The Myer Emporium Limited v. Federal Commissioner of Taxation.

Judges:
Murphy J

Court:
Supreme Court of Victoria

Judgment date: Judgment handed down 20 March 1985.

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Murphy J.

Being dissatisfied with the decision of the Deputy Commissioner of Taxation (``Commissioner'') whereby its objection to the inclusion of a sum of $45.37 million as part of its taxable income for the year ended 31 July 1981 was disallowed, the Myer Emporium Limited (``Myer'') appealed to this court, and the matter came on for hearing before me. The papers forwarded to this court reveal the following details.

In its return for 1981 Myer included a copy balance sheet as at 31 July 1981 which showed as a liability an item ``Balance of proceeds from assignment of income $41,480,833''. In a copy Profit and Loss Statement also appended to its return Myer included an item ``Amortisation of proceeds from assignment of income $3,889,167''. This same item appeared in an ``Income Tax Reconciliation'' being Sch. 1 to Myer's accounts.

Schedule 1 contained the following statement:

``Assignment of Income

On 9 March 1981 the Company assigned absolutely its right and title to receive interest income arising from a loan of $80 million due 30/6/88 for a capital sum of $45,370,000 received in a lump sum on that date. The term of the assignment is for the remaining period of the loan (7 years 83 days). For both purposes the consideration is being amortised in the profit and loss account on an actuarial basis. In the year ended 31 July 1981 the amount transferred to the profit statement was $3,889,167 (Schedule 2).

The consideration received is of a capital nature and accordingly the amortisation of $3,889,167 is excluded from taxable income (Refer Schedule 1).''

The Commissioner adjusted the Taxable Income as returned by Myer stating on the Adjustment Sheet issued 19 April 1982:

                                     ``$
      Taxable Income
        as returned              29,657,193
      Inclusion of lump sum
        on assignment of
      income Add                 45,370,000
                                 ----------
      Taxable Income as shown
        in attached notice       75,027,193
                                 ----------''
        

Correspondence between Myer and the Commissioner ensued concerning this adjustment to taxable income, during which Myer gave to the Commissioner a copy of a loan agreement between itself and Margosa Limited (renamed Myer Finance Limited) dated 6 March 1981, a copy of an assignment agreement between Myer and Citicorp Canberra Pty. Limited dated 9 March 1981, and a notice of assignment issued to Myer Finance Limited dated 9 March 1981.

The Commissioner by Notice dated 23 December 1983 disallowed Myer's objection and on 17 February 1984, Myer requested the Commissioner to forward its objection to this court.

I have in the past referred to the absence of rules in this court dealing adequately with the hearing of Taxation Appeals both from Boards of Review and from the Commissioner. Here again, the circumstances in which this appeal came on for hearing before me, cause me to comment on the unsatisfactory presentation of the issues, due in my opinion to the absence of adequate rules requiring the same.

I asked Mr Shaw Q.C. who, with Mr Archibald Q.C. and Mr K. Hayne of Counsel, appeared for the Commissioner, whether he was prepared to indicate to me what sections of

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the Income Tax Assessment Act 1936 were relied upon by the Commissioner.

He informed me that it would be submitted on behalf of the Commissioner -

• (1) that the sum of $45.37 million was income within the meaning of sec. 25 of the Act, supported if necessary by sec. 19 thereof;
• (2) alternatively, that the sum of $45.37 million was income within the meaning of sec. 26(a) (as it then was - now 25A);
• (3) alternatively, that the scheme was caught by sec. 260;
• (4) alternatively, that the assignment was caught by sec. 102B.

Mr Merralls Q.C. who with Mr A. Myers of Counsel appeared for Myer, then requested particulars -

• (i) of the profit-making undertaking or scheme in respect of which the profit is alleged to have arisen within the meaning of sec. 26(a);
• (ii) of the profit which it is alleged arose either from the sale by the taxpayer of any and what property acquired for profit-making by sale or from the carrying on of a profit-making undertaking or scheme;
• (iii) of the contract agreement or arrangement which is said to be absolutely void under sec. 260.

Reliance was placed on the decision of the High Court in
Bailey & Ors v. F.C. of T. 77 ATC 4096; (1977) 136 C.L.R. 214 where Aickin J. in a judgment with which Barwick C.J., Gibbs, Mason, Jacobs JJ. agreed, outlined the considerations appropriate to bear in mind when considering whether or not to order particulars to be delivered by the Commissioner.

I ordered that particulars be delivered, but only after Counsel for the Commissioner had had the opportunity to peruse Myer's documents which at a very late stage the Commissioner had sought to obtain by the issue of subpoenas duces tecum to certain officers of Myer and Myer Finance Limited.

All of this should in my opinion have been done before the appeal came on for hearing. It would have avoided a good deal of time wasting which occurred. It would have enabled the parties to prepare their cases confidently. The court would have been at the very least informed as to the likely issues. It would also have enabled Myer to seek further particulars, if those delivered proved to be inadequate or to require any elaboration. As it turned out, the particulars in fact delivered were of little help and were not, I think, referred to again.

Myer filed several affidavits and each deponent save one was cross-examined and re-examined by Counsel. In the course of such examination many documents were tendered in evidence. The Commissioner filed no affidavits and led no evidence. The evidence leads me to find the following facts. On 11 July 1980 the Treasurer announced and shortly after detailed the Commonwealth Government's decision to tax all income of public unit trusts, established as a result of reorganisation of a company, at the company tax rate. Myer thereafter determined to review its proposed restructuring of the group of Myer companies, and sought and obtained a report from Hill Samuel Australia Limited dated 28 August 1980. The proposal in broad was that Myer should remain the group holding company, that all real estate should become the property of Myer Shopping Centres Limited, that Myer Melbourne Limited should control and operate all retail trading outlets and that a company Myer Finance Limited should be incorporated in Canberra to control some or all of the financing of the operations of the group.

At the same time, Myer had embarked on an extensive plan to diversify and needed to resort to external funding for finance. Its increased borrowings and the consequential rise in its interest bill affected its profit figures (as published). These borrowings were themselves limited by the necessity to keep within the borrowing ratio stipulated in its debenture trust deed.

It appears that at this stage the seed of an idea was planted and has since flowered, as is evidenced by the several transactions which I am called upon to consider.

Myer owned shares in subsidiaries such as Myer Sydney Ltd., Myer Western Stores Ltd., Myer Queensland Ltd. and others, which companies owned real property. Myer's shares in these subsidiaries were worth approximately $80 million. These shares were sold by Myer

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for $80 million to Myer Shopping Centres Ltd. which for group efficiency purposes was to own all real estate owned by the Myer Group.

On 6 March 1981 Myer lent this $80 million to Margosa Limited (later to become Myer Finance Limited) for a period of over seven years. Under this agreement, Margosa was obliged to pay to Myer interest at the rate of 12½% per annum.

Then, Myer on 9 March 1981 entered into a deed of assignment with Citicorp, the effect of which was that in consideration of the payment by Citicorp to Myer of $45.37 million Myer assigned to Citicorp all its right, title and interest in and to the interest payable by Margosa over the balance of the loan. The precise effect of the assignment was the subject of debate, and I shall return to it.

Notice of the assignment was given to Margosa by Myer and although the circumstances surrounding the giving of this notice were made the subject of some little debate at the Bar table, I am satisfied that the notice was given, and was effective.

From the point of view of Myer, it immediately obtained $45.37 million working capital which it needed, and the borrowing ratio of its debenture trust deed was not affected. It gave in return its entitlement to interest payments totalling $72 million over a little more than seven years. It was believed by Myer that the $45.37 million would not be taxable in the hands of Myer in the year of receipt, and would be a non-assessable capital receipt. It was believed that the interest payments made by Margosa (Myer Finance) to Citicorp would be tax deductible. It was also believed that the assignment by Myer of the future income stream for a period exceeding seven years would ensure that Div. 6A of the Act did not apply to the assignment. All of these matters were in the contemplation of Myer before entering upon the initial loan transaction.

In considering the issues which have been debated before me, it is necessary to remember that for Companies Act purposes consolidated accounts reflect group activities and that in such accounts financial dealings between holding company and subsidiary within the group often cancel out. On the other hand, for the purposes of the Income Tax Assessment Act, each company is a separate entity, and is assessed annually to tax accordingly. Nonetheless, in so far as the purpose of the taxpayer Myer is relevant to a determination of the issues, group considerations assume importance in the elucidation of that purpose. I find that the various steps taken by Myer were preplanned in the sense that Myer intended at all material times, including the time immediately before lending the $80 million to Margosa, to assign the right to the future income stream created by such a loan to Citicorp for a lump sum. It was also preplanned that the assignment should be of a right to interest for more than a period of seven years, for otherwise the provisions of Div. 6A of the Act might be seen to be applicable. The loan period and the assignment were drafted with one eye on Div. 6A of the Act.

I am satisfied that the purpose which above all motivated Myer in engaging in the loan transaction and assignment transactions was the immediate obtaining of working capital to enable it to carry on its diversified profit-making activities. It was inhibited by the terms of its debenture trust deed from unlimited public borrowing for this purpose. It was also loath to have to disclose in its published accounts further borrowings necessary to achieve liquidity. A proposal made by Citicorp enabled it to achieve its purpose, and in so far as advice from professionals whom it consulted was to be considered, the proposal presented no income taxation pitfalls.

It was clear to Myer that if it simply borrowed $45.37 million for use as working capital, the capital sum of its borrowings would not have been taxable. On the assumption that it utilised such borrowings in the pursuit of assessable income, the interest payable to the lender on such borrowings would have been deductible from any income earned, before arriving at Myer's ``taxable'' income.

The fact that pursuant to the loan agreement Margosa, a Myer subsidiary, would be required to pay, not to Myer but to Citicorp, interest totalling $72.582 million over a little more than seven years (see Sch. 1, Loan Agreement, 6 March 1981) had to be faced up to, but the right to the periodic interest payments over that period had a capital value actuarially calculated of $45.37 million, which Myer would receive as a lump sum.

Although in its ``Review of the Restructuring Proposal Following the Treasurer's Statement on Property Trusts'', dated 28 August 1980 and

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delivered to Myer on or about that date, Hill Samuel Australia Limited referred to ``financial benefits of the Citicorp proposal'', it is clear, in my opinion, that Myer did not enter upon the proposal for the purpose of profit-making, but rather for the purpose of obtaining working capital for use in its trading activities.

Mr Shaw Q.C. on behalf of the Commissioner first submitted that the lump sum payment by Citicorp to Myer, being paid in substitution for income, therefore was itself to be characterised as income, as it took the place of a revenue receipt.
F.C. of T. v. D.P. Smith 81 ATC 4114 at pp. 4115-4116, (1981) 147 C.L.R. 578 at p. 583;
London & Thames Haven Oil Wharves Ltd. v. Attwooll (1967) 1 Ch. 772 at pp. 803-804;
Raja's Commercial College v. Gian Singh (1977) A.C. 312 at p. 319. It was appropriate, he submitted, to ask the question, what place in the economy of the taxpayer's business does this payment take? Reference was made to many cases in which a similar test had been applied, and it is, I think, unnecessary to set them out. The principle is well recognised.

The difficulty which I have with this comparatively simple solution of the problem is that this is not a true case of substitution. Myer, I find, on the construction of the assignment, assigned its right to future payments in exchange for the payment of the present day sum. Myer was not then and there entitled to any payments of interest. It did not assign the payments of interest themselves, although as Mr Merralls conceded, the language of the assignment is ``not altogether happily worded''. Nonetheless, I construe the assignment to Citicorp as an assignment of the ``right title and interest of Myer in and to the interest payments''. The right to future payments of interest over a period of seven years is of course a chose in action of present day value but unless and until the payment is in fact received (or possibly falls due) the right to future payments cannot be classed as income itself. The right is really in the nature of a wasting capital asset which may produce income. The present day value of a right to future interest payments will vary according to a number of factors. It is clearly not arrived at by totalling the sum of the future interest payments. One person may assess the probable future drift of interest rates differently from another. The liquidity of the debtor, his occupation, and the urgency of the need of the assignor of the right, as well as other factors including the financial position of the assignee may all be material to the ascertainment of the present day value of the right to future payments of interest. Such considerations do not affect the actual amount of the payments as they fall due. They are fixed. But the right to them and their value is to be distinguished from the payments themselves.

In any event ``to treat a sum of money as income because it is computed or measured by loss of future income is an erroneous method of reasoning''.
F.C. of T. v. Phillips (1936) 55 C.L.R. 144 per Dixon and Evatt JJ. at p. 156.

A similar distinction can be seen drawn in Bush,
Beach & Gent Ltd. v. Road (1936) 2 K.B. 524 at p. 533 where Lawrence J. said:

``The sum paid, in my view, represented profits which the appellant company would or might have made under the contract, not the purchase price of the contract itself (see per Rowlatt J. in
Inland Revenue Commissioners v. North Fleet Coal & Ballast Co. Ltd. (1927) 12 Tax. Cas. 1102, 1108-9).''

See also:
Sommerfelds Ltd. v. Freeman (1967) 1 W.L.R. 489 at p. 500.

In
I.R. Commrs v. Paget (1938) 2 K.B. 25 the same distinction is drawn. It was sought to argue in that case that Miss Paget, who owned certain bearer bonds issued by the City of Budapest and the Kingdom of Yugoslavia, to each of which bonds was attached interest coupons falling due for payment on specified dates twice a year and payable in London and New York respectively, was liable to tax on the purchase price when she sold such coupons at an undervalue. It was argued that the purchase price of the interest coupons was ``income arising from securities out of the United Kingdom'', so falling within Case IV of Sch. D of the United Kingdom Income Tax Act.

Sir Wilfred Greene M.R. said of this argument:

``The purchase price received by Miss Paget was not income arising from the bonds at all. It arose from contracts of sale and purchase whereby Miss Paget sold whatever right she had to receive such income in the future as well as her right to take what was offered by the defaulting debtors. It is in my

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opinion quite impossible to treat this as equivalent in any sense to `income arising from' the bonds''

((1938) 2 K.B. at p. 35.)

Lord Romer said:

``In these circumstances, the only question to be decided is whether the proceeds of sale of a right to receive income in the future can be treated as income for the purpose of the Income Tax Act. The question thus broadly stated plainly admits of but one answer; and that answer must be in the negative.''

((1938) 2 K.B. at pp. 44-45.)

It is true as Mr Shaw submitted that the necessity in the United Kingdom to pigeon hole ``income'' in one or other of the scheduled categories of the Income Tax Act before it is taxable, makes decisions such as this one, as to what is and what is not ``income'' for the purposes of that Act, of extremely limited value in Australia. Nonetheless, the reasoning of their Lordships here does lend support to the view that moneys paid to purchase a right to future interest are not necessarily to be characterised in the same way as the interest itself.

Having read many of them, the ``substitution'' cases, as Mr Shaw classed them, all appear to involve the extinction in the hands of the taxpayer of one form or another of what clearly would be an income receipt, (whether it be loss of profits from a wharf, or loss of earnings flowings from breach of contract, or loss of earnings from failure to deliver a ship on time, or loss of sales due to compulsory acquisition of rum) and the receipt in their stead of damages or compensation measured solely by reference to the income loss suffered. In such cases, so much of the damages or compensation awarded and received which is measured by and substituted for the calculated amount of the income loss suffered, is said to be an income receipt in the hands of the recipient, and taxable. I do not see that this principle has any necessary application to a transaction of the sort with which we are here concerned.

Next, the transaction was certainly unusual, and was not one in which Myer normally engaged as part of its trading activities. Nor would I think that the sum of $45.37 million would be regarded as income in accordance with the ordinary usages and concepts of mankind.

It was submitted by Mr Merralls that it was relevant to consider both Myer's purpose in engaging in the scheme and what they had intended to do with the money (
F.C. of T. v. Whitfords Beach Pty. Ltd. 82 ATC 4031 at pp. 4039, 4047; (1982) 150 C.L.R. 355 at pp. 370, 384; 56 A.L.J.R. 240 at pp. 245, 251). I doubt whether any significance could be given to these matters, if the fund was otherwise clearly to be seen to be ``income derived'' under sec. 25(1)(a), although of course purpose is material if sec. 26(a) has to be invoked by the Commissioner. Cf.
Carapark Holdings Limited v. F.C. of T. (1967) 14 A.T.D. 402; (1967) 40 A.L.J.R. 506 at p. 509.

A perusal of a large number of the relevant cases on the issue whether the $45.37 million was ``income derived'' within the meaning of sec. 25 leads me to conclude that each case is found to turn on its own facts (Lord
Macmillan, Van den Berghs Ltd. v. Clark (1935) A.C. 431). In the latter case, the question was whether a large sum paid by a Dutch company to an English company ``as damages'', (but really paid in consideration of the English company consenting to cancel several agreements) should be brought to account as a profit or gain of the English company's trade for income tax purposes. Lord Macmillan's judgment, with which Lord Atkin, Lord Tomlin, Lord Russell of Killowen and Lord Wright agreed, contains a survey of the cases, to that date, six falling to be decided one way, six the other. In the end, it would seem that his Lordship placed emphasis upon the fact that the contracts cancelled were not ordinary commercial contracts made in the course of carrying on the appellant's trade. The contracts did not dispose of their products or relate to employment. Rather they related to the whole structure of the appellant's profit-making apparatus. His Lordship was also inclined to regard the magnitude of the sum as relevant.

Again, considerations of this kind do not appear in the present case to be altogether irrelevant but they could hardly be determinative of the issues raised by the facts here.

I find that the Myer transaction was not one in the ordinary course of the company's retail business. Nor was it, to use Lord Cave's words, ``in its nature recurrent, but was made once for all''.
British Insulated & Helsby Cables Ltd. v. Atherton (1926) A.C. 205 at p. 213. Although

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it need not be so, income derived under sec. 25 is normally periodic and recurrent.

Mr Shaw argued, however, that the calculation of the $45.37 million was arrived at by actuarially assessing an amount thought to represent the present day value of the total periodic payments of interest by Margosa over seven years. This, I accept, was in fact done. He then argued that the lump sum so calculated was analogous to a damages award for loss of earning capacity and was of the same character as the interest payments which it represented. However, as mentioned above and as Lord Buckmaster pointed out in
Glenboig Union Fireclay Co. Ltd. v. I.R. Commrs (1922) S.C. 112 at p. 115:

``There is no relation between the measure that is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the test.''

In so far as relevant I find that the money sought and received by Myer was sought as working capital and lacked an income character - it was in my opinion a means of deriving income but was not itself income derived within the meaning of sec. 25(1)(a).

The view is open that since Myer chose to create an interest stream by lending its $80 million for seven years at 12½%, the lump sum paid by Citicorp for the assignment of the right to this interest stream was also income. But the better view appears to me to be that the capitalisation of the right to interest was capital.

I find it unnecessary to draw upon Biblical metaphors of vines and branches. Something may depend upon the question whether the transaction is to be looked at as a whole, or whether each calculated step is to be examined severally. I think that the burden of Australian authority supports the former view and doing this in my opinion it would be wrong to look at the $45.37 million received in 1981 as income.

I turn to the submission that the $45.37 million should be included as assessable income because it was a profit arising from the sale by Myer of property acquired by it for the purpose of profit-making by sale or from the carrying on or carrying out of a profit-making undertaking or scheme. Section 26(a) (now sec. 25A).

Mr Shaw submitted that a ``one off'' venture may be a trading or business operation.
Edwards v. Bairstow and Harrison (1956) A.C. 14. This may be accepted as correct.

Clearly, if the venture is in the nature of trade, the profit arising from it does not cease to form part of the taxpayer's assessable income under sec. 26(a), simply because it was an isolated venture.

``The principle of law is that profits derived directly or indirectly from sources within Australia in carrying on or carrying out any scheme of profit-making are assessable to income tax, whilst proceeds of a mere realisation or change of investment or from an enhancement of capital are not income nor assessable to income tax.''
Ruhamah Property Co. Ltd. v. F.C. of T. (1928) 41 C.L.R. 148 at p. 151.

The taxpayer contended that here we had a mere realisation of a capital asset. It was the realisation of an asset, but not in what is truly the carrying on or carrying out of a business.
Californian Copper Syndicate (Limited & Reduced) v. Harris (1904) 5 T.C. 159 at p. 166.

In my opinion the first limb of sec. 26(a) does not apply. In any event, it would be wrong to look upon the sale price as a ``profit''. It was not. As a consequence of the transaction the taxpayer was out of his capital and interest for over seven years. It was not a ``trading transaction''. Myer sold a valuable right to receive interest over those seven years. The transaction between Myer and Citicorp was an arm's length transaction, and Citicorp valued the right to interest at $45.37 million. Myer's purpose was to obtain working capital.

Considering the second limb of sec. 26(a) much has been written as to its purpose and width. In F.C. of T. v. Whitfords Beach Pty. Ltd. 82 ATC 4031; (1982) 150 C.L.R. 355 careful expositions of sec. 26(a) by the members of the High Court have recently been published.

A profit for the purposes of sec. 26(a) must possess some quality of pecuniary gain. Sometimes it may easily be calculated as the excess of returns over the outlay of capital. At other times the clarity of this calculation may be masked. But, in the present case, it is difficult to see, irrespective of how one approaches it or of the point at which one commences one's consideration of the matter, how it could be said that the $45.37 million represents anything in the nature of profit to

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Myer. The cases appear to establish that all deductions must be made before ``profit'' can be arrived at for the purposes of sec. 26(a). See
F.C. of T. v. Becker (1952) 87 C.L.R. 456 at p. 467;
Bristowe's case (1962) 36 A.L.J.R. 271 at p. 275.

The capital sum of $80 million when it is received back seven years hence would be worth so much less, depending upon inflation. The cases dealing with damages for personal injuries suggest that 2%-3% is a real interest rate, the balance of any current interest rate being of an inflationary nature and a ``hedge''. In any event, the taxpayer, Myer, is unable to utilise this capital sum of $80 million for over seven years, and is to receive no interest on its investment. In place of the interest, it receives a lump sum of $45.37 million. This figure does not represent a sec. 26(a) ``profit arising''. Steinberg & Ors v. F.C. of T. 73 ATC 4031 at pp. 4051-4052; (1975) 134 C.L.R. 640 at pp. 676-677;
F.C. of T. v. Bidencope 78 ATC 4222 at pp. 4232, 4236; (1978) 140 C.L.R. 533 at pp. 550, 559. It is only the net receipt which may be included as profit in ``assessable income''.
Investment & Merchant Finance Corp. Ltd. v. F.C. of T. 71 ATC 4140; (1971) 125 C.L.R. 249;
J. Rowe & Son Pty. Ltd. v. F.C. of T. 71 ATC 4157; (1971) 124 C.L.R. 421;
A.C. Williams v. F.C. of T. 72 ATC 4157; (1973) 128 C.L.R. 645.

As Fullagar J. said in F.C. of T. v. Becker (1952) 87 C.L.R. 456: ``A profit can only be ascertained by comparing one sum of money with another.'' Kitto J. as a member of the High Court on appeal from Fullagar J. and with whose reasons Dixon C.J. agreed, said:

``Whether a given amount is to be characterized as a profit within the meaning of the provision is a question of the application of a business conception to the facts of the case.''

Bearing these considerations in mind, I am satisfied that the Commissioner in purporting to bring into Myer's assessable income the sum of $45.37 million as a profit under sec. 26(a) was in error. Furthermore, the purpose of the transaction was not ``profit-making'', the undertaking (assumed) was not profit-making, and no profit was shown to be made, whether of a capital or revenue nature.

Next, the Commissioner relied upon sec. 260, as it applied to contracts agreements or arrangements made or entered into before 27 May 1981.

Mr Shaw submitted that the assignment by Myer to Citicorp of its right to interest payments was void as against the Commissioner, and that as a consequence the $45.37 million paid by Citicorp to Myer ``is to be treated as if it had been made by Citicorp on behalf of Margosa''. He submitted that if one looked at
Newton v. F.C. of T. (1958) 98 C.L.R. 1 it would be seen that that was ``exactly what happened in that case''. He submitted further that in
Hancock v. F.C. of T. (1961) 108 C.L.R. 258 at p. 281 Dixon C.J. expressed precisely this result when he said:

``Section 260 authorizes the Commissioner to disregard every step in an obnoxious plan which stands in the way of a lawful assessment.''

Section 260(1)(a) must be read and interpreted in its context cf.
D.F.C. of T. v. Purcell (1921) 29 C.L.R. 464 at p. 466.

In the present case, if the assignment was not seen to be a bona fide arm's length transaction between Myer and Citicorp, but was perhaps merely an intra group assignment executed for the purpose simply of altering the incidence of taxation upon the interest receipts, it may well be that sec. 260 could apply.

But I have found that the assignment transaction was a bona fide commercial transaction designed to equip Myer with working capital from outside the group.

Judicial decisions concerning sec. 260 have construed the meaning of the section clearly enough to enable Mason J. (with whom Barwick C.J., Stephens, Jacobs, Aickin JJ. agreed) to say, ``the construction of the section is now settled''.
Cridland v. F.C. of T. 77 ATC 4538 at p. 4541; (1977) 52 A.L.J.R. 96 at p. 98; (1977) 140 C.L.R. 330 at p. 337.

In that case, Mason J. quoted with approval from the judgment of Barwick C.J. in
Mullens & Ors v. F.C. of T. 76 ATC 4288 at p. 4294; (1976) 51 A.L.J.R. 82 at p. 86 where the learned Chief Justice said:

``... there will be no relevant alteration of the incidence of tax if the transaction, being the actual transaction between the parties, conforms to and satisfies a provision of the Act even if it has taken the form in which it was entered into by the parties in order to

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obtain the benefit of that provision of the Act. It would be otherwise if there had been some antecedent transaction between the parties, for which the transaction under attack was substituted in order to obtain the benefit of the particular provisions of the Act.''

Stephen J. in Mullens' case said also (at ATC p. 4303; C.L.R. p. 93):

``The principle of W.P. Keighery Pty. Ltd. v. F.C. of T. is not to be confined to cases where the Act offers to the taxpayer a choice of alternative tax consequences either of which he is free to choose; it was there held that merely because the taxpayer chose, quite deliberately, the alternative most advantageous to it from a tax standpoint it did not thereby attract sec. 260. So, too, if no question arises of a choice between two courses of conduct but, instead, the Act offers certain tax benefits to taxpayers who adopt a particular course of conduct; the adoption of that course does not establish any purpose or effect such as is described in sec. 260.''

Before the scheme in the present case, there was no income entitlement in Myer at all which would have attracted income taxation. As I understand the argument, however, it is put that once having lent $80 million at interest over some seven years to Margosa, Myer became entitled then to the right to income over those years and by means of the assignment it altered the incidence of tax on that income by assigning the right to interest to Citicorp, upon whom the tax burden would then fall when the interest payments were made from time to time. This assignment (it is accordingly said) is absolutely void as against the Commissioner.

At the outset, I would remark that if it was intended that the bona fide assignment for value to another of the right to receive income from property for a period of more than seven years, constituted a contract, agreement or arrangement which is struck down (as against the Commissioner) by sec. 260, it would appear to be inconsistent with the underlying assumption upon which sec. 102B is based. Section 102B was inserted in the Act at a later date than sec. 260.

I do not accept the submission that in the circumstances sec. 260 applies to annihilate the assignment, and would point out, in any event, that if the assignment should be void as against the Commissioner, it would not follow that, as the Commissioner asserts, the $45.37 million paid by Citicorp to Myer was taxable as income in Myer's hands in 1981.

On the assumption that the assignment was void as against the Commissioner, the question would then arise, what would be taxable in the hands of Myer?

In
Cecil Bros Pty. Ltd. v. F.C. of T. (1964) 111 C.L.R. 430, Menzies J. said at p. 441:

``... section 260 does not authorize the Commissioner to do anything. It avoids as against the Commissioner arrangements etc. as specified and so leaves him to assess taxable income and tax on the facts as they appear when the avoided arrangements etc. are disregarded.''

In
F.C. of T. v. Kareena Hospital Pty. Ltd. 79 ATC 4667 the Full Court of the Federal Court spelt out what is implied in Cecil's case, namely that sec. 260 is an annihilating section and cannot be used for the purpose of reconstructing events which did not occur (see per Bowen C.J. at p. 4668 and Brennan J. at p. 4673). It does not substitute fiction for fact.

Subsequent decisions in the Federal Court relied upon by Mr Archibald (in reply) on behalf of the Commissioner do not, as I read them, depart from these principles, but provide instances of their application. See
Gulland v. F.C. of T. 84 ATC 4587;
Oakey Abattoir Pty. Ltd. v. F.C. of T. 84 ATC 4718;
F.C. of T. v. Pincus 84 ATC 4730.

In my opinion, however, sec. 260 is not applicable to this bona fide commercial transaction.

No argument was addressed by the Commissioner, following the cross-examination of the several deponents, to support the contention that sec. 102B applied to render the taxpayer liable.

In my opinion the objection of Myer to the inclusion of the sum of $45,370,000 in its taxable income for the year ending 30 June 1981 should have been allowed. I would accordingly allow this appeal and make such orders as may be necessary to implement my decision.