Moruben Gardens Pty. Limited v. Federal Commissioner of Taxation.

Judges:
Mason J

Court:
High Court

Judgment date: Judgment handed down 29 September 1972.

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Mason J.: The respondent Commissioner assessed the taxpayer to income tax for the three years ended 30 June 1963, 1964 and 1965 by including in its income the profit which it made on the sale of eighteen residential flats, each having a title under the Conveyancing (Strata Titles) Act 1961 (N.S.W.), in a building known as Moruben Gardens and situated at 21 Moruben Road, Mosman near Sydney. The Board of Review confirmed the assessment and the taxpayer has appealed to this Court.

The respondent has sought to justify the assessments on the basis that the profits in question, namely $52,726 (1963), $45,618 (1964) and $86 (1965) were all profits which fell within the first and, alternatively, the second limb of sec. 26(a) of the Income Tax Assessment Act 1936-1965.

The taxpayer was incorporated on 14 December 1960. It was incorporated at the instance of Griffin Bros. Pty. Ltd., a family company owned and controlled by Allan Stuart Griffin and his brother. At the relevant time the latter company carried on business as a speculative builder of residential flat buildings for sale as home units.

On 11 October 1960 it entered into a contract to purchase the property known as 21 Moruben Road for the sum of $30,000. There was then a dwelling-house on the land. Griffin Bros. Pty. Ltd. entered into the contract with the intention of demolishing the dwelling-house and erecting on the site a residential flat building in which the flats, or rights to occupy the flats as home units, would be sold. The taxpayer was incorporated with articles containing provisions whereby the holders of particular groups of shares would become entitled to the exclusive occupation of particular flats or home units in the building erected on the site. By a deed dated 11 January 1961 the taxpayer adopted the contract of purchase in lieu of Griffin Bros. Pty. Ltd. Thereafter the contract of purchase was completed.

A development application was submitted to the Mosman Council. The application proposed the demolition of the dwelling-house and the erection of a block of home units. The Council approved the application.

Griffin Bros. Pty. Ltd. had previously erected a residential flat building in Myahgah Road, Mosman. It experienced some difficulty in selling the home units in that building as a result of an economic recession which took place in 1960. The company decided that it would not develop 21 Moruben Road as it had initially intended and offered it for sale.

In February the property was inspected by John Coorey who had been looking at real estate with a view to investing funds owned by his brother, himself and their two sisters. He decided to buy the property with a view to erecting a residential flat building on the site. He claims, as the taxpayer has since claimed, that it was intended that the residential flat building would be retained as an investment and that it was not intended that home units in the building should be sold on the basis of strata title or on any other basis.

The parties agreed that the purchase should be carried out by means of a sale and purchase of the issued shares in the taxpayer company. It was effected by an agreement dated 6 April 1961 under which Mr. John Coorey, his brother and two sisters acquired the 15,000 fully paid $2 shares in the taxpayer.

Steps were then taken by the taxpayer, Mr. John Coorey being the moving spirit behind it, to demolish the dwelling-house and erect a residential flat building containing eighteen flats. Mr. Forsyth Evans, an architect experienced in the design of residential flat buildings, was retained. He prepared a design which was approved by the Mosman Council. The services of a builder were not obtained, Mr. John Coorey taking it upon himself to organise and supervise the work of the various sub-contractors, although he lacked previous building experience.

As might have been expected in the circumstances, Mr. Coorey found the task of organising and supervising the building a difficult one. He says that his health suffered and that as a consequence it was decided in

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ATC 4150

or about June 1962, when the structural work was complete and after painting had been commenced, that the building should not be retained as an investment and that the units should be sold with strata title. The Conveyancing (Strata Titles) Act had come into operation in March 1961. As required by that Act a plan was registered and the building was brought under the provisions of the Act. Thereafter the units were put up for sale and were sold, yielding to the taxpayer the profits already mentioned.

The respondent's case before the Board and before me has been that the taxpayer acquired the land for the purpose of erecting a home unit building on the site and selling the property at a profit in the form of units having strata title. According to the respondent, the resulting profit is caught by each limb of sec. 26(a). The taxpayer has denied that it acquired the property for that purpose, asserting that the end purpose of the acquisition was equally consistent with retention of the property by the taxpayer and the disposition of shares in the taxpayer carrying a right of exclusive occupation of the units. Additionally, the taxpayer has contended that, even if the initial purpose of acquisition was as the respondent contends, that purpose was abandoned by the taxpayer when the Coorey family gained control of it as their intention was to build and retain a residential flat building as an investment. If this view of the matter be accepted, the taxpayer argues that the resulting profit from the sale of the units does not fall within either limb of sec. 26(a). The bulk of the evidence before the Board and before me was directed to the question whether the Coorey family intended initially to build a residential flat building for the purpose of retention and investment, rather than for the purpose of selling the individual home units.

The Board found in favour of the taxpayer on that question. However, it found that the dominant intention of the taxpayer, when it acquired the land and was under the control of Griffin Bros. Pty. Ltd., was profit-making by re-sale. The Board held that this finding, taken in conjunction with the ultimate sale at a profit, was enough to bring the profit within the first limb of sec. 26(a).

There has been tendered before me all the evidence decided before the Board, including the transcript of oral testimony. In addition, Mr. John Coorey, the principal witness, was cross-examined with a view to demonstrating that I should not accept the evidence that the Coorey family formed the intention to acquire shares in the taxpayer for the purpose of erecting a residential flat building for retention and investment.

The purpose which the taxpayer had in mind in acquiring the land is to be ascertained from the evidence given before the Board by Mr. A.S. Griffin. He and his brother through Griffin Bros. Pty. Ltd. had erected three or four flat buildings and sold them as home units before 1960. Their method of operation had been to arrange that the company purchased land under a contract of sale, to form a home unit company which adopted the contract and to engage the services of the company as builder. The home unit company was incorporated with a memorandum and articles under which the holder of a particular group of shares was entitled to occupation of a particular home unit.

At the time that the taxpayer adopted the contract relating to 21 Moruben Road, Griffin Bros. Pty. Ltd. was erecting a block of home units for Myahgah Court Pty. Ltd., a company incorporated by the Griffins. The building was partly completed. The Conveyancing (Strata Titles) Act 1961 had not then been assented to. However, the Bill had been introduced into the Legislative Assembly and it was widely anticipated that it would be enacted and come into operation shortly. Moreover, it seems that it was generally considered by those interested in home unit development that it conferred a more advantageous title to occupation of a home unit than the traditional method of holding shares in a home unit company, the more so because lending institutions had indicated that they regarded strata titles as an acceptable form of security.

Mr. Griffin said that Myahgah Court formed one of the earliest strata title plans to be registered and that it did so shortly after the Act came into operation. The building of

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ATC 4151

Myahgah Court had not been completed when the Coorey family acquired their interest in the taxpayer, but it was well advanced. Some units in Myahgah Court were sold before completion and they were advertised for sale by notice at the site stating that they would carry strata title.

Mr. Griffin had this to say in evidence concerning his and his brother's intentions with respect to selling flats with strata title -

``The company, Moruben Gardens Pty. Ltd., which you caused to be incorporated was actually incorporated on 14 December 1960. At that date you had a clear idea of the sort of building which you wished to erect on the land? - Yes.

In particular it was to be a building of 18 flats? - Yes.

You gave instructions to your solicitor, Mr. Einfeld, to incorporate the company with provision for the shares in it to be divided into 18 groups? - That would sound correct.

....

At that stage through you as one of the directors, it had an intention to build flats on that land for sale? - That is right.

Either by the shares method or the strata title method, whichever was the more advantageous? - Yes.''

By the last answer Mr. Griffin intended to convey that the intention was that the taxpayer would sell the units with strata title or, alternatively, that Griffin Bros. Pty. Ltd. would sell the groups of shares carrying the right of occupation of particular home units. The answer gives rise to a difficulty because, subject to other arguments advanced by the taxpayer, if it was the taxpayer's intention to acquire land for the purpose of erecting home units and selling them with strata title at a profit, it may bring the consequential profit within the first limb of sec. 26(a). But if it was the intention of Griffin Bros. Pty. Ltd. to sell the groups of shares in the taxpayer at a profit, thereby denying the taxpayer the opportunity of selling the units with strata title at a profit, the existence of that intention is inconsistent with the purpose which the first limb of sec 26(a) requires.

Subject to a consideration of other arguments advanced on behalf of the taxpayer, the question is whether the correct inference is that the dominant purpose which actuated the acquisition of 21 Moruben Road by the taxpayer was profit-making by sale of home units with strata title in the building which it was proposing to erect on the site. Although it has been said that it is not easy to discern whether the purpose of which the first limb of sec. 26(a) speaks is a sole purpose, a dominant or main purpose or one of a number of purposes (
Premier Automatic Ticket Issuers Ltd. v. F.C. of T. (1933), 50 C.L.R. 268 at p.297), it has been held that the first part of sec. 26(a) is satisfied if profit-making by sale is the dominant purpose which actuated the taxpayer in the acquisition of the property (
Evans v. D.F.C. of T. for South Australia (1936), 55 C.L.R. 80 at p. 99;
Pascoe v. F.C. of T. (1956), 11 A.T.D. 108 at p. 109;
Buckland v. F.C. of T. (1960), 34 A.L.J.R. 60 at p.62;
Williams v. F.C. of T. 72 ATC 4069; 46 A.L.J.R. 370 at p. 4075.

The Board of Review was satisfied that, although the taxpayer was incorporated with articles of association appropriate to a home unit company, enabling Griffin Bros. Pty. Ltd. to dispose of shares carrying a right to occupy the home units, the intention of the taxpayer when it adopted the contract was to develop the property by erecting a building and to sell the units with strata title. The advantages of strata title over shares carrying an entitlement to occupation of a home unit, the advertising of the Myahgah Court units for sale with strata title before they were completed, and the speed with which a strata plan was registered in the case of Myahgah Court after the Act came into force strongly support the inference that the Griffins intended to avail themselves of the advantages of strata title once the Act came into force, assuming, as seemed likely, that it did so in sufficient time.

It is for the taxpayer to satisfy me that on the evidence the inference it acquired the property for profit-making by sale is not open or should not be drawn. The Griffins intended to make a profit. The means of making the profit might take either of two forms, the sale of units having strata title or

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ATC 4152

the sale of shares in the taxpayer. Of the two forms, sale of home units with strata title was in my view the form preferred by the Griffins and that which they intended to implement, provided that they could conveniently do so. Accordingly, the taxpayer has not satisfied me that the inference that it bought the property for the purpose of selling home units with strata title at a profit was not open or should not be drawn.

The taxpayer was then controlled by the Griffins. Whatever their intentions were with respect to the property, those intentions should be attributed to the taxpayer which became a purchaser at their instance to execute their purposes. Thus it may be said that the taxpayer acquired the land for the preferred and dominant purpose of profit-making by selling the units with strata title. This purpose alone did not actuate the sale, for the Griffins and the taxpayer were willing to acquire the land for the alternative purpose of having the taxpayer retain the home units when erected, with Griffin Bros. Pty. Ltd. making a profit on the sale of shares in the taxpayer. But the existence of another purpose which partly actuated the acquisition does not preclude the inference that the dominant purpose actuating the taxpayer's acquisition of the land was profit-making by sale.

The next issue of fact concerns the suggestion that the taxpayer changed its intention when it came under the control of the Coorey family. The answer to this question turns upon the intentions of Mr. John Coorey. For the taxpayer reliance has been placed on the oral evidence of Mr. John Coorey who, as I have said, became the moving spirit behind the taxpayer, and other witnesses. Mr. Coorey spoke of the history of investments made on behalf of himself and his family before and after the acquisition of the shares in the taxpayer, of his intention with respect to the development and retention of the property as an investment, of his discussions with, and instructions given to, others in which he made this intention clear. He says that at all times until June 1962 it was intended that the residential flat building should be retained as an investment. At that time his health deteriorated by reason of anxiety over the progress of the building and relationships with sub-contractors and he withdrew from the supervision of the project.

He says that he and his family then decided to sell the units. This decision was reached apparently because his health was unsatisfactory, the building was no longer a matter of pride to him and because agents and potential purchasers of units were pestering him to sell. In consequence steps were then taken to obtain strata title for the units and by the end of that month they were placed in the hands of agents for sale. His evidence as to the circumstances in which the decision was taken to sell the home units was supported by the evidence of Mr. Joseph Coorey.

The majority of the Board, in accepting the evidence of Mr. John Coorey and his brother, said -

``Their evidence, which was supported by independent testimony, was tested closely in cross-examination and we formed a high opinion of their credibility.''

However, it is necessary to take into consideration other factors, not mentioned by the Board, which tend to throw some doubt on the veracity of Mr. John Coorey's evidence. First, Mr. John Coorey stated that he did not give a thought to the possibility of re-selling 21 Moruben Road at a profit, or of selling the home units to be built on the site, before acquisition of shares in the taxpayer. I do not accept his evidence in this respect, because in my assessment he is an astute businessman who was alive to the possibility of re-sale at a profit, whether of the land or of the home units when constructed. In 1958 the family had acquired land at Darling Point through a company called Annan Pty. Ltd, suitable for development as a home unit site and re-sold it at a moderate profit. With this example in mind it is inconceivable to me that Mr. Coorey did not give some thought to the possibility of re-sale of 21 Moruben Road.

Secondly, he admits that on two occasions there was an incorrect statement made to the Taxation Department as to the reason why the taxpayer decided to sell the home units in Moruben Gardens, in reference to retaining

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ATC 4153

them as an investment. With its return of income for the year ended 30 June 1963 the taxpayer submitted a statement, prepared by its accountants, in the following terms -

``When the building was almost complete the directors realised that they would not get a return on rentals exceeding 9% of the cost and were persuaded by estate agents that they would do better to sell the property.''

Although the statement was signed by Mr. John Coorey, he was uncertain whether he read it. He admitted that he had not given the accountants figures showing that the rental return would not exceed 9% of the cost. When asked whether that part of the written statement was true, he said:

``.... I was so confused as to whether I knew it was profitable or not, and that would be the best thing to say. I went on with it and I was very confused, just to get out of it. It was a determining factor with upkeep and things like that. I may not have really got down to a figure then. I am a little funny that way. When we completed a block of flats, we had sold all units except one and I do not know the actual cost or the proposed profits... Cooper Bros. would say, `You have a surplus of so much'...''

No evidence of any kind was produced by the taxpayer to corroborate the statement that the return by way of rental would not exceed 9% of cost.

The evidence concerning this explanation given by the taxpayer for its change of intention gains added significance when attention is given to the evidence of Mr. John Coorey in this appeal, concerning another explanation given to an officer of the Taxation Department. Mr. Coorey said in cross-examination -

``Q. It is also the fact that when a representative of the Taxation Department, Mr. Markham, asked you in 1956 about this transaction, you told him that a reason for changing your mind was that costs had increased far beyond the original estimates?

A. I saw one gentleman from the Taxation Department, and I did say that, but I realise now that this is not right.''

The statement that costs had increased far beyond the original estimates was wholly wrong; the converse was true. In the building application to the Mosman Council submitted on 3 July 1961 by the architect, Mr. Forsyth Evans, the estimated value of the building to be erected was expressed to be £69,000. In fact the taxpayer accepted as a correct estimate the quote for £54,000 given by Mr. Coorey's brother-in-law. The building cost less than that figure; according to records kept by Mr. George the cost was in the order of £47,000.

A subsidiary issue of fact which arose at the hearing concerned the circumstances in which Annan Pty. Ltd., a company owned and controlled by the Coorey family, came to acquire and dispose of the land at Darling Point in 1958-1959. The company made a profit of £1,000 or more. When the transaction was investigated by the Department, Mr. John Coorey gave the explanation that the land had been re-sold on the basis of a forced sale. Mr. Coorey made this statement because the land had initially been purchased for building residential flats for investment, the proposed development was not as suitable as it initially appeared and his relatives then informed him that they were no longer prepared to participate in the project. In one sense this answer may have been accurate, but in another and relevant sense it was not so. Before contracts were exchanged between the vendor and Annan Pty. Ltd. it was known to Mr. John Coorey that the land could not be developed as initially intended and that the land could be sold for an amount higher that that sought by the vendor. The account rendered by Messrs. Maurice Isaacs and Glass as solicitors for the Cooreys in this transaction contained as part of one item ``advising on re-sale when still considering purchase''. Steps were taken to sell by auction and to avoid advertising for sale until exchange of contracts with the vendor in order to avoid loss of the prospective bargain with him. These facts were not brought to the attention of the Department

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ATC 4154

by Mr. John Coorey, although they had a relevance to the question whether the profit on re-sale was taxable.

For the respondent reliance was placed on other matters which, so it was urged, tended to throw doubt on the evidence given by the Cooreys. There was nothing in the condition of the Coorey investments before 1958 and later which showed that they were unsuitable as long-term investments or from an income-producing viewpoint. Nor was there any other circumstance which should have induced them to turn to long-term investment in real estate. There was the fact that money was borrowed so as to enable Moruben Gardens to be completed. It was said that at that time it was unusual to build residential flats for investment rather than for sale as home units and that certain features of the building showed that it was more costly than one would expect of a building undertaken for letting rather than sale. In this respect the existence of a lift, the small number of one-bedroom units and a penthouse were pointed out as features more suited to sale than letting. I am not persuaded that any of these matters tells against the evidence given by Mr. John Coorey and his brother.

Of greater moment was the absence of evidence of detailed calculations and estimates before the decision was taken to buy 21 Moruben Road. If the property was to be developed and retained as an investment, then it would be natural that costs would be estimated, prospective rentals evaluated and a net annual return calculated. Yet no evidence of this kind was tendered. It seems that Mr. John Coorey had no clear idea of the cost of building flats when the decision to purchase was made; it was subsequently that his brother-in-law gave an estimate of £54,000. As for prospective rentals, Mr. MacFarlane, a local agent, had said that two-bedroom flats were bringing £12 per week in the Mosman area. Despite the absence of calculation informed by a detailed knowledge of costs and likely returns Mr. Coorey made the decision to purchase within a day or so of inspecting the site, without consulting Mr. George and Mr. Joseph Coorey.

This is significant, although Mr. John Coorey was a man then relatively inexperienced in the development of real estate. He had no building experience, let alone in the field of residential flat building. His prompt decision to purchase in the absence of informed particulars of costs and returns is remarkable, whether his intention was to build and retain for the purpose of investment or to build and sell at a profit. Even so, it is a point to be made against his evidence, that he, as an investor of some experience, did not take steps to inform himself of the likely return from his investment. Indeed, no evidence was tendered of calculations of estimated returns from the investment made either before or after acquisition of the shares in the taxpayer.

The features in Mr. Coorey's evidence to which I have referred earlier and the absence of any preliminary calculations of cost and return before the prompt decision to buy lead me to the view that I should not accept his evidence concerning intention unless I am persuaded to do so by the other evidence called for the taxpayer.

I do not propose to review in detail the evidence given by other witnessess called by the taxpayer. Mr. Joseph Coorey was not consulted before the decision to purchase was made. He had little to do with the project before June 1962 as he was in Inverell until then. He says that he was told by his brother that the property was acquired to build flats for investment. There was John Joseph George, the Cooreys' brother-in-law, who acted as their accountant and financial adviser. However, it seems that he also was not consulted concerning 21 Moruben Road, before its purchase, although he spoke of the statements made to him by Mr. John Coorey concerning the intention to build for investment.

Mr. MacFarlane, the agent, spoke of Mr. Coorey's inquiry concerning rentals obtainable in Mosman, the estimate of £12 per week for a two-bedroom flat which he gave, Mr. Coorey's statement that he was building for letting and his inquiry about collection of fees. Mr. A.S. Griffin, who negotiated the sale of the property to Mr. John Coorey, said that he spoke through out

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ATC 4155

of building on the land for investment rather than sale. Mr. Rommel, an employee of Mr. Forsyth Evans, said that his instructions from Mr. Coorey were to design a flat development, thereby meaning flats for investment rather than home units. Barry Colin Ackerley, a plumber employed in the construction of Moruben Gardens, stated that he was invited to submit a quotation for the plumbing work by Mr. George who in the course of discussion declared that his brother-in-law was building for investment. Thomas Duncan Robinson, a builder, gave evidence of a similar conversation with Mr. George and of a later conversation with Mr. John Coorey in which he said he was sick and tired of the whole project ``and would get rid of it''.

Mr. Forsyth Evans died before the taxpayer's appeal was heard by the Board of Review. By a letter dated 20 March 1963 to the taxpayer's accountants he said -

``I was the Architect for the above project for Mr. J. Coorey. It was on my boards for some time and was the subject matter of continual discussion and was always planned as an investment proposition.

The whole of the design and particularly the introduction of a lift in such a low storied building was the result of the decision to hold the units for investment.

Unfortunately, owing to troubles experienced on the job, with the various contractors, the Contract covered a long period of time and, in consequence, the costs were much greater than was anticipated and my client, therefore, was forced to sell, rather than to hold for purposes of income.''

No doubt this letter came into existence after the taxpayer's accountants made an inquiry with a view to supporting the claim made in the return that the taxpayer changed its intention because the costs were greater than anticipated. It is now admitted that the ground expressed for the change of intention was incorrect. As the same ground appears in the letter I am not disposed to place reliance on the letter.

The taxpayer did not call evidence from real estate agents in support of its case. Apart from the conversations which Mr. John Coorey had with Mr. MacFarlane, he claimed to have had discussions with other agents about the prospects of letting, but they were not called. In fact it is clear that the units were not put in the hands of agents for letting at any time. Nor was any real estate agent or purchaser called to substantiate Mr. John Coorey's evidence that he was being pestered to sell the units before and in the month of June 1962.

No objection has been taken to the admissibility of statements made by Mr. John Coorey and Mr. George to others concerning the intention of the Coorey family to hold the building, when completed, for investment rather than sale. There is accordingly no occasion for me to deal with considerations of the kind referred to by Walsh J. in
Eisner v. F.C. of T. 71 ATC 4022 at p.4025.

It is sufficient for me to say that I do not regard the statements as having persuasive value in the circumstances of this case. For the most part they rest on the evidence of Mr. John Coorey. They are supported by other witnesses but the evidence of some of those witnesses has been criticised. Mr. Rommel was unable to throw much light on the instructions given to the architect and I have already expressed my view of the letter which Mr. Forsyth Evans signed. The conversations which Mr. Ackerley and Mr. Robinson had were with Mr. George, not with the Coorey brothers.

The supporting evidence does not induce me to accept Mr. John Coorey's evidence as to the taxpayer's intentions. I accept that from time to time statements were made by Mr. John Coorey, his brother and Mr. George which indicated that it was intended to retain the home units for investment, rather than sale. Indeed, it may be that Mr. John Coorey and his brother contemplated that course as one which they might take, if it appeared advantageous so to do. But I am not satisfied that at the time of the purchase of the shares in the taxpayer or at any time thereafter they formed the definite intention

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ATC 4156

of building for investment, rather than for sale.

The taxpayer's evidence concerning intention would have been the stronger had it disclosed one specific action which was unequivocally referable to the existence of an intention to retain the building for investment. On the contrary, there was no such action. All the steps which were taken by the taxpayer from the time of its acquisition of the land to the time of sale of the units with stata title were consistent with the existence of a continuing purpose to sell the units at a profit. At no time did the taxpayer take any step which disadvantaged the ultimate sale of the units at a profit.

It follows that, unlike the Board of Review, I am not satisfied by the evidence of Mr. John Coorey and the other evidence called by the taxpayer, that the taxpayer's intention changed when the Cooreys gained control of it in February 1961 or thereafter. I have referred already to the features of the case which throw doubt on Mr. Coorey's evidence and I do not propose to repeat them.

The appellant submits that the first part of sec. 26(a) has no application in any event because it applies only where there is a substantial identity between the property at the time of its acquisition and at the time of its sale by the taxpayer. Here, so it is said, there is no substantial identity because the taxpayer bought land with a dwelling-house on it and it sold that land and units with strata title in a residential flat building. The appellant sought to find support for its view in the observations of Windeyer J. in
McClelland v. F.C. of T. (1970), 118 C.L.R. 353 at p.359, where his Honour said that the first part of sec. 26(a) does not apply ``when what is sold is essentially different in kind from the thing acquired''. In that case, his Honour thought that the sale of the entirety of portion of the land was the sale of something different from the half interest which the taxpayer had earlier acquired by gift.

In
McGuiness v. F.C. of T. 72 ATC 4023, where the taxpayer had initially acquired a seven-twelfths interest, much later acquired the other five-twelfths interest and subsequently sold part of the land, Walsh J. said (at p.4029) -

``I am not bound to hold that the first part of sec. 26(a) can never apply when what is bought is an undivided share in land and what is sold is the entirety of that land or part of it. What Windeyer J. said in McClelland's case (1969), 118 C.L.R. at p.360, dealing with the second part of sec. 26(a) namely that the restriction of particular cases may depend upon matters of fact and degree, is applicable in my opinion to the operation of the first part of the paragraph in some cases where there is not identity between what is bought and what is afterwards sold.''

The observations in each case were made in the context of an acquisition of a limited share or interest in land, the subsequent acquisition of the outstanding share or interest and the sale of the combined shares or interests as an entire estate. I do not regard them as supporting the view, put forward for the taxpayer, that in order to attract the first part of sec. 26(a) there must be an essential identity or correspondence between the physical condition of the land at the time of its acquisition and at the time of its sale. Indeed, the approach taken by both Windeyer J. and Walsh J. is inconsistent with the taxpayer's submission for in each case the property acquired by the taxpayer was considered to be the estate or interest in land which he acquired.

In my opinion when the first part of sec. 26(a) is applied in relation to profit made by selling real estate, the property to which it refers is the estate or interest in land acquired by the taxpayer. The property which the taxpayer acquired in this case was an estate in fee simple in the land known as 21 Moruben Road and that was the estate which it sold. There was therefore no lack of essential identity between what was acquired and what was sold, assuming such an identity to be required by the provision. In this respect I have regarded the sale of all the units comprised in the plan registered under the Conveyancing (Strata Titles) Act 1961 as constituting a disposition of the entire estate in fee simple in the land, an assumption which was not challenged by the taxpayer.

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ATC 4157

It was submitted also that the first part of sec. 26(a) did not apply because it extends only to profit made on the purchase and sale of land and that it does not extend to profit made to which another activity, such as building, contributes. But all that the first part of sec. 26(a) requires is that the property was acquired for the purpose of profit-making by sale. Property may be said to have been so acquired, notwithstanding that the property was acquired for the purpose of making a profit on sale, after the land acquired had been improved by the erection of a building. To my mind the making of a profit in such circumstances is accurately described as ``profit-making by sale''.

As I am not satisfied that the intentions of the taxpayer altered when the Coorey family acquired control of it, there is no occasion for me to consider the submission that the first part of sec. 26(a) has no application when a taxpayer, having acquired property for the purpose of profit-making by sale, decides to retain it for investment and only subsequently sells it a profit.

It follows that in my opinion the profits realised by the taxpayer on the sale of the units fell within the first part of sec. 26(a). As it happens, I take the view that they fall also within the second part of that paragraph, for on the facts as I see them the profit arose from the carrying out of a profit-making scheme which the taxpayer had in mind from its acquisition of the land. The principal elements in that scheme were the acquisition of the land, the erection of the building and the sale of the units. It was an activity undertaken with a view to making a profit.

It matters not, as counsel for the taxpayer submitted, that the venture was the only profit-making scheme undertaken by the taxpayer and that there is no likelihood of it undertaking other transactions of a similar kind. The expression ``carrying out'' in the second part of sec. 26(a) refers to ``the carrying into execution of a plan or venture which does not involve repetition or system'' (Premier Automatic Ticket Issuers Ltd. v. F.C. of T. (1933), 50 C.L.R. 268 at p.298).

To use the language of their Lordships in McClelland v. F.C. of T. 70 ATC 4115; 120 C.L.R. 487, the transaction exhibited ``features which give it the character of a business deal''. When account is taken of the purpose for which the taxpayer acquired the property and the plan for its development and sale which it then had in mind and subsequently carried out, the sale of the home units cannot be isolated from the other features of the scheme and described as the mere realisation of a capital asset. The case is therefore to be distinguished from Eisner v. F.C. of T. (supra).

In the result the appeals are dismissed with costs and the assessments are confirmed.

ORDER:

Appeals dismissed with costs.

Assessments confirmed.