Minsoul Pty. Limited v. Federal Commissioner of Taxation.
Judges:Mason J
Court:
High Court
Mason J.: These eight appeals were heard together. Three appeals are by Patrick Corporation Ltd. (which I shall call Mining Traders, the name by which the company was known until its corporate name was changed to Patrick Corporation Ltd. in the second half of 1970). The three appeals by Mining Traders relate to the income years ended on 30 June 1968, 1969 and 1970. In assessing the company to income tax the Commissioner refused to allow it rebates on dividends which it received from eight companies, including Austin Sales (Australia) Pty. Ltd. (``Austin Sales''), in which it bought shares that were subsequently sold at a loss and on which it performed what is commonly known as a ``dividend stripping'' operation.
The remaining five appeals are by companies which, with the exception of Minsoul Pty. Ltd. (``Minsoul''), were at all relevant times wholly-owned subsidiaries of
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Mining Traders. Minsoul's share capital is owned as to one-half by Mining Traders. The five appeals relate to the income year ended on 30 June 1970 and in each case the Commissioner in assessing the appellant to income tax refused to allow it a rebate on a dividend which it received from Austin Sales, in which each appellant bought shares and sold them at a loss after receiving the dividend, a dividend stripping operation having been performed. Consequently the appeal by Mining Traders in respect of its income for the year ended 30 June 1970 and the appeals by the other appellants raise a common question in relation to the receipt of dividends from Austin Sales.In each of the eight appeals the Commissioner assessed the appellant to income tax on the footing that it was entitled to deduct as a loss the difference between the purchase price which it paid for the shares in the company from which it received the dividend and the sale price of those shares, as appears by the adjustment sheet which issued with each notice of assessment. But in the course of argument, counsel for the Commissioner sought to justify the assessments on the ground, among others, that the losses so incurred were not incurred in the course of the ordinary trading activities of the companies and were not deductible.
The Commissioner also contended that at the time when the dividends in question were declared and paid neither Mining Traders nor any of the other appellants in the case of Austin Sales was entered as a shareholder in the register of members of the company which declared the dividend. A consequence, so it was said, is that sec. 46 has no application to the payments made to the appellants which they claim to be rebatable dividends. The appellants conceded that they were not registered as shareholders at the time of the declaration and payment of dividends, with the exception of the dividend declared by Remfore Pty. Ltd. (``Remfore'') and the second dividend declared by Harbour Holdings Pty. Ltd. (``Harbour Holdings'') as to which there is an issue of fact.
It will be convenient to deal separately with each of the transactions by which Mining Traders acquired shares in the relevant companies, caused them to declare and pay dividends and sold those shares, including the Austin Sales transactions in which the other appellants participated, but before doing so I shall summarise the facts so far as they provide a general background to the particular transactions.
Mining Traders was incorporated in 1967. Since its incorporation it has been closely associated with the stockbroking firm of Patrick & Co., whose partners have held not less than 35% of its share capital. From its inception it carried on business as a share trader. In the course of this business it entered into a large volume of transactions in the three income years in question. As its corporate name suggests, it traded principally, albeit not exclusively, in the stocks and shares of mining companies. On infrequent occasions it bought and sold industrial stocks and shares in listed and unlisted companies. The other appellants also carried on business as share traders in the year ended 30 June 1970. The appellant M.T.A. Pty. Ltd. (``M.T.A.'') devoted part of its activities to pegging mining claims and making application for mining tenements, but these activities have no relevance.
In the three years in question there was a boom in mining shares in the Australian share market. Mining Traders and its subsidiaries traded very successfully. In these years the business of the appellants seems to have been managed by Patrick & Co. For the most part the business decisions were taken by Mr. M.R.L. Dowling, a partner in Patrick & Co. and a director of Mining Traders, after consultation with others, including no doubt his fellow directors.
As might be expected, in the course of their share trading business the companies had regard to the fiscal advantages which were available under the Income Tax Assessment Act to shareholders in exploration, prospecting and mining companies. The Act encouraged mining activity and investment in the class of companies mentioned by offering deductions to shareholders in them. In particular, sec. 77A (which was repealed by sec. 7(1) of the Income Tax Assessment Act (No. 2) of 1969), 77C and 77D enabled a taxpayer to
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deduct moneys paid by way of application money and calls (or a proportion thereof) in respect of shares in certain exploration, prospecting and mining companies. These deductions are of substantial importance and I am satisfied on the evidence which has been led for the appellants that their availability in particular cases was a very important consideration in determining whether a company carrying on business as a share trader would enter into a particular transaction of purchase. The availability of an income tax deduction might make an investment economically attractive, although it was anticipated at the time of purchase that the shares to be acquired would yield less on sale than their purchase price.No less important a consideration to a company carrying on business as a share trader was the deductibility for tax purposes of losses which the company sustained on the purchase and sale of shares acquired in the course of carrying on that business. Again, I have no doubt that the availability of a tax deduction for such losses was an important factor in determining whether a company carrying on such a business would enter into a particular transaction.
The transactions now in question did not involve shares in mining companies. However, it is the appellants' case that they entered into the transactions motivated by fiscal advantages, that the transactions were entered into in the course of the appellants' share trading business, not otherwise, and certainly not in the course of some other and different business. The Commissioner's case is that the transactions were not entered into in the course of the appellants' ordinary share trading business.
In the critical transactions the appellants acquired shares in companies which had accumulated large amounts of profits available for distribution by way of dividends to shareholders. By sec. 46 of the Act a shareholder, being a resident non-private company, was entitled to a rebate in its assessment to income tax of the amount obtained by applying the average rate of tax payable by the shareholder to the amount of dividends included in its taxable income. The value of shares in a company having such accumulated profits naturally reflected the existence of assets consisting of accumulated profits available for distribution by way of dividend subject to a sec. 46 rebate.
The advantages of performing a dividend stripping operation on such a company are obvious. The dividends are rebatable and, subject to the arguments of the Commissioner, the inevitable loss on the resale of the shares is a tax deduction. The loss on the resale of the shares is inevitable because the assets of the company as they existed at the time of acquisition are depleted by the distribution of the valuable asset consisting of the accumulated profits. Moreover, on the assumption that the loss on resale is a tax deduction, an assumption made by the appellants, the acquisition of shares in such a company offers an opportunity of reducing the tax liability of the purchaser by offsetting the loss on resale against the profits which it has otherwise made in the year of income.
In
Investment and Merchant Finance Corporation Ltd. v. F.C. of T. 71 ATC 4140; (1971) 125 C.L.R. 249, this Court held that shares acquired by a taxpayer company, a dealer in shares, in another company for the purpose of a dividend stripping operation, with the intention of causing a dividend to be declared and of then selling them, formed part of the trading stock of the taxpayer although it had not so treated them in its return of income. It was considered that the taxpayer was entitled to a deduction equal to the difference between the purchase price and the sale price of the shares, notwithstanding that a dividend had been received in the previous year of income and that a rebate of tax had been allowed in respect of that dividend.
Counsel for the Commissioner sought to distinguish this decision on the facts. It was said that in the present case the circumstances surrounding the entry by the appellants into the transactions now under consideration were altogether different from the circumstances as Windeyer J. found them to be in the I.M.F. case (see 70 ATC 4001; (1970), 120 C.L.R. 177), so different indeed that it is proper to conclude that the shares when purchased did not form part of the trading stock of the appellants. In this
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respect counsel for the Commissioner relied on the recent decisions of the House of Lords inF.A. & A.B. Ltd. v. Lupton (Inspector of Taxes), (1972) A.C. 634 and
Thomson (Inspector of Taxes) v. Gurneville Securities Ltd., (1972) A.C. 661. One matter which calls for consideration is the extent to which, if at all, these decisions should be regarded as enunciating a proposition of law different from the principle expounded by this Court in the I.M.F. case. The consideration of this question must await an examination of the particular transactions in the order in which they occurred.
The account of these transactions which follows is based largely on the documentary evidence tendered by the appellants, as explained by the appellants' principal witness, John Albert Keir, a partner in Patrick & Co., who acted as alternate director for Mr. Dowling in Mining Traders. It was not suggested that his evidence was other than accurate. However, he was not present at a number of relevant directors' meetings. Mr. Dowling, whose knowledge might have been expected to be more extensive and revealing, did not give evidence.
Remfore Pty. Ltd. (``Remfore'')
Mr. Bush, a partner in Cooper Bros. & Co., the accountants for the James Patrick group of stevedoring companies, which, despite the similarity in name, had no connection with Patrick & Co., suggested to the directors of Mining Traders that it would be to the advantage of that company to acquire the share capital of Remfore, a dormant company in the James Patrick group, for the purpose of a dividend stripping operation. By reason of a reorganisation of the group, Remfore had, before May 1968, ceased to carry on any trading activity. Its only assets consisted of loans to associated companies amounting to $208,033 repayable at call and an amount of $200 cash at bank. It had no liabilities and its undistributed profits on 28 May 1968 amounted to $138,233. The directors of Mining Traders accepted Mr. Bush's suggestion and steps were taken immediately to effect the acquisition.
By an agreement in writing dated 28 May 1968 Mining Traders agreed to buy and Patrick Bulk Stevedoring (A.C.T.) Pty. Ltd., the owner of the share capital in Remfore, agreed to sell the entire issued capital of Remfore for the sum of $208,233. According to the minute book of Remfore a meeting of directors of that company held on that day approved, subject to stamping, transfers of the whole of the issued capital of the company to Mining Traders and directed that the transfers be registered.
On the same day, 28 May 1968, cheques totalling $208,033 were drawn in favour of Remfore by its creditors and the cash standing to Remfore's credit with its bank was withdrawn by cheque. On the following day these cheques were deposited to the credit of a new bank account in Remfore's name at the Bank of New South Wales head office. Remfore's assets were consequently comprised in this one account.
On 28 May a cheque was drawn by Remfore in favour of Mining Traders in the sum of $208,233 by way of loan to enable Mining Traders to pay the purchase price fixed by the agreement of that date. The loan agreement was not recorded in writing and was not referred to in the minutes of Remfore or those of Mining Traders. The cheque was not presented for payment until 30 May.
Again on 28 May a cheque in the sum of $208,233 was drawn by Mining Traders in favour of Patrick Bulk Stevedoring (A.C.T.) Pty. Ltd. It represented the purchase price payable under the agreement of 28 May. It was presented and cleared on 29 May.
On 31 May a meeting of directors of Remfore resolved that a dividend of $138,232.68 be declared and paid out of the unappropriated profits to shareholders ``registered on the books of the company at 31 May''. On the same date Mining Traders drew a cheque in favour of Remfore in the sum of $138,250 by way of partial repayment of the loan previously made to it and so as to enable Remfore to pay the dividend which it had declared. On the same day Remfore drew a cheque in favour of Mining Traders for the amount of the dividend that had been declared.
By an agreement dated 3 June 1968
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between Mining Traders and Patrick Nominees Pty. Ltd., a nominee company owned and controlled by Patrick & Co., Mining Traders agreed to sell and Patrick Nominees Pty. Ltd. agreed to buy the entire share capital in Remfore for the sum of $79,676.31. The nominee company acted in this transaction as nominee of Patrick & Co. Before Mining Traders executed the agreement made on 28 May its directors knew that Patrick Nominees Pty. Ltd. would purchase the share capital in Remfore ex dividend on the terms on which they were subsequently purchased by that company.On 3 June 1968 Remfore drew a cheque in favour of Patrick & Co. for $69,983 by way of loan to Patrick & Co. It was subsequently deposited to the credit of Patrick & Co.'s bank account on 9 July 1968 when Patrick & Co. drew a cheque in favour of Mining Traders in the sum of $79,676.31, representing the consideration payable by it for the share capital of Remfore under the agreement of 3 June 1968.
E.P. & A. Fraser Pty. Ltd. (``Fraser'')
This company was also a member of the James Patrick group. As a result of the group reorganization it had, before April 1969, ceased to carry on any trading activity. Its principal assets consisted of debts payable on demand, owing by associated companies, including a debt of $190,497 owing by Patrick Stevedoring Company (Victoria) Pty. Ltd. (``Patrick Stevedoring''). As at 21 April 1969 the company and its two wholly-owned subsidiaries had undistributed profits in the following amounts -
E.P. & A. Fraser Pty. Ltd. $55,206
E.P. & A. Fraser (Melb.)
Pty. Ltd. $98,193
E.P. & A. Fraser (Outports)
Pty. Ltd. $35,848
By an agreement dated 21 April 1969 Mining Traders agreed to buy and Patrick Stevedoring, the owner of the share capital in Fraser, agreed to sell the whole of the issued capital in that company for the sum of $190,497. According to the minute book of Fraser the directors of that company resolved on 22 April that transfers of the entire issued capital of the company from the existing shareholders to Mining Traders and its nominees be registered.
On 22 April, Mining Traders drew a cheque in favour of Patrick Stevedoring for $190,497, the purchase price of the shares. On 18 April, Patrick Stevedoring had drawn a cheque in the same amount in favour of Fraser in repayment of the loan owing to that company. As Fraser had no bank account the cheque was endorsed in favour of Mining Traders and deposited to the credit of its bank account on 22 April. The endorsement of the cheque to Mining Traders was by way of loan by Fraser to that company.
On the following day, 23 April 1969, the minute book of Fraser records that its directors resolved to declare a dividend of $189,247 in favour of the shareholders in the company as at that date. On the same day a cheque in that amount was drawn by Mining Traders in favour of Fraser. It represented partial repayment of the loan made by Fraser to Mining Traders. The cheque was endorsed by Fraser in favour of Mining Traders and deposited to the credit of that company's bank account. The endorsement and delivery of the cheque back to Mining Traders was intended to represent payment of the dividend.
The minute book of Mining Traders records that at a meeting of directors held on 24 April 1969 it was resolved to accept an offer from Warrina Pty. Ltd. (``Warrina''), a family company of Mr. Reid, the solicitor for the James Patrick group, to purchase the whole of the issued capital of Fraser for $4,250. On the same day a written agreement was executed between Mining Traders and Warrina for the sale by Mining Traders to Warrina of the whole of the issued capital in Fraser for $4,250. Before Mining Traders executed the agreement made on 21 April 1969 its directors knew that Warrina was willing to purchase the share capital of Fraser ex dividend on the terms on which it subsequently purchased.
A cheque dated 24 April 1969 in the sum of $4,250 was drawn by Warrina in favour of Mining Traders.
The Austral Stevedoring & Lighterage Co. Pty. Ltd. (``Austral'')
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This company was also a member of the James Patrick group. It had, before June 1969, ceased to carry on any trading activity. Shortly before 25 June 1969 it agreed to dispose of a freehold property which it owned. Its only asset then was an amount of $112,786 owing to it by Patrick Stevedoring. The company had no liabilities and it had reserves shown in a balance sheet prepared by Cooper Bros. in June 1969 as follows -
RESERVE
$ $
Special reserve (debit balance) (Note) (22,853)
Profit unappropriated 35,639
------
12,786
NOTE: SPECIAL RESERVE
Balance, 30 June, 1968 35,639
Less transfer to profit
and loss account 35,639
--------
Loss on sale of freehold
land and buildings 22,853
--------
Debit balance 23 June, 1969 $22,853
--------
By an agreement dated 25 June 1969 Mining Traders agreed to buy and Patrick Stevedoring agreed to sell the whole of the issued capital of Austral for $112,786. The agreement contained a warranty on the part of the vendor that the unappropriated profits of Austral were not less than $35,639. Annexed to the agreement was a copy of a balance sheet dated 26 June 1969. It is evident at the least that the agreement or the balance sheet bears an incorrect date. In my opinion it is more probable that the date given by Cooper Bros. to their balance sheet is correct and that accordingly the purchase agreement was executed not on 25 June but on some later date, probably 26 or 27 June.
The minute book of Austral records that on 25 June 1969 (a date which in my view is also incorrect and which should probably be 26 or 27 June) at a meeting of directors of Austral it was resolved that share transfers from existing shareholders to Mining Traders and its nominees be approved and registered. A cheque dated 25 June 1969 was drawn by Mining Traders in favour of Patrick Stevedoring in the sum of $144,124, representing the purchase of the share capital in Austral and of certain shares in Thomas Napier & Co. Pty. Ltd. (``Napier'').
A cheque dated 27 June was drawn by Patrick Stevedoring in favour of Austral for $112,786, being the repayment of moneys owing to Austral by Patrick Stevedoring. The cheque was endorsed by Austral (which had no bank account) in favour of Mining Traders and deposited to the credit of that company's bank account on 27 June 1969. On the same day a cheque was drawn by Mining Traders for $112,786 in favour of Patrick & Co. According to the evidence of Mr. Keir, the endorsement of the first cheque by Austral represented a loan by that company to Mining Traders and the second cheque constituted a repayment by Mining Traders of that loan, the deposit being credited in the books of Patrick & Co. to Austral on 30 June.
According to the minute book of Austral a meeting of directors on 27 June 1969 resolved that a dividend of $35,639 be declared and paid out of unappropriated profits ``as at this date to the shareholders of the company''. On 30 June, Patrick & Co. paid a cheque to Mining Traders for $35,639,
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representing the dividend so declared; the amount was debited to Austral in Patrick & Co.'s books.By an agreement in writing dated 30 June 1969 Mining Traders agreed to sell and Calaird & Co. Pty. Ltd. (``Calaird'') agreed to buy the whole of the issued shares in Austral for the amount of $78,147. Calaird was a company owned by Mr. McGrath, a partner in Patrick & Co. Before Mining Traders executed the agreement dated 25 June 1969 its directors knew that Calaird would purchase the share capital of Austral ex dividend on the terms on which it subsequently purchased. This agreement was completed by the giving of a cheque dated 30 June 1969 drawn by Patrick & Co. in favour of Mining Traders for $78,147.
Thomas Napier & Co. Pty. Ltd. (``Napier'')
This company was also a member of the James Patrick group. It had, before June 1969, ceased to carry on any trading activity. At 25 June 1969 its sole asset was an amount of $31,338 owed to it by Patrick Stevedoring. The company had no liabilities and had a fund of undistributed profits amounting to $26,324. By an agreement in writing dated 25 June 1969 Mining Traders agreed to buy and Patrick Stevedoring agreed to sell the whole of the issued capital of Napier for the amount of $31,338. The agreement contained a warranty by the vendor that the unappropriated profits were not less than $26,324. Annexed to the agreement was a copy of a balance sheet dated 26 June 1969. Again it seems that either the date of the agreement or the date of the balance sheet is incorrect. I think it probable that the date of the balance sheet is correct and I therefore conclude that the agreement was actually executed on a date later than 25 June, probably 26 or 27 June.
The minute book of Napier records that on 25 June (a date which I believe to be incorrect) the directors approved and directed that there should be registered transfers from the existing shareholders of the entire share capital of Napier to Mining Traders and its nominees. The probable date of this meeting was, I think, 26 or 27 June.
A cheque dated 25 June 1969 was drawn by Mining Traders in favour of Patrick Stevedoring for $144,124, representing the purchase price of the shares in Napier fixed by the agreement dated 25 June 1969 and of the shares in Austral to which I have previously referred. It was presented and paid on 30 June. A cheque was drawn by Patrick Stevedoring in favour of Napier for $31,338. It was endorsed by Napier (which had no bank account) in favour of Mining Traders and deposited to the credit of its bank account on 27 June 1969. The cheque represented a repayment by Patrick Stevedoring of the moneys which it owed Napier. The endorsement of the cheque was by way of loan from Napier to Mining Traders.
A cheque dated 27 June 1969 was drawn by Mining Traders for $31,338 in favour of Patrick & Co. According to Mr. Keir, this cheque constituted a repayment of the loan made by Napier to Mining Traders. It was credited to Napier in the books of Patrick & Co.
The minute book of Napier records that on 27 June the directors of Napier resolved that a dividend of $26,324 be declared and paid out of unappropriated profits of the company to the shareholders of the company ``as at this date''. On 30 June 1969 Patrick & Co. drew a cheque in favour of Mining Traders for the amount declared by way of dividend. The cheque was debited to Napier's account in the books of Patrick & Co. and paid to the credit of Mining Traders' bank account.
By an agreement in writing dated 30 June 1969 Mining Traders agreed to sell and Jakel Pty. Ltd. (``Jakel'') agreed to buy the whole of the issued capital in Napier for $6,014. Jakel was a company owned by Mr. Keir and his wife. Before Mining Traders executed the agreement dated 25 June 1969 its directors knew that Jakel would purchase the share capital of Napier ex dividend on the terms on which it subsequently purchased. This agreement was completed by the giving of a cheque drawn by Patrick & Co. on behalf of Jakel on 30 June 1969 in favour of Mining Traders for $6,014.
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Stevedoring Insurance Co. Ltd. (``Stevedoring Insurance'')
This company was also a member of the James Patrick group. Before June 1969 it had ceased to carry on any trading activity. On 25 June 1969 its sole assets consisted of a debt repayable on demand owing by its holding company, Victorian Stevedoring & General Contracting Co. Pty. Ltd. (``Victorian Stevedoring''), amounting to $22,022 and cash at bank consisting of $78. The company had no liabilities and its undistributed profits amounted to $21,100.
By an agreement in writing dated 25 June 1969 Mining Traders agreed to buy and Victorian Stevedoring agreed to sell the whole of the issued capital of Stevedoring Insurance for $22,022. The agreement contained a warranty by the vendor that the unappropriated profits of Stevedoring Insurance were not less than $21,100. Annexed to the agreement was a copy of a balance sheet dated 26 June 1969. In this case it is evident from a letter dated 27 June 1969 from Patrick Stevedoring to Mr. Mapperson of Victorian Stevedoring that the agreement for purchase was not executed by Victorian Stevedoring until some date after 27 June 1969. When the document was so executed I am unable to say, but it seems clear that cheques were handed over between Victorian Stevedoring and Mining Traders on 27 June 1969, notwithstanding that the written agreement was not then formally executed by the vendor.
These cheques consisted of a cheque dated 25 June drawn by Mining Traders in favour of Victorian Stevedoring for the purchase price and a cheque bearing the same date drawn by Victorian Stevedoring in favour of Stevedoring Insurance for the same amount. The cheque for the purchase price was not then delivered against an instrument of transfer of the shares, for the instrument of transfer was on that date sent to Melbourne for execution by the vendor in the presence of its secretary. The evidence does not establish when it was executed or when it was delivered to the purchaser.
The minute book of Stevedoring Insurance records that on 25 June 1969 at a meeting of its directors there were tabled four instruments of transfer of shares in Stevedoring Insurance from existing shareholders to Mining Traders and that it was resolved that the transfers be approved and registered. The minute book is incorrect, at least to the extent to which it records the date of the meeting as having taken place on 25 June 1969. No duly completed transfer of shares by Victorian Stevedoring to Mining Traders could have been presented until 28 June at the earliest, and probably not until a later date.
The cheque for $22,022 drawn in favour of Victorian Stevedoring by Mining Traders was on 30 June 1969 deposited to the credit of the payee's bank account. The cheque dated 25 June drawn by Victorian Stevedoring in favour of Stevedoring Insurance was endorsed to Mining Traders by way of loan and paid into the bank account of that company on 27 June.
By a cheque dated the same day in favour of Patrick & Co. for $22,022 Mining Traders repaid this loan. The amount of the cheque was credited to the account of Stevedoring Insurance in the books of Patrick & Co.
The minute book of Stevedoring Insurance records that on 27 June 1969 the directors of Stevedoring Insurance resolved that a dividend of $21,100 be declared and be paid out of unappropriated profits of the company to the shareholders of the company ``As at this date''. The minute book in my view ascribes an incorrect date to the meeting; it took place, I think, not earlier than 28 June and not later than 30 June. On 30 June 1969 Patrick & Co. drew a cheque in favour of Mining Traders for the amount of the dividend of $21,100, debiting the account of Stevedoring Insurance in its books. The cheque was deposited to Mining Traders' bank account on the day on which it was drawn.
By an agreement in writing dated 30 June 1969 Mining Traders agreed to sell and W.J. Edwards, a partner in Patrick & Co., agreed to buy the whole of the issued capital in Stevedoring Insurance for $2,000. Before Mining Traders executed the agreement dated 25 June 1969 its directors knew that Mr. Edwards was willing to purchase the share capital of Stevedoring Insurance ex
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dividend on the terms on which it subsequently purchased. This agreement was completed when Patrick & Co. on behalf of Mr. Edwards drew a cheque on that date in favour of Mining Traders for $2,000.The Yarra Investment Co. Pty. Ltd. (``Yarra'')
This company was also a member of the James Patrick group. Before April 1970 it had ceased to carry on any trading activity. Its sole assets were amounts due to it from companies of the James Patrick group totalling $774,850.
By an agreement in writing dated 13 April 1970 Mining Traders agreed to buy and Patrick Stevedoring agreed to sell the whole of the issued capital of Yarra for $774,850. The agreement contained a warranty that the undistributed profits of Yarra were not less than $698,182. The agreement refers to an annexed balance sheet which is dated 16 April. It appears from a letter dated 21 April 1970 from Patrick Stevedoring to Mr. Mapperson that the agreement bears an incorrect date; it was not executed by the vendor before 23 April 1970.
The minute book of Yarra records that on 13 April 1970 at a meeting of directors duly completed transfers of the issued shares in that company from existing shareholders to Mining Traders were approved and that it was resolved they be registered. Mr. Keir concedes that the meeting did not take place on 13 April and that it must have taken place at some subsequent date; in my opinion it took place not earlier than 23 April and not later than 30 April 1970.
The minute book of Yarra records also records that on 20 April 1970 the directors of Yarra resolved that a dividend of $698,182 be paid out of the unappropriated profits of the company to the shareholders ``as at this date''. The minute is incorrect, at least to the extent to which it records that resolution as having taken place on 20 April 1970 - so much is conceded by Mr. Keir. It seems from Mr. Keir's evidence that the meeting took place on 30 April or immediately thereafter.
The incorrect dates attributed to meetings in the minutes are explained by the circumstance that they appear to have been prepared in advance of the events which they record and that there were delays, not anticipated, in dealing with the assets of Yarra in the course of bringing them to the condition in which they were intended to stand at the time of the proposed sale of the shares to Mining Traders.
The minute book of Mining Traders records that on 22 April 1970 a meeting of directors resolved to sell the whole of the issued share capital in Yarra to Patrick Nominees Pty. Ltd. for $76,688, the price fixed by an agreement bearing the same date between Mining Traders and Patrick Nominees Pty. Ltd. acting as nominee of Patrick & Co. Again the evidence establishes that the meeting of directors did not occur on 22 April and that it probably occurred on some day thereafter. The probability is that the agreement between Mining Traders and Patrick Nominees Pty. Ltd. was made shortly after the date on which the dividend of $698,182 was declared and that a minute of Yarra recording that on 22 April 1970 the directors of that company approved completed transfers of the share capital in Yarra from Mining Traders to Patrick Nominees Pty. Ltd. was likewise incorrect.
On 30 April 1970 a cheque for $774,850 drawn by Patrick & Co., dated 13 April 1970, in favour of Patrick Stevedoring was delivered to that company. The amount represented the purchase price of the shares in Yarra payable by Mining Traders under the agreement dated 13 April 1970. It was paid into a bank account in Melbourne on 1 May and paid by Patrick & Co.'s bankers in Sydney on 4 May. On 30 April 1970, the day on which this cheque was delivered to Patrick Stevedoring, Yarra lent the same amount to Mining Traders by means of a cheque dated 23 April. This cheque was deposited to the credit of the bank account of Mining Traders on 30 April. The declaration of the dividend of $682,000 on 30 April had the effect of reducing the amount of the indebtedness of Mining Traders pro tanto.
The amount of $774,850 paid by Patrick & Co. by way of purchase price of the shares in Yarra was reimbursed by Mining Traders' cheque dated 30 April 1970 drawn in favour of Patrick & Co. for the same amount.
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The directors of Mining Traders knew before it entered into the agreement dated 13 April 1970 that Patrick Nominees Pty. Ltd. was willing to purchase the shares in Yarra ex dividend for the sum of $76,688. This sum was paid by means of an entry on the ledger card of Mining Traders with Patrick & Co. on 23 November 1971.
Harbour Holdings Pty. Ltd. (``Harbour Holdings'')
This company was incorporated in Western Australia. Before June 1969 it sold its stevedoring business to the James Patrick group. At that time its assets consisted of cash or negotiable securities. It had a fund of undistributed profits and, at the suggestion of Mr. Bush, the directors of Mining Traders decided to acquire the whole of its share capital in order to perform a dividend stripping operation.
To overcome the difficulty presented by the circumstance that Harbour Holdings was in June 1969 a public company for tax purposes, Remfore, a private company, initially acquired the share capital in Harbour Holdings and subsequently transferred it to Mining Traders.
In July 1969 Remfore therefore acquired the whole of the issued capital in Harbour Holdings at a price which was equivalent to the full assets backing of the shares less 5%. At this time the principal asset of Harbour Holdings was cash at bank in the order of $500,000 which was lent to three borrowers (one of whom was Mining Traders in the sum of $150,000).
By an agreement dated 3 April 1970 Mining Traders agreed to buy and Remfore agreed to sell the whole of the issued capital of Harbour Holdings for $500,400. By the agreement the vendor represented that Harbour Holdings had undistributed profits of not less than $336,850.
The minute book of Harbour Holdings records that on 24 April 1970 at a meeting of directors it was resolved that the following transfers be registered on the company's Canberra register -
Transferor Transferee No. of Shares
Remfore Mining Traders 37,500
Patrick Nominees Pty. Ltd. Robert John Beaton as nominee
for Mining Traders 500
It was noted that the transfers were unstamped and that Mining Traders had undertaken to see that the transfers were correctly stamped in due course.
A cheque dated 3 April 1970 was drawn by Mining Traders in favour of Remfore in the amount of $500,400. This cheque was endorsed by Remfore in favour of Patrick & Co. and was banked to the credit of that firm's account on 22 May. The cheque represented the purchase price for the acquisition of the share capital in Harbour Holdings. The amount was credited to Remfore in the books of Patrick & Co.
At a meeting of directors of Harbour Holdings held on 28 April 1970 a dividend of $40,000 was declared. A cheque for this amount was drawn on 30 April by Harbour Holdings in favour of Mining Traders. It was endorsed to Patrick & Co. and banked to the credit of that firm's account. The amount was credited to Mining Traders in the books of Patrick & Co. A further dividend was declared at a meeting of directors of Harbour Holdings on 22 May 1970 when it was resolved ``that a dividend of $404,150 be declared payable on 29 June 1970''.
On 29 June the moneys lent by Harbour Holdings were repaid to Patrick & Co. and by it to Harbour Holdings by cheque dated 29 June for $500,234.01 which was deposited to the credit of that company's bank account on the same day. Again on the same day Harbour Holdings drew a cheque in favour of Patrick & Co. for $404,150; it represented payment of the dividend declared by Harbour Holdings on 22 May; it was credited to Mining Traders' account in the books of Patrick & Co.
By an agreement in writing dated 30 June 1970 Mining Traders agreed to sell the whole of the issued shares in Harbour Holdings and
ATC 4160
the trustees of a trust known as the Thornton Trust agreed to buy the whole of the issued share capital in Harbour Holdings for $76,250. This sale was made pursuant to an arrangement made before the agreement by Mining Traders to buy the shares from Remfore was entered into.By a cheque dated 29 June 1970 drawn on behalf of the Thornton Trust the sum of $76,250 was paid to Mining Traders. This cheque was paid into the account of Mining Traders on 30 June and transfers of the shares were approved at a meeting of the Board of Harbour Holdings on the same day.
The transfers to Mining Traders were entered in the share register of Harbour Holdings before 22 May 1970.
Austin Sales (Aust.) Pty. Ltd. (``Austin Sales'')
This company was a wholly-owned subsidiary of British Leyland Motor Corporation of Australia Ltd. (``B.L.M.C.''). It had ceased trading long before June 1970. Its assets consisted of $6,151,678 owed to it by its holding company and $20 cash at bank. The company had no liabilities and a fund of unappropriated profits in excess of $6,000,000.
Mr. Bush had initially suggested to Mr. Keir that Austin Sales was a company suitable for a dividend stripping operation. Later, in June 1970, Mr. Rosenblum, the solicitor for Cadiz Corporation, a company which deals in companies with funds of undistributed profits, informed a partner of Patrick & Co. that the share capital in the company was for sale. The directors of Mining Traders decided that, with other purchasers, namely, the other appellants and A.O.M. Securities Pty. Ltd., a company having no connection with Mining Traders, it would acquire the whole of the issued share capital of Austin Sales, the proportion of the share capital of Austin Sales to be allocated to Mining Traders being 80,310 out of 181,010 issued shares. Before the directors of Mining Traders decided to acquire the shares in Austin Sales they required to be satisfied that the company could resell them ex dividend almost immediately at a predetermined price. It seems, as a result of discussions with Mr. Davidson, a director of A.O.M. Securities Pty. Ltd. and Hill Minerals N.L., who acted as solicitor for Mining Traders and the other purchasers in the Austin Sales transactions, that the directors of Mining Traders were satisfied that the company's shares in Austin Sales could be resold ex dividend to Hill Minerals N.L. at the price at which they were ultimately resold.
On 29 June 1970 the directors of Mining Traders resolved to purchase 80,310 shares in Austin Sales from B.L.M.C. for $2,740,461.55 and to execute a written agreement for sale. The agreement for sale dated 30 June provides for the sale of the Austin Sales share capital for the sum of $6,176,698, the proportion of shares to be allocated to each purchaser being specified in the Schedule. The shares to be acquired by each purchaser were as follows -
Mining Traders 80,310
Minsoul 12,700
Minwall 7,900
M.T.A. 3,800
M.T.B. 7,900
M.T.D. 50,300
A.O.M. Securities 18,100
By the agreement the vendor warranted that Austin Sales had no liabilities and cash at bank in the sum of not less than $6,151,698.
The sale of the shares, the declaration and payment of the dividend by Austin Sales and the resale of the shares were all carried into effect on 30 June 1970. Speed was of the essence of the transactions.
Patrick & Co. had been granted standing overdraft accommodation on a daily basis in very large amounts by the Bank of New South Wales and the Commercial Banking Co. of Sydney. At or about 10 a.m. on 30 June 1970, Patrick & Co. with its cheque obtained a bank cheque from the Bank of New South Wales in favour of the Commercial Banking Co. of Sydney in the sum of $4,172,980. A few minutes later this cheque was deposited to the credit of Patrick & Co. at the Commercial Banking Co. of Sydney, Castlereagh and Hunter Street Branch. Patrick & Co. then drew a cheque upon its account at this branch of the bank in an amount of $6,176,698 in favour of the Commercial Banking Co. of Sydney. The bank thereupon provided a bank cheque in that amount in favour of B.L.M.C., representing the total purchase price for the shares.
ATC 4161
The amount of the bank cheque was, at about 11 a.m. on the same day, remitted by telegraphic transfer to the manager's account in the Australia and New Zealand Bank, Canberra City Branch, where it was held on behalf of Patrick & Co. It was transferred to another manager's account on behalf of B.L.M.C. and then remitted by telegraphic transfer to the Australia and New Zealand Bank, Martin Place and George Street, Sydney. It was credited to the B.L.M.C. account at that branch at about 11.30 a.m. on that day.
On the same day B.L.M.C. deposited in a new account opened for Austin Sales at the same branch in Sydney of the Australia and New Zealand Bank the sum of $20. Again on the same day, after there had been credited to its account at this branch the cheque for $6,176,698, B.L.M.C. deposited a cheque in the sum of $6,151,697.98 to the credit of the new Austin Sales account. Again on the same day, a cheque was drawn upon that account by Austin Sales for an A.N.Z. bank cheque in favour of Patrick & Co. in an amount equal to that of the lastmentioned cheque. The bank cheque was paid into No. 2 Account of Patrick & Co. at the Bank of New South Wales. Patrick & Co. then drew a cheque on its No. 2 Account at the Bank of New South Wales in the sum of $1,978,717.98 in favour of the Commercial Banking Co. of Sydney. This cheque was deposited in Patrick & Co.'s account with the latter bank on the same day.
After the sum of $6,176,698 had been credited to B.L.M.C.'s account, a meeting of directors of Austin Sales was held at 11 a.m. in the office of the Sydney manager of the A.N.Z. Bank. At this meeting transfers from the existing shareholders of the whole of the share capital in Austin Sales to Patrick Nominees Pty. Ltd., Mr. Keir and Mr. Davidson as nominees for the purchasers were approved. At the same meeting the existing directors resigned and Mr. Dowling, Mr. Keir and Mr. Davidson were appointed directors. Mr. Beaton was appointed secretary. According to Mr. Keir, the books and share register were then handed to Mr. Beaton.
At 11.45 a.m. a meeting of the new directors of Austin Sales was held at the offices of Patrick & Co. It was then resolved that the company declare an interim dividend totalling $5,789,677.98 ``payable to Patrick Nominees Pty. Ltd. on behalf of beneficial shareholders in the following proportions'' -
Minsoul $406,209.50
Minwall $252,681.50
M.T.A. $121,543.00
M.T.B. $252,681.50
M.T.D. $1,608,845.50
Mining Traders $2,568,788.50
A.O.M. Securities $578,928.48
To the extent of $5,789,677.98 the cheque for $6,151,697.98 drawn on Austin Sales' account represented the dividend declared by that company. The balance represented a loan to A.O.M. Securities.
When it received the bank cheque issued by the bank for $6,151,697.98, Patrick & Co. on 30 June 1970 credited the account of each of the purchasers in its books with the amount of that part of the Austin Sales dividend to which it was entitled.
The amount standing to the credit of Mining Traders in the books of Patrick & Co. on 30 June 1970 before the Austin Sales transactions took place was $1,635,019.45, an amount substantially less than the purchase price payable by Mining Traders for its Austin Sales shares, namely, $2,740,461.55.
At 12.15 p.m. on 30 June the directors of Mining Traders resolved that an agreement dated 30 June providing for the sale of the whole of the shares in Austin Sales ex dividend to Hill Minerals N.L. should be executed and at 12.45 p.m. the directors of Austin Sales resolved that share transfers from Patrick Nominees Pty. Ltd. and Mr. Keir in favour of Hill Minerals N.L. should be registered. Mr. Davidson continued to hold one share in the company and remained a director. Mr. Dowling and Mr. Keir resigned in favour of nominees of Hill Minerals N.L. Patrick & Co. drew a cheque in favour of Hill Minerals N.L. for $362,020 which was the amount of the purchase price payable by it to Mining Traders and others upon the sale to it of the whole of the shares in Austin Sales ex dividend. This seems to have been treated as a loan by A.O.M.
ATC 4162
Securities to Hill Minerals N.L. A.O.M. Securities were debited with a loan on the same day and in the same amount from Austin Sales.Entry of Mining Traders in the Register of Members of Remfore and Harbour Holdings.
At this point it is necessary to examine the relevant issues of fact peculiar to the acquisition by Mining Traders of shares in Remfore and Harbour Holdings. In these two cases it was submitted that the evidence establishes that Mining Traders was entered on the register of members of the company at the time when resolutions were passed distributing the undistributed profits by way of dividend. In the case of Harbour Holdings this submission relates to the second declaration of dividend, for it is conceded that on any view Mining Traders was not registered as a shareholder when the first declaration of a dividend of $40,000 was made on 28 April 1970.
In the case of Remfore the issue turns on the evidence which was given by Mr. Brush, a partner in Messrs. Cooper Bros., the auditors of Remfore. It will be recalled that the transfers of shares from the former shareholders to Mining Traders were directed to be registered by a resolution of the directors of Remfore passed at a meeting held on 28 May 1968, and that a dividend of $138,232.68 was declared in favour of shareholders ``registered on the books of the company at 31 May 1968'' by a resolution passed at a later meeting of the directors on the day mentioned in the resolution. Mr. Bush stated that he was present at the meeting held on 28 May, that he then took possession of the books, records and share transfers of the company and left them at the office of Patrick & Co. He further said that to the best of his recollection he entered Mining Traders in Remfore's register of members as a shareholder on that day. The relevant folio in the register is in Mr. Bush's handwriting and records as the date of the transfer ``28.5.68''. However, it is fair to say that Mr. Bush does not have a precise recollection of the occasion when the entry was made. He conceded that it is not impossible that the entry was made after the shares had been entered on the Canberra register of Remfore, but said that it is unlikely that this occurred.
By the resolution directing registration it was resolved that the shares should be registered on the company's Canberra register where they had previously been held. In an inter-office memorandum dated 31 May 1968, Mr. Bush instructed Mr. Owen in the Canberra office of Cooper Bros. to register the shares on the branch register. In that instruction he made no reference to their previous registration in the principal register of Remfore. Under sec. 157 of the Companies Act it is provided that a share held on the branch register should first be entered in that register and subsequently entered in the duplicate branch register kept in association with the principal register. However, notwithstanding these considerations I accept Mr. Bush's recollection and I therefore approach the matter on the footing that Mining Traders was entered as a shareholder in the register of members of Remfore on or before 31 May when the dividend was declared.
In the case of Harbour Holdings the issue depends on the evidence of Mr. Beaton, who was at the relevant time employed by Mining Traders. The meeting of directors which resolved that the share transfers from Remfore to Mining Traders and from Patrick Nominees Pty. Ltd. to Mr. Beaton should be registered was held on 24 April 1970. The first dividend of $40,000 was declared at a meeting held on 28 April 1970 and the second dividend of $404,150 was declared at a meeting held on 22 May 1970. The three meetings were held at the offices of Patrick & Co. in Sydney. The books of Harbour Holdings were held by Cooper Bros. in Perth until 15 May 1970. There had been an exchange of cables between Cooper Bros. in Perth and Patrick & Co. in the previous fortnight, in which Patrick & Co. had urgently sought delivery of the books to enable the entry of transactions as the subsequent sale of the shares to the Thornton Trust was in contemplation. The books were despatched from Perth on 15 May 1970 under cover of a letter of that date addressed to Patrick & Co. Mr. Beaton had no precise recollection of when he received the books or of when he made the entries in the share
ATC 4163
register. However, he said, and it is not disputed, that the entry in the share register of Harbour Holdings was made by him. That entry records ``24.4.70'' as the date on which Mining Traders and he became shareholders. In the case of Mining Traders the date actually recorded is ``22.4.70'', but unquestionably this is a clerical error. Mr. Beaton said that although the entry was made subsequently, it was dated back to the date of the meeting when the transfers came before the board of directors and that this was done in accordance with standard practice.Mr. Beaton said that he was under instructions from Mr. Keir to have the books written up promptly as the transaction with the Thornton Trust was to be carried into effect. He believed that the entries were made on 18 May or immediately thereafter, notwithstanding that the share transfers were not then stamped, and indeed were not stamped until the following year. Again, notwithstanding the criticisms which have been made of the appellants' case on this issue, I think it probable that the entries were made in the register of members before the second dividend was declared by Harbour Holdings on 22 May.
In all the other transactions (including the first dividend declared by Harbour Holdings) the dividends were declared and paid before the transfers of shares from the vendors to the purchasers were registered. Except in the case of Austin Sales, the transfers were subsequently recorded and the shares were registered in the names of the purchasers. But in the case of Austin Sales the vendors' shares were transferred to Patrick Nominees Pty. Ltd., Mr. Keir and Mr. Davidson as nominees for the purchasers, with the result that the appellants' names did not appear in the Austin Sales register of members at any time. On these facts it was submitted for the Commissioner that the moneys received by the appellants pursuant to the declaration of dividend made by each of the companies which were acquired were not ``private company dividends'' within the meaning of this expression as it is defined by sec. 46(1) of the Income Tax Assessment Act. The section must be read in the light of the definition of ``shareholder'' contained in sec. 6(1) of the Income Tax Assessment Act. The word is there defined so as to include ``member or stockholder''.
The appellants' answer (except as to Austin Sales) is that it is enough that their names were subsequently entered on the register in respect of the shares acquired and that entry in the register of members, when made, relates back to the date when it should have been made, that is, when the directors of the company approved the transfers or directed that they be registered.
Although the word ``shareholder'' ordinarily signifies a person who is registered as the holder of shares (see
Avon Downs Pty. Ltd. v. F.C. of T. (1949) 78 C.L.R. 353, at pp. 363-365), the word ``member'' may be wide enough to include a subscriber to the memorandum who is a person whose name is not entered in the register of members (Companies Act 1961, sec. 16). And the provisions of sec. 151(1) with respect to keeping of the register of members indicate that a person's character as a member is initially ascertained by reference to circumstances dehors the register.
The requirement in sec. 151 that there should be entered in the register ``(b) the date at which the name of each person was entered in the register as a member'' in my view refers, not to the date on which the entry was physically made, but to the date on which he should have been entered in the register as a member, that is, in the case of a subscriber to the memorandum, the date on which he subscribed and, in the case of a transferee, the date on which the directors approved the transfer, or resolved that it be registered. It is the duty of the officers of a company to give effect promptly to the company's obligation to enter the names of its members in the register. The statutory provision is to be read accordingly as authorizing, indeed requiring, the entry in the register of the date when the directors approved, or directed the registration of, the transfer to the transferee. In all cases other than Austin Sales, the entries in the registers of members correctly show the membership of Mining Traders as having commenced when the dividends in question were paid.
ATC 4164
Consequently, I am of the opinion that the moneys received by the appellants pursuant to the declaration of dividend by each of the companies acquired other than Austin Sales were ``dividends'' within the meaning of sec. 46.
The case of Austin Sales calls for independent consideration. For the appellants it was submitted that the word ``shareholder'' should be read as signifying not only a person who is entitled as against the company to be entered as a member in the register but also a purchaser of shares who is beneficially entitled to them as against the person registered as the holder of them. Reliance was placed upon the principle that a contract for the sale of shares in a company whose shares are not available for sale on the market is capable of specific performance and that the vendor of such shares holds them as trustee for the purchaser on completion of the contract. To my mind, this argument does not assist in resolving the problem, which is essentially a question of elucidating the meaning of the word in the light of the extended definition contained in sec. 6(1). It is not enough that the word includes a member. A person who is a beneficial holder of shares in a company (save, perhaps, a subscriber to the memorandum) but who is not, and has not, been entered in the register as the holder of those shares cannot accurately be described as a ``shareholder'' or a ``member'' of the company within the meaning of the Act (see
Norman v. F.C. of T. (1963) 109 C.L.R. 9, at p. 16). For this reason I am of opinion that the amounts paid to the appellants by Austin Sales pursuant to the declaration of dividend do not fall within the provisions of sec. 46(2).
The next, and perhaps the most important, question is whether in relation to the dividends declared and paid by companies other than Austin Sales the amounts received by the appellants were rebatable under sec. 46. I am bound by the decision of this Court in the
I.M.F. case 71 ATC 4140; (1971) 125 C.L.R. 249 and it follows from this decision that the payments are rebatable. I am unable to discern any basis on which this case can be distinguished. Some different circumstances have been pointed to by counsel for the Commissioner, in particular the nature and scale of the transactions, their frequency, but to my mind they make no difference. The transactions were all similar to the Macgrenor transaction in that the shares were acquired for the purpose of a dividend stripping operation. As Menzies J. said of the Macgrenor transaction in the I.M.F. case (supra), at p. 4146 -
``It was undoubtedly true that the attraction of the transaction lay in the concurrence of three features, namely, that the purchase price would be deductible from assessable income; that the dividend to be received would be rebatable and that the sale of the shares would result in a loss which would, it was expected, be deductible from other income of the year in which the loss was made.''
This observation has equal application to the present case. Emphasis was given to the circumstance that before entering into the transactions the appellants were aware that there was a buyer for the shares ex dividend and were aware also of the terms on which the buyer was willing to purchase. But this, so it seems to me, does not affect the conclusion that the shares were acquired as trading stock, or the conclusion that there was a receipt of dividends within the meaning of sec. 46.
When the Full Court decided the I.M.F. case it had before it two decisions of the House of Lords,
Griffiths (Inspector of Taxes) v. J.P. Harrison (Watford) Ltd., (1963) A.C. 1, and
Bishop (Inspector of Taxes) v. Finsbury Securities Ltd., (1966) 1 W.L.R. 1402, which supported the conclusion reached by the majority of this Court. Since then the House of Lords in FA & AB Ltd. v. Lupton (Inspector of Taxes), (1971) 3 All E.R. 948 and Thomson (Inspector of Taxes) v. Gurneville Securities Ltd., (1972) A.C. 661, has held that where a taxpayer enters into a transaction for the purpose of a dividend stripping operation with the manifest object of securing a tax advantage the transaction does not constitute a dealing in stocks and shares and therefore forms no part of the trading activities of a dealer in stocks and shares. The Commissioner relied on this decision but in my view, having regard to this Court's
ATC 4165
decision in the I.M.F. case, I should not follow it.For the same reasons I cannot give effect to the Commissioner's argument that the amount of the loss which Mining Traders sustained in the transactions other than Austin Sales is not deductible. Such a conclusion is inconsistent with the decision and the reasoning of the majority in the I.M.F. case.
There remains the question whether the appellants' claim that dividend payments are rebatable is defeated by sec. 260. The right to a rebate is specifically conferred by the statute in the circumstances to which it refers and which in my view obtain in this case. I am unable to see how sec. 260 can defeat the operation of sec. 46. This conclusion is, I think, supported by the decision in
Rowdell Pty. Ltd. v. F.C. of T. (1963) 111 C.L.R. 106.
Appeal by Patrick Corporation Limited in respect of the year ended 30 June 1968.
The taxpayer was assessed to tax on a taxable income of $135,802, the amount shown in its return, but it was denied its claim to a rebate on the dividend received from Remfore Pty. Ltd. in the sum of $138,232. The manner in which the Commissioner dealt with the transaction is shown by the adjustment sheet as follows -
``Transaction in respect of shares in Remfore Pty. Ltd. has been assessed on the following basis -
$ Sale price 79,676 Dividend 138,232 ------- 217,908 Cost price 209,065 ------- Profit $8,843 -------No amount in respect of this transaction has been treated as subject to rebate in terms of sec. 46.''
In view of the conclusions which I have reached this approach to the transaction was incorrect. A trading loss of $129,389 was sustained on the transaction which required to be taken into account in ascertaining the taxpayer's share trading profit for the year. At the same time the dividend of $138,232 should have been brought to account as a separate receipt and the rebate attributable to it allowed.
There having been no alteration to the taxable income returned by the taxpayer, the assessment should be amended so as to allow the taxpayer a rebate on the amount of the dividend received from Remfore Pty. Ltd.
Appeal by Patrick Corporation Limited in respect of the year ended 30 June 1969.
The taxpayer was assessed to tax on a taxable income of $283,488, an amount not challenged by the taxpayer. However, its claim to a rebate on the dividends declared by The Austral Stevedoring & Lighterage Co. Pty. Ltd., E.P. & A. Fraser Pty. Ltd., Thomas Napier & Co. Pty. Ltd. and Stevedoring Insurance Co. Ltd. was denied. The transactions involving the share capital of these companies was approached by the Commissioner in the same manner as he dealt with the Remfore Pty. Ltd. transaction.
In the circumstances the assessment should be amended so as to allow the taxpayer a rebate on the dividends received by the taxpayer as stated hereunder -
From The Austral Stevedoring
& Lighterage Co. Pty. Ltd. $35,639
E.P. & A. Fraser Pty. Ltd. 189,246
Thomas Napier & Co. Pty. Ltd. 26,234
Stevedoring Insurance Co. Ltd. 21,100
-------
$272,219
-------
Appeal by Patrick Corporation Ltd. in respect of the year ended 30 June 1970.
The taxpayer was assessed to tax on a taxable income of $3,205,623, the amount shown in its return. It was denied its claim to a rebate on the dividends received from The Yarra Investment Co. Pty. Ltd., Harbour Holdings Pty. Ltd. and Austin Sales (Aust.) Pty. Ltd. The transactions involving the share capital of these companies was approached by the Commissioner in the same manner as he dealt with the Remfore Pty. Ltd. transaction.
ATC 4166
I have held that the taxpayer is not entitled to a rebate on the amount of $2,568,708 received from Austin Sales.
In the circumstances the assessment should be amended so as to allow the taxpayer a rebate on the dividend of $698,182 received from The Yarra Investment Co. Pty. Ltd. and the dividend of $444,150 received from Harbour Holdings Pty. Ltd., a total of $1,142,332.
Appeals by Minsoul Pty. Limited, Minwall Pty. Limited, M.T.A. Pty. Limited, M.T.B. Pty. Limited and M.T.D. Pty. Limited in respect of the year ended 30 June 1970.
In each case the appeal involves no challenge to the amount of taxable income as assessed. The only issue is whether the taxpayers are entitled to a rebate on the dividends which they received from Austin Sales (Aust.) Pty. Ltd., an issue which I have resolved adversely to the taxpayers and the appeals must be dismissed.
ORDER:
Minsoul Pty. Limited v. F.C. of T.; Minwall Pty. Limited v. F.C. of T.; M.T.A. Pty. Limited v. F.C. of T.; M.T.B. Pty. Limited v. F.C. of T.; M.T.D. Pty. Limited v. F.C. of T.
Appeals dismissed with costs. Assessments confirmed.
Usual order as to exhibits.
ORDER:
Patrick Corporation Limited v. F.C. of T. (Nos. 50 and 51 of 1972)
Appeals allowed with costs. Assessments remitted to the Commissioner for reassessment in conformity with the reasons for judgment.
Usual order as to exhibits.
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