Public Officer of the Studebaker Corporation of Australasia Ltd (As Agent for the Studebaker Corporation of America) v Commissioner of Taxation (NSW) [1921] HCA 13; (1921) 29 CLR 225 (18 April 1921)

HIGH COURT OF AUSTRALIA

The Public Officer of the Studebaker Corporation of Australasia Limited (As Agent for the Studebaker Corporation of America) Appellant; and The Commissioner of Taxation for New South Wales Respondent

H C of A

On appeal from the Supreme Court of New South Wales.

18 April 1921

Knox C.J., Rich and Starke JJ.

Leverrier K.C. (with him H. E. Manning), for the appellant.

Brissenden K.C. (with him McMinn), for the respondent.

Leverrier K.C., in reply.

The Court delivered the following written judgment:—

April 18

Knox C.J.,

Rich and Starke JJ.

The Studebaker Corporation of America is a corporation organized under the laws of the State of New Jersey in the United States of America. It carries on in the United States the business of a manufacturer and vendor of motor-cars and their parts. An agreement was made on 10th January 1917 between the American company and the Studebaker Corporation of Australasia Ltd., which was incorporated in the State of New South Wales, whereby it was arranged that the American company should sell to the Australian company motorcars and other goods from time to time agreed upon between the parties. The goods were to be delivered on rail at the Studebaker factory in the United States, and were at the sole risk of the purchasing company from that point. The price f.o.b. rail was fixed by the agreement, and the purchasing company was to pay freight, insurance, customs duty, packing and all other incidental forwarding charges. The purchasing company was allowed five months from the date of arrival of the goods in Australia in which to pay for the goods, but if time were taken for payment of goods interest at the rate of six per cent. per annum was chargeable on the amount shown on the invoice after the expiration of fifteen days from the date of the invoice. By a subsequent agreement dated 3rd January 1918 the right to charge interest during October, November and December 1917 was abandoned and the rate of interest was reduced to four per cent. after 1st January 1918 until conditions again became normal. Goods were ordered and supplied pursuant to these agreements. Time was taken for payment, and interest became payable and was paid to the American company.

The Commissioner of Taxation assessed the interest as taxable income, and notified the Public Officer of the Australian company, as agents for the American company, of the assessment accordingly.

An appeal was made against the assessment, and a case was stated for the decision of the Supreme Court of New South Wales, which raised the question whether the interest was income derived from any source within the State of New South Wales. The Supreme Court decided this question in the affirmative, and an appeal is now brought to this Court.

The question turns upon the proper construction of the Income Tax (Management) Acts 1912 to 1914. The relevant sections are 9, 10 (g), 11 (d) and 4. Shortly, these sections provide that income derived from any source in the State shall be assessable to income tax, and that the Act shall not apply to income derived from sources outside the State. The Act divides income into income (1) derived from personal exertion and (2) derived from property. The facts already set forth make it plain that the contract for the supply of the goods was made in America, that the goods were delivered there, and that payment for the same was to be made there. It is clear that the interest assessed to tax was not the result of any business carried on or of any personal exertion or labour in Australia, and the learned Judges of the Supreme Court so held. Was the interest then income derived from property, that is, income derived from some source in the State other than personal exertion? The learned Judges of the Supreme Court, in answering this question in the affirmative, relied upon two distinct lines of reasoning:—(1) The liability to pay interest only became a binding obligation when the purchaser exercised his right to defer payment for five months. The interest therefore constituted something in the shape of income that could not be attributed to any personal exertion in the United States; it was a source of income which might continue beyond five months because the obligation to pay interest would subsist until the debt was discharged. It (the interest) arose in New South Wales because of the exercise of the option in New South Wales to withhold payment in consideration of interest to go to the appellant Company. We cannot agree with this statement of the transaction. It obscures a plain state of facts. The purchaser was to pay the price for the goods and interest thereon for such time as it remained unpaid after the expiration of fifteen days from the date of the invoice. It was part and parcel of the one business transaction. The obligation to pay and the right to receive the interest flowed from the agreement made in America. It is impossible to divide the transaction into two distinct parts, and treat one as referable to America and the other (the exercise of the so-called option) as referable to New South Wales. (2) A simple contract debt, like any other debt, is a species of property. It is a chose in action. So far as it can have a location it has all through been located here, and on principle the right to interest cannot be distinguished from the ownership of property in New South Wales which brings in an income to the appellant company. This view overlooks the fact that the Legislature in using the words "derived from any source in the State" was not dealing with legal concepts, but with what was the real source of income as a practical hard matter of fact (Nathan v. Federal Commissioner of Taxation[1]; Lovell & Christmas Ltd. v. Commissioner of Taxes[2]). Thus, in Nathan's Case and in Murray v. Federal Commissioner of Taxation[3] the fact that the income was payable and paid out of Australia did not negative the fact that its source was within Australia. So, here, the attribution of locality to the obligation to pay interest is not decisive. The facts must be examined, and when we find that the interest arises from business transacted and wholly carried out in America the conclusion must be that it was not derived from any source within New South Wales.

The appeal must, in our opinion, be allowed.

Appeal allowed. Decisions of Supreme Court and Court of Review set aside. Question of law raised by question 2 of the special case answered in the negative. Assessments appealed against quashed. Any money paid under the assessments to be repaid. Respondent to pay appellant's costs in High Court and Courts below.

Solicitors for the appellant, Norton, Smith & Co.

Solicitor for the respondent, J. V. Tillett, Crown Solicitor for New South Wales.

[1] [1918] HCA 45; 25 C.L.R., 183, at pp. 189-190.

[2] (1908) A.C., 46.

[3] [1921] HCA 1; 29 C.L.R., 134.