Neal's Motors Pty Ltd v Federal Commissioner of Taxation [1932] HCA 53

OF AUSTRALIA. 233

[HIGH COURT OF AUSTRALIA.}

Ԥ MOTORS PROPRIETARY LIMITED . AppeLiant;

AND

HE FEDERAL COMMISSIONER OF TAXATION ResponpEnt.

'Tax — Assessment—Company—Profits not distributed as dividends yy op a ination by Commissioner of amount that could have been distributed— 1088, d of calculating tax—Income Tax Assessment Act 1922-1929 (No. 37 of eer,

fo. 11 of 1929), sec. 21, MELBOURNE,

x FF 0k: October 1020 the oppellant company retumed aa ita inome for

1e year ended 30th June 1929 the sum of £50,484, and the Commissioner SyDNzy, fan ordinary assessment for this amount upon the company. The Nov. 21. nt did not distribute any portion of this sum amongst its shareholders i. Starke, ore 10th July 1930, the date fixed by the Commissioner for the purposes Pixon and see. 21 (1) of the Income Tax Assessment Act 1922-1929. The Commissioner - subsequently determined, pursuant to sec. 21, that the appellant could reason- ably have distributed £32,307 of such money among its shareholders, and,

suant to sec. 21 (2), he assessed at the sum of £8,110 the tax or additional

1x which would have been payable by the shareholders if the sum of £32,397

been distributed as dividends. In assessing the tax or additional tax der sec. 21 the Commissioner took as a basis the taxable income derived by

shareholder during the year ending 30th June 1930, and calculated the tax yr additional tax as if such sum had been distributed among the shareholders 'Held, as follows :-— _ (1) By the whole Court, that the method of assessing the tax or additional tax adopted by the Commissioner was not correct ; (2) By Rich, Dizon and McTiernan JJ., that the Commissioner should have assessed the tax or additional tax by adopting the assumption that a distribu- tion of the sum determined took place on 9th July 1930 among the then share- holders of the appellant company in proportion to the shares which on that

'date they respectively held ;

H.C. of A.

1932, eet NEAL's Motors Pry. Lrp. a FEpERAL Commis- SIONER OF TAXATION.

HIGH COURT

(3) By Starke J., that the assessment should have been made on the tion that the profits had been distributed in the year in which they received.

Quere, per Rich J., whether under sec. 21 the Commissioner must not in advance the date prior to the making of his determination so that the com pany may be enabled to consider whether it will distribute any and amount of its taxable income.

Case SraTep.

On the hearing of an appeal by Neal's Motors Pty. Ltd. against an assessment of it to income tax, Starke J. stated, for the opinion of the Full Court, a case which was substantially as follows :—(1) appellant, Neal's Motors Pty. Ltd. is a company which was ineo porated on 28th July 1922 under the provisions of the Companies Aci 1915 of the State of Victoria as a company limited by shares. (2) 01 30th June 1929 and atall times material the issued capital of the appel: lant Company consisted of £50,871, divided into 50,871 shares of on pound, all of which were fully paid up. The said shares were h amongst seven persons, all of whom reside in Victoria. (3) On about 30th October 1929 the appellant, pursuant to the provisi of the Income Tax Assessment Act 1922-1929, lodged with the respon dent a return of its income for the year ended 30th June 1929. Tl said return showed that the net taxable income of the appellant fo the said year for the purposes of the said Act was £50,484. (4) 0 26th February 1930 the respondent served on the appellant n ie of the ordinary assessment of the taxable income of the appe for the financial year 1929-1930 based upon its taxable incor derived during the year ended 30th June 1929. The said taxa income was so assessed at the sum of £50,484. (5) The appel did not before 10th July 1930 distribute to its shareholders the s sum of £50,484 or any part thereof. (6) By a determination in writing dated 11th July 1930 the respondent for the purposes o} sub-sec. 1 of sec. 21 of the said Act fixed 10th July 1930 as the date prior to the making of the said determination under the said section in respect of the appellant, and determined that a sum of £32,397 could reasonably have been distributed by the appellant to its members or shareholders out of the said taxable income. (7) B letter dated 14th July 1930 the respondent notified the appe

OF AUSTRALIA.

t dated 30th July 1931 the respondent: notified the appellant in pursuance of sub-sec. 2 of sec. 21 of the Income Tax Assess-

Act 1922-1930, he had assessed at the sum of £8,110 10s. 6d. tax or additional tax which would have been payable by the s of the appellant Company if the said sum of £32,397 | been distributed as a dividend in proportion to their interests the paid-up capital of the appellant Company to those share- who would have been entitled to receive it, and required the nt to pay the amount of £8,110 10s. 6d. so assessed. (9) The nt, in assessing as aforesaid the tax or additional tax payable he Company pursuant to sec. 21, (a) took as a basis the taxable come derived by each shareholder in the appellant Company during od of twelve months which ended on 30th June 1930 ; (b) took sum of £32,397 so determined by him as aforesaid and derived appellant Company during the period of twelve months which

y in the same period of twelve months as that in which taxable income of each shareholder as aforesaid had been namely, the twelve months which ended on 30th June (10) The said sum of £8,110 10s. 6d. assessed as aforesaid the difference between the total aggregate tax which have been payable under the provisions of the Income Tax Act 1922-1930 by the shareholders of the appellant ny if the said sum of £32,397 had been distributed to them e year ended 30th June 1930 as a dividend in proportion interests in the paid-up capital of the appellant Company

said Acts, no part of the said sum of £32,397 being so distri- d to them during the said year. (11) If the said sum of £32,397 d been distributed or were treated as distributed to the said share- lers as a dividend as aforesaid during the year ended 30th June

the difference between the total aggregate tax which would have been payable by them under the provisions of the Income Tax

of £32,397 had been ascertained. (8) By notice of assess- H. C. or A.

1932, Ww

Neaw's Motors Pry. Lrp. v. Feperat Commis- SIONER OF TAXaTIon.

236 HIGH COURT

H.C. or A. Assessment Act 1922-1929 and the total aggregate tax payable } hay them under the provisions of the said Act, no part of the said s Neav's £32,397 being so distributed to them during the said year, peek amount to the sum of £4,427 3s. 4d. (12) By notice of objecti x writing dated 18th August 1931 the appellant notified the respor

Frperat eS Comus- that it objected to the assessment mentioned in par. 8 hereof.

ie grounds of the objection were as follows :—' (1) That the as ~~ ment is invalid because sec. 21 of the Income Tax Assessment 1922-1929 purports to impose an income tax which is not i by the Income Tax Act 1929 (or 1930), and therefore that s of the Income Tax Assessment Act 1922-1929 is invalid unconstitutional in view of sec. 55 of the Constitution of the Co monwealth. (2) Without prejudice to ground 1, that the metho of calculating the tax or additional tax is incorrect because the of £32,397 stated in the assessment, although part of the in of the Company for the year ended 30th June 1929, has, in calculation, been added proportionately to the incomes o} holders derived during the year ended 30th June 1930 instead ¢ to the incomes derived during the year ended 30th June 19 (3) Without prejudice to ground 2, that the assessment is ii inasmuch as the tax includes, not only the tax or additional 1 which would have been payable by the shareholders if the sum £32,397 had been distributed to them, but also it includes as pa of the additional tax which would have been payable by the shi holders, the further income tax imposed by sec. 74 of the Income T Acts 1930, and this inclusion is contrary to the provisions of s (2) of the Income Tax Assessment Act 1922-1929, which det the tax to be collected from the Company." (13) On 6th Novel I 1931 the respondent notified the appellant that he had co the objection and had disallowed it; and on 25th November 19 the appellant in writing requested the respondent to treat the objet tion as an appeal and forward it to this Court, and on 30th Man 1932 the said objection was forwarded accordingly. The questions for the Full Court were as follows :— (1) Did the Commissioner adopt the right method of a the tax or additional tax payable by the Company und sec. 21 of the Act ?

OF AUSTRALIA. 237

2) Or should he have adopted the method mentioned in par. 1. ©. or A. 1932.

11 of the case # roa

}) Or any other and what method ? Neat's Motors Pry. Lap. Ham K.C. (with him Tait), for the appellant. Sec. 21 is Ad 'the Act based on the general scheme that income tax is 'anne:

in respect of porticular years of assessment. The proper Pere'

that the Company having earned income for the year 1929 ~~ ble to pay tax on the income for that year and the only 'ich imposed tax on that income was the 1929 Act. The ioner based his calculation on an Act which was not then

Menzies A.-G. for Vict. (with him Garran), for the nt. The year of earning cannot be the year of assessment. he normal course of events the Company should have distributed oney as dividends. After its financial year ends it should its dividends, and it is after the end of the financial year Company would normally have distributed its profits. od of taxation adopted in this case was the correct method. minating day of the year of assessment is the proper time to distribution has been made, and, if a distribution has not in made up to this time, the Commissioner can assess the ny as if a distribution had been made during that period.

el referred to Commissioner of Taxation v. Public Requisites i. (1); Federal Commissioner of Taxation v. Hyland (2); Kellow- Ikiner Ply. Ltd. v. Federal Commissioner of Taxation (3).]

Ham K.C., in reply. Cur. adv. vult.

following written judgments were delivered :— Nov. 21. (cx J, The determination of the Commissioner under sec. 21 (1) Income Tax Assessment Act was not attacked, but I desire to the question whether under that provision he must not fix

(1927) 33 A.L.R. 413. (3) (1928) 49 A.L.T. 266, at pp. 269, 37 C.L.R. 569. 270.

H.C. or A.

1932, ra

Nezat's

SIONER OF 'Taxation.

Rich J.

HIGH COURT

in advance the date prior to the making of his determination that the Company may be enabled to consider whether it | distribute any and what amount of its taxable income. The. he in fact fixed was 10th July 1930 but, in assessing the tax additional tax payable by the Company in consequence of determination, he took the taxable income derived by the sharehold of the Company in the accounting period of twelve months e 30th June 1930 and added to their respective incomes so deri the proportional amounts of the Company's taxable income wh he determined it should have distributed. I am unable to, upon what basis he took this period. The income was earned |

not select it as a financial year, i.e., a year of liability to the but as an income year—a year of income male up the am

Falkiner Py. 'Lid. v. Federal Commissioner of hae (1), h decided that the Commissioner was required to determine wheth a sum or further sum might reasonably have been distributed ou of its taxable income by a company during the year in which it derived. At that time the sub-section commenced " Where in ap year" and Lowe J. construed the expression to mean any ye of derivation. The Legislature intervened and for the words " any year" substituted the words "before such date prior to t making of the determination under this sub-section . . . | is fixed by the Commissioner." I think it necessarily fo that the determination of the Commissioner must be addre to that period. The question for his discretion is whether that date taxable income might reasonably have been distributec As Lowe J. pointed out, the last words of the sub-section " coulk reasonably have been distributed" describe an antithesis to tl words "has not distributed." The income is, therefore, to dealt with on the basis that the distribution has been made whiel according to the determination of the Commissioner ought to hay

(1) (1928) 49 A.L.T. 266.

OF AUSTRALIA.

made. It is true that the shareholders are not to be the rs, as originally was the case in the earlier forms of these No doubt, shareholders were unable to find a tax out

ow imposed upon the Company which retains the fund. But y tion is still based upon the notional distribution and calculation of the increased amount for which the taxpayers Id be liable if the notional distribution were real. To my mind

ws that the calculation should proceed exactly as it would if mn required were true. When sub-sec. 2 provides that " the joner shall assess the tax . . . which would have been e by the shareholders if thesum . . . determined by the joner . . . had been distributed as a dividend," it means distribution has taken place as according to the determination Commissioner it should have done. As the sharebolders are y be a fluctuating body, and as neither rates of tax nor

ounts of income possess any stability, there is no escape from the ition that some point of time must be taken. What is that point

e? The Commissioner has determined that by the 2ste he d, a distribution might reasonably have been made. The

period in which according to his determination it might reason- we been made. The point of time as at which the facts be taken upon which the fictional distribution would operate t be the date which he fixes under sub-sec. 1.

nk the questions in the special case should be answered :— (2) No. (3) As if a distribution of the sum took place as d by sub-see. 2 of sec. 21 on 9th July 1930.

J. Thisisa case stated for the opinion of this Court. The are fully stated in the case, and need not be repeated. The deter- of the case depends upon the proper interpretation of sec.

ithe Income Tax Assessment Act 1922-1929. But it is necessary, that section, to bear in mind that income tax is levied ch financial year upon taxable income derived during the period elve months ending on 30th June preceding the financial year

H.C or A. 1932. iy

Neaw's Motors Pry. Lro. v. FeperaL Commis- SIONER OF TAXATION.

Rich J.

240 HIGH COURT

H.C. or A. for which the tax is payable (Acts Interpretation Act 1901, sec, 22: Hs Income Tax Act 1929, No. 30; Income Tax Assessment Act 1922- Nea's sec. 13); further, that profits distributed by a company amon, ee its shareholders are exempt in its hands from income tax, except g be provided by the Act (see Income Tax Assessment Act 1922-

FrpErau

Commus- sec. 14 (1) (m), sec. 16 (b)). And the decision in Kellow-Falkiner P

SIONER OF a ; Taxation. Ltd. v. Federal Commissioner of Taxation (1) must also be rememb

starke J. By sec. 21 of the Income Tax Assessment Act of 1922 it was pro that where in any year a company had not distributed to its member at least two-thirds of its taxable income, the Commissioner shoul determine what sum could reasonably have been distributed by company, and then calculate the additional tax, if any, which y have been payable by the shareholders if the sum determined by th Commissioner had been distributed amongst them in proportion t their interests in the paid-up capital of the company. Lowe J. hel that the year here referred to was the year of the earning of income, and not the financial year. Of course, it was obvious thi a distribution in the year of earning was somewhat improbable the management of any company's business. This consideratic led to an amendment of the law, and it is found in sec. 21 of the Income Tax Assessment Act 1922-1930 :—'" (1) Where a compa has not before such date prior to the making of the deter mination under this sub-section in respect of that company fixed by the Commissioner, distributed to its . . . shareholder at least two-thirds of the taxable income upon which the comp has been assessed for any financial year, the Commissioner sh within six months after the date of the service on the company 0 the notice of its ordinary assessment of that taxable income, dete whether a sum or a further sum (not exceeding the excess of thirds of the taxable income of the company over the amount, if distributed by ittoits . . . shareholders) could reasonably been distributed by the company to them out of that taxable income. (2) The Commissioner shall assess the tax and the addi tax, if any, which would have been payable by the shareholders the sum or further sum determined by the Commissioner in a ance with sub-section (1) of this section had been distributed as

(1) (1928) 49 A.L.T. 266.

OF AUSTRALIA.

» company, to those shareholders who would have been entitled receive it." This amendment recognizes the dominant provision e Act that tax is levied for each financial year upon the taxable earned during the preceding twelve months. But the tax 7 upon profits distributed to shareholders was generally

er than that payable by the company on those. profits if

he revenue should not suffer if the profits were not distributed.

Income Tax Assessment Act of 1915, sec. 16, directed that there d be included in the income of each shareholder a certain ortion of those profits if the company in the opinion of the ssioner did not in any year distribute a reasonable proportion e profits. The Income Tax Assessment Act of 1918, sec. 10, another provision in like case, and directed that the taxable

certain proportion. The Income Tax Assessment Act of 1922, 21, under which the Kellow-Falkiner Case (1) was decided, ded that where in any year a company had not distributed s of its profits, then the Commissioner should determine 'sum could reasonably have been distributed by the company, nd that the company should pay the additional amount of tax would have been payable had the sum determined by the ioner been distributed to shareholders. ese enactments, as it seems to me, predicate that the share- or the company should be assessed to income tax for the year upon the profits made during the preceding twelve s, or the year of earning those profits. The period of assess- under the provisions of these Acts is identical, whether the ts be or be not distributed, whether they be or be not treated distributed. But it is said that the Income Tax Assessment Act 22-1929-1930 alters this position, and that the date fixed by Commissioner now determines the period in respect of which 2 company should be assessed to tax pursuant to the provisions e. 21 (2). The argument hinges upon the words " before such e prior to the making of the determination under this sub-section

(1) (1928) 49 A.L.T. 266. VOL, XLVI, 16

nd, in proportion to their interests in the paid-up capital of H- ©. or A.

1932, Ww Neat's Motors Pry. Lr. v. FEDERAL Commis- SIONER OF Taxation.

Starke J.

H.C. or A.

1932. Ww Neat's Motors Pry. Lrp, v. FeperaL Commis- SIONER OF Taxation.

Starke J.

HIGH COURT [193

in respect of that company as is fixed by the Commissioner." those words, to my mind, have nothing to do with the period o assessment. Under the 1922 Act, the company was assessed up 0 the "year of earning," unless it distributed to its shareholders ; least two-thirds of its taxable income. Such a distribution almost impossible, as a matter of business. The words quoted fron the Act of 1922-1929-1930 enable the Commissioner to fix a more extended period, but do not throw the profits into a different yea of assessment. Such a construction leads to manifest inequalities: the dates fixed by the Commissioner will differ according to financial position of each company, and the rate of tax will probably differ from that applicable to the earning year, sometimes higher

I fear, for some time. Further, the provisions of sec. 21, sub- 2B must confuse and complicate the position on the sugges construction ; at present, I do not follow how they would work o1 that construction. Again, the provision that the Commission shall within six months after the date of service on the company notice of its ordinary assessment of its taxable income determin what sum could reasonably have been distributed by the company. rather points to the conclusion that the tax which is to be asse sed under sec. 21 (2) is in respect of the same period. The sectior contemplates that only a short period will elapse after the ordina assessment, but that assessment, which is not ordinary though for the same period, may be made within the limited time. 7

The result, in my opinion, is that the questions stated in the ¢ should be answered :—(1) No. (2) Yes. (3) Unnecessary to answer

Dixon J. This case stated relates to the correctness of at assessment upon the appellant Company of tax and additional ta which would have been payable by the shareholders, if, out of it taxable income derived during the year ended 30th June 1929, tl Company had distributed a sum which the Commissioner determi could reasonably have been distributed by the Company out of taxable income. The ordinary assessment of the Company for th financial year ended 30th June 1930 based upon the taxable income derived during the year ended 30th June 1929 was served on 261

J OF AUSTRALIA.

ile income so assessed. Within six months after the service of nary assessment, namely, on 14th July 1930, the Commissioner nicated to the Company the following " determination under 1 of the Income Tax Assessment Act 1922-29" dated 11th July 0 :—'' For the purposes of sub-sec. 1 of sec. 21 of the Income Tax Act 1922-29 I hereby fix the 10th day of July 1930, as e prior to the making of this determination under the said ction in respect of Neal's Motors Proprietary Limited. And the said Company has not before the date hereby fixed as d or before the date of this determination distributed to its rs or shareholders at least two-thirds of the taxable income which the Company has been assessed for the financial year Now I do hereby determine that a sum of £32,397 could bly have been distributed by the said Company to its bers or shareholders out of that taxable income." The validity { this determination is not attacked in these proceedings. But, on July 1931, the tax to which it exposed the Company was d at the sum of £8,110 10s. 6d. The Company appeals against essment upon the ground that the tax has been calculated erroneous basis.

assessing the tax or additional tax payable by the Company equence of the determination, the Commissioner (a) took as

im and derived by the appellant Company during the period of lve months which ended 30th June 1929, and proceeded to calculate

h ders if such sum had been distributed to the shareholders

a dividend in proportion to their interests in the paid-up capital af the Company in the same period of twelve months as that in which ie taxable income of each shareholder had been derived, namely, elve months ended 30th June 1930. It follows that the amount ,110 10s. 6d. in which the Company has been assessed represents Aggregate increased tax for which the members of the Company have been liable for the financial year ended 30th June 1931

1930. The Company did not distribute any part of the H.C. or A.

1932. rata NEaL's Morors Pry. Lr. v. FepERaL Commas- SIONER OF TAXATION,

Dixon J,

H.C. or A.

1932. Ww Neat's Motors Pry. Lro. % FEDERAL Commas- SIONER OF TAXaTION.

Dixon J.

HIGH COURT

upon the income derived during the year ended 30th June 1930, if their incomes then derived had included a distribution by the Company of so much of its taxable income derived by it during year ended 30th June 1929 as, according to the determination of Commissioner, it could reasonably have distributed. Thus the ta imposed under the assessment are those provided by the Inco Taz Acts 1930 (Nos. 51 and 61). Sub-see. 2 of sec. 21 of the Inco Tax Assessment Act contains the provision upon which the correctness of this method of computation depends. The provision is as follows "The Commissioner shall assess the tax and the additional ta if any, which would have been payable by the shareholders if the sum or further sum determined by the Commissioner in accordance with sub-section (1) of this section had been distributed as a dividend, in proportion to their interests in the paid-up capital of the company, to those shareholders who would have been entitled to receive it."

The hypothesis which the Commissioner is required to adopt in assessing the Company under this enactment imposes upon him the necessity of finding with exactness what certain definite persons would be liable to pay if specific sums ascertainable by reference the amount of share capital held by each of them were added to th respective actual taxable incomes. The purpose is, of course, obtain the increased tax which arises from the aggregation of income of individuals. To fulfil the requirements of the provis it is essential to fix upon some accounting period as that during wl their actual taxable incomes, liable to this hypothetical increase, art derived. Further, it is evident that shareholders are a fluctuati body and neither the identity of the members of a company, nor number of shares held by each always, or even usually, remains fi throughout an accounting period of twelve months. It follows th in order to have a practical operation, the provision must be und stood, not only as having relation to a definite year of income of shareholders, but as referring to some particular point of time with that year. The expression "had been distributed as a dividend clearly supposes distribution within some period or before some poi of time, although it is singularly uninformative as to what peri or what point of time, it contemplates. The expression, however, refers back to sub-sec. 1. The material words of this sub-section

OF AUSTRALIA. 245

as follows: Where a company has not before such date prior H.C. or A. the making of the determination under this sub-section in respect a company as is fixed by the Commissioner, distributed to its Neat's nbers or shareholders at least two-thirds of the taxable income ae which the company has been assessed for any financial j,i "y4, , the Commissioner shall, within six months after the date Comms-

ervice on the company of the notice of its ordinary assessment Taxariow, that taxable income, determine whether a sum or a further pixon J. . . . could reasonably have been distributed by the com- to them out of that taxable income." If this language, which n fact is the result of amendment, is construed as it stands regard to its history, the words "could reasonably have distributed by the company" appear to refer back to the which the sub-section expresses in its opening words, "Where a company has not before such date . . . as d by the Commissioner, distributed." It seems natural to nd the duty which the later words lay upon the Commis- if that condition occurs, to be to determine whether the before the date he has so fixed, could reasonably have ributed some or all of its taxable income. In my opinion, the of the difficulty is to be found in this consideration. The ition is that, before the date fixed by the Commissioner, ion might reasonably have been made. This view is by the history of the provision. In the Income Tax Act 1922-1926 the sub-section, so far as material, was "Where in any year a company has not distributed " &c. rival ag os the words "in any year " were Cg

y year of income," i.e., the year in which the taxable income derived, In Kellow-Falkiner Pty. Ltd. v. Federal Commissioner of (1) Lowe J. adopted the latter meaning. He said :—" I also . . that it is the year of the earning of the income that is red to by the words 'in any year.' Secs. 16 (b), 20 and 21 area of sections which deal with the taxable income of a company

(1) (1928) 49 A.L.T., at pp. 269, 270.

H.C. or A.

1932, a Nzat's Motors Pry. Lop. w FEDERAL Commas- SIONER OF 'Taxation.

Dixon J.

HIGH COURT

and bring it within the net of taxation, whether in the hands of sh holders or of the company. To effect this result it seems to m be necessary that the same period should be contemplated, an seems reasonably clear, under secs. 16 (b) and 20, that it is the y of the earning of the income that is referred to. It seems to that the construction I have placed on these sections is sup by the opinions of Higgins J. in Webb v. Federal Commissioner Taxation (1), of Starke J. in Federal Commissioner of Tacation Hyland (2), and of Knox C.J. at p. 577 of the same case. I do} overlook the fact that the opinion of Higgins J. was on an earl Act, for I think in relevant respects it did not differ from that I have to consider ; nor that the Legislature has in the Act of 1 altered its policy as to the incidence of the tax on undistribut income—see per Isaacs J. in Knight v. Federal Commissi Taxation (3). Nor do I overlook the fact that the judg

was a dissenting opinion, inasmuch as I think the opinion of th majority does not impugn the views as to the sections in que ti of those learned Judges. . . . Lastly, I think that the taxpay contention succeeds as to what is the relevant period within the Commissioner has to determine that a sum or further sum cot reasonably have been distributed. The antithesis in the itself between the phrases 'has not distributed ' and ' could reaso ably have been distributed ' seems to me naturally to point to th same period as being in contemplation in each case, and this seems to me to be strengthened by the provision at the end of 1 section, that the determination ' in the case of other financial year must be made ' within six months after the date of the issue to h company of its ordinary assessment.' The ordinary assessment ha relation to the year of income immediately preceding the finan year for which the assessment is made, and the determination y leads to a further assessment must be, I think, for the same ' year' to the figures of which the ordinary assessment relates.

In support of the alternative interpretation by which the e "in any year" was understood to refer to the financial year of

(1) (1922) 30 C.L.R. 450, at p. 483. (2) (1926) 37 C.LR., at p. 572 (8) (1925) 37 CLR. 271, at p. 278.

OF AUSTRALIA.

by the Company, a strong practical consideration was the bability of a company distributing income in the very year in it was derived and the absurdity of treating it as unreasonable 'a company to fail to do so. But, notwithstanding the force of ris consideration, a close examination of the language in sec. 16 (2) t Income Tax Assessment Act 1915-1918, and the progress of the dments therein, where sec. 21 of the Assessment Act of 1922 ginated, discloses many reasons in favour of the view of Lowe J. re is much to suggest that at that time the policy of the legislation

ras to determine, as at the close of the year of derivation, in respect

ed, either because it had been, or because it ought to have n, distributed and to tax the Company upon what it did not

rmine between the conflicting interpretations of the expression any year" in the sub-section before it was amended. What is tant is that the words " before such date prior to the making

'the determination under this sub-section in respect of that om ny as is fixed by the Commissioner " have been substituted 'the words "in any year," and that the substitution was made in msequence of the judgment of Lowe J. No matter which be the ir referred to by the words "in any year," the financial year or year of income, it was apparent that these words operated to ascribe the period relevant to the question whether a distribution f income by the Company could reasonably have been made. * question which the Commissioner was required to determine was er within that year a distribution could reasonably have been

hen a new period is substituted for that expressed by the words | any year," it is reasonable to suppose that the new period is ed to do what the old was considered to do, namely, to scribe the period in respect of which the question is to be determined er the company could reasonably have distributed the taxable Further, the view that the Commissioner is required to ine whether before the date he fixes the company might

g the year in which the taxable income in question was H.C. or A.

1932. hag Neat's Morors Pry. Lrp. a Feperat Commis- STONER OF TAXaTION.

Dixon J.

Neat's Motors Pry. Lev.

v. FEDERAL Commas- SIONER OF TAXATION.

Dixon J.

- the nature of the amendment made, but also by the failure to amen

HIGH COURT

the provision in any way to displace Lowe J.'s conclusion that the antithesis between the phrases " 'has not distributed ' and ' coul reasonably have been distributed' seems . . . naturally ¢ point to the same period as being in contemplation in each case."

When sub-sec. 2 directs the Commissioner, in assessing the tax, to suppose that the sum or further sum determined by him und sub-sec. 1 had been distributed as a dividend on paid-up capital the shareholders who would have been entitled to receive it, can it be understood as requiring any other distribution to be assume than that which under the preceding sub-section he has determine might reasonably have been made? What he has determined is that taxable income might reasonably have been distributed befon the date he has fixed. It follows that the assumption prescribed for computing the tax is that such a distribution has been before that date. The question remains what point of time doe the provision contemplate as that on which the imputed hypothetical distribution should be regarded as taking place. One the conclusion is reached that the reasonable capacity of company to distribute is to be determined in reference to a peri expiring on the fixed day, it seems an inevitable consequence th in the complete absence of any indication of any other date as at which the distribution should be supposed, the latest date must taken of the period within which a distribution might reasonably have been made. The Commissioner has not positively ai that a distribution could reasonably have been made before date. He has been able to affirm that a distribution could have been made upon that date, if not before. '

In my opinion sub-sec. 2 of sec. 21 means that the Commissioner shall assess the tax and the additional tax which would have bi payable by the shareholders if the sum determined by the Con sioner had been distributed as dividend at the expiration of the ti fixed by him under sub-sec. 1. In the present case this time expi on 9th July 1930. A distribution at that time would have result in the inclusion of the dividend in the shareholders' assessable income derived in the year ended 30th July 1931 in reference to which th would have been taxed for the financial year ended 30th July

RJ OF AUSTRALIA.

At first sight it may seem extraordinary that the Company ild be taxed upon part of its taxable income derived during the ginning Ist July 1928 according to rates declared by a taxing t which levies income tax for the financial year beginning Ist ,a financial year two years after that financial year in respect ich the Company's ordinary assessment for that income is made. effect is produced, not by the taxing Act, but by the joint m of sec. 21 and that Act. Whether an argument under of the Constitution can be based upon this circumstance need considered, for none was raised, and, indeed, after the uniform of all such arguments this is not surprising.

:my opinion the questions in the special case should be answered : (1) No. (2) No. (3) Upon the hypothesis that a distribution of determined took place on 9th July 1930 among the then reholders of the appellant Company in proportion to the shares

hon that date they respectively held. Costs in the appeal.

[rernan J. The appellant derived taxable income during the riod of twelve months ending 30th June 1929, but did not distribute part of it to its members. The Company was assessed on that for the financial year 1929-1930. Notice of this, the ordinary assessment, was served upon it on 26th February No part of this sum was distributed to the shareholders 11th July 1930, the date of the Commissioner's determination. problem presented by sub-sec. 2 of sec. 21, which requires jioner to assess the tax and additional tax which would we been payable by the shareholders if the events mentioned in ib-section had occurred, appears to be to determine the identity shareholders who should be deemed to have participated in ibution of the sums in question as a dividend. The member- the Company may change from day to day. The solution problem depends upon the ascertainment of the date upon it is to be assumed that such a notional distribution took When that date is ascertained the shareholders who would ve been entitled to participate in the distribution are also

ed. The selection of the date must in the circumstances

ld involve the application of the Income Tax Act 1931 H- ©: oF A.

1932. aga Neav's Morors Pry. Lrp. v FEepERaL Commas- SIONER OF Taxation,

Dixon J.

H.C. oF A.

1932. — Nuzat's Morors Pry. Lrp. v FeperaL Commas- SIONER OF TAXarIoN.

'McTiernan J.

HIGH COURT

be made in a purely artificial way. That way is laid dow sub-sec. I. This sub-section enables the Commissioner to fix a d for the purpose of enabling the calculation to be made of the t imposed upon the Company by the section. No question as to validity of the steps taken by the Commissioner to fix that date raised in this appeal. Assuming that all conditions precedent t the making of the determination under sub-sec. 1 were duly fulfilled it follows that the Commissioner became authorized to assess tl Company under sec. 21 (2) upon the hypothesis that the sum whi he determined could reasonably have been distributed was in distributed before 10th July. But at what time prior to that dat As the sum could have been distributed according to the Comm sioner's decision on any day before 10th July, I think that the fictio introduced by the section is that, in default of a distribution in fa the notional distribution occurred on the last day before 10th Jul 1930.

The questions should, in my opinion, be answered :—(1) and ( No. (3) As if the Company had distributed the sum mention in the determination by way of dividend on 9th July 1930.

Questions in the special case answered :—(1) No. (2) } (3) The Commissioner should have assessed the tax additional tax payable by the Company under sec. of the Income Tax Assessment Act 1922-1929 by adopt the assumption that a distribution of the sum determin took place on 9th July 1930 among the then sharehol of the appellant Company in proportion to the shar which on that date they respectively held. Costs in appeal.

Solicitors for the appellant, Corr & Corr. Solicitor for the respondent, W. H. Sharwood, Crown Solicitor the Commonwealth. fi HD.