Baillie v Federal Commissioner of Taxation [1927] HCA 45; (1927) 40 CLR 156 (21 November 1927)

HIGH COURT OF AUSTRALIA

Baillie Appellant; and The Federal Commissioner of Taxation Respondent.

H C of A

21 November 1927

Gavan Duffy, Powers, Rich and Starke JJ.

Owen Dixon K.C. (with him Robert Menzies and Stafford), for the appellant.

Sir Edward Mitchell K.C. (with him Moore), for the respondent.

Owen Dixon K.C., in reply.

The Court delivered the following written judgment:—

Nov. 21

Gavan Duffy, Powers, Rich and Starke JJ.

This is a case stated by Starke J. for the opinion of this Court. The appellant at all times material derived his income wholly from his proportion of the profits derived from the pastoral business (hereinafter called the "business") carried on at the Benerembah Station, situate in the State of New South Wales.

A return of income derived from the business during the period ending on 30th June 1923 was furnished to the Commissioner on behalf of the taxpayer. In this return all live-stock (not being live-stock used as beasts of burden or as working beasts) were valued at the average cost price as at 1st July 1922 and 30th June 1923 respectively. The Commissioner, in assessing the profits of the business during that period, brought into account the value of the said live-stock at the said average cost price as at the said respective dates.

A return of the income derived from the business during the period ending on 30th June 1924 was furnished to the Commissioner on behalf of the taxpayer. In this return all live-stock (not being live-stock used as beasts of burden or as working beasts) were valued at the average cost price as at 1st July 1923 and 30th June 1924 respectively.

On 20th October 1924 Act No. 51 of 1924 amended sec. 16 of the Principal Act by inserting sub-sec. (a) (ii) as it now stands, and on 30th January 1925 the appellant exercised the option authorized by that sub-section and required that "value" for the purposes of sec. 16 (a) should mean "market selling price."

In assessing the profits of the business for the period ending on 30th June 1924 the Commissioner brought into account the live-stock (other than aforesaid) as at 1st July 1923 at the closing average cost price appearing in the return for the period ending on 30th June 1923 and as at 30th June 1924 at market selling price. On 4th December 1925 the Commissioner advised the taxpayer as follows:—"I desire to advise that the assessment for the year ended June 1924 has been amended by the adoption, as at 30th June 1924, of the market values asserted by you. Stock on hand at 1st July 1923 has been brought to account at the closing average cost values as at 30th June 1923. Sec. 16 (a) (ii), first proviso, prohibits the Department from adopting the values submitted, as fair market values at 1st July 1923."

In our opinion the Commissioner's amended assessment cannot be supported. Sec. 16 (a) enacts that assessable income shall include profits of a specific kind, and provides that for the purpose of computing such profits the value of the live-stock not disposed of at the beginning and end of the period in which the income was derived shall be taken into account. Sec. 16 (a) (ii) defines value as the cost price or market selling price at the option of the taxpayer exercised in the prescribed fashion and contains the following proviso: "Provided that the value adopted in relation to any live-stock, as the value of that live-stock, as at the end of the period in which the income was derived, shall, for the purposes of the assessment of the person's income derived in the succeeding period, be deemed to be the value of that live-stock as at the commencement of the next succeeding period." In our opinion the expression "value adopted" means value adopted in pursuance of an option exercised under the preceding portion of the sub-section and the proviso does not refer to any value adopted before the exercise of that option. In this case the appellant has chosen "market selling price" as the criterion of "value," and the profits must be ascertained in pursuance of the first proviso to sec. 16 (a) by taking into account the market selling price of the live-stock at the beginning and at the end of the period in which the income was derived.

We answer the questions submitted for our opinion thus: (1) No; (2) Yes.

Questions answered accordingly.

Solicitors for the appellant, Whiting & Byrne.

Solicitor for the respondent, W. H. Sharwood, Crown Solicitor for the Commonwealth.