Hancock v Federal Commissioner of Taxation
(1961) 108 CLR 25835 ALJR 228
[1961] ALR 839
(Judgment by: Windeyer J)
Between: Langley George Frederick Hancock
And: Federal Commissioner of Taxation
Judges:
Fullagar J
Dixon CJ
Kitto J
Menzies J
Windeyer J
Subject References:
Income tax (Cth)
Judgment date: 8 August 1961
Judgment by:
Windeyer J
I agree in the reasons and the conclusions of the Chief Justice. I doubt whether it is possible to formulate mechanistic criteria for determining when s. 260 operates, for much must depend upon the circumstances of each case. But Kitto J. has shown that there are present in this case features that, in other cases, have been held to make plain a purpose or effect struck at by the section. I agree too that the effect of the section's operation is not to be ascertained by a tracing of particular moneys; but rather by looking at what is left when all the transactions that as against the Commissioner have to be swept away have been swept away. To use a phrase used by Viscount Simonds in another context, one must look to "the design and the result of the arrangement" (Commissioner of Stamp Duties of New South Wales v. Permanent Trustee Co. of New South Wales (1956) AC, at p 525; (1956) 95 CLR, at p 9. Devious and circuitous routes taken pursuant to an arrangement may be indications that the arrangement is one to which s. 260 applies; but the section does not demand a following of particular moneys through each step of a devious and circuitous accounting. (at p301)
In a case under s. 260 one starts with the position that the arrangement that is void as against the Commissioner is valid as between the parties - that is to say that it is a legal reality and not a sham; because, if it were a sham, it would fall in any event, and without the aid of s. 260. But subordinate steps taken in the carrying out of an arrangement that is within s. 260 may, it seems to me, be shams. Indeed one of the indications that an arrangement is vulnerable under the section may be that it was to be carried into effect by fictitious procedures. Those who devise methods for enabling taxpayers to order their affairs so as to attract the least possible amount of tax do not always appreciate that, quite apart from s. 260, the taxpayer must enter into a real not a pretended transaction to effect his purpose. "It is now well settled that the substance, n law, of a transaction can be determined only by ascertaining what the transaction really was. If the ostensible transaction is a sham, a mere facade concealing a different transaction, it must be disregarded, and legal rights and liabilities determined according to the real transaction": per Jordan C.J. in In The Estate of William Vicars Deceased (1944) 45 SR (NSW) 85, at p 93; and see the remarks by the same learned judge in Perpetual Trustee Co. Ltd. v. Bligh (1940) 41 SR (NSW) 33, at p 39 and Boydell v. James (1936) 36 SR (NSW) 620, at p 627. It is one thing to say that the substance and nature of a genuine transaction are determined by the form in which it is cast. It is quite another to suppose that going through a form makes a pretended transaction real. An ostensible gift that was made only so that the subject of the gift might be at once given back may not, it seems to me, really cause a change of ownership even momentarily. And, in some cases, probably the same might be said of an exchange of cheques.
But whether in a particular case a subsidiary and ancillary transaction, which is involved in carrying out an arrangement void under s. 260, falls with the demolition of the arrangement by the section or falls because of its own inherent instability, the Commissioner, I am inclined to think, cannot, while treating the arrangement as void under s. 260, treat such subsidiary and ancillary transaction as if it had taken effect and levy taxation accordingly. I doubt, therefore, whether he could in this case treat the dividends that Rowdell received in respect of the shares it acquired from the Hancocks as part of its assessable income. That question, however, does not arise for decision here and I do not express a concluded view on it. (at p302)
In my opinion these appeals should be dismissed. (at p302)