Moneymen Pty. Ltd. v. Federal Commissioner of Taxation
Judges:Spender J
Court:
Federal Court
Spender J.
These four appeals arise out of the rejection by the Commissioner of Taxation of objections against assessments in respect of income derived by the applicant, Moneymen Pty. Ltd. (``Moneymen''), during the financial years ended 30 June 1979, 1980, 1981, and 1982. The issue in each of the appeals is whether sums received by the applicant from Maleny Milk Producers Pty. Ltd. (``Maleny'') pursuant to a contract between Moneymen and Maleny constituted assessable income.
The particulars of assessment supplied by the respondent Commissioner asserts that the receipts from Maleny are assessable income of the applicant, relying on the provisions of sec. 25 and 26(f) of the Income Tax Assessment Act 1936, as amended (``the Act''), in that:
``(i) the receipts were income of the applicant according to ordinary concepts; or
(ii) the receipts were royalties in that they were calculated by reference to the right to use or the anticipated quantum of user by Maleny Milk Producers Pty. Ltd. of the applicant's contractual right to sell milk to the Caboolture Co-operative Association Limited and, further and alternatively, in respect of receipts after 20 March 1980, the receipts were royalties in that they were paid as consideration for the forbearance of the applicant in respect of the right to use the applicant's contractual right to sell milk to the Caboolture Co-operative Association Limited.''
In addition, the Commissioner asserted that the payments received by the applicant pursuant to the terms of a deed of defeasance dated 13 February 1975 between Maleny and Moneymen, and annexed deeds of assignment, constitute income pursuant to sec. 262 of the Act. However in the course of hearing, Mr R.W. Gotterson Q.C., senior counsel for the Commissioner, made the concession that, in this case, if the receipts were not income pursuant to either sec. 25 or 26(f), sec. 262 did not avail the Commissioner of an additional basis of assessment. It is therefore necessary to consider only the provisions of sec. 25 and 26(f).
Prior to 1972, Moneymen carried on business as a dairy farmer, milk processor and pasteuriser, and as a wholesale and retail vendor of bottled milk at and from a property at Dayboro in the State of Queensland under the names ``Polar Milk'' and ``Pine Mountain Dairies''. The business was small, processing only about 200 gallons per day.
Under an agreement for sale dated 20 March 1972, Caboolture Co-operative Association Ltd., (``Caboolture'') and Q.U.F. Tradings Pty. Ltd. (``Q.U.F.'') agreed to purchase
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certain of the capital assets of the business of Moneymen, viz. its milk-processing and pasteurising activities and its wholesale milk vending. The agreement did not extend to the business of Moneymen as a retail milk vendor. Under the contract the consideration for the sale was $34,850 as well as the execution of an indenture between Caboolture and Moneymen dated 30 June 1972.Prior to 1972 the areas of Arana Hills, Ferny Grove, Caboolture, Pine Rivers, Redcliffe, Kallangur, Petrie, Ocean View, Mount Mee and Dayboro were being serviced by three milk processors, namely Q.U.F., Caboolture and the applicant. Pursuant to the Milk Supply Act 1952 (Qld) the Minister for Primary Industries indicated that he would be agreeable to granting exclusive franchises for these areas for the supply of milk. As a result, discussions took place between the applicant, Q.U.F. and Caboolture resulting in the agreement for sale and the indenture.
Pursuant to the indenture dated 30 June 1972, Moneymen acquired from Caboolture a market milk entitlement of 600 gallons per day for 20 years; a manufacture milk entitlement of volumes over 600 gallons per day for 20 years; and the rights conferred by cl. 10 of the indenture which provided that, on the expiration of the term of the indenture:
``... Moneymen shall revert to the status of a Caboolture quota milk supplier with the quota established during the quota determining period in the last year of this agreement provided however if at the end of the period of operation there is not in existence a quota determining system applicable to Caboolture suppliers, Moneymen shall share the market milk supplied by Caboolture suppliers on a percentage of production basis no less favourable than that enjoyed by any other Caboolture supplier.''
At the time of the execution of the indenture there were in operation two prices for milk supplied by producers to factories, the higher price being the ``market milk price'' payable for milk up to the limit of each producer's individual quota and the lower ``manufacture milk price'' for all other milk.
In an affidavit dated 28 April 1989, Mr Ian Revie, a director of the applicant, deposed that ``This contract for a quota at market milk price reflected the value of the goodwill of the business of milk processor and pasteuriser and wholesale milk vendor purchased by Caboolture and the necessity for any applicant such as Q.U.F. for an exclusive franchise for an area such as the area [earlier referred to] to demonstrate the absence of any interest such as that held by the applicant would be adversely affected by the grant of the exclusive franchise''.
Clause 20 of the indenture provided that the contract might be assigned by the applicant as a whole contract for the balance of the term of the agreement, except to entities conducting or intending to conduct a factory producing dairy products. Whether the right of reversion to a ``most favoured supplier'' after the expiration of the term, conferred by cl. 10 of the indenture, was or was not assignable under cl. 20 may be a matter of contention, but the applicant's case was that the cl. 10 rights were not in fact later assigned, and the respondent proceeded on the basis that this view was correct.
Mr Revie said that the benefit of the indenture for Caboolture was that it obtained an exclusive franchise in the Redcliffe area and surrounding region without being required to pay a lump sum of money, and that the benefit of the indenture for Q.U.F. was that it obtained an exclusive franchise for Arana Hills, Strathpine and surrounding areas. He said that the benefit of the indenture for the applicant was that it acquired the right to sell all the milk it produced on its farm up to 600 gallons per day at the best price obtainable therefor for 20 years and without having to qualify for a quota as did other producers by achieving certain levels of production of milk over the annual quota qualifying period. Much of the production of other producers to qualify for a quota was sold at a lower price.
In 1974, as a result of losses, the applicant no longer desired to conduct its dairying business and decided to realise its assets in order to pay its debts and have available a surplus for capital investment. In July of 1974 an auction was held whereby Moneymen offered for sale its land, machinery and livestock and the benefit of the indenture dated 30 June 1972. At that auction the land and certain assets were sold but not the rights pursuant to the indenture.
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Subsequently, Moneymen agreed to transfer and assign to Maleny the indenture between Moneymen and Caboolture. By a deed of assignment dated 13 February 1975, Moneymen assigned its assignable interests under the indenture dated 30 June 1972 and Maleny agreed to be bound by the terms of the indenture and the contract for the balance of the term. Pursuant to the deed of assignment of 13 February 1975, Maleny, under the indenture, acquired the rights and obligations of Moneymen vis-a-vis Caboolture.
It was then said by Mr Revie that, as Maleny was unable to pay in a lump sum for the assignment of the milk contract or to provide other security therefor, ``it was necessary for the contract to be used as security''. He said the value of the milk contract to a milk producer was great because of its long balance term; because the producer would receive market milk price for all milk up to 600 gallons per day; and because of the absence of any annual quota qualifying period or the need to supply at manufactured milk price to obtain a quota. A deed of defeasance, and a deed of reassignment were executed on 13 February 1975.
It is the payments made pursuant to the deed of defeasance dated 13 February 1975 between Maleny and Moneymen which are at the centre of these appeals.
That deed of defeasance recited the agreement whereby Moneymen had agreed to transfer and assign to Maleny the contract in writing between Moneymen and Caboolture dated 30 June 1972, and that Maleny had agreed to observe and fulfil the contract for the balance of its term ``and has agreed to make to the company [that is, to Moneymen] the payments hereinafter provided during the balance of the term of the contract''. It then made provision for the payment of money from Maleny to Moneymen.
The indenture of 30 June 1972 between Moneymen and Caboolture provided in cl. 4 that:
``4A Caboolture shall purchase from Moneymen and Moneymen shall sell as market milk to Caboolture that number of gallons of milk each day that Moneymen has available not exceeding the number of gallons per day specified in the Schedule hereto in respect of the period or year in which each such day falls provided that the number of gallons specified in the Schedule in respect of any particular period or year shall be subject to the operation of clause 2 and clause 15 hereof.
4B Caboolture shall purchase from Moneymen and Moneymen shall sell as manufacture milk to Caboolture such milk in excess of that referred to in subclause A of this clause 4 as Moneymen may have available in excess of milk reasonably required for its own domestic purposes.''
Thus cl. 4A is a covenant to purchase and sell market milk, and cl. 4B is a covenant to purchase and sell manufacture milk.
Subclause 3.2 of the deed of defeasance provided the consideration for the assignment of those rights from Moneymen to Maleny. It provided that:
``The supplier shall pay to the company where the company directs monthly within twenty-one (21) days after the end of each calendar month the amount calculated according to the formula in subclause (1) of this clause 3 and for that purpose the number of days for the purpose of `D' shall be the number of days in the calendar month in question.''
The ``supplier'' and the ``company'' referred to in this sub-clause were Maleny and Moneymen respectively.
The formula in subcl. 3(1) is:
MMP - C - L
------------- X G X D
7
where
- MMP is the market milk price per gallon,
- C is the amount of cartage per gallon payable under cl. 9 of the contract,
- L is the amount of levy per gallon deducted in accordance with cl. 14 of the contract,
- G is the number of gallons specified in the schedule to the contract (which for present purposes may be taken as 600 gallons), and
- D is the number of days in the relevant month of calculation.
Subject to the exercise by Maleny of the rights conferred by cl. 4 of the deed, the payments were to be monthly, over the balance of the 20-year term of the contract. The monthly payment was not a fixed amount. The
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market milk price is a price determined from time to time, originally by the Brisbane Milk Board, and then by the Queensland Milk Board. This price is published in the Government Gazette. However, the monthly payment did not vary according to the volume of market milk in fact supplied by Maleny to Caboolture. Clause 3.1 of the deed of defeasance provided:``The application and operation of the formula and the calculation of the amount under or by the formula shall be independent of the supply or delivery of milk by the supplier to Caboolture Co-operative Association Limited and the amount shall be calculated under this clause by reference to the abovementioned formula and not in any way by reference to actual milk produced or supplied or delivered by the supplier.''
Clause 4 of the deed of defeasance permitted the supplier, upon giving six calendar months' notice of intention to compound, to pay a discounted cash sum calculated on the basis of the higher of the market milk prices as at the date of the notice and the date of expiration of the notice over the balance of the term, the present value to be ascertained at the discount rate of 10%. This right to pay a lump sum in lieu of future monthly payments was not in fact exercised.
By cl. 6, if the contract came to an end without default by Maleny, the agreement in the deed of defeasance was cancelled, and the contract might revert to Moneymen. The effect of this is that the duration of the periodic payments correspond to the period of assignment.
The effect of cl. 8 of the deed of defeasance is that, if Maleny is not paid by Caboolture for market milk supplied by Maleny, the obligation on Maleny to pay Moneymen is suspended.
Clause 17 provides for assignment back to Moneymen on the happening of specified events in the deed.
The evidence shows that a monthly cheque was forwarded by Maleny to the credit of Moneymen's bank account. One notification of that payment is in the following terms:
``31 Days Quota @ 2,728 Litres = 84,568
Litres @ 25.51c per litre $21,573.30
Less Cartage Levies etc. 1,739.27
----------
$19,834.03
----------
Royalty @ 1/7 of $19,834.03 is $2,833.43
----------''
(600 gallons equates almost exactly to 2,728 litres.)
In the years ended 30 June 1975 to 30 June 1978 the profit and loss statement in the annual returns of Maleny included income from the sale of milk under the contract purchased from Moneymen and expenses claimed as ``Royalties paid'' to the applicant.
At about the end of the financial year ending 30 June 1978 there was an amalgamation between Caboolture and Maleny Milk Producers Pty. Ltd., so that effectively Caboolture owned the Maleny Co-operative and Maleny Milk Producers Pty. Ltd. Mr Alan Webster, a director of Maleny, indicated that after the amalgamation Maleny was not exercising its right to supply milk because ``Caboolture was - the amalgamated company - was in effect supplying and receiving its own milk''. Prior to the amalgamation, payment by Caboolture to Maleny was on the amount supplied to Caboolture, but Maleny had to pay Moneymen based on the figure of 600 gallons. The amount of the payment was fixed by reference to the agreement and was not related to the quantity of milk actually supplied by Maleny to Caboolture.
The adjustment sheets in respect of each appeal indicated the Commissioner characterised these payments as income or royalties.
It is convenient to deal with the basis of assessment under sec. 26(f) first. Section 26(f) provides:
``The assessable income of a taxpayer shall include -
- ...
- (f) any amount received as or by way of royalty other than an amount that -
- (i) but for the definition of `royalty' in sub-section 6(1) would not be such an amount; and
- (ii) is not `income' within the ordinary meaning of that expression
- ...''
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The general concept of a royalty is extended by the definition contained in sec. 6 of the Act, but it was not submitted by the Commissioner that that extended definition has any present relevance. It was submitted on the Commissioner's behalf that the payments were, in substance, royalties according to general concepts.
The assertion by the Commissioner is that the character of the payments under cl. 3(2) of the deed of defeasance in the hands of Moneymen is to be ascertained on the consideration of the formula in the deed of defeasance as a volume calculation. It was submitted that it is immaterial that the volume is fixed and is independent of the actual volume of market milk supplied by Maleny to Caboolture.
In
Stanton v. F.C. of T. (1955) 92 C.L.R. 630 at p. 641, the High Court (Dixon C.J., Williams, Webb, Fullagar and Kitto JJ.) said of the present usage of the term ``royalty'':
``... the modern applications of the term seem to fall under two heads, namely the payments which the grantees of monopolies such as patents and copyrights receive under licences and payments which the owner of the soil obtains in respect of the taking of some special thing forming part of it or attached to it which he suffers to be taken.''
Of the second meaning, the Court referred to:
``... the parallel though distinct development of the meaning of the word which seems to arise from payments made to the Crown in respect of metals and the like won or taken from the soil. Similar payments to the owners of mines are regarded as royalties and by an extension not difficult to follow payments made in respect of the taking under the agreement or licence of the owner of land of anything which may be considered part of or naturally attached to the soil such as coal, stone, sand, shells, oil and standing timber came to be spoken of as royalties.''
And later at p. 642:
``In the same way in the case of things taken from the land the essential notion seems to be that the payment is made in respect of the taking of something which otherwise might be considered to belong to the owner of the land in virtue of his ownership. In other words it is inherent in the conception expressed by the word that the payments should be made in respect of the particular exercise of the right to take the substance and therefore should be calculated either in respect of the quantity or value taken or the occasions upon which the right is exercised.''
In
McCauley v. F.C. of T. (1944) 69 C.L.R. 235, the owner of certain lands agreed as vendor to sell to a purchaser the right to cut and remove the standing milling timber ``at or for a price or royalty of three shillings (3s.) for each and every one hundred (100) superficial feet of such milling timber so cut''. It was held by Latham C.J. and McTiernan J. that the money received by the owner for timber cut and removed from the land was an amount received ``as or by way of royalty'' within the meaning of sec. 26(f) and was assessable. At p. 248, McTiernan J. said:
``The agreement did not transfer to the sawmiller the taxpayer's property in the standing milling timber growing on his property (
James Jones & Sons Ltd. v. Earl of Tankerville (1909) 2 Ch. 440;
Kursell v. Timber Operators and Contractors Ltd. (1927) 1 K.B. 298). What the taxpayer `sold' to the sawmiller was `the right to cut and remove the standing milling timber growing' on the taxpayer's property and the sawmiller covenanted to cut and remove all such timber within a specified time: the interests which the sawmiller acquired under the agreement are described as rights and privileges...''
And later:
``In form and effect the taxpayer granted a right to the sawmiller, which he covenanted to exercise, to cut and remove the milling timber, above the specified girth, from the taxpayer's trees growing on his land, in consideration of three shillings for every hundred superficial feet of milling timber which the sawmiller cut. The parties described this sum as a price or royalty. As the consideration for the sale of the milling timber when it was turned into `corporeal moveables' it was apt to describe this sum as a price. But as the moneys there described were the consideration for the right which the taxpayer granted to cut and remove the milling timber from the trees
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growing on his land it is, in my opinion, in accordance with the ordinary business usage of the expression `royalty' to say that the taxpayer received such moneys `as or by way of royalty'.''
It was submitted by the taxpayer that in the present case the payment does not have a relation to the magnitude of the milk supplied by Maleny nor does payment relate to occasions of the particular exercise of the right. It was submitted that, for a payment to be a royalty, there must be a necessary association between the payment and the exercise of the right, which necessary association did not appear in the present case.
In
F.C. of T. v. Sherritt Gordon Mines Ltd. 77 ATC 4365, the taxpayer entered into an agreement with Western Mining whereby the taxpayer agreed to supply certain technical information and assistance in connection with the Sherritt System for the recovery of nickel, in return for certain ``royalty'' payments from Western Mining. Payment for the rights granted in the agreement was to be ``an aggregate sum expressed as a percentage of the Aggregate Sales Value of the nickel and by-products produced in whole or in part by the practice of the Sherritt System''. Mason J., with whom Gibbs J. agreed, at p. 4372, having referred to the observations of Dixon C.J., Williams, Webb, Fullagar and Kitto JJ. in Stanton's case (supra) set out above, said:
``The Court held that the payments were not royalties and in the passage already quoted made it clear that it is of the essence of a royalty that the payments should be made in consideration of the grant of a right, that they should be made in respect of particular exercises of the right and therefore should be calculated in the manner stated.''
He concluded that:
``... the substantial, if not the sole, consideration for the payments was not the grant of a right but for the provision of technical assistance and information which Western was entitled to use once it was supplied, without the grant of any additional right so to do.''
It seems to me plain that the monthly payments pursuant to the deed of indenture are not calculated either in respect of the volume of milk supplied by Maleny to Caboolture or in respect of occasions upon which milk is supplied by Maleny to Caboolture. The amount of the payments is not referable either to the frequency of the occasions when supply takes place or to the value or volume of milk supplied. The payments are not royalties.
This view accords with the decision of Owen J. in
Barrett v. F.C. of T. (1968) 118 C.L.R. 666, where his Honour held that the payments made by reference to the amount of soapstone removed from a taxpayer's land were not royalties because the owner did not own the minerals and the payments were therefore not made in consideration of the grant of rights with respect to the soapstone. It also accords with the conclusion of Derrington J. in
Earle v. F.C. of T. 86 ATC 4441. The taxpayer was a member of a partnership which agreed to sell specified quantities of rock with a right in the purchaser to remove the rocks from the land. The contracts provided a specific total purchase price to be paid by monthly instalments. The payment of the instalments was to be made irrespective of the quantity of rock removed from the land at the time of payment. Derrington J. concluded that the obligation of the purchaser of the rock to make payment did not attach to the taking of the rock, because the payment was due whether or not the purchaser exercised its right to take the rock. The necessary legal relationship between taking and paying was the feature of a royalty which was absent in that case.
As to whether the payments represent income according to ordinary concepts under sec. 25 of the Act, the applicant submitted that they were receipts of a capital nature, being payments towards the purchase price of a contractual right of an enduring kind. The payments, it was submitted, were really payment of a capital sum by instalments. It was said that the true business character of the payments were payments for a capital asset payable over a period of time.
In
Allied Mills Industries Pty. Ltd. v. F.C. of T. 89 ATC 4365, the Full Court dismissed an appeal from Gummow J. (88 ATC 4852; (1988) 83 A.L.R. 368) who dismissed the taxpayer's objection to the assessment as income of a lump sum payment which had been received by the taxpayer in return for the termination of a distribution agreement of Peek Frean biscuit products. The distribution of those products had
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contributed substantially to the taxpayer's profits. The Full Court (Bowen C.J., Lockhart and Foster JJ.) at pp. 4369-4370 referred to the passage from the judgment of Brennan J. inFederal Coke Co. Pty. Ltd. v. F.C. of T. 77 ATC 4255 at p. 4273, where his Honour said:
``When a recipient of moneys provides consideration for the payment, the consideration will ordinarily supply the touchstone for ascertaining whether the receipt is on revenue account or not. The character of an asset which is sold for a price, or the character of a cause of action discharged by a payment will ordinarily determine, unless it be a sham transaction, the character of the receipt of the price or payment. The consideration establishes the matter in respect of which the moneys are received. The character of the receipt may then be determined by the character, in the recipient's hands, of the matter in respect of which the moneys are received. Thus, when moneys are received in consideration of surrendering a benefit to which the recipient is entitled under a contract, it is relevant to enquire whether or not that benefit was a capital asset in his hand. To adapt the words of Lord
MacMillan in Van den Berghs Limited v. Clark (1935) A.C. 441 at p. 443 and of Williams J. in
Bennett v. F.C. of T. (1947) 75 C.L.R. 480 at p. 485, the enquiry is whether the congeries of the rights which the recipient enjoyed under the contract and which for a price he surrendered was a capital asset.''
One of the questions in this case is whether the rights in Moneymen to sell market milk to Caboolture pursuant to the contract in 1972 was a capital asset.
In
Heavy Minerals Pty. Ltd. v. F.C. of T. (1966) 115 C.L.R. 512, the taxpayer received sums of money from purchases of rutile under forward-selling contracts in consideration of it cancelling those contracts and releasing the purchasers from their obligations thereunder. It was held by Windeyer J. that each sum so received was assessable income of the taxpayer in the year of its receipt. Windeyer J. said at p. 516:
``The taxpayer's case was expressed in more than one way. But each really amounted to an assertion that the agreements it had with the American buyers and the German buyer were in themselves a capital asset.''
He said later at pp. 516-517:
``The contracts that were cancelled were not all in the same terms. The only common feature seems to be that goods were to be supplied from time to time in the future. Even if these contracts were such that they seemed to ensure that the taxpayer would have a secure market and some regular customers, that would not of itself make them part of the capital of its business. As to words and phrases like `framework', `capital structure' and others which were used to beg the question, the remarks of Lord Radcliffe in
Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. (1964) A.C. 948, at p. 959, are much in point.The appellant sought to liken the moneys which the buyers paid to be released from their contracts to a price received as a consideration for going out of business as in
Californian Oil Products Ltd. v. Federal Commissioner of Taxation (1934) 52 C.L.R. 28. But there is no analogy. The taxpayer's business was mining rutile and dealing in rutile. Its capital assets were the mining lease and the plant. After the contracts were cancelled it still had these. It was free to mine its rutile and to sell it if it could find buyers: and it tried to do so. The taxpayer was not put out of business by the cancellation of its overseas contracts. It did not go out of business when they were cancelled. What happened is that because the price of rutile had drastically fallen it could not carry on its business at a profit.''
It seems to me that in return for the monthly payments Moneymen gave up the right to exploit its contractual rights with Caboolture and thus to earn income.
There are also other factors of relevance in the determination of the characterisation of the payments received by Moneymen. The monthly payments are not fixed as to amount and, subject to the exercise of the right given by cl. 4 of the indenture, the payments have the characteristics of periodicity, regularity and recurrence. In
F.C. of T. v. Myer Emporium Ltd. 87 ATC 4363 at pp. 4369-4370; (1987) 163 C.L.R. 199 at p. 215, Mason A.C.J., Wilson, Brennan, Deane and Dawson JJ. said:
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``Many instances may be given of the sale of a capital asset for a consideration which is income in the hands of the seller. For the most part these are instances of the sale of a capital asset for periodic, regular or recurrent receipts, periodicity, regularity or recurrence being characteristics of an income receipt. See, for example,
Egerton-Warburton v. D.F.C. of T. (1934) 51 C.L.R. 568, where a property was sold in return for an annuity. But there is no reason for thinking that the conversion of a capital asset into an income receipt is confined to such cases.The periodicity, regularity and recurrence of a receipt has been considered to be a hallmark of its character as income in accordance with the ordinary concepts and usages of mankind.''
In
Van den Berghs Limited v. Clark (1935) A.C. 431 English and Dutch manufacturers of margarine agreed to work in friendly alliance by sharing profits, losses and participation in their subsidiaries, but each agreeing not to enter into a pooling or pricing arrangement with third parties. After it was found impossible to settle a dispute between the parties, the basic agreement was terminated and the Dutch company paid its English associate damages for the release from the agreement. The House of Lords held that the payment was a capital receipt for the loss of future rights under the association agreement. Lord Macmillan said that the cancelled arrangements:
``... were not ordinary commercial contracts made in the course of carrying on their trade; they were not contracts for the disposal of their products, or for the engagement of agents or other employees necessary for the conduct of their business; nor were they merely agreements as to how their trading profits when earned should be distributed as between the contracting parties. On the contrary the cancelled agreements related to the whole structure of the appellants' profit-making apparatus. They regulated the appellants' activities, defined what they might and what they might not do, and affected the whole conduct of their business.''
The contractual rights assigned to Maleny in this case were for the disposal of milk to Caboolture. In my opinion, the periodic payments to be made pursuant to the indenture were in the nature of a surrogate for the future income flow that Moneymen would have received had it not assigned the contract but worked it itself. The receipts by Moneymen for the sale of milk would have been assessable income and the operational costs would have been allowable deductions. Pursuant to the indenture Moneymen effectively receives one-seventh of the market milk receipts it would have received had it worked the contract.
This is not a case of payment as compensation for the closure of a business as in Californian Oil Products Ltd. (in liq.) v. F.C. of T. (1934) 52 C.L.R. 28. Nor do I think the contract and indenture involved a parting by Moneymen with a substantial part of its business undertaking in the sense used by Lord Evershed M.R. in
Anglo-French Exploration Co. Ltd. v. Clayson (1956) 36 T.C. 545 at p. 557, where after referring to various authorities he said:
``[They] seem to me to emphasise that sums received for the cancellation of an agency or of other similar agreements which have been entered into by the recipient in the ordinary course of its trade will themselves, prima facie, be regarded as received in the ordinary course of trade unless the transaction involves a parting by the recipient with a substantial part of its business undertaking.''
In my opinion the moneys paid monthly to Moneymen were in fact the price for being kept out of the use and enjoyment by it of the sales contract during the period of the assignment. As such, they have the character of income.
I agree with the suggestion of Bernard Marks in his Alienation of Income CCH Australia Ltd. (1978) at p. 250 where he said:
``... a general principle can be said to have emerged from the cases: where a future income right under a contract is part of the business operations of a taxpayer then any payment received from its assignment will be assessable income: the consideration would be essentially a substitute for what would otherwise be received at a future date as ordinary income - it is merely the present value of income which the assignor would otherwise obtain in the future. On the other hand, if the contract right which is
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assigned is a part of the fundamental organisation or construction of a business or is the entire business undertaking of a taxpayer then the sale price is a non-assessable capital receipt.''
For the above reasons, the four appeals should be dismissed with costs.
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