Koitaki Para Rubber Estates Ltd v Federal Commissioner of Taxation
(1941) 64 CLR 241(1941) 2 AITR 167
(Judgment by: Williams J)
Between: Koitaki Para Rubber Estates Ltd
And: Federal Commissioner of Taxation
Judges:
Rich ACJ
Starke J
McTiernan J
Williams J
Subject References:
Income Tax (Cth)
Judgment date: 21 April 1941
Judgment by:
Williams J
The material facts are stated in the judgment of Dixon J., and it is unnecessary for me to repeat them. I would only like to call attention, in addition, to the facts that throughout the relevant year the directors and the majority of the shareholders were resident in Australia and all general meetings were held at the registered office in Sydney.
As his Honour has pointed out, the facts establish that the appellant had a residence in New South Wales, and the only point in issue on the appeal is whether they are sufficient to show that it also had a residence in Papua, within the meaning of s. 23 (n) of the Federal Income Tax Assessment Act 1936-1937. The sub-section is in the following terms: "(n) the income derived by a resident of any Territory or Island in the Pacific Ocean, other than New Zealand, which is governed, controlled, or held under mandate by the Government of any part of the British Empire, or by a condominium in which any part of the British Empire is concerned, from the sale in Australia, by or on behalf of that person, of produce of the Territory or Island, of which he is a resident."
Mr. Weston's main contention was that the appellant was a resident of Papua because it owned several plantations there on which it was growing rubber and so was engaged in carrying on there an essential and substantial part of its trading operations. In Fry v Burma Corporation, (1930) 142 LT 609 Lord Atkin said: "'Trade' refers to the various activities of commerce-the winning and using the products of the earth, or multiplying the products of the earth and selling them, or manufacturing them and selling them, the purchase and sale of commodities, or the offering of services for a reward, such as conveyance and the like."
In Swedish Central Railway Co Ltd v Thompson the House of Lords finally decided that a corporation like an individual can have more than one residence.
I agree with Mr. Weston, that the House of Lords must have been satisfied that the facts were sufficient in law to prove that the company had a residence in England. For instance, Viscount Cave L.C. said that "it was hardly disputed that, assuming that a company can have two residences, there was sufficient material upon which that finding could be based". But the facts in question do not assist Mr. Weston's contention because they were evidence, not of the carrying on of trading operations in England, but of the presence there of important elements in the determination of the locality of the central control and management of the company. These elements were its incorporation in England, the situation of its registered office, share register and the residence of the secretary in London, the keeping of the seal at the registered office, and regular meetings of a committee of the board of directors there.
The decisions relating to the ascertainment of the residence of corporations for income tax purposes have been affected by the desire to apply by analogy, as far as possible, the principles governing the determination of the residence of individuals.
The registration of a company, which brings it into existence, corresponds to the birth of an individual. The place of registration and the situation of the registered office are therefore strong circumstances to be taken into account in determining its residence. But the crucial test is to ascertain where the real business of the company is carried on, not in the sense of where it trades but in the sense of from where its operations are controlled and directed. It is the place of the personal control over and not of the physical of the business which counts. This is shown by the statement which Lord Halsbury L.C. made in the American Thread Co v Joyce, (1913) 6 Tax Cas 163 cited by Lord Sumner in Egyptian Delta Land and Investment Co Ltd v Todd,
"I myself have taken the same view of this, I think, some years before the De Beers' Case, and that view has been since, I think, adopted in this House more than once, that the real test, which, after all, is only a question of analogy - you cannot talk about a company residing anywhere - and that which has been accepted as a test, is where what we should call the head office in popular language is, and where the business of the company is really directed and carried on in that sense."
Viscount Cave L.C. sums up the whole position in the Swedish Railway Co's. Case, where he says:
"The central management and control of a company may be divided, and it may 'keep house and do business' in more than one place; and if so, it may have more than one residence."
The place of residence of an individual is determined, not by the situation of some business or property which he is carrying on or owns, but by reference to where he cats and sleeps and has his settled or usual abode. If he maintains a home or homes he resides in the locality or localities where it or they are situate, but he may also reside where he habitually lives even if this is in hotels or on a yacht or some other place of abode: See Halsbury's Laws of England, 2nd ed., vol. 17, pp. 376, 377.
In Inland Revenue Commissioners v Lysaght [1928] AC 234 Viscount Sumner said: "Grammatically the word 'resident' indicates a quality of the person charged and is not descriptive of his property real or personal."
In England a resident is taxed in respect of all profits wherever arising whereas non-residents are only assessable in respect of profits arising in the United Kingdom (Halsbury's Laws of England, 2nd ed., vol. 17, p. 86). Many persons resident abroad and companies registered and controlled abroad carry on trade in England. The carrying on of such trade is not sufficient to make such a person or company resident there for the purpose of income tax although such a person or company may be "there" for the purpose of jurisdiction. In the La "Bourgogne" Case, at p. 433 the Earl of Halsbury L.C., referring to such companies, said that they are present in England for this purpose where "they hire an office, write up their name, and beyond all question stamp upon themselves and upon their place of business here the assumption that here they carry on their business." Such a presence here has been referred to in many cases as being "residence" in England (La "Bourgogne" Case; Okura & Co Ltd v Forsbacka Jernverks Aktiebolag, [1914] 1 KB 715 ; New York Life Insurance Co v Public Trustee) (1924) 2 Ch 101, but, as Buckley L.J. pointed out in Actiesselskabet Dampskib 'Hercules' v Grand Trunk Pacific Railway Co, [1912] 1 KB 222 , "in Order IX., rule 8, which relates to service upon corporations, there is no such expression as 'reside' or 'carry on business,'" and the court has "only to see whether the corporation is 'here'; if it is, it can be served." He went on to say "the best test is to ascertain whether the business is carried on here and at a defined place." If such a person or company has agreed to pay a debt or the company has a local share register in England, the locality of the debt or share is there (New York Life Insurance Co v Public Trustee; English, Scottish and Australian Bank Ltd v Inland Revenue Commissioners, [1932] AC 238 ); Brassard v Smith, [1925] AC 371 . But residence in this sense of carrying on physical business operations has never been held to make such a person or company liable to pay income tax as a person resident or ordinarily resident in England. Such a person or company is only assessed as a non-resident carrying on a trade in England (Attorney-General v Alexander, (1874) LR 10 Ex 20; Erichsen v Last, (1881) 8 QBD 414 ; Maclaine & Co v Eccott, [1926] AC 424 ; Tarn v Scanlan, [1928] AC 34 ; Halsbury's Laws of England, 2nd ed., vol. 17, p. 92).
In Swedish Central Railway Co Ltd v Thompson , in the Court of Appeal, Pollock M.R. said:
"The service cases may be disregarded with reference to income tax. It is a question of presence in those cases rather than of residence."
In the House of Lords Viscount Cave L.C. said:
"I do not cite the decisions as to the residence of a company for the purpose of founding of jurisdiction, because they relate to a different subject matter; but, so far as they go, they point to the same conclusion" (i.e. that a company may have more than one residence).
The distinction between these different subject matters was fully explained in the dissenting judgment of Isaacs J. in Australasian Temperance and General Mutual Life Assurance Society Ltd v Howe. In order that a company may acquire a residence in two countries for the purposes of income tax, therefore, the central management and control must be divided betweensuch countries so as to "abide" in them both. The company through the central control is then metaphorically speaking bodily present and residing by analogy in both countries.
In the present case the facts showed that the whole of the central control and management abided in Australia, and I agree, therefore, with Dixon J., that the appellant had only one residence, namely in New South Wales.
I am also of opinion that, apart from the authorities, a consideration of the sub-section itself and the Act as a whole leads to the same conclusion.
If the Parliament had intended to exempt from income tax the profits on produce grown in Papua and sold in Australia by anyone wherever resident, carrying on business in Papua, the sub-section would have been differently expressed. The inclusion in the sub-section of the requirement that it must be income derived by a resident of the territory from a sale in Australia by or on behalf of that person of the produce of the territory of which he is a resident shows an intention that the taxpayer must be an actual resident of Papua. An individual who lived in Australia, and owned a plantation in Papua, controlled by a manager, could not be said to be a resident of Papua. The appellant is in an analogous position to such an individual.
The sub-section seems to me to show an intention on the part of the legislature to encourage not the mere increase of primary production in Papua, but the actual settlement there of persons and companies engaged in such pursuits. In order to comply with this intention an individual would need to have a real home in the territory, which he inhabited, at least periodically; and a company to transact there habitually a substantial part of the business done by its central control and management.
The definition of "resident" or "resident of Australia" means (s. 6) in the case of a corporation, "a company which is incorporated in Australia, or which, not being incorporated in Australia carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia." This definition, apart from making incorporation in Australia in itself decisive of residence, follows substantially the principles for determining residence established by the English authorities. It is to be specially noted that the carrying on of business in Australia by a company incorporated abroad is not by itself sufficient to make such a company a resident of Australia. It is therefore difficult to believe that the Parliament intended to make carrying on business in Papua by a company incorporated and controlled and managed in Australia sufficient to constitute residence there.
In my opinion the appeal should be dismissed with costs.