Resch v Federal Commissioner of Taxation

66 CLR 198

---

(Judgment by: Rich J) Court:

Judges:
Rich JStarke J
Dixon J
McTiernan J

Hearing date: 11 November 1941; 12 November 1941; 13 November 1941; 1942 November 1941; 4 February 1941
Judgment date: 4 February 1942

Sydney

---

Judgment by:
Rich J

Case stated pursuant to s. 51A (8) of the Income Tax Assessment Act 1922-1930 on the hearing of an appeal by one Edmund Resch against the assessment made by the Commissioner upon his taxable income derived during the period of twelve months ending on 30th June 1930 under s. 13 (1) of the Income Tax Assessment Act 1922-1930, which is the relevant Act under consideration. When the appeal first came before me in July 1938, counsel stated that the matter had been the subject of protracted negotiations between the parties with the object of preparing a case on admitted facts and thus avoiding a lengthy trial. In November 1938 it was stated that a case was being prepared with the assistance of accountants and taxation experts. The preparation of the case necessitated a careful scrutiny of documents and records dating back over a period of twenty years. In December 1940, when the case was submitted, I made certain amendments and alterations in it. In August 1941 the case as amended and altered was submitted to me and I was assured by senior counsel that the case set out all the relevant facts. Questions 11 and 12 by my direction were framed in accordance with that settled by the Court, consisting of Knox C.J., Isaacs, Higgins, Starke JJ. and myself, in Australian Slate Quarries Ltd v Federal Commissioner of Taxation ^[F1] .

The case stated arises out of the adoption in the income-tax legislation of this country of a provision putting a distribution of profits in the course of the winding up of the company on the same footing as a distribution by a company as a going concern.

By s. 16B of the Income Tax Assessment Act 1922-1930 a shareholder who receives profits earned by a company, but in the course of a distribution in a winding up, must include the profits in his assessment for the current year. It is unnecessary to repeat the exact terms of the provision. The taxpayer in the present case received a distribution in the course of a winding up which resulted from an absorption, or what is popularly called an amalgamation. He disputes the proposition that he received money or the equivalent of money in such a sense that it came within the words "amount distributed" which the section uses. But this contention arises rather from the ingenuity of counsel than any tenable ground afforded by the facts. The facts, in my opinion, show that the liquidators received the purchase price in money for distribution in the course of the winding up and had no control over and were not parties to that part of the transaction by which shares in Tooth & Co Ltd -the purchasing company-were allotted in exchange for the money thus distributed. Section 16B is not concerned with the method of distribution but with the matter distributed-"the amount distributed."

Logically the first contention made on behalf of the taxpayer is that the amended assessment was out of time. If this were true it would end all further discussion, but I regret to say that I am unable to agree in the contention. I put my decision on this point on the very simple ground that the time at which the original tax was payable, within the meaning of s. 37 (1A) of the Income Tax Assessment Act 1922-1930, was 17th June 1931; that is to say, the day stated at the foot of the original notice of assessment.

The ground taken secondly in point of logic is on a much higher level, but can be dealt with with equal brevity. It is that the whole of the taxing Act and the assessment Act is invalid on the ground that they jointly or severally offend against s. 55 of the Constitution. The objection is based on the second paragraph of that section, which "goes to the whole Act" (Osborne v The Commonwealth ^[F2] , at p. 335). The phrase in the section "one subject of taxation" had for its purpose the prevention of what is known as "tacking" (Harding v Federal Commissioner of Taxation ^[F3] ). And it is said that by reason of s. 16B as well as a number of other sections, viz., ss. 16 (b) (ii), (d), (h), 21, 28, and 20 (2), which provide for other specific matters, the assessment Act includes in the subject of taxation many instances of capital profit. I have already dealt with s. 16B and the other sections have been considered in decisions of this Court, in which the validity of the Act has been upheld.

It is maintained that the Act does not confine itself to one subject of income but extends to another subject of taxation, namely, capital profits. The subject is profits or gains, and the distinction between gains of an income nature and gains of a capital nature is neither instituted nor maintained by the assessment Act. An income-tax Act usually groups together more than one subject of income, profit, revenue or receipts, but such a grouping does not necessarily involve the conclusion that these subjects are separate and distinct. It is a question of fact in each case and the substance and provisions of the particular Act must be considered. That a particular label or a general name has been given to the Act is of little or no importance where there is no ambiguity in the provisions of the Act. The word "income" is comprehensive enough to include the subjects dealt with in the Act, and its use in this connection is in accordance with common understanding, which is one main clue to the meaning of the legislature: Cf. Bank of Toronto v Lambe ^[F4] , at p. 582. Over and over again this Court has upheld the validity of the Act by deciding that its subject matter is single and has been dealt with by Parliament as a unit. Moreover, "the objections should be grave, and the conflict between the statute and the Constitution palpable before the judiciary should disregard a legislative enactment upon the sole ground that it embraces more than one object" (Montclair v Ramsdell ^[F5] , at p. 433]). "Unless ... it becomes clear beyond reasonable doubt that the legislation in question transgresses the limits laid down by the organic law of the Constitution, it must be allowed to stand as the true expression of the national will" (per Isaacs J., as he then was, cited by Lord Sankey L.C. in Shell Co of Australia Ltd v Federal Commissioner of Taxation ^[F6] , at p. 298). For these reasons I am of opinion that this contention fails.

The third question relates to the quantum of the assessment. Section 16 (b) (i) in combination with s. 16B excepts from taxability undistributed income accumulated prior to 1st July 1914. The question is whether certain profits which were earned prior to that date have been distributed by capitalization to a greater degree that the Commissioner acknowledges, and this depends on the distribution or allocation of the profits of successive years to the capitalization which the company effected in 1923. Apart from the decision of this Court in Symon's Case ^[F7] there would be no difficulty, but it is said that, under that decision, when a taxpayer makes no specific attribution or allocation among the constituent parts of a total fund out of which he is taking money, as for instance for the purpose of capitalization, there is deemed to be an allocation or attribution in the manner which is or turns out to be most favourable for the taxpayer and most against revenue. Having considered that decision I do not think that it establishes any such general proposition, and I think the ordinary rule must prevail. The taxpayer therefore fails on this point.

[Portion of above judgment not reproduced].