likely that the $25,000 in the final consideration may have represented a sum fixed to compensate the company for unpaid fees. Nevertheless, with the approval of the now divorced Mrs Summons, an agreement was entered into on 29 April 1977 by which the consideration was to be paid by a deposit of $525,000 immediately and the balance of $1,500,000 by 30 April 1978. Various other terms by which the company shares were transferred and the rights of the company and Mr and Mrs Summons dealt with need not be described here in detail. One of the agreed terms was the dismissal by consent of the petition for the winding up of the company, but that step could only be done with the approval of Mr Darrell and his company Delphic, who it appears were bought out by a similar agreement dated 18 May 1977. The petition was dismissed by consent on 21 October 1977. The terms of the agreement of 29 April 1977 included mutual releases by the parties but did not include any specific compensation for outstanding town planning fees.
The sale of the West Melton shares effectively brought to an end the business of the company. It will be remembered that, because
ATC 4993of his separation from his wife, Mr Summons no longer carried on his town planning practice through the company but had set up a new company, Protocol Pty. Ltd. as the vehicle for the carrying on of his practice, in which the taxpayer Mrs Summons had no shareholding. The company had remained in business only to carry out existing projects and obligations including the holding and disposition of the shares in Viewbank and West Melton.
In practice there were some loose ends to be tied up, including the distribution of the proceeds of sale of the shares. However, only $750,000 of the balance of $1,500,000 was paid on behalf of Cambridge by 30 April 1978. Notice of rescission was served on Cambridge and Mr Niemann on 4 July 1978. As a result an arrangement was made by which the balance and agreed interest, amounting in all to $769,000, was paid by 31 July 1978.
I turn next to the distribution of the proceeds of sale of the company's shares. As mentioned above, schedules of these payments and a description of the way in which they were calculated by the Commissioner, in the case of each individual taxpayer, were tendered in evidence as exhibits ``AA'' and ``BB'', which had been prepared on behalf of the Commissioner and which the appellants accepted as accurately describing the relevant transactions. It is thus not necessary to burden this judgment further with those somewhat elaborate details. However, some general observations should be made. In practice a number of entries were made in each of the individual taxpayer's current accounts with the company which could be identified with the consideration received by the company from the sale of shares in DEK, Viewbank and West Melton. The earlier entries were usually described in the books of account as ``loans'' but for the later entries the books of account in effect described them as receipts from the sales of shares. There is little doubt that the various debits and credits were called loans and were described as such in the company's records, but Mr Summons candidly stated in evidence in chief that so far as he was concerned ``the moneys were available to me''. He had received certain advice and consequently he said that he never regarded the amounts as loans. From that I assume that in the course of their negotiations Mrs Smith was likewise made aware of the nature of the loans and the availability of the moneys in her current account. Later Mr Summons said that his understanding was that the moneys were ``non-returnable'' and, although he said he would return them if necessary, he was under the impression he had no obligation to do so. I should add that in relation to the assessments relating to the earlier years, those arising from the distribution of profits from DEK, the individual taxpayers asserted that the Commissioner had not formed his opinion under sec. 108 in relation to advances or loans or even payments, but rather as to the balance of account in the taxpayers' current accounts. Such an exercise was carried out clearly in relation to Mr Summons' assessment for the year ended 30 June 1973, but there was an entry there arising from the sale of shares in DEK of $84,000, which was later adjusted by a correcting entry on the other side of the ledger for $52,000, and in fact the adjustment to taxable income made by the Commissioner was only $13,647. In the light of the absence of other evidence relating to the matter I have little doubt that the Commissioner formed his opinion in relation to the proceeds of sale of the DEK shares and that the added taxable income appearing in the assessment was merely a shorthand means of expressing net figure by way of advance or loan after taking into account a number of other items.
Another matter of possible significance in relation to the distribution of the profits is the fact that, although Mr and Mrs Summons had equal shareholdings in the company, the distributions appearing to their current accounts were not equal on each occasion and were the subject of negotiations between them, some of which was referred to in evidence. The differences as between the individual taxpayers may have had greater significance, had it not been clear that throughout the period in question they were estranged and later divorced and that the allocation of the distributed sums was negotiated largely through their solicitors. Mrs Summons did not receive any payment out of those profits until 18 November 1973 when $20,000 was debited in favour of her current account. On the other hand when the consideration for the sale of the Viewbank shares was received $19,000 was debited to each of the two individual taxpayer's current accounts, but a further $27,386 was debited in favour of Mr Summons' current account on 30
ATC 4994June of that year. When the West Melton land was sold the deposit received in 1977 was advanced by dividing the sum as to $240,000 to Mr Summons and $265,000 to Mrs Summons. In the 1978 year, however, $650,000 was debited to Mr Summons' current account and only $110,000 to Mrs Summons' account. Finally in the year ended 30 June 1979 the final payment was advanced, so that $368,460 was debited to Mr Summons' current account and $411,000 to Mrs Summons' account. Little of the evidence was directed to the reasons for the differences between the distributions, but in a brief passage during cross-examination Mr Summons suggested that was a fair distribution based on the fact that he had done some 10 or 12 years hard work on West Melton and, as he put it, ``she felt she was being most generously rewarded''. The relationship between these payments and the divorce settlement of Mr and Mrs Summons was not examined.
The summary of the evidence set out above is, with one significant exception, a statement of the facts relevant to the issues before the Court, without any attempt to draw inferences as to those issues. What has been largely omitted to this stage is the evidence going to the purpose and intentions of the taxpayer Mr Summons and his alter ego, the company, in selling up its business and in investing in West Melton and Viewbank. The Commissioner relied both on sec. 25 and the former sec. 26(a) of the Act as alternative bases for asserting that the amounts in question were properly included in the company's taxable income. However, during the course of argument counsel for the Commissioner stated expressly that no reliance was placed on the first limb of sec. 26(a), so that the question whether the shares were acquired for the purpose of profit-making by sale does not strictly arise in this case. Although the other two provisions relied upon make no direct reference to intention or purpose, observations by members of the High Court in
F.C. of T. v. Whitfords Beach Pty. Ltd. 82 ATC 4031; (1982) 150 C.L.R. 355 clearly indicate that the taxpayer's purpose is a relevant consideration. Gibbs C.J. at ATC p. 4039; C.L.R. p. 370 said that ``in deciding whether what was done was an operation of business, it is relevant to consider the purpose with which the taxpayer acted''.
Likewise in considering the second limb of sec. 26(a) Mason J. said at ATC p. 4045; C.L.R. p. 381: ``No doubt the expression `profit-making' as applied to `undertaking or scheme' looks to the intention or purpose of profit-making''.
Although it is important to distinguish the different entities engaged in the company's activities, for practical purposes it is necessary to look at Mr Summons' own intentions. So far as the company was concerned it was clearly his intention from the outset to set that company up as the means or vehicle by which he was to carry on practice as a town planner and to carry on business as a land developer, especially of suburban subdivisional land. The nature of that practice and business emerged gradually, largely because there was at the time he commenced practice no settled way of carrying on the profession of a town planner. Some time was spent in evidence in examining the nature of the company's activities and Mr Summons' hopes and aspirations in setting up that business. A company was chosen as the means of effectuating those hopes and aspirations, upon the advice of his accountant but for reasons which he never fully understood. Certainly in leaving the employment of A.V. Jennings he intended to conduct a practice which involved not only town planning design work but also general advice on land development management, which was to involve him and his company directly in the development of subdivisional land. He intended at first to charge fees either on an hourly or lump sum basis for his design and supervision work, but he soon formed the opinion that his company had to be involved more directly with proposed subdivisions if he was to continue to obtain the detailed design and planning work for which he was qualified. It was necessary to enter into longer term agreements which would enable him to obtain that work. Moreover it seem that he also found it desirable to reach agreements which entitled him to charge on a percentage basis related to the value of the land in the subdivisions.
The evidence indicated that the company carried out a variety of work and on a number of bases. Conventional planning work appeared to form a part of the company's business throughout, often done for an hourly or lump sum fee. There was other advisory work of an indefinite and unspecified nature and finally there were joint venture planning for which the company was paid on a percentage basis. For
ATC 4995example, in relation to the Viewbank Estate Mr Summons did the planning work for a number of years on a conventional basis for which the company was paid fees by Mr De Crespigny, before it took any shares in the Viewbank company and was thereafter entitled to percentage fees.
However, it was at an early stage that he saw that it was practicable for the company to obtain an interest in a large subdivisional venture which would provide him with a substantial amount of work over many years and by which he could gain by direct participation in the venture. It is here that the interposition of corporate entities becomes important for the purposes of the present appeals. The company was the means of carrying out his ambitions, although it was a company with virtually no paid up capital and in which the shares were held equally by Mr and Mrs Summons. For all practical purposes his was the deciding role but the ventures embarked on had complicated structures. Thus the two companies in which he invested through the company, namely West Melton and Viewbank, were clearly companies which ran land dealing businesses which had as their sole purposes the profitable subdivision and sale of large areas of suburban land. As I have said before, it is not those companies purposes which are directly in issue in these appeals, for there could be little doubt that their profits would be taxed in one way or another.
So it necessary to examine Mr Summons' and thence the company's intentions and purposes in investing in the shares of West Melton and Viewbank. Most of the evidence was directed towards West Melton, for that was certainly the largest venture in which the company participated. Here Mr Summons wished to ensure a continued interest in the planning, design and management of that project throughout its life which he saw as a means of achieving his ambition to ``design and build a satellite city''. In due course Mr Summons formulated the desire and plan that the company would earn income from each venture, as in fact it did, in four principal ways. It charged for his town planning services, including rezoning plans and house designs, for which it seems he was paid fees directly on an hourly basis. Secondly the company was paid percentage fees upon the value of the land in the venture, in the case of West Melton by an agreed charge of 1% at the time each stage was rezoned and a second 1% at the time the whole of the land in a stage was sold. Thirdly, although in practice this was not as successful, he had hoped that the company would earn management fees for being involved in the day-to-day control of each project. In the case of West Melton the agreed management fee was deleted from the final agreement, but apparently some fees were paid in accordance with the agreement in the case of Viewbank. Finally the company was intended to earn income from the profits of each joint venture company.
What those profits were to be and what form they were to take in the hands of the company was seen as of critical importance to these appeals. So far as the West Melton project was concerned Mr Summons saw that as a long-term investment by the company. There were to be 10 or 12 stages extending over approximately 20 years. At some stage it was estimated that the land itself would cost $5,500,000 and the overall expenditure on the subdivision about $9,000,000. As his company could put in virtually no risk capital and all of it had to be borrowed at interest from Cambridge, he saw no likelihood of West Melton earning profits for a number of years, as it would take some time before it could even start selling house and land packages to the public. For a number of years thereafter the individual profits of those sales and the overall profits of each stage would be needed to enable land in the later stages to be purchased and to service existing loans. He thought it unlikely that there would be any profits available for distribution by West Melton until the 12th to 14th years. The joint venture agreement had provided that the company would receive only 20% of the dividends or of any surplus upon a liquidation, and Mr Summons did not have any formulated intention as to whether he would be likely to receive those profits by way of dividend or whether they would await the winding up of West Melton. He simply assumed that they would be distributed in whatever was the appropriate and convenient way at the time. I have no reason to doubt, however, that he expected dividends when the profits were no longer needed to finance the loans. He conceded that those profits could be distributed upon a winding up, and this was consistent with the accepted basis of West Melton,
ATC 4996namely that it was a single venture company which would be placed in liquidation when the West Melton project had been completed. Moreover I see no reason to disbelieve his statements that he intended that the company should retain its shares in West Melton until such time as it was earning profits, that the company could participate in those profits in the conventional way, and that he neither intended nor envisaged the possibility when the venture was entered into, that the company would sell its shares in West Melton.
As to the company's shares in Viewbank there was considerably less evidence as to Mr Summons' and the company's intentions. However, for the purposes of the appeals counsel for the Commissioner appeared to treat those shares on a similar basis, although using some of the facts in relation to the Viewbank shares as a means of colouring the nature of the company's holdings in West Melton. Here the company acquired its interests at a much later stage, in 1970 when the first stage of town planning work on the Viewbank Estate had been completed and a significant proportion of the land rezoned. The estate was much smaller and the nature of the sales was different in that it was intended to sell the land only. Otherwise Mr Summons intended that the company should earn income from the Viewbank Estate in substantially the same way, earning town planning fees for specific design work, receiving a percentage fee, this time 1%, of the value of the land sold stage by stage, in earning management fees pursuant to the agreement, and finally receiving the profits which he expected Viewbank would earn towards the end of the development. The period of 10 years was substantially shorter and the number of stages fewer, but there was even less capital subscribed and very heavy expense incurred in acquiring the land outright at the beginning of the project by means of a loan from Cambridge which had to be financed over the duration of the project. I accept that Mr Summons expected that the most likely distribution of the Viewbank profits would be by way of dividends towards the end of that project. Likewise I consider that he neither intended nor envisaged the likelihood of the sale of the shares in Viewbank before the completion of that project.
I should say something more of the company's business as it developed over the years from 1964. I consider that Mr Summons had considerable ambitions in going out on his own as a town planner and that he saw West Melton in particular as a means whereby he would be responsible for the creation of a satellite town of some significance. I do not doubt, however, that he also considered that by setting up the company he could participate financially in the profits available from large suburban sub-developments. By the time he purchased the second group of shares in West Melton this combined objective could be seen more clearly, although I do not consider that the sale of the shares was ever contemplated. His other town planning activities took a number of forms, some being purely professional and some having a largely entrepreneurial nature about them. Counsel for the Commissioner relied heavily on the creation of HAS and its participation in the ARC and DEK ventures. Since they are the subject of other appeals it is best that I say as little as necessary about them, but they appeared to me to be substantially different from the joint ventures at West Melton and Viewbank. If profits were to be earned by the company from HAS and the two syndication agreements then, although the 10% fee earned by the group of professionals in HAS had its similarity to the percentage fee paid in the other ventures, the structure of the syndication agreements was quite different. There Mr Summons on behalf of the company was one of a number of investors who had a right to deal with the shares in those agreements in a variety of ways, including the apparently free transfer of those shares. The shares in ARC were sold because a new syndication agreement was put forward as contemplated by the first syndication agreement of 1968, and the sale of the DEK shares came about because the company was not able to pay the balance owing on them. Thus, although profits were earned on the sale of the DEK shares, I consider the genesis and development of that venture quite different from the West Melton and Viewbank ventures. Moreover the evidence indicates that the company's business was not confined to those ventures in which it took an interest in the subject lands by way of a holding in shares but included a considerable variety of activities including the preparation of designs and plans. Finally I accept that the principal motive behind the company involving itself in the variety of joint ventures to which I have referred was Mr Summons' desire to
ATC 4997participate on a long-term basis as a planner in those ventures, albeit that he clearly desired the benefits which he expected to flow from the company's investments in the joint venture companies. He saw a shareholding in each case to be some form of guarantee that the town planning work for those ventures would be directed to the company on a long-term basis in accordance with the agreements reached in each case.
I should also mention that significance was placed on the manner in which the company sold its shares. It was suggested that none of the ventures came to a conclusion while the company remained a shareholder. I do not see any great significance in those events and more importantly I see no significance in the case of the shares in West Melton and Viewbank. I have not the slightest doubt that the reason for the sale of those shares was prompted entirely by Mr Summons' disagreements with Cambridge which led to complicated and rather bitter litigation. Moreover those events occurred at a time when Mr Summons' matrimonial estrangement made it necessary for him effectively to close down the activities of the company as the vehicle for his town planning practice and development business and to set up the new company, Protocol Pty. Ltd. Apart from the need to reach some financial settlement with his wife, there was really no practical basis upon which he would wish to remain involved with either company, for the town planning work had effectively ceased. In the circumstances the sales of those shares were not the planned or expected conclusion to the company's activities in the two joint ventures.
So far as the evidence is concerned it remains only to say that the inferences which may be properly drawn in relation to the issues in these appeals will be discussed below, but in general there was no serious issue raised as to Mr Summons' credit, and in my opinion he was a truthful witness, so far as his recollection was able to extend. There were elements in his evidence which were perhaps exaggerated, largely because he was being asked to look back on his professional achievements. To a degree there may have been some reconstruction of events long since passed and there were obviously errors of recollection about details of events 15 to 20 years ago. As to the critical elements in these appeals, I therefore found his evidence reliable, except to the limited extent which is apparent from these reasons for judgment.
Appeals by Kenneth A. Summons Pty. Ltd.
The first issue to be determined is whether the Commissioner was correct in assessing the profits on the sales of the Viewbank and West Melton shares as part of the taxable income of the company in the relevant years. The argument presented on the respondent's behalf relied on sec. 25(1) and alternatively, the former sec. 26(a) of the Act. The primary submission was that the profits were income according to ordinary concepts, the shares being revenue assets realized in the course of and as part of the company's town planning and project development business. In the alternative, the second limb of sec. 26(a) was relied upon by asserting that the profits from the purchase and sale of the shares in each of the two venture companies were profits arising from the carrying out of a profit-making undertaking or scheme. The taxpayer company's case was simplicity itself, namely, that the sale of the shares in each case was the mere realization of a capital asset of the company.
On this issue it is necessary to enquire in the first place whether the profits from the sale of the Viewbank and West Melton shares formed part of the company's assessable income within the meaning of sec. 25(1) - in other words, did they amount to what has been conventionally called ``income according to the ordinary concepts and usages of mankind''? So many and varied are the gains and receipts which have been treated as income that few have attempted to provide a generally applicable definition of the word ``income'', and certainly no general definition has been worked out in the High Court. For the most part the warning of Jordan C.J. in
Scott v. C. of T. (1935) 35 S.R. (N.S.W.) 215 at p. 220 has been accepted that the word ``income'' is not a term of art, but one requiring reference to those ordinary concepts and usages: cf.
F.C. of T. v. Dixon (1952) 86 C.L.R. 540.
For present purposes it will be sufficient if it is possible to distinguish between income receipts and capital receipts, albeit that the latter should be understood in a particular sense. Counsel on both sides accepted that the appropriate test had been expressed in the
ATC 4998judgment of Knox C.J., Gavan Duffy, Powers and Starke JJ. in
Ruhamah Property Co. Ltd. v. F.C. of T. (1928) 41 C.L.R. 148 at pp. 151-152:
``The principle of law is that profits derived directly or indirectly from sources within Australia in carrying on or carrying out any scheme of profit-making are assessable to income tax, while proceeds of a mere realization or change of investment or from an enhancement of capital are not income nor assessable to income tax.''
The general principle has been recently expounded in a number of judgments in the High Court which referred with approval to the Scottish case of
Californian Copper Syndicate v. Harris (1904) 5 T.C. 159 at pp. 165-166. For example Mason J. stated in F.C. of T. v. Whitfords Beach Pty. Ltd. 82 ATC 4031 at p. 4040; (1982) 150 C.L.R. 355 at p. 372:
``It has been a long settled principle of revenue law that, unless a sale of property is made in an operation of business, the resulting profit will not be income according to the ordinary concepts and usages of mankind. The principle was expressed by the Lord Justice Clerk in Californian Copper Syndicate v. Harris in these terms:
- `Where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit... assessable to income tax. But is equally well established that enhanced values obtained from realization or conversion of securities may be so assessable, where what is done is not merely a realization or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business... what is the line which separates the two classes of cases may be difficult to define, and each case must be considered according to its facts; the question to be determined being - is the sum of gain that has been made a mere enhancement of value by realizing a security, or is it a gain made in an operation of business in carrying out a scheme of profit-making?'''
An almost identical reiteration of principle appeared in the judgment of Gibbs C.J. at ATC pp. 4033-4034; C.L.R. pp. 360-361: cf. also
London Australia Investment Co. Ltd. v. F.C. of T. 77 ATC 4398 at pp. 4402-4403; (1977) 138 C.L.R. 106 at pp. 115-116 per Gibbs J.
The words ``merely'' and ``mere'' are often seen to be critical in these statements: F.C. of T. v. Whitfords Beach Pty. Ltd. at ATC pp. 4038, 4046-4047; C.L.R. pp. 368, 383-384. So Gibbs C.J. said at ATC p. 4038; C.L.R. p. 368:
``If the taxpayer does no more than realize an asset, the profits are not taxable. It does not matter that the taxpayer goes about the realization in an enterprising way, so as to secure the best price... but if the taxpayer does engage in an operation of business, the proceeds are income and taxable.''
But these latter words should not be misunderstood, for many taxpayers engaged in business operations have capital assets, which are realized on occasions for good reasons connected with the structure and administration of their businesses, yet the resulting profits are not taxable.
Because of the uncertainty of the word ``mere'', I should prefer to place the emphasis on the positive requirement of the test, namely, that the sale or realization must be an act done in ``what is truly the carrying on, or the carrying out of a business''. If the asset sold is a structural asset of the business, a fixed asset rather than a current asset, then its realization is unlikely to produce a taxable profit in ordinary circumstances. On the other hand, merely because accounting usage would treat an asset as part of the fixed capital, that does not necessarily prevent a profit on resale from constituting income. Furthermore the words ``carrying on, or carrying out'' of a business, using the words of the Lord Justice Clerk, carry the seeds of a distinction which appears in sec. 25A(1) and in the former sec. 26(a) of the Act, the history of which is traced in some detail by Gibbs C.J. and Mason J. in the Whitfords Beach case. Those sections refer, of course, to a ``profit-making undertaking or scheme'' and its predecessor inserted in the former Income Tax Assessment Act 1923 in 1930 was described by Dixon J. in
Premier Automatic Ticket Issuers Ltd. v. F.C. of T. (1933) 50 C.L.R. 268 at p. 298 as follows:
``The alternative `carrying on, or carrying out' appears to cover, on the one hand, the habitual pursuit of a course of conduct, and, on the other, the carrying into execution of a
ATC 4999plan or venture which does not involve repetition or system.''
So far, therefore, as a business element is imported into the nature of income according to ordinary concepts and usages by the Californian Copper Syndicate case (supra), I would see it occurring at two stages of a taxpayer's business. On the one hand, the realization of investments may be merely part of the day-to-day course of conduct of that business but on other occasions income may be earned in a profitable realization occurring in the effectuation of a specific business venture. It is not practicable to analyse each of the cases where the concept of income under sec. 25 has been considered many of which were referred to in argument. Realizations which were acts done truly in the carrying on of particular businesses were held to be income in cases such as
Colonial Mutual Life Assurance Society Ltd. v. F.C. of T. (1946) 73 C.L.R. 604, London Australia Investment Co. Ltd. v. F.C. of T. 77 ATC 4398; (1977) 138 C.L.R. 106 and
The Chamber of Manufactures Insurance Ltd. v. F.C. of T. 84 ATC 4315, with which may be contrasted
Charles v. F.C. of T. (1954) 90 C.L.R. 598. In the London Australia Investment Co. Ltd. case, Gibbs J. said of periodic but systematic selling of shares by an investment company, that notwithstanding that the sales were effected in order to switch investments to produce the best dividend returns, ``the sale of the shares was a normal operation in the course of carrying on the business of investing for profit. It was not a mere realization or change of investment''. On the other hand there have been cases in which profits have been brought to tax where the profits have been achieved at the end of a specific business venture, and as examples one may point to the Whitfords Beach case itself, and
Jennings Industries Ltd. v. F.C. of T. 84 ATC 4288, although I concede that the language in a number of the judgments in those cases suggests a finding that the profits were made in ``carrying on'' the taxpayers business. The absence of clear examples in recent years in Australia of realizations which were described as the ``carrying out'' of a business venture may be fairly attributed to the wide language and interpretation of sec. 26(a). For present purposes it is not necessary to enquire further into the reasons why Gibbs C.J. and Mason J. held in the Whitfords Beach case that the second limb of sec. 26(a) caught some profits which were not assessable income pursuant to sec. 25.
One final general observation should be made. It was clearly not the purpose or object of the legislature that all profits on the sale of investments should be treated as income, for that was made clear by the inclusion in the Act of the former sec. 26(a) and the present sec. 25A. Nor does it follow from the authorities that whenever a taxpayer, corporate or otherwise, conducts a business, the sale of its investments at a profit will necessarily lead to those profits being treated as assessable income. Counsel for the Commissioner were obliged to concede that a company's head office building could ordinarily be sold at a profit without that profit being included as assessable income: cf. The Chamber of Manufactures Insurance Co. case at p. 4318. The same reasoning must apply to any assets which form part of the structure of the business, at least if there was not an ancillary purpose of purchasing the asset for resale at a profit. So an insurance company and a bank and for that matter any business may own buildings as head offices and as branch offices which it may sell without ordinarily the profits being caught by sec. 25. Likewise a taxpayer may acquire and sell one or more businesses with attendant goodwill for the purpose of carrying on its overall business and not ordinarily be taxed on the profits on resale.
There will of course be cases where, from the frequency of purchase and resale of buildings or businesses or whatever other ``capital assets'' one wishes to look at, one may fairly draw an inference that there is a different or ulterior purpose in those purchases and sales other than the need to provide a base or framework for the carrying on of the taxpayer's business. If the purchases and sales are frequent enough then they may be seen as merely incidental to the general carrying on of the taxpayer's business. The incidental profits of normal operations are clearly caught by the reasoning in the London Australia Investment Co. case. It does not follow that, because an investment was acquired with the intention that it directly provide income or that it be a means of earning income, that any profit on its resale should be considered as part of the carrying on or of the carrying out of a scheme of profitmaking, within the meaning of the well
ATC 5000known dictum in the Californian Copper Syndicate case. It is a natural incident of any asset acquired by a business that it should provide or be the means of earning income. Moreover it would be strange, especially in days of relatively high inflation, if most of those assets, other than wasting assets, were not sold at prices exceeding those at which they were purchased. Clearly in each case, for the profit to be treated as assessable income the profitable realization must be an act done in what is truly the carrying on or the carrying out of the taxpayer's business, especially if the profitable sale is indeed part of a wider transaction and that transaction had profit on realization as its motive.
Notwithstanding that the onus of proof rests upon the taxpayer and dicta in the authorities requiring Mr Summons' statements to be tested closely and received with the greatest caution (cf.
Jacob v. F.C. of T. 71 ATC 4192 at pp. 4193-4194; (1971) 45 A.L.J.R. 568 at pp. 569-570), I am satisfied that the taxpayer company's purchases of the shares in West Melton and Viewbank were investments of a particular kind, that the sales of those shares involved merely realizations of those investments and that those realizations were not acts done in the carrying on or the carrying out of its business. Moreover I am satisfied that when the company sold these shares in Viewbank and West Melton it was effectively selling out its interest in two particular parts of its business in a manner which was not contemplated when those shares were acquired.
The company carried on its business in a number of ways in order to earn income and significant amongst those methods of carrying on business was the investment in particular joint venture projects. Over the period from 1964 to 1973 there appear to have been only five investments by the company of a kind which required the acquisition of shares in joint venture companies. Each of them was retained for some time and each of them, I am satisfied, produced income by enabling the company to earn town planning fees and in some cases management fees. The syndication projects which involved HAS may have been different in the sense that it is possible that Mr Summons intended that the company might sell out its shares and its interests in those ventures as an investor in accordance with the terms of each of those agreements. It is not necessary for me to make any finding to that effect for the West Melton and Viewbank projects were quite different and I do think it reasonable to draw any inferences as to the nature of the company's investment in those companies by reference to its activities in the few other ventures in which it invested in shares and which involved different parties and different kinds of agreement.
It was said, as was the fact, that the company made, by the realization of those shares, substantial profits on its original investment, which for the most part had been nominal in amount. Moreover it was said that it was always contemplated that the company should make profits at the end of the day which would flow from the increased value of the land in which the company invested by means of its shareholdings. So much may be true, but those profits were intended to be earned by way of distribution of profit either by dividend or during liquidation and not by resale of the shares, and this distinction is one not merely one of form but of substance. Profits which did not have to be ploughed back into West Melton would not be available for distribution by way of dividend or otherwise until the 12th to 14th years and a similar but comparatively shorter time scale applied to the profits of Viewbank. Then those profits would be distributed as they became available over a number of years and at a time when Mr Summons contemplated that he would be close to retirement. Moreover, throughout the period during which those estates were being developed, the company would receive not only fees on an ad hoc basis for specific planning work but the percentage fees agreed on as being payable on the rezoning (in the one case) and on sale (in both cases) of the land at each stage of development. In truth therefore the company was being bought out and in circumstances primarily not of its own choosing. In return for a capital sum it lost its right in a structural asset and thereby its rights to the anticipated dividends and to the agreed fees, including the management fees in the case of Viewbank. The evidence did not reveal what profits were in fact earned on the ultimate sale of the West Melton land, although I understood that most of the estate has now been sold, and there seemed some doubt how far the Viewbank project had proceeded after Cambridge bought the company's shares. The amounts paid by Cambridge were no doubt
ATC 5001large if one has regard only to the amount paid up on each share, but there was in fact a great deal of time and trouble spent by the company and by Mr Summons which was reflected in the price, as well as a considerable inflationary factor.
So the sales of the West Melton and Viewbank shares were by no means sales in the ordinary course of business nor were they incidental to an effective switching or changing of investments. They brought about the end (for the company) of two apparently successful ventures and in each case this was an end which was neither contemplated nor wished for. Moreover, although the company had seen the earning of income as a natural corollary of its holding of the shares, for a number of reasons it had never seen the sale of the shares, nor had Mr Summons seen the sale of the shares, as the fruition of the carrying out of a business venture. One has only to look at the circumstances of the shareholdings to see that had not been a realistic prospect, unless circumstances forced the company to sell. Each company was a private company, each company had a dominant shareholder, Cambridge, with rights to 60% of profits and effective control in the board room. No outside purchaser could reasonably be contemplated for it would become a minority shareholder in a company over which it could have no control. Moreover the ordinary provisions of its articles of association (as a private company) meant that Cambridge could block any transfer, even if an outsider wished to come in. The virtue of the holding of these shares to the company was to a large extent its continued participation in the town planning and management activities of the company, something which could not be disposed of by the company unless there was a novation to which Cambridge was a party. In truth Cambridge was the only practical purchaser of the shares but in circumstances which the company could not reasonably have anticipated or desired, and in fact the purchases were brought about by a dispute of a kind which had led to litigation in the one case and which could well have been duplicated in the case of Viewbank, if the company had not sold its shares early in 1974.
I turn then to a number of specific submissions made on behalf of the Commissioner. At the forefront of those submissions was a contention that the shares in both companies were revenue assets of a project development business and were not what has been called mere investments or passive assets, such as office buildings or shares in companies with which the taxpayer was not connected. It is true that these shares were not passive assets in the sense that shares in public companies ordinarily would have been or in the sense their mere acquisition was likely to produce income without further activity on the part of the taxpayer. It does not follow, however, that these shares were revenue assets in the sense that shares acquired by an investment company might be, for it is clear that they were not intended to be turned over regularly or according to some plan which might deny them the character or the characteristics of fixed or structural assets. Moreover it is no more realistic to call an investment in an office building a mere investment than it is to call an investment in the shares of a business. In each case the investment is designed to enable the company to earn income, for if they are structural assets, as they have been described, they are not revenue assets. Every trading company is formed with an eye to earning income or profits, and its assets may be seen as either a long-term or short-term means of achieving that end. There is no doubt that the profitable turnover of revenue assets will produce income according to ordinary concepts, but it does not follow that if the taxpayer company invests in shares as a means of earning its income that the sale of those shares produces income within the meaning of sec. 25. In my opinion, the taxpayer company intended to retain these shares for as long as the ventures continued and in those circumstances I do not consider them to be properly characterised as revenue assets.
For this purpose, counsel relied upon a recent decision of the Full Federal Court in Jennings Industries Ltd. v. F.C. of T. 84 ATC 4288, a case which was said to bear a close resemblance to the present appeals by the company. It certainly involved the acquisition of shares in a company which purchased land, albeit on that occasion it was an office building in the city of Adelaide purchased pursuant to a joint venture agreement, which was sold within 22 months of their purchase. The matter was resolved against the taxpayer at first instance by the application of the onus of proof and this finding was upheld on appeal. However, further
ATC 5002findings of facts were made in the judgment of the Court that the sale was a step taken in the course of carrying on of the company's business. I am not, however, satisfied that the case was truly analogous, nor that there is any statement of principle contained in the judgments which would bind me to find in favour of the Commissioner. In the course of those findings the Court made the critical finding that: ``We are satisfied that the taxpayer also always expected and intended to profit by the realization of its interest in the project.'' (At p. 4293.) Shortly thereafter the Court again expressed the view that a sale of the shares was always in contemplation by the taxpayer ``at least as a possible method of realization of its interest in the project''. That is sufficient to distinguish this case on its facts. Moreover it was held (at p. 4294) that the sale of the shares was not ``a mere realization of an investment at a profit but a step taken in the course of a new part of the taxpayer's ordinary business''. The very contrary was proved in the present case for the step of sale brought to an end the company's interest in each venture.
Finally, it was said that the Jennings Industries Ltd. case recognised a test which touched upon establishing whether a particular gain is in the course of a business activity and that any gains which are derived in the course of that business activity and in dealing with the assets of the business should normally be regarded as income. That may well be so, and indeed it would be consistent with the decisions in the London Australia Investment Co. case and the Chamber of Manufactures Insurance Co. case, but in my opinion the sales of the Viewbank and West Melton shares were not made in the course of the company's business activities, for they terminated its activities in each of the ventures in a manner not originally contemplated. Of course, it can be said that every activity of a company engaged in commercial activities may fairly be described as a business activity, but that description fails to take account of the clearly accepted possibility and, indeed, likelihood that a company will, from time to time, realize its capital or structural assets without the profit becoming taxable. Nor does it matter that the company uses those capital assets to produce income, for it is hard to conceive of assets which a company would hold but which would not be used in that way. If realization was a part of or ``an integral element'' of a wider transaction, in the language used in the judgment in the Jennings Industries case (at p. 4294), then the situation would be different, but, if, as I consider the realization was not part of that wider transaction, then it seems that the principle stated above from the Whitfords Beach case (at ATC pp. 4034-4035, 4040; C.L.R. pp. 360-361, 372) must apply.
I should finally mention an argument which appeared to view the obtaining of profit from the sale of the shares as the equivalent of obtaining the profits of the two venture companies, so that in the language of the submission in reply ``the shares were the conduit through which the profits of the business which the taxpayer expected and intended should flow''. Although one should take a realistic view of any transaction and venture, in my opinion the disposition of the conduit is very different from the transmission of profits through that conduit. One cannot ignore the existence of the corporate entities, where those are not shams, for indeed the Act recognises that taxpayers will earn income through companies and there are many special provisions which recognise those distinctions and which enable the Commissioner to go behind the corporate veil for particular purposes. Section 108 and the whole of Div. 7 reflect these difficulties, as many of the provisions in sec. 44-47 and the new sec. 25A. Subsections (2), (3), (7), (10), (11), (12) of the latter section have been described as the Hobart Bridge amendments (see Parsons: Income Taxation in Australia (1985) para. 3.84) and they recognise that without such provisions one cannot ordinarily ignore the existence of genuine company structures. Kitto J. in
Hobart Bridge Co. Ltd. v. F.C. of T. (1951) 82 C.L.R. 372 at pp. 384-385 rejected the idea that limited liability companies were mere machinery for effecting the purposes of the shareholders and described them in the language of Lord Sumner as a ``layman's fallacy''. In that case a company formed a subsidiary for the purpose of constructing a bridge and his Honour described that activity in these words (at p. 383):
``The shares it held in the Derwent Company were assets with which it had equipped itself in order to participate, by means of dividends in the anticipated profits of the Derwent Company. The business of
ATC 5003the appellant company did not include the making of a profit by the disposition of those shares.''
Those observations are pertinent to both limbs of the Commissioner's argument in this case, notwithstanding that there were other means by which the company was intended to and did earn assessable income from its activities in the ventures. It is not necessary to elaborate the argument, although it should be remembered that the profits on the resale in the land were, of course, taxable in the hands of each of the venture companies.
Finally I should mention an argument which was relevant both to the Commissioner's contention that the profits on sale was income according to ordinary concepts and that the profits were taxable pursuant to the second limb of sec. 26(a). It was said that where there is a profit-making undertaking or scheme or where an asset is committed to a business, it does not matter that the precise way in which a profit is eventually obtained was foreseen or intended at the time the scheme began or when the asset was committed to the business. I accept that a principle in those terms has been worked out in the authorities, certainly in relation to sec. 26(a): cf. Premier Automatic Ticket Issuers Ltd. v. F.C. of T. (1933) 50 C.L.R. 268 at p. 300 and
Steinberg v. F.C. of T. 75 ATC 4221 at pp. 4234-4235, 4241-4242; (1975) 134 C.L.R. 640 at pp. 670, 699-700 and 714-715. But although the principle applies where it can be shown there is a profit-making undertaking or scheme, I am by no means convinced that it applies generally to every asset committed to or acquired by a business. Gibbs J. stated the rule in Steinberg's case at ATC 4234; C.L.R. in p. 700:
``When property is bought with the purpose of making a profit in the easiest or most advantageous way that may present itself, and the taxpayer adopts `one of the many alternatives' that his plan leaves open, thereby returning himself a profit, he will rightly be said to be carrying out a profit-making scheme.''
The degree of precision may vary according to the particular plan or business or venture and the final profitable dealing with the property may not have been worked out from the outset, but the plan ``must necessarily have as its object the making of a profit'': Steinberg's case at ATC p. 4242; C.L.R. p. 715 per Stephen J.
However, in my opinion an object of making a profit is not synonymous with the object of earning income. Every asset acquired by a business is acquired with the intention of earning income directly or indirectly. It was suggested that there was a distinction between assets which were the subject of profit-making undertakings and schemes and mere investments, which to my way of thinking involves a slide from the concept of ``mere realization'' to a ``mere investment''. I do not fully understand what a mere investment is, for I doubt that it is easy to characterise any assets as mere investments, unless that be confined to shares in listed companies (for most investors) and interest bearing securities. Taking the example of the office building, it would not seem to matter greatly whether it was the head office or the branch office or whether the office was used only partly as a place for carrying on the income earning activities of the company and partly to lease out unwanted floors to tenants. Nor would it necessarily matter that a taxpayer acquired a business, with attendant goodwill, which was used as the means of earning his day-to-day income. It is only when the asset is acquired or is committed to a scheme which contemplates at least the possibility of the earning of a profit on ``realization'' used in its widest sense, that the issue of the taxability of the profit arises. This is not such a case, for realization of the shares or the company's interests in each venture was no more in contemplation from the outset or during the carrying on of these ventures than are passive investments acquired by any taxpayer.
I have not done full justice to the detailed and careful arguments presented on behalf of the Commissioner on this part of this case, but for the reasons I have expressed I have reached the firm conclusion that the profits on the sale of the shares in Viewbank and West Melton did not constitute income according to ordinary concepts and usages.
I turn then to the application of the second limb of sec. 26(a) of the Act. Counsel for the Commissioner conceded that if I were satisfied that the shares were acquired only as a passive asset, then the profits could not be taxed under either sec. 25 or 26(a). They likewise accepted that the Whitfords Beach case had established that the second limb of sec. 26(a) did not apply to profits derived from the carrying on of a
ATC 5004business which are assessable as income according to ordinary concepts. It follows that sec. 26(a), by both limbs, applies to capital profits, that is ``profits not attributable to gross income that has already been captured by sec. 25'': per Mason J. in
F.C. of T. v. Bidencope 78 ATC 4222 at p. 4234; (1978) 140 C.L.R. 533 at p. 555, applied by Gibbs C.J. in the Whitfords Beach case at ATC pp. 4037-4038; C.L.R. pp. 366-367: see also at ATC p. 4046; C.L.R. p. 383 per Mason J. What is significant about this conclusion, and the careful reasoning which proceeded it, is that the word ``profit-making'' in both limbs of sec. 26(a) is directed to the making of capital profits. In my opinion it also follows that one should be cautious about describing a profit-making undertaking or scheme by reference to elements in an undertaking or scheme which do not involve the making of profits in that sense.
The Commissioner's submission on this head necessarily separated the two ventures as independent undertakings or schemes for the purpose of this argument, although their characteristics were almost identical. It was also contended that, in order to reach the conclusion that each undertaking or scheme was a profit-making undertaking or scheme one could look at the purpose of the activities and the purpose for holding the shares in each case. To that end reference was again made to the fact that the schemes involved the company earning fees and ``profits'' from each project, including the town planning fees, the percentage fees payable on completion of each stage, the management fees and finally the eventual distribution of the profits of each venture company by dividends or upon winding up. That, it was said gave each undertaking or scheme sufficient complexity to involve either a ``program or plan of action'' in the language of Kitto J. in
Clowes v. F.C. of T. (1954) 91 C.L.R. 209 at p. 225, of Gibbs J. in
XCO Pty. Ltd. v. F.C. of T. 71 ATC 4152 at p. 4155; (1971) 124 C.L.R. 343 at p. 349 and of Stephen J. in Steinberg's case at ATC pp. 4241-4242; C.L.R. pp. 714-715, or activities which were ``co-ordinated by plan and purpose'', in the language of Windeyer J. in
Investment and Merchant Finance Corporation Ltd. v. F.C. of T. 70 ATC 4001 at p. 4007; (1970) 120 C.L.R. 177 at p. 189, applied by Stephen J. in Steinberg's case at ATC pp. 4241-4242; C.L.R. pp. 714-715. As Gibbs J. said in Steinberg's case at ATC p. 4234; C.L.R. p. 699:
``A profit-making scheme within sec. 26(a) is a plan, design or program of action devised and put into effect for the purpose of making a profit.''
However, a scheme devised to earn income, however complex in form and however loose in structure, is not necessarily to be described as a profit-making undertaking or scheme. Since sec. 26(a) was directed to capital profits, then there must be seen to exist as part of the contemplated scheme, not necessarily as the dominant purpose, but as one of the purposes or as one of the possible intended means of producing profit, the realization at a profit of assets committed to the scheme or undertaking, using ``realization'' in the widest sense of the term.
It follows that my findings in relation to the nature of the shareholdings in West Melton and Viewbank preclude an answer in favour of the Commissioner on the basis of the second limb of sec. 26(a). I am satisfied that the company, through the mind of its controller Mr Summons, did not contemplate, either at the outset nor during the practical effectuation of the venture the sale of the shares or the realization of the company's interests in each venture either at a profit or at all, further Mr Summons came to the conclusion that the company must sell its shares and its interest in each venture only by reason of the circumstances which arose out of his estrangement with his wife and his disagreements with Cambridge. I should add that in characterising the nature of the schemes or undertakings in each case, no colour can fairly be given to them by reference to the ARC and DEK transactions. As already stated, those transactions were so different in kind, both in their purpose and structure, that I see no useful analogy to the company's interests in the West Melton and Viewbank companies and ventures. Moreover I should add that I am not suggesting that, merely because the company acquired its interests in those ventures by subscribing for shares, the undertakings or schemes were necessarily deprived of a profit-making character, and I repeat that the making of profits by the venture companies could in the present case be dealt with by the Commissioner in assessing those companies' tax. If the schemes had been carried out, certain different
ATC 5005consequences may have flowed upon the distribution of dividends or the profits upon winding up as those sums were received by the company, but that is not presently an issue. Although the Commissioner pointed to the distribution of those profits as giving the West Melton and Viewbank ventures the characteristics of profit-making, that consequence does not flow logically for the reasons I have already expressed.
It follows that there was no profit-making undertaking or scheme on the part of the company in relation to either the West Melton or Viewbank shares or ventures, within the meaning of the second limb of sec. 26(a). As I have also concluded that the profits were not income according to ordinary concepts, the Commissioner has, in my opinion wrongly assessed the company for income tax in relation to those profits and the appeals brought by it in each case must be allowed.
Appeals by Mr Summons and Mrs Smith
The second principal issue on the hearing of these appeals was the effect and taxability in the hands of Mr Summons and Mrs Smith of the distributions made by the company from the proceeds of sale of the DEK, Viewbank and West Melton shares during the years ended 30 June 1973 to 1979. The circumstances of the distributions have already been described and they raise a number of questions, especially in relation to the application of sec. 6, 44 and 108 of the Act. Subsection (1) of sec. 108 which is one of the provisions contained in Div. 7 of Pt III of the Act, read throughout the whole of the period as follows:
``If amounts are paid or assets distributed by a private company to any of its shareholders by way of advances or loans, or payments are made by the Company on behalf of, or for the individual benefit of, any of its shareholders, so much, if any, of the amount or value of those advances, loans or payments, as, in the opinion of the Commissioner, represents distributions of income shall, for the purposes of this Act other than the purposes of Division 11A of Part III and Division 4 of Part VI, be deemed to be dividends paid by the Company on the last day of the year of income of the Company in which the payment or distribution is made.''
There can be little doubt that each of the payments were either advanced or lent or paid for the individual benefit of the shareholders, being the individual taxpayers, although the significance and nature of the relevant advances or loans was challenged by counsel for those taxpayers. Further, although there was no direct evidence of the fact, it must be taken that the Commissioner formed the opinion that those payments represented distributions of income of the company. Since no evidence was led on either side as to the forming of this opinion it could only be challenged if it was not reasonably open to the Commissioner to form the conclusion that those payments represented distributions of income. Further there remained the question whether having formed that opinion the Commissioner was entitled to deem those payments to be ``dividends'' for the purposes of sec. 108, after having regard to the provisions of both the definition in sec. 6(1) and sec. 44 of the Act.
Turning first to the question of the Commissioner's opinion, the answer to that question may vary according to whether the distributions come from the profits on the sale of the DEK shares or from the profits on the sale of the Viewbank and West Melton shares. The concession made by counsel for the individual taxpayers as to the nature of the DEK profits, precluded them from denying in these proceedings that the amounts constituted income of the company. However, my conclusions as to the nature of the proceeds from and the profits arising out of the sale of the Viewbank and West Melton shares must lead to the conclusion that the Commissioner was not entitled to form an opinion under sec. 108 as those profits were not income. This was explicitly conceded by counsel on behalf of the Commissioner. The concession seems correctly made, although, from the ``Explanatory Note'' to the 1952 Bill referred to in the judgment of the Federal Court in
MacFarlane v. F.C. of T. 86 ATC 4477 at pp. 4483, 4492, one may wonder why the draftsman preferred the comparatively narrow term ``income'' to the broader term ``profits'' appearing in sec. 44(1) and formerly appearing in sec. 108. For present purposes it is not necessary to decide whether ``income'' means income according to ordinary concepts or ``assessable income'', for the result would here be the same.
That is not the end of the matter, however, for the Commissioner contended that the Viewbank and West Melton profits were distributed or ``credited'' in favour of the individual taxpayers in a manner which brought those distributions or credits within the definition of ``dividends'' in sec. 6(1), (4) and (5), so that they formed part of their assessable income because they were paid out of profits within the meaning of sec. 44. So far as the DEK profits were concerned, a concession made for the purpose of these appeals with the consequence that the Commissioner was entitled to form the view that the relevant transactions represented ``distributions of income'' by the company within the meaning of sec. 108, and no argument was put to the contrary. However, it was said of the DEK distributions, as with the other distributions, that they were not made out of profits so that they could not form part of the assessable income of the individual taxpayers either generally or pursuant to sec. 44. To that argument I will turn in a moment.
Before turning to the question of available profits within the meaning of sec. 44, it is desirable to determine whether the distributions of the Viewbank and West Melton profits were properly characterised as dividends by the Commissioner. To this contention counsel for the taxpayers said that each of the relevant transactions was an ordinary loan and therefore could on no understanding of the term be considered a dividend, and that they could be brought to tax as assessable income only if paid out of profits and if the Commissioner was entitled to and did form an opinion pursuant to sec. 108.
It is first necessary to look at the definition of ``dividend'' in sec. 6 of the Act. I shall include only the positive parts of the definition, because the exclusions which concern share premium accounts and returns of paid up capital, and subsec. (4) and (5), are not relevant to the present appeals. The relevant part of a definition reads:
```Dividend' includes -
- (a) any distribution made by a company to any of its shareholders, whether in money or other property;
- (b) any amount credited by a company to any of its shareholders as shareholders; and
- (c) the paid up value of shares issued by a company to any of its shareholders to the extent to which the paid up value represents a capitalization of profits...''
It is desirable also to state the relevant provisions of sec. 44(1):
``The assessable income of a shareholder in a company (whether the company is a resident or a non-resident) shall, subject to this section and to section 128D -
- (a) if he is a resident - include dividends paid to him by the company out of profits derived by it from any source...''
Finally I add the definition of the word ``paid'' in sec. 6(1):
```paid' in relation to dividends includes credited or distributed;''
Over the years the relationship between sec. 108 and 44, including the definition of dividend contained in sec. 6, has been rarely considered. It seems clear now that sec. 108 should not be considered only as a means of deeming transactions to be dividends for the purposes of Div. 7 of Pt III and in relation to sufficient distributions of companies' incomes, but that it also enables the Commissioner to form an opinion having the effect that the deemed dividends may be assessable income: see
Rutherford v. F.C. of T. 76 ATC 4304 and MacFarlane's case (supra). Where the line is to be drawn between those distributions, payments or credits by a company, which should be treated as dividends by reason of the definition in sec. 6, and those distributions, payments or credits, which can only be deemed to be dividends if the Commissioner forms an opinion pursuant to sec. 108 is harder to ascertain. Beaumont J. in MacFarlane's case said at p. 4492:
``The mischief aimed at by sec. 108(1) was the avoidance of tax on informal or `de facto' dividends - payments disguised as a different transaction but, in substance, dividends, because the payments in fact made over profits or income of the company.''
Counsel for the Commissioner submitted that sec. 108 proceeded from the assumption that payments by way of advances or loans and payments made by a company on behalf, or for the individual benefit of, the shareholders are
ATC 5007not dividends, nor are they distributions of income. However, it enables the Commissioner to form the opinion that those amounts represent distributions of income and the section thereby deems them to be dividends. If the company has distributed the dividends out and out, whether they be directly paid or whether they be credited, and whether or not they are not formally described as dividends, there is no need for the Commissioner to resort to sec. 108. So in practice the Commissioner would need to form an opinion only where the company did not purport to credit or distribute its moneys beneficially to shareholders, but where the payments or credits were ``disguised'' as some other transaction, especially advances or loans.
Counsel on behalf of the individual taxpayers was not inclined to dispute this analysis and I have concluded that it is correct, although it leaves a number of difficult practical decisions unanswered. In particular it may overlook the fact that, if a distribution is truly disguised as an advance or loan, it would be a sham and its form could properly be ignored by the Commissioner in reaching a conclusion pursuant to sec. 6 and 44. So counsel for the taxpayers insisted, in answer to this argument, that the loans recorded in the books relating to these profits were genuine, notwithstanding Mr Summons' belief that the moneys were available to him and were non-returnable.
Perhaps the distinction is to be drawn between those advances and loans which effectively put the money in the hands or bank accounts of the shareholders, to be drawn on as and when they wish without suffering the disadvantage (subject to sec. 108) of having to account to the Commissioner for those moneys as part of their assessable income, and those advances and loans which are mere book entries and which are not intended to reflect the parties' real acts. The former is a good example of circumstances where the Commissioner might fairly form an opinion because the benefit of the distributions are received before any formal dividends are declared. Subsection (2) of sec. 108 appears to be directed to the effect of a subsequent but bona fide dividend catching up with the moneys actually distributed.
In the present case, the individual taxpayers carry the onus of showing that the Commissioner was not entitled to treat the payments or credits as assessable income. To that end they must show that these alleged loans or advances were bona fide and not merely shams. Upon the admissions of the only taxpayer to give evidence, there is little doubt that he viewed those moneys as non-returnable. In fact at the very end of cross-examination he stated:
``It certainly was not my original intention to return them because I was under the impression I had no obligation to do that.''
Although there was indirect evidence as to advice by counsel as to the taxability of the payments and as to an accountant's advice as to the manner of drawing up the books, there was no direct evidence from either of these persons and in particular the accountant. The entries shown in Exhibits ``AA'' and ``BB'' are by no means consistent so far as the profits from the Viewbank and West Melton sales were concerned. Certainly the $19,000 debited to each taxpayer's current account was described in the ledger as a loan. Later payments were not so carefully described and the proceeds from the West Melton sale were on occasions described in the journal narration as ``being receipts and payments from sale of shares'' and on others ``balance owing under terms of agreement for sale''. After a careful examination of the books and the figures appearing in the two exhibits, I am not satisfied that there were any genuine advances or loans to the individual taxpayers. Although the ledger shows that each of them on the face of the books owes the sums distributed to them, I am not satisfied that the parties entered into arrangements by which the sums were to be repaid to the company and in fact the expectation of the parties, so far as is known to the Court, is the contrary. Although there might be some argument by the company claiming estoppel against them based on the signing of the books of account by the taxpayers, I do not think that is sufficient to establish that there was any genuine loans in relation to any of these distributions. However, merely because there were distributions does not lead necessarily to the conclusion that dividends were paid of a kind which ought to have been included in the taxpayers' assessable income. So far as the DEK share sale was concerned, that took place much earlier in the company's existence and I am satisfied that at that time, when the company was carrying on business
ATC 5008the loans were intended to be repaid in so far as they were created by the debiting of the taxpayers' individual accounts. However, as I have already stated, by reason of their concession the Commissioner was entitled to form the opinion pursuant to sec. 108 that those transactions represented distributions of income. It was argued that in relation to the DEK shares that the sums dealt with by the Commissioner represented only a balance of account and therefore were not advances or loans within the meaning of sec. 108. I do not accept that argument, for the sums so treated by the Commissioner were calculated after deducting from sums in fact advanced or lent other sums which the Commissioner was prepared to set off for this purpose. The taxpayers were not disadvantaged by this procedure and it seems consistent with the purpose of the section.
So the amounts lent in respect of the profits on sale of the DEK shares are deemed to be dividends, but there is an intermediate question whether the amounts credited to the taxpayers from the sales of the Viewbank and West Melton shares were dividends within the meaning of the definition in sec. 6 and for the purposes of sec. 44. It is sufficient to say that the course of authority over the years has established that the definition of ``dividend'', both before and after its amendment in 1967, has been accepted as of the widest character and going far beyond that which would be accepted as the definition of dividend for company law purposes. This much is apparent from the cases such as
F.C. of T. v. Blakely (1951) 82 C.L.R. 388,
F.C. of T. v. Uther (1965) 112 C.L.R. 630 and
F.C. of T. v. Slater Holdings Ltd. (No. 2) 84 ATC 4883; (1984) 156 C.L.R. 447. In so far as these sales were concerned it appears more likely that the company has ``credited'' an amount to its shareholders, for this word in turn has received the widest meaning including the benefit of a sum by way of credit entry, set off or other statement of account: cf.
Jolly v. F.C. of T. (1934) 50 C.L.R. 131 at p. 142, per Dixon J.
However, at the hearing of these appeals it was the question whether the distributions or credits by the company of these sums amounted to ``dividends paid to (them) by the company out of profits derived by it from any source'' which provided greatest difficulty. A direct conflict was seen to arise between the judgment of Sheppard J. in Rutherford v. F.C. of T. 76 ATC 4304 and that of Enderby J. in
Masterman and MacFarlane v. F.C. of T. 85 ATC 4015. In the earlier decision a narrow view was taken of the word ``profits'' consistent with the rules applicable to the payment of dividends according to the law relating to companies. In that case it was held that it was necessary, before one could find that a payment was made out of profits, for the profits to be ascertained according to conventional accounting methods which could only be applied at the end of each financial period. As the payments were made during the financial year and before the profits, if any, had been determined, it was held that the payments in question were not dividends which could be included in the taxpayer's assessable income.
The difficulty raised by that decision has now largely been overcome, at least so far as this Court is concerned. In MacFarlane's case 86 ATC 4477 on appeal from Masterman and MacFarlane v. F.C. of T. (supra), Rutherford's case was not followed and it was held that for the purposes of sec. 44 and 108 it was unnecessary to find a fund which company law would define as consisting of profits available for dividend. Consistently with the opinions expressed by the High Court in the Slater Holdings Ltd. case the Federal Court held that there was ``no justification for attributing a narrow or accounting meaning to the word profits'' and that:
``There is nothing to indicate the legislature had in mind designating the nature of these profits i.e. net profits, divisible profits, after tax profits etc.''
: per Fisher J. at pp. 4482-4483.
Likewise there was no basis for considering that ``profits'' in sec. 44 referred only to profits of a revenue or income nature and, as Gibbs C.J. said in the Slater Holdings case (at ATC p. 4886; C.L.R. p. 454) ``there is no reason to doubt that the word includes `capital profits'''.
There must indeed be profits for the purpose of sec. 44 but there is little doubt in the present case that profits were available. On each occasion, whether after the sale of the DEK, Viewbank or West Melton shares, the company had more than an adequate fund of profits from which to pay a dividend if it had chosen to do so. Consequently the distributions by way of crediting the individual taxpayers' accounts can
ATC 5009properly be characterised as dividends paid out of profits for the purpose of sec. 44 and therefore part of the taxpayers' assessable income. The figures were perhaps a little uncertain in the early years when the DEK shares were sold, but the taxpayers did not attempt to show that there were not sufficient profits of the relevant kind to be distributed as deemed dividends. At the time the Viewbank and West Melton shares were sold the company had virtually no other income or expenditure, apart from a few minor expenses, which were taken into account by the Commissioner, so that the capital profits from the sale of those shares were clearly available for distribution. It was argued that those distributions could not be made because of the failure to make certain provisions, especially for the payment of tax. However, I have already held in the present case that the company was not liable for tax in respect of the sale of the Viewbank and West Melton shares and there was relatively little income at those times. In any event the Federal Court decision in MacFarlane's case now binds me to the conclusion that the need to make provisions, which is essential before the declaration of a dividend pursuant to the provisions of the Uniform Companies Act and the Companies Codes, is not relevant in determining whether there are profits available for distribution for the purposes of sec. 44: see per Fisher J. at p. 4484 and per Beaumont J. at pp. 4493-4494. It follows, in my opinion, that the sums credited in favour in each of the individual taxpayers set out in exhibits ``AA'' and ``BB'' flowing from the sale of the DEK, Viewbank and West Melton shares, were properly included in those taxpayers' assessable income.
The result of these appeals is that the company's appeals are allowed and that the individual taxpayer's appeals, namely those of Mr Summons and Mrs Smith, are rejected. Accordingly in the case of each of the appeals brought by the company I order that the appeals be allowed, that the assessments be set aside and that the matters be remitted to the respondent for determination in accordance with my reasons for judgment. In the case of each of the appeals by Mr Summons and by Mrs Smith I order that the appeals be dismissed and that the assessments appealed against be confirmed. In relation to costs I order that the costs of the company, including reserved costs of and incidental to each appeal be taxed and when taxed paid by the respondent. As to the costs of the appeals brought by Mr Summons and Mrs Smith, I order that the costs of the respondent, including reserved costs, of and incidental to each appeal be taxed and when taxed paid by each appellant. In case there are matters of detail which require working out as a result of these reasons for judgment, I give liberty to apply generally.
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