Clowes v. Federal Commissioner of Taxation

(1954) 91 CLR 209

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(Judgment by: WEBB J.)

CLOWES v COMMISSIONER

Court:

Judges: Dixon C.J.
Webb J.
Kitto J.
Taylor JJ.

Hearing date: 1953, September 16; 1954, April 7.
Judgment date: 7 April 1954

SYDNEY

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Judgment by:
WEBB J.

I would dismiss this appeal for the reasons among others given by Taylor J.

2. In addition to the parts of the agreements referred to by his Honour, I rely on the following provision: -

". . . And the company shall continue to plant the remainder of the said land as the remaining lots are taken up and paid for from time to time".

3. But for this provision it might be arguable that there is not sufficient on the face of the agreements or elsewhere to connect the appellant taxpayer with the source of the income, i.e., with the profit-making undertaking or scheme. "The difference between capital and income depends upon the relation of the recipient to the source of the receipt": Commissioner of Taxation (N.S.W.) v. Stevenson, per Rich, Dixon and McTiernan JJ. (1937) 59 CLR 80 , at p 97 . It may be that with the assistance of the records of the company the particular portions of the land planted with pine trees as the result of the taxpayer's purchase of lots can be identified. But in any event I think there is enough on the face of the agreements to indicate that the taxpayer acquired not choses in action but interests in particular timber in respect of which he was paid, on the basis of his lot-holding, his due proportion of the profits from the timber grown on his lots and other lots, and thus to establish the necessary relationship between the taxpayer and the source of the income and to prevent the latter from being held to be a capital receipt. In my opinion the single harvest of all lots and the distribution of the proceeds on the basis of lots held did not prevent the taxpayer's lots from being the source of his income.

4. If several farmers agreed upon a joint harvesting and marketing of crops and shared the proceeds on an acreage basis, the share of each would, I think, have its source in his land and not in the agreement; although the agreement might render that share greater or less than the proceeds of individual operations. Here the source of the income in question is in the cultivation of the lots, i.e., in the profit-making undertaking or scheme, and not in shareholding in the company.

5. So regarded the taxpayer was as much a party to this profit-making undertaking or scheme as was the company which operated on his lots. As a lot-holder in the land he received his share of the profit. He was not a shareholder in receipt of assets of the company. As to nine-tenths, the profits from his lots were made for him and not for the company. The company received the remaining one-tenth as its share of the proceeds of the joint venture.