Ellers Motor Sales Pty. Ltd. & Ors. v. Federal Commissioner of Taxation.

Judges:
Menzies J

Court:
High Court

Judgment date: Judgment handed down 8 December 1969.

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Menzies J.: The Court is here concerned with six appeals against income tax assessments which have been heard together. The heading sufficiently identifies the appellants and the subject matter of each appeal. It is to be observed that the first five appeals relate to assessments based on income derived during the year ended 30 June 1965, and the sixth to an assessment based upon income derived during the year ended 30 June 1967.

The parties have agreed upon a statement of facts which traces the development of what can conveniently be called the Ellers group of companies from 1953 when, on 7 August, Ellers Motor Sales Pty. Ltd.-called ``Motor Sales''-was incorporated to acquire a motor car dealing business from John Henry Ellers and his wife June Harcourt Ellers. Other companies in the group, omitting the last, were incorporated as follows-

   20 June 1955:    Ellers Motor Purchases
                    Pty. Ltd. (called  ``Motor
                    Purchases'');

   24 April 1956:   Junelle Holdings Pty.
                    Ltd. (called  ``Junelle'')
                    and Harcourt Holdings
                    Pty. Ltd. (called  ``Harcourt'');

   20 January 1958: Ellers Pastoral Invest-
                    ments Pty. Ltd. (called
                     ``Pastoral Investments'');

   21 October 1959: John H. Ellers Pty. Ltd.
                    (called  ``Ellers Pty.
                    Ltd.'');

   1 June 1962:     John H. Ellers (Used
                    Cars) Pty. Ltd. (called
                     ``Used Cars'') and John
                    H. Ellers (South Road)
                    Pty. Ltd. (called  ``South
                    Road'').
      

In all of the foregoing companies the only individual shareholders were Mr. and Mrs. Ellers and, for the rest, companies within the group held shares in other companies within the group. It is only necessary, I think, to state the actual shareholding in Harcourt. Mr. and Mrs. Ellers each held one ``A'' share; Motor Sales held 100 ``E'' shares and Junelle held 100 ``B'' shares. This continued to be the position up to June 1965 when another company was incorporated and the events occurred which gave rise to the assessments against which objections were taken and, upon disallowance, appeals have been brought.

During the years ended 30 April 1962, 1963 and 1964, the various companies within the Ellers group each declared such dividends as were necessary to constitute sufficient distribution, within the meaning of sec. 105A of the Income Tax and Social Services Contribution Assessment Act, of the taxable income of the preceding tax year. Details of these dividends appear in the agreed statement of facts.

As the law stood prior to the operation of the Income Tax and Social Services Contribution Assessment Act (No. 3) 1964 (No. 110 of 1964), it was possible each year for the companies to make sufficient distribution to escape Div. 7 taxation by rotating dividends among themselves and obtaining rebates under sec. 46 of the Act in respect of the whole of each such dividend. In substance, therefore, the dividends so declared and paid were non-taxable. In respect of the income of these three years, no Div. 7 tax was incurred by any company within the Ellers group and the only income tax that became payable was in respect of any dividends declared in favour of Mr. and Mrs. Ellers.

Act No. 110 of 1964 altered the law in such a way as to radically affect the position of the Ellers group with regard to assessments in respect of the year of income commencing on 1 July 1965, and in respect of income of all subsequent years of income (see sec. 45). In short, once there was income affected by the amendments made by Act No. 110 of 1964, it would be no longer possible to follow past practice without incurring tax upon one-half of every distribution of dividends among the companies within the group. Furthermore, a new sec. 103A was introduced into Part III, Div. 7, of the Income Tax Assessment Act to apply to income of the year commencing on 1 July 1965. The importance of these changes requires elaboration. Before embarking upon this it is, however, important to observe that the purpose of sec. 45 of Act No. 110 of 1964 was clearly enough to give taxpayers the advantage of existing legislation such as sec. 46 and sec. 105-dividing companies into private and non-private companies-with regard to income derived before 1 July 1965.

I turn now to consider in greater detail the changes made by Act No. 110 of 1964, sec. 10, 28 and 29.

Whereas the old sec. 46 had entitled a resident company, being a shareholder in any other company, to a rebate upon all dividends

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ATC 4010

included in its taxable income, the amendment made by sec. 10 reduced the rebate to which a private company would be entitled as of right in respect of private company dividends to a rebate upon one-half of such dividends included in taxable income. The new sec. 46 so introduced went on to give the Commissioner the power to allow to a private company a further rebate in respect of the other half of such dividends in the event of his being satisfied as set out in (a), (b) or (c) of sec. 46(3). The first point to be observed is that any rebate upon the second half of such dividend income depended upon a decision of the Commissioner. Secondly, the effect of sec. 46(3)(a) and (b) in relation to the Ellers group of companies would authorise the granting of a further rebate only if there were to be a distribution of income derived after 1 July 1965, to the individual share-holders within a period of 22 months, i.e. 30 April 1967. This is so because, in order to allow a further rebate under (a) or (b), the Commissioner would have to be satisfied that that income had not, and would not, pass by way of dividend to any of the other companies in the group. Nevertheless, the Commissioner could always allow a further rebate under (c) if he were to be satisfied, having regard to all the circumstances, that it would be reasonable to do so.

The amendment of the old sec. 103 and the addition of sec. 103A-see sec. 28 and 29 of Act No. 110 of 1964-altered the definition of a private company subject to Div. 7 tax on undistributed profits. Whereas under the old dispensation a company was not a private company if, on the last day of the year of income, all the issued shares were held by more than 20 persons, under the new dispensation-apart from special provisions not relevant here-for a company to be a public company, and therefore not a private company, for a year of income (1) its shares had to be listed for quotation upon a stock exchange upon the last day of the year of income, or (2) it had to be a subsidiary of a company, the shares of which were so listed.

The foregoing changes, together with a provision in the Companies Act of South Australia prohibiting a subsidiary from being a shareholder in its holding company, confronted Mr. and Mrs. Ellers and their business advisers with real problems. If past practice had been followed there was a high degree of probability that tax would be payable upon one-half of every sum distributed as dividends by one of the companies in the Ellers group to any other company or companies within the group; distributions to individual shareholders sufficient to put the companies outside the operation of Div. 7 of Part III of the Principal Act in relation to undistributed profits tax would involve them in the payment of a huge amount of personal tax which would cripple the business of the companies of which they were the owners; the failure to declare sufficient dividends out of dividends received would attract undistributed profits tax at the rate of 50% without any retention allowance. To indicate the magnitude of the tax that would be incurred in one way or another unless there could be distributions carrying full rebate, it is only necessary to say that by 28 May 1965, Harcourt had, during the year, received dividends of £358,923 which, after 30 April 1967, if not distributed would attract Div. 7 tax, if distributed to private companies would not be fully rebatable, and if distributed to individuals would attract ordinary income tax.

At this point it is, I think, convenient to set out a bare statement of what happened subsequently to 28 May 1965, taken from the agreed statement of facts with the minutes of the meetings referred to interpolated-

``24 June 1965. John H. E. Holdings Pty. Ltd. (called `John Holdings') was incorporated. The subscribers to the memorandum of association were Ellers and Mrs. Ellers, each taking one `A' class ordinary share of £1. The authorised capital of John Holdings was-

   1,000  ``A'' ordinary shares,
   3,500  fixed preference shares,
   500  redeemable preference shares.
          

The two `A' class ordinary shares referred to above comprised the whole of the issued capital of that company until 28 June 1965.

25 June 1965. At 10 a.m. Ellers and Mrs. Ellers as the managing directors of John Holdings held a meeting of directors of that company, relative to the purchase of the shares in Harcourt.''

What was done is recorded in the minutes as follows-

``The directors reported that they had negotiated with the shareholders of Harcourt Holdings Pty. Ltd and had made an offer to them of £1,766.16.8 per share. The

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ATC 4011

negotiations had been successfully concluded and to complete the takeover it was necessary to raise a loan in excess of £356,900 to enable the takeover to be completed on a cash basis. Mr. Ellers gave notice of his interest to make a temporary advance to the company of £357,000, repayable at call. It was resolved to accept Mr. Eller's offer. As the company was now in a financial position to conclude the purchase of the whole of the issued capital of Harcourt Holdings Pty. Ltd., it was resolved to purchase the following shares-

John H. Ellers: 1 `A' ord. share for the sum of-£1,766.16.8.

June H. Ellers: 1 `A' ord. share for the sum of-£1,766.16.8.

Ellers Motor Sales Pty. Ltd.: 100 `E' ord. shares for the sum of-£176,683.6.8.

Junelle Holdings Pty. Ltd.: 100 `B' ord. shares for the sum of-£176,683.6.8.

It was resolved that the transfers for the above shares and for the consideration as shown be executed.

At 10.10 a.m. Ellers and Mrs. Ellers as the only directors of Motor Sales held a meeting of directors of that company relative to the sale and transfer of shares in Harcourt.''

What was done is recorded in the minutes as follows-

```The directors reported that John H. E. Holdings Pty. Ltd. were prepared to purchase the company's holdings in Harcourt Holdings Pty. Ltd. for the sum of £1,766.16.8 per share and that such would be a cash offer. It was resolved to accept the cash offer and to execute the transfer of the 100 `E' shares held by the company in Harcourt Holdings Pty. Ltd. to John H. E. Holdings Pty. Ltd.'

At 10.15 a.m. Ellers and Mrs. Ellers as the only directors of Junelle held a meeting of directors of that company relative to the sale and transfer of shares in Harcourt.''

What was done is recorded in the minutes as follows-

```The directors reported that John H. E. Holdings Pty. Ltd. were prepared to purchase the company's holdings in Harcourt Holdings Pty. Ltd. for the sum of £1,766.16.8 per share and that such would be a cash offer. It was resolved to accept the cash offer and to execute the transfer of the 100 `B' ordinary shares held by the company in Harcourt Holdings Pty. Ltd. to John H. E. Holdings Pty. Ltd.'

At 10.20 a.m. Ellers and Mrs. Ellers as the managing directors of Harcourt held a meeting of directors of that company relative to the sale and transfer of shares and the issue of new certificates.''

What was done is recorded in the minutes as follows-

```The following share transfers were tabled-

Transfer No. 1. from John Henry Ellers to John H. Ellers as nominee of John H. E. Holdings Pty. Ltd. 1 `A' ordinary share numbered 1.

Transfer No. 2. from June Harcourt Ellers to John H. E. Holdings Pty. Ltd. being 1 `A' ordinary share numbered 2.

Transfer No. 3. from Ellers Motor Sales Pty. Ltd. to John H. E. Holdings Pty. Ltd. being 100 `E' ordinary shares numbered 401-500.

Transfer No. 4. from Junelle Holdings Pty. Ltd. to John H. E. Holdings Pty. Ltd. being 100 `B' ordinary shares numbered 101-200.

It was resolved that such transfers be accepted and to issue new script as follows-

Certificate No. 5. in the name of John Henry Ellers to John H. Ellers as nominee of John H. E. Holdings Pty. Ltd. being one `A' ordinary share numbered 1.

Certificate No. 6. in the name of John H. E. Holdings Pty. Ltd. being for one `A' ordinary share numbered 2.

Certificate No. 7. in the name of John H. E. Holdings Pty. Ltd. being for 100 `E' ordinary shares numbered 401-500.

Certificate No. 8. in the name of John H. E. Holdings Pty. Ltd. being for 100 `B' ordinary shares numbered 101-200.'

25 June 1965. Mr. Douglas Ian Barton, the secretary of the Ellers companies, saw Mr. John Venning, the then manager of the Grote St., Adelaide, branch of the A.N.Z. Bank, with a view to making temporary financial arrangements to enable John Holdings to pay the purchase price of the shares in Harcourt.

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ATC 4012

25June 1965. John Holdings opened a bank current account at the Grote St., Adelaide, branch of the A.N.Z. Bank, and Ellers' personal cheque for £357,000 was credited to that bank account. Four separate cheques were drawn by John Holdings in favour of Ellers, Mrs. Ellers, Junelle and Motor Sales respectively for their shares in Harcourt, as follows-

Ellers one ``A'' share           L1,766 16 8
Mrs. Ellers one``A'' share        1,766 16 8
Junelle 100 ``B'' shares         176,683 6 8
Motor Sales 100 ``E'' shares     176,683 6 8
                            ____________________
                                L356,900 6 8
                            ____________________
          

The cheques for Junelle and Motor Sales, each for £176,683.6.8, were debited to John Holdings' bank account on the same 25 June, but the cheques for Ellers and Mrs. Ellers (each for £1,766.16.8) were not debited to that account until three days later. The share transfers by Ellers and Mrs. Ellers, Junelle and Motor Sales were all dated 25 June 1965, and on the same day those transfers were entered in the share register of Harcourt as having been transferred on that date. The share transfers were stamped with South Australian stamp duty on 5 July 1965, by impressed stamps at the office of the Commissioner of Stamps, the amount of duty, totalling £1,338.18.0 being then paid.''

The relevant minute is as follows-

`It was resolved that the seal of the company be affixed to the following scrip certificates -
   Scrip           Share
   No.               No.              Class                 Holder
1                    1           1  ``A''  ordinar y      John Henry
                                     (subscriber)         Ellers
2                    2           1  ``A''  ordinary       June
                                     (subscriber)         Harcourt
                                                          Ellers
      

``It was resolved that a current account with the A.N.Z. Bank Ltd., Grote St. branch, be opened in the name of the company and that Mr. John H. Ellers solely or any two of the following be authorised to sign cheques drawn on the account-Mr. Douglas I. Barton; Mr. Morris G. Kearney; Mr. Bruce J. Gepp.'

28 June 1965. The cheques for the purchase of the Harcourt shares of Ellers and Mrs. Ellers were deposited and debited in the bank account of John Holdings. On 28 June 1965, John Holdings allotted one redeemable preference share to each of 21 individuals. The 21 redeemable preference shares were taken up for cash by the individuals concerned.

28 June 1965. On this same day, Harcourt declared and paid to John Holdings a dividend of £358,923. The dividend cheque was credited to John Holdings' bank account on the same day.''

The relevant minute is as follows-

```Resolved to distribute in the form of an interim dividend the sum of £358,923 out of the company's profits for the year ended 30 June 1965. It was resolved that such a dividend should be declared on the `B' ordinary shares of the company and that the dividend should be paid in cash.'

2 July 1965. A cheque dated 1 July 1965 for £357,000 drawn by John Holdings in favour of Ellers was debited to the company's bank account on 2 July 1965, and credited to Ellers' personal account at the same bank; thus the loan from Ellers was discharged, and Ellers repaid to the bank the sum which he had borrowed on 25 June 1965.''

With this record of what was done in mind, it is now necessary to refer both to how it all came about-although this will involve some repetition-and to what were the consequences of what was done with respect to the taxation of the companies within the Ellers group and that of Mr. and Mrs. Ellers.

In April 1965, Mr. Lang, who was the financial adviser to Mr. Ellers, drew Mr. Ellers' attention to the problems which the future held. A number of possibilities were then considered. The first was whether the Commissioner might be approached to ask him if he would extend the period of 22 months pursuant to a discretion and allow the Ellers group of companies to distribute to individual shareholders over an extended period. The Commissioner was first approached generally by Mr. Lang with problems on behalf of many of his clients. On 5 May he wrote again specifying the Ellers group of companies and asking whether the Commissioner would exercise his discretion in favour of the companies. Mr. Lang was notified by the Commissioner on 2 June that the discretion would not be

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ATC 4013

exercised. The second course was for the Ellers group of companies to float themselves into a public company. Mr. Ellers made an approach to General Motors on this score and was advised that it was against company policy and that there was a grave possibility that he would not have his franchise transferred to the public company. The third possibility was that they should accept takeovers which were being made about that time but this was contrary to Mr. Ellers' wish to continue the business operation and introduce his sons into the business. The fourth possibility was to incorporate a company to be a non-private company along the lines of that which the High Court had considered in
W. P. Keighery Pty. Ltd. v. F.C. of T. (1956-57) 100 C.L.R. 66, and to put profits which might in one way or another attract tax into that company.

Mr. Ellers then wrote to General Motors Acceptance Corporation, the finance house with whom he ordinarily dealt, to seek their assistance. On their advice, he consulted a Mr. Hughes of Buckley & Hughes, Chartered Accountants of Melbourne. There were two consultations with Mr. Hughes. The first, which was short, was held in Mr. Hughes' office in Melbourne. This was largely to outline the nature and structure of the Ellers group. The second conference took place on 28 May in Adelaide and there was no contact in between these two dates. This was a more detailed conversation and from it Mr. Hughes concluded that the course that was almost certainly to be adopted was what has already been referred to as the fourth possibility. Indeed, steps to incorporate such a company were already in train.

What then happened is as follows. A firm decision was taken to add a non-private company at the apex of the Ellers group of companies' structure, that company to be formed in accordance with the opening left by sec. 45 of Act No. 110 of 1964. It was decided that issued shares in Harcourt Holdings Pty. Ltd. should be sold to the company to be formed.

At this stage there were four shareholders in Harcourt; one share was held by Mr. Ellers; one was held by Mrs. Ellers; 100 shares were held by Sales; and 100 shares were held by Junelle. The Keighery company, which was called John Holdings Pty. Ltd., was formed with an issued capital of £2 subscribed by Mr. and Mrs. Ellers, being one share each. Mr. Ellers approached a number of his friends, ascertained from them first of all that they were not employees of his, or not in any other way interested in his companies, or that they were not related, and obtained from them individually a cheque for £1 and they each applied for one redeemable preference share. This was paid for in cash. The issued capital of Harcourt was then sold to John Holdings. Mrs. Ellers sold one share; Mr. Ellers sold one share; Junelle sold its 100 and Sales sold its 100. The sale in each case took place upon the basis of a valuation of shares effected by Mr. Lang. Mr. Lang indicated that he based his valuation on the net asset backing of the shares. Each share was valued at £1,766. Mr. and Mrs. Ellers each received £1,766.16.8 and each of the companies received £176,683.6.8. In order to enable John Holdings to purchase these shares, Mr. Ellers, through his bank, the A.N.Z. Bank, obtained a personal loan of £357,000. He lent that money to John Holdings and John Holdings drew on those funds to effect the purchase of the shares. Harcourt was thus in line to become a subsidiary of a non-private company on 30 June. Similarly, Junelle, as a subsidiary of Harcourt, would also become the subsidiary of a non-private company. Dividends were then declared by Harcourt on 28 June 1965, to Holdings of £358,923. The dividend cheque was credited to Holdings' bank account on the same day. On 2 July 1965, a cheque dated 1 July 1965, for £357,000, drawn by Holdings in favour of Ellers, was debited to the company's bank account and credited to Ellers' personal account at the same bank; thus the loan from Ellers was discharged and Ellers repaid to the bank the sum which he had borrowed on 25 June 1965. The company paid the £1 back to each of the redeemable preference shareholders, redeemed their shares and paid a 2/- dividend.

The taxation consequences of what was done can be stated shortly. Harcourt, the company in the Ellers group in which most of the profits that could in one way or another have been subjected to tax if retained or distributed had been concentrated, was left as an empty shell. Its assets were a mere £777; its liabilities were £573 and its reserves £2. Holdings, however, overnight gained assets of £717,365; liabilities of £358,419 and reserves of £358,923. The dividend of £358,923 declared and paid by Harcourt to John Holdings could be held by that company

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indefinitely without liability for tax. It was, according to the pre-amendment definition of a private company, a non-private company when it received the dividend and it was unimportant that a year later it would not be a public company according to the then effective definition to be found in sec. 103 A. The dividends could remain undistributed indefinitely. It was only in the event of John Holdings declaring dividends or going into liquidation that what it had received as dividends from Harcourt could become subject to tax.

The assessments now in question were all made on the footing that sec. 260 of the Principal Act avoided, as against the Commissioner, the transfer of the shares in Harcourt to John Holdings, so that tax liability was to be assessed as if these transfers had not been made and the distribution by Harcourt had been to the original shareholders. If sec. 260 did not so operate the assessments made cannot stand. Without sec. 260 the declaration of dividends by Harcourt and its payments to John Holdings attracted no tax because the dividend was wholly rebatable under the unamended sec. 46 of the Principal Act. Furthermore, John Holdings, being a non-private company for the year in which the dividend was received, could not incur any liability in the future under Div. 7 of Part III of the Principal Act for retaining and not distributing what it had received as dividends from Harcourt because, by virtue of the unamended sec. 105 of the Principal Act, John Holdings was not a private company for the purposes of income of the year ended 30 June 1965.

It is established by W. P. Keighery Pty. Ltd. v. F. C. of T., supra, that the conversion of a private company into a non-private company by the creation of redeemable preference shares and the allotment of one such share to each of 20 applicants just prior to 30 June, so that on 30 June there were 22 shareholders and it was a company to which Div. 7 of Part III did not apply, was not something which attracted sec. 260, and the Commissioner could not assess the company on the footing that it was a private company, notwithstanding that what had been done was done pursuant to an arrangement to take advantage of the circumstance that a company could, by doing what was done, become a non-private company with the tax advantages that followed from it being a company of that description. It follows from this decision that sec. 260 did not avoid the incorporation of John Holdings nor warrant that company being regarded as otherwise than a non-private company for the year ended 30 June 1965. Indeed, although counsel for the Commissioner reserved the right to contend hereafter that W. P. Keighery Pty. Ltd. v. F. C. of T., supra, was wrongly decided, the matters to which I have just referred were properly treated as unarguable before me.

The Commissioner did, however, claim that the transfers of the shares in Harcourt, being part of an arrangement having the purpose and effect (1) of altering the incidence of income tax, or (2) relieving Harcourt or its original shareholders from the liability to pay income tax, or (3) avoiding a liability imposed upon Harcourt and its shareholders under the Act, or (4) preventing the operation of the Act, are void as against him. The Commissioner claims, moreover, that the result of this avoidance of the transfers produces liability for tax in accordance with the assessments under review which have been made on the footing that the dividends actually paid by Harcourt to John Holdings were paid to the shareholders in Harcourt who transferred their shares to John Holdings. The taxpayers dispute both these contentions.

Of course, there was here an arrangement between the Ellers and Harcourt, John Holdings, Junelle and Sales, if not with the other companies as well, to do, upon the advice of their tax advisers, what was done between 24 June 1965 and 2 July 1965, and this is so notwithstanding that before it was decided to do what was in fact done other possibilities were reviewed and rejected. Nor do I think it matters that, until those concerned did commit themselves to the course of conduct which was carried out between the dates mentioned, it would have been possible for Harcourt to have retained the dividends it had received in the year ended 30 June 1965 until 30 April 1966 without incurring any liability for undistributed profits tax or, to have become a public company or a subsidiary of a public company so as to fall altogether outside the provisions of Div 7 of Part III of the Principal Act. Moreover, the frenzied activity in the last week of June and the willingness of those concerned to register transfers of shares in Harcourt, in breach of the Stamp Duties Act of South Australia, before the payment of stamp duty

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in order that the transfers could be registered by 30 June, does no more than highlight the determination of all concerned that Harcourt should declare a dividend to John Holdings before 30 June 1965. I am not in doubt that this was done in order to obtain the advantage of the circumstances that Act No. 110 of 1964 provided, that the amendments made by sec. 10 thereof to sec. 46 of the Principal Act and by sec. 28 and 29 thereof to Div. 7 of Part III of the Principal Act should first apply in respect of income of the year of income commencing on 1 July 1965.

Notwithstanding all this, it seems to me that when Parliament expressly amended the Principal Act with a time lag to provide taxpayers with the opportunity of ordering their affairs in accordance with the law as it had stood but was, at a future date, to be changed, it cannot be said that taxpayers who acted simply in order to take advantage of Parliament's indulgence can properly be treated as making or carrying out arrangements with any of the purposes enumerated in sec. 260 in the Principal Act. It is not to be thought that what Parliament gave by the enactment of sec. 45 of the Act No. 110 of 1964 was given merely to be taken away by the operation of sec. 260 of the Principal Act. I regard sec. 45 as the key provision for the purposes of this case and I cannot regard sec. 260 as denying its full operation. Section 45, in effect, says (1) that a dividend received by one private company from another private company and forming part of the income of the former during the year of income ending 30 June 1965 shall carry full rebate in accordance with the unamended sec. 46 of the Principal Act, and (2) that, for the purposes of income received during the year ending 30 June 1965, a company, having more then 20 shareholders on 30 June 1965, and not within paras. (b) to (f) of sec. 105 of the Principal Act unamended, is a non-private company. What those concerned with the group of companies did was to take advantage of these two provisions.

In these circumstances it seems to me that the following statement by Dixon C.J. and Kitto and Taylor JJ. in W. P. Keighery Pty. Ltd. v. F. C. of T., supra, applies. Their Honours, at pp. 92 and 93, said-

``Whatever difficulties there may be in interpreting sec. 260, one thing at least is clear: the section intends only to protect the general provisions of the Act from frustration, and not to deny to taxpayers any right of choice between alternatives which the Act itself lays open to them. It is therefore important to consider whether the result of treating the section as applying in a case such as the present would be to render ineffectual an attempt to defeat etc. a liability imposed by the Act or to render ineffectual an attempt to give a company an advantage which the Act intended that it might be given.''

For the reasons which I have already given, I think that to treat sec. 260 as applying here would be to render ineffectual attempts to give to the taxpayers concerned an advantage which sec. 45 of No. 110 of 1964 was designed to give them.

My decision that sec. 260 does not apply disposes of these appeals, but, had I come to the conclusion that the section did apply, I would have had difficulty in treating as taxable, in the hands of the original shareholders of Harcourt, dividends which they did not receive. The dividends went to John Holdings where they are held as profits, so that upon any distribution by way of dividends or deemed dividends-see sec. 47 of the Principal Act-its shareholders would be deemed to be taxable. At present those shareholders are, of course, the persons and companies to whom the Commissioner attributes the receipt of the dividends which Harcourt declared. This aspect of the matter does not, however, arise in the view I have taken that sec. 260 does not apply and I do not pursue it further.

For the foregoing reasons the Commissioner's reliance upon sec. 260 cannot succeed. The appeals must be allowed with costs and the assessments set aside. I will give the parties leave to make submissions in writing about the desirability of the Court making any further order in relation to the assessments of the appeals in lieu of the assessments which I have set aside.

ORDER:

Appeals allowed with costs. Assessments set aside.