HENRY JONES (IXL) LIMITED v FC of T

Members: Jenkinson J
Hill J

Heerey J

Tribunal:
Full Federal Court

Decision date: Judgment handed down 16 August 1991

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Heerey J

In my opinion the learned trial judge was correct in concluding that the amount received by the appellant from Citicorp was assessable under s. 26(a) of the Act.

The commercial landscape in which this transaction took place was dominated by two features, the appellant's desire to quit the deciduous canned fruit business ``no matter what'' and the fact that the only likely purchasers would not agree to pay a lump sum.

It was in that setting that the appellant entered into the licence agreement so as to create an asset capable of sale and thereby reap the return which it sought, cf
FC of T v Whitfords Beach Pty Ltd 82 ATC 4031 at 4045; (1981-1982) 150 CLR 355 at 381 . The appellant's purpose in creating the licence agreement was to assign it for a lump sum. It was never contemplated that the appellant should receive royalties over the ten year period or any part thereof. Indeed the very features pointed to by counsel for the appellant, such as the lack of any provision in the agreement obliging the licensees to use the marks, underline the conclusion that this licence agreement was made to be sold. The undoubted fact that the course the appellant took was dictated by the commercial considerations mentioned cannot alter or qualify the legal effect of what took place.

In my opinion this case is, on this issue, not relevantly distinguishable from Myer.

But as Gibbs J pointed out in
Loxton v FC of T 73 ATC 4001 at 4006 , for the purpose of s. 26(a) ``it is not enough that the property was acquired for the purpose of selling it; it must have been acquired for the purpose of making a profit by selling it''. It is at this point that one meets the argument of the appellant that there was in fact no profit. For the reasons given by Hill J, I think there was a profit. Whatever may have been the subjective views of those within the appellant's organisation as to tax liability, there is no doubt the appellant in fact achieved precisely what it intended. If the correct legal characterisation of that result is that a profit was made, the appellant must be treated as having had the intention and purpose of making that profit.

As to the second part of Hill J's judgment, I agree with his Honour's reasoning and his conclusion that this is a case where there has been an assignment of income from property without an assignment of the underlying property right and consequentially the consideration received for the assignment is income according to ordinary concepts and hence within s. 25(1). The appeal should be dismissed.

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The respondent's costs of the appeal be paid by the appellant.