Income Tax Act, 1912 No. 11-Trading stock-Valuation.-On the reconstruction of a limited company, the whole of the assets of the old company were transferred en bloc to the new company for a fixed sum of money, payable in shares to the old shareholders; there was no apportionment of the consideration among the assets so transferred, which included, land, goodwill, stock, etc. The old company in its final account estimated the value of stock at £31,182 based on actual purchase price of the goods; the new company on taking over caused a revaluation to be made at replacement values, and assesesd the stock at £44,076. Held, the company's profits were to be estimated on the basis of the latter figures. CROPLEY LTD. v. COмMISSIONER OF TAXATION, 41 W.N. 51. [New South Wales.]

Income Tax (Management) Act, 1912 No. 11, s. 16-Deductions Private company-Bonus to officers-Excessive amount-Expense incurred in the production of income.-A private two-man company carried on business with a comparatively small paid up capital of £2,000; the two shareholders who acted as managing director and manager respectively, advanced from time to time to the company considerable sums to finance its trading operations. At a general meeting held early in the company's financial year it was resolved that after a dividend of 10% had been paid on the paid up capital, the balance of profit should be divided between the managing director and manager as additions to their salaries. The company made a profit in that year of £9,000 which was disposed of in accordance with the resolution; and the salaries of the manager and managing director were thus greatly increased. Held, that the amount of these salaries thus paid was properly deducted from the gross income of the company as expenses or outgoings actually incurred in the production of its income and further that even if the statute be interpreted to mean actually and reasonably incurred," the payments were not unreasonable. MONEY SAVER LTD. v. THE COMMISSIONER OF TAXATION, 41 W.N. 174. [New South Wales.]

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Income Tax (Q.)-Company-income arising or accruing from business carried on in Queensland-Operations partly in Queensland and partly outside—Ore mined in Queensland, refined in New South Wales, sold by agent outside Queensland to purchasers outside-Apportionment.-The Income Tax Acts 1902-1920 (Q.) levy income tax in respect of the income of all persons at specified rates. By s. 3 includes a company; "income person tax is defined as the tax on income derived from personal exertion and the tax on

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income derived from the produce of property," etc.; "income derived from personal exertion" is defined as all income consisting of earnings. earned in or derived from Queensland, and all income arising or accruing from any business carried on in Queensland," etc.; "income derived from the produce of property is defined as all income derived in or from Queensland and not derived from personal exertion." Sect. 7 (8) provides "in the case of a Queensland company "-that is (s. 3), a company the head or principal office or the principal place of business of which is in Queensland

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carrying on business outside Queensland tax shall be charged on the profits made in Queensland at stated rates; and s. 13 (1) provides that "in estimating the income subject to the tax, there shall be incurred in Queensland by him in production of that part of his income which is not exempted from tax." Sect. 12A (I.) (3) provides that when goods or articles produced in Queensland are sold outside Queensland the amount received for the sale shall be taxable as income earned in Queensland. By a proclamation issued in 1915 the Government of the Commonwealth prohibited the exportation of gold, bullion or specie except with the consent of the Treasurer. During the War gold appreciated, and gold producers seeking to obtain benefit of the appreciation formed the Gold Producers' Association, the object of which was to buy, sell, exchange, transport, dispose of and deal in gold in any part of the world, and the business of which by its articles of association was confined exclusively to agency for and on behalf of its members for the sale and disposal of gold bona fide produced by its members. The Treasurer granted a consent to the exportation of the total gold production of the members in the form of specie or bullion. The appellant, a company incorporated and carrying on business in Queensland and having branch offices in Sydney, Melbourne and London, produced blister copper at mining works in Queensland. The only board having power to carry on the business was the principal board in Queensland; the branches had no such power. The blister copper, which contained about 99 per cent. of copper and some gold and silver, was sent to a refining company in New South Wales and there converted into electro-lytic copper and the gold and silver were extracted. The refining company did not treat the appellant's blister copper separately, but smelted it with other consignments received from other producers in Australia and ascertained the interests of the different owners by assays made before the smelting. The Refining Company paid to the appellant in Sydney £4 4s. 2d. per ounce for the gold contents of the blister copper, cast that gold into bars, deposited the bars at the Bank of New South Wales, which weighed and assayed and re-smelted the gold, credited the Refining Company with £31 17s. 10d. per standard ounce less charges, deposited it at the Mint and earmarked a quantity equivalent to that ob

tained from the appellant's blister copper as on account of the appellant. The appellant paid income tax on the money received from the Refining Company. The Mint issued a receipt and, after further treatment of the gold, delivered to the Bank in exchange for the receipt a memorandum of out-turn of gold left for coinage by the Bank on account of the appellant. A duplicate of the memorandum was given by the Bank to the Refining Company by which it was sent to the appellant which delivered it to the Gold Producers' Association. The Association lodged the memoranda of out-turn of its members with the Treasurer, obtained his sanction to make a disposal of gold, communicated such sanction to the Commonwealth Bank of Australia-its bankers-and that Bank disposed of gold in accordance with the sanction and the instructions of the Association. Over 93 per cent, of the total disposition was made outside Australia and the remainder was made under contracts entered into in Australia, but not in Queensland, for shipment f.o.b.; and the payments for the gold were all, substantially, made to the Commonwealth Bank in London. From time to time that Bank remitted to the Association and ultimately the Association distributed the net returns amongst its members pro rata in accordance with the amount of standard gold available for sale and disposal on account of each member during the period covered by the accounts pursuant to the provisions of its articles of association. The appellant received from the Gold Producers' Association, for the year ending in 1920, £142,112 in respect of its share of the profits of the Association. The Full Court of Queensland held that the whole of this sum was taxable income. Held, by Higgins, Rich and Starke, JJ., that the sum of £142,112, in part at least (by Higgins, J. all), was income arising or accruing from a business carried on in Queensland," and was taxable income within the said Acts; and if all was not taxable income within the meaning of those Acts the said sum should be apportioned as between Queensland and places outside Queensland for the purpose of ascertaining what portion thereof was income arising or accruing from the business operations carried on by the appellant in Queensland. Per Knox, Č.J., and Gavan Duffy, J.: No part of the sum was liable to income tax. Per Rich and Starke, JJ.: The portion of the sum which arose or accrued from the appellant's business operations in Queensland was liable to the tax. Mount Morgan Gold Mining Co. Ltd, v. Commissioner of Income Tax (1922 S.R. (Q.) 230) reversed. MOUNT MORGAN GOLD MINING CO. LTD. v. COMMISSIONER OF INCOME TAX (QUEENSLAND), 33 C.L.R. 76; 30 A.L.R. 159. [High Court.]

Income tax-Deductions-Interest on inscribed stock of Bank held under scheme of arrangement and representing money formerly in the bank as fixed deposits or as credits on current accounts-Depreciation on buildingLoss on sale of Government securities purchased to assist cost of war.-Sect. 13 of the

Income Tax Acts 1902 to 1922 (inter alia) provides (1) In estimating the income subject to the tax, there shall be deducted from the gross income of every person (i) all losses and outgoings (not being in the nature of losses and outgoings of capital . . . ) actually incurred in Queensland by him in production of that part of his income which is not exempted from tax; (iii) all interest actually paid by him in the year during which the income was earned upon money borrowed by the taxpayer and used with the intent to the production of that part of his income which is not exempt from tax (viii.) such sums as the Commissioner thinks just and reasonable as representing the diminished value per centum to the owner by reason of depreciation during the year in respect of which the assessment is made of any building used by the taxpayer

for the purposes of producing income A banking company of limited liability, duly incorporated and registered under The Companies Act of 1863, carried on business in Queensland and elsewhere. The objects for which the company was established (inter alia) were: To receive money on loan or deposit or otherwise, and either with or without giving any security of the company or upon any property of the company for any such money, to buy, sell, exchange or otherwise deal in all kinds of negotiable securities; to transact any other banking or financial business of any description. During the banking crisis of 1893 the bank suspended payment and entered into a scheme of arrangement with the persons holding fixed deposits or money on current account. The object of the scheme which was made in 1893, and modified in 1897, was to authorise the postponement of the payment of money the Bank had, pursuant to its memorandum and articles, in the ordinary course of business, received on loan or deposit, and to enable the Bank to carry on its business. Those persons received interminable inscribed deposit stock of the bank at certain interest. The principal monies secured or represented by the stock became payable on default of payment of interest or on the winding up of the bank. Provision was made for the application of the profits arising from the business of the bank to secure, in the course of time, the full payment with interest of the Bank's debt; and the bank was enabled, in certain events, to redeem the stock; but no profits of the business of the bank were made payable to the holders of the stock for any other purpose than paying off the original debt or of redeeming the stock. Held, that the interest paid on this stock was an out-going within the meaning of s. 13 and was deductible under that section. The bank claimed as a deduction the sum of £3,000 representing the depreciation of the premises owned by the bank in Queensland. It was alleged that the Commissioner refused to allow anything on this claim for deduction, on the ground that the bank had not written off any amount for depreciation in their books

Held, that the Commissioner's duty on this claim for deduction under the subsection was to allow such sum as he thought reasonable and just as representing the diminished value. The Bank, acting within their powers under the memorandum of association, invested money in War Loans of the Commonwealth, and in debentures of the Queensland Government, and later, for the purposes of their business, found it necessary to sell the securities at a loss. Held, that the loss was an allowable deduction. In re INCOME TAX ACTS, 1902-1922 (No. 1), 1924 S.R. (Q.) 46. [Queensland.]

Income Tax-Income-Shares in company -Private company-One man company— Sale of all shares in company-Net gains or profits on sale of shares-" Market value " of shares.-The Income Tax Acts 1902-1920, provide by s. 12A (1) (2)" Without limiting the force or effect of any other provision of this Act, incomes liable to tax shall expressly include (1) as income derived from personal exertion

(2) all net gains or profits

net

arising from the sale of any personal property whatsoever, whether or not arising or accruing from any business carried on by the taxpayer. The following provisions shall apply to the cases of sales of personal property respectively referred to in such provisions: (1) In determining the gains or profits arising from the sale of shares in a company carrying on business in Queensland, any losses arising from the sale of shares in other companies carrying on business in Queensland during the same year shall be deducted: Provided that if the taxpayer owned any of the shares in question at the first day of January, 1915, the market value of such shares at that date shall be taken to be the cost price thereof at that date for the purpose of determining whether there has been any net gain or profit or loss upon the sale thereof. In 1910 a taxpayer who was the owner of a colliery transferred it to a company. He held a very large majority of the shares, which were of the nominal value of £1, and the remaining shares were allotted to six nominees who held the shares allotted to them in trust for him. In 1920, pursuant to an agreement made between the taxpayer, the company, and a purchaser, all of the shares in the colliery were sold to the purchaser, and the taxpayer received £48,000 therefor, but remained liable for certain debts owing by the company. The sum of £41,233 was accepted as the sale price of 24,495 shares held by the taxpayer, and the Commissioner of Income Tax claimed the difference between this sum and £24,495

Land and Income Tax Assessment Act 1907, s. 16 (4)-Land and Income Tax Assessment Act (1923 consolidation), s. 16 (3)—Assignment of interest by partner-Income tax on profits of partnership earned before assign ment. An assignment by a partner of his interest in the profits, capital and assets of the partnership before the end of the year of assessment does not relieve him from liability to income tax in respect of the profits made before the date of the assignment. COMMISSIONER OF TAXATION, v. MELROSE, 1924 W.A.L.R. 22. [Western Australia.]

was

£1,782 13s. 4d. The plaintiff company was a limited liability company incorporated in South Australia and carrying on business in that State, in Western Australia and elsewhere in Australia, and in London. During the year ended 30th June, 1921, the plaintiff company paid £9,770 as Federal income tax for that year, and the plaintiff company claimed that it was entitled to a deduction from the amount of the dividend duty assessment of the proper proportion of the sum of £9,770 attributable to its taxable income earned in Western Australia, and that the proper amount to be deducted £2,337. Held, that income tax or tax paid under the Dividend Duties Act 1902 and its amendments is not expenditure for the purpose of earning receipts. The profits must be made before the tax can come into existence, and the tax is the Crown's share of the profit which has been made. The position is different under the Federal and State Income Tax Acts, because there provision has been made for a deduction of this kind, but there is no similar provision to be found in the Dividend Duties Act 1902 and its amendments. No portion of the sum of £9,770 could, therefore, be allowed to the plaintiff company as a deduction in assessing under the Dividend Duties Act 1902, the profits made by the plaintiff company in Western Australia during the year ended 30th June, 1921. HARRIS, SCARFE LIMITED V. COMMISSIONER OF TAXATION, 1924 W.A.L.R. 96. [Western Australia.]

was put down at £22,479 15s., but there was no entry of any sum for goodwill. On a claim that the difference between the £11,617 13s. 2d., and the £22,479 15s., was a profit made by the appellant and assessable as income, held, that the entry in the balance sheet could not show that the appellant had made the profit charged. COLON. IAL AMMUNITION CO. LTD. v. COMMISSIONER OF TAXES, 1924 G.L.R.643. [New Zealand.]

4.-LAND TAX (FEDERAL).

Land Tax (Commonwealth)-AssessmentExemption-Agreement by Government of Colony to exempt from taxation-Agreement to recoup taxation paid-Construction of contract-Circuity of action The Constitution, ss. 69, 85 (iv.)—Land Tax Assessment Act 1910-1916, ss. 3, 10-13, 44, 46—AngloAustralian Telegraph Act 1870 (S.A.) ss. 1, 2.An agreement was made in 1871 between the Government of the Province of South Australia and a company to whose rights the appellant succeeded, whereby the company was empowered to lay dawn at Port Darwin the land end of a submarine telegraph cable and to take possession of a certain area of land for the purpose of landing, maintaining and protecting the cable and setting up a telegraph station in connection therewith and for the residence of officers, and the Government of South Australia agreed to grant that land to the company. The agree. ment further provided that so long as the land so to be taken . . . and the cable station, offices, and works in connection therewith, shall be used exclusively for the purposes of telegraphic communication with Europe and other places, the same premises, and the undertakings, property and profits of the company shall be exempt from all provincial, local, and other taxes, rates, charges, and assessments within the said Province, whether now existing or chargeable, or hereafter to be charged, imposed, or created; and every legislative and other Act, by virtue of which any tax, rate, charge, or assessment might otherwise be imposed upon or in respect of the said premises, or any of them, shall contain an express exemption of the premises from the charges thereby created or authorized." On 14th April, 1900 another agreement was made between the Colonies of South Australia, Western Australia and Tasmania and the appellant in respect of the laying down by the appellant of the land end of another cable and the granting to the appellant of certain lands and rights, licences and facilities for the laying down and working of that cable. One of the provisions of this agreement was that "each of the Governments of the respective contracting Colonies shall cause all cables cable apparatus of the appellant which are used solely for the purpose of the cable business of the " appellant or for laying repairing or working any of their cables land lines or cable ships to be relieved from all custom duties and wharfage rates in its own respective Colony and shall cause every vessel which shall be used by the appellant

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... for the purpose of laying repairing or duplicating any cable or any vessel belonging to or chartered by the appellant

in which any such cable, cable apparatus.. shall be carried to be exempt from all port and light dues whether upon entering any port or passing through any waters of any such colony and shall also repay to the " appellant such sums as will be sufficient to recoup the " appellant any income tax and any rates or taxes Parliamentary or otherwise which the appellant shall be required to pay in such respective contracting Colony except rates and taxes on premises occupied for the purpose of receiving from and delivering to the public telegrams. Both these agreements were carried into effect. In 1919 the appellant acquired certain land in Adelaide upon which buildings were erected, portions of which were let to tenants, portion was used by the appellant as a local office for the purpose of receiving from and delivering to the public telegrams, and portion was used by the appellant for its business generally. The appellant was assessed for Federal land tax under the Land Tax Assessment Act 19101916. Held, as to the agreement of 1871, that it had not the effect of exempting the land at Adelaide from Federal taxation. By Knox C.J., Higgins, Gavan Duffy, Powers and Starke, JJ., on the ground that the clause of exemption did not purport to exempt from any taxation imposed by an authority superior to the Legislature of South Australia, such as the Parliament of the Commonwealth. By Isaacs and Rich JJ., on the ground that the clause of exemption in the agreement above quoted was limited to the land and the undertaking and property of the company at Darwin. Held, also, as to the agreement of 1900, by Knox C.J., Higgins, Gavan Duffy, Powers and Starke, JJ. and (assuming that the doctrine of circuity of action did not apply) by Isaacs and Rich JJ., that the agreement had not the effect of exempting the land at Adelaide from Federal taxation, since the clause in it above quoted was not an exemption from taxation but merely an agreement to repay such sums as would be sufficient to recoup the appellant any taxes which it should be required to pay. Held, further, by Knox, C.J., Gavan Duffy, Powers and Starke, JJ., that, even if the obligation as to recoupment passed to the Commonwealth under s. 85 of the Constitution so that the Commonwealth would be bound to repay the tax to the appellant, the doctrine of circuity of action could not be applied so as to exempt the appellant from liability to assessment. Per Isaacs and Rich, JJ.: The question was one of liability to pay tax, and the doctrine of circuity of action applied. AUSTRALASIA AND CHINA TELEGRAPH Co. LTD. EASTERN EXTENSION v. TAXATION, FEDERAL COMMISSIONER OF, 33 C.L.R. 426; 30 A.L.R. 144. [High Court.]

Land tax (Federal)-Assessment-Unimproved value-Land suitable for subdivisionBasis of assessment-" Sale on such reasonable terms and conditions as a bona fide

seller would require -Meaning.-Certain suburban land, situated in a residential district, but near to a shopping centre and suitable for subdivision, was assessed under the Land Tax Assessment Act 1910-1916 as being, on a given date, of an unimproved value of £25,848. On appeal the evidence, as accepted by the Court, was that if the owner subdivided and sold the land without improvements it would realise £22,600, but that if he sold it without improvements to a purchaser who was buying with a view to subdivision it would realise £18,000. Held, that the unimproved value should be taken as £18,000. Semble, the words on such reasonable terms and conditions as a bona fide seller would require," occurring in the definition of unimproved value" in s. 3 of the Act, do not refer to the question of sale by subdivision or as a whole, but to the terms and conditions of sale in the ordinary sense. The Federal Commissioner of Land Tax v. Duncan & Others ([1915] 19 C.L.R. 551) discussed. PAYNE V. FEDERAL COMMISSIONER OF LAND TAX, 1924 V.L.R. 231 45 A.L.T. 148. [Victoria.]

Land tax-Assessment - Owner - Joint owners-Deduction of £5000-Trustees-Will of testator who died before 1st July, 1910– Trust to pay income to children-Discretion to trustee to withhold part of income.By his will a testator, who died before 1st July 1910, after certain specific gifts gave the residue of his estate real and personal to his trustee upon trust to sell and convert with full power to postpone, and to manage and let the real estate during postponement; and any rents were to be treated as income under the trust for investment. He directed that the net residue should be invested, and, subject to an annuity to his widow and to the proviso next hereinafter mentioned, that the income should be paid to such of five of his children as should for the time being be living, during his or her life or until insolvency, assignment, etc. The proviso was that if any of the five children should die leaving any children, or have any children at insolvency, assignment, etc., the trustee should, until the death of the parent or the distribution of the residue, apply to or for the maintenance, education, benefit or advancement in life of the children of that child of the testator (or of such of them to the exclusion of the others and in such shares, equal or unequal, as the parent should by deed appoint, and in default of appointment in equal shares as tenants in common) or pay to the guardian of such children a share of the income of the residue proportioned to their expectant share in the corpus. But the trustee was empowered, if the trustee should deem it desirable, instead of paying or apply. ing the whole of the share of the income, to pay or apply such part only as the trustee might think proper from time to time for the maintenance, education or benefit of the children, in which event the trustee should accumulate the balance of the share of the income by investing the same, and the balance and the resulting income thereof should

follow the destination of the share of the trust estate from which such income had arisen. As to the corpus of the residue, the testator directed that the trustee should hold it in trust for such of his five children as should be living at the time when the youngest child should attain, or would if living have attained, the age of twenty-five years, provided that if any child of the testator should die before the date of distribution leaving any children who should live to attain the age of twenty-one years, then those children should take the share of the corpus which his or her parent would have taken if living at the period of distribution. A., one of the five children of the testator, died in 1914 leaving two children surviving him who were infants at the material time, and he had not executed the power of appointment by deed conferred upon him by the will. The youngest child of the testator attained the age of twenty-five years in February, 1921. The trustee credited one-fifth part of the net income of the estate to the account of each of the four surviving children of the testator and of the infant children of A., and had never deemed it desirable to exercise and had never exercised the discretionary power to apply or pay part only of such one-fifth share. On an assessment of the trustee for Federal land tax in respect of the freehold land which formed part of the testator's estate as at 30th June, 1920. Held, that neither the four surviving children of the testator and the children of A., nor those four surviving children, were joint owners" of the land within the definition of that term in s. 3 of the Land Tax Assessment Act 1910-1916; that, consequently, the beneficial interest in the land or in the income therefrom was not shared among them in such a way that they were taxable as joint owners within the meaning of s. 38 (7) of the Act; and therefore that the trustee was entitled to only one deduction of £5,000. Hoysted v. Federal Commissioner of Taxation (No. 1), (27 C.L.R. 400) distinguished. NATIONAL TRUSTEES, EXECUTORS & AGENCY COMPANY OF AUSTRALASIA LTD. v. FEDERAL COMMISSIONER OF TAXATION, 33 C.L.R. 491. [High Court.]

"

5. LAND TAX (NEW ZEALAND).

Land tax-Agreement purporting to alter incidence of-Invalidity.-Plaintiff sold to defendant certain land upon terms leaving a balance payable seven years after date of sale. A clause of the agreement provided : 7. Possession has been given 11th July, 1919, and up to the date of possession all rates, taxes shall be paid by the vendors and thereafter by the purchaser In October, 1920, defendant sold his interest in the land to H. H. was assessed for land tax in respect of this land and failed to pay, and the Commissioner made a claim therefor on plaintiff which he paid. He now sought to recover the amount so paid from defendant, contending that the above clause 7 was an undertaking by defendant to indemnify him