George Morgan & Co Ltd v Federal Commissioner of Taxation [1927] HCA 52; (1927) 40 CLR 463 (2 December 1927)

George Morgan and Company Limited Appellant; and The Federal Commissioner of Taxation Respondent.

This is an appeal by a taxpayer from an amended assessment made under the War-time Profits Tax Assessment Act.

Subject to an objection on behalf of the Commissioner that the contention now raised by the appellant is not open to it on its notice of objection, counsel for both parties are agreed that the sole question for decision is whether certain sums of money deposited by the appellant with a bank in the circumstances hereinafter mentioned were investments within the meaning of sub-sec. 16 of sec. 15 of the Act. The facts proved and admitted were as follows:—During the months of April and May 1917 the appellant deposited with the Bank of New South Wales one sum of £10,000, one sum of £5,000 and ten sums of £1,000 each. These deposits were made pursuant to an agreement between the appellant and the Bank that the Bank was to hold the money deposited for twelve months at 4 per cent interest, the appellant having the right to withdraw it as required before due date on payment of 1 per cent interest. It is proved that the deposits were made as a temporary measure in order that the money should not remain idle until necessity arose for using it in the business. It was admitted that the money so deposited was in fact part of the capital of the appellant Company. Each of the several amounts deposited with the Bank as above mentioned remained with the Bank for six months, and at the expiration of that time, together with interest at 3 per cent added, was transferred to the credit of the current account of the appellant with the same Bank. By his original assessment the respondent excluded from the capital of the appellant the whole of the £25,000 so deposited, but by the amended assessment the respondent allowed the inclusion in the capital of £13,000 of that sum, taking the view that the money had in fact been invested for one-half of the accounting period in question. The appellant now claims that no part of the £25,000 should have been excluded in computing the amount of the capital of the business.

Sec. 17 (2) of the Act provides that any capital the income on which is not taken into account for the purposes of the Act shall be excluded in computing the amount of capital for the purposes of the Act. This provision, read in conjunction with sub-sec. 16 of sec. 15 of the Act operates to exclude in the computation of capital all investments except in the case of businesses where the principal business consists of the making of investments. It was not suggested that the principal business of the appellant Company consisted of the making of investments.

In my opinion the deposits in question were undoubtedly investments within the ordinary meaning of that word, and no reason exists for attributing to the word "investments" in sub-sec. 16 of sec. 15 any other than its ordinary meaning. In Inland Revenue Commissioners v. Gas Lighting Improvement Co.[1] Lord Sterndale M.R. referred to a dictionary definition of the meaning of the word "investment" as "the putting out of capital ... for the purpose of obtaining interest for it," and on appeal to the House of Lords[2] Lord Sumner expressed the opinion that in the corresponding section of the English Act the word should be given its ordinary business meaning. The meaning which has, in my experience, been attributed to the word in New South Wales among lawyers and men of business coincides with the definition above referred to, and, taking that as the meaning of the word, I feel no doubt but that placing money on fixed deposit at interest with a bank is an investment. And I may add that such deposits are expressly treated as in rule 286 of the New South Wales Equity Rules and were apparently so regarded by the appellant Company in the correspondence in evidence in this case, including the notice of objection. It was, however, argued for the appellant that the deposits in this case were not investments because they were made under an agreement that the money might be withdrawn at any time. But the only effect of withdrawal before due date was that the appellant Company would receive interest at a lower rate than would be payable if the money remained with the Bank for the full period of twelve months. It may be, as was contended, that having regard to the agreement the deposits should be treated as deposits at call, but they were nevertheless made for the purpose of obtaining interest for the money, and, in my opinion, the fact that the money could be withdrawn before due date at the option of the appellant is irrelevant.

It was also argued that, as the money was deposited as a temporary expedient in order to prevent it from lying idle until it should be required for use in the trading business, it could not be treated as an investment. But this contention cannot be sustained having regard to the observations of Lord Sumner in Gas Lighting Improvement Co. v. Inland Revenue Commissioners[3], and the decision and reasons of Rowlatt J. and of the Court of Appeal in Liberty & Co. v. Commissioners of Inland Revenue[4].

For these reasons I am of opinion that the appeal fails on the merits and should be dismissed.

Mr. Mitchell for the respondent objected that, having regard to the grounds taken in the notice of objection, it was not open to the appellant on this appeal to contend that the deposits in question were not investments, but in the view I take on the merits I find it unnecessary to express an opinion on this point.

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

[1] (1922) 2 K.B. 381, at p. 389.

[2] (1923) A.C. 723, at p. 742.

[3] (1923) A.C., at p. 741.

[4] (1924) 12 Tax Cas. 630.

High Court of Australia

George Morgan & Co Ltd v Federal Commissioner of Taxation [1927] HCA 52; (1927) 40 CLR 463 (2 December 1927)

HIGH COURT OF AUSTRALIA