F & G Hooper Ltd v Federal Commissioner of Taxation [1922] HCA 37; (1922) 31 CLR 214 (8 September 1922)

HIGH COURT OF AUSTRALIA

F. & G. Hooper Limited Appellant; and The Federal Commissioner of Taxation Respondent.

H C of A

8 September 1922

Knox C.J., Gavan Duffy and Starke JJ.

Stumm K.C. (with him E. A. Douglas), for the appellant.

Feez K.C. (with him Real), for the respondent.

The Court delivered the following written judgment:—

Sept. 8

Knox C.J.,

Gavan Duffy and Starke JJ.

Prior to 1st July 1915 F. & G. Hooper carried on the business of pickle and jam manufacturers in co-partnership. The average profits of this business during the years 1911-1912 and 1913-1914 amounted to £1,518. In June 1915 the partners formed a company which took over the business and carried it on from 1st July 1915. The partners owned the majority of the shares in this company and devoted the whole of their time to its business. The Commissioner of Taxation assessed the company to war-time profits tax for the financial year 1918-1919, allowing the sum of £1,518 as the pre-war standard of profits of the company, pursuant, as he claimed, to the provisions of secs. 7 and 16 of the War-time Profits Tax Assessment Act 1917-1918.

It is not disputed that the assessment was correct if the pre-war standard of profits was rightly assessed at the sum of £1,518. Mr. Stumm for the appellant argued that the provisions of sub-sec. 6 of sec. 16 of the Act applied to this case, either by virtue of sec. 16, sub-sec. 7, or by virtue of sec. 16, sub-sec. 13, and that under clause (b) of sub-sec. 6 the pre-war standard of profits was either the income of the partnership business for the year ending 30th June 1915, which amounted to £2,256, or the income of that business for the year ending 30th June 1914, which amounted to £1,777. In the view which we take, it is not necessary to decide whether the provisions of sub-sec. 6 (b) apply to this case or not, for, even if they do, we think it is clear that the assessment of £1,518 is correct.

Omitting provisions irrelevant to this case, the words of sub-sec. 6 of sec. 16 are as follows: "the pre-war standard of profits shall be ... (b) a profits standard computed by reference to the income arising from any trade, business, office, employment or profession of any sort, whether liable to war-time profits tax or not, carried on by the taxpayer before his new business commenced as if it were the same business but only to the extent to which the income from the former trade, business, office, employment or profession has been diminished." In order to apply this provision to the present case, it is necessary to treat the business carried on before incorporation and that carried on since as the same business, and then to proceed with the process of basing the pre-war standard of profit on that hypothesis. The method of fixing the pre-war standard is to be found in sub-sec. 3 of sec. 16, which provides that "the pre-war standard of profits shall, subject to the provisions of this Act, be taken to be the amount of the profits arising from the business on the average of any two of the last three pre-war trade years, to be selected by the taxpayer"; and that is the method which has been adopted by the Commissioner in fixing the pre-war standard in this case at £1,518.

The answer to question 1 of the case stated is "Yes." It is unnecessary to answer question 2. The answer to question 3 is that the costs therein mentioned shall be costs in the appeal.

Questions answered accordingly.

Solicitors for the appellant, McNab, Dowling & Wilson.

Solicitors for the respondent, Chambers, McNab & McNab, for Gordon H. Castle, Crown Solicitor for the Commonwealth.