Burns Philp & Co Ltd v Federal Commissioner of Land Tax [1929] HCA 38; (1929) 43 CLR 58 (2 December 1929)

HIGH COURT OF AUSTRALIA

Burns, Philp and Company Limited Appellant; and The Federal Commissioner of Land Tax Respondent .

H C of A

2 December 1929

Isaacs, Rich and Starke JJ .

Browne K.C. (with him Hooton ), for the appellant.

Maughan K.C. and Bowie Wilson , for the respondent.

Browne K.C., in reply.

The following written judgments were delivered:—

Dec. 2

Isaacs J .

Sec. 40 of the Land Tax Assessment Act 1910-1926 creates three presumptions of law, all designed to reduce legal artificialities to terms of business realities. But they cannot be carried further than the Legislature has stated them.

The first is a substantive presumption creating liability to aggregation where there is technically separate but really united ownership. It is contained in sub-sec. 1, and by it two or more companies are deemed to be one for the purposes of taxation. The condition is that the several companies consist substantially of the same shareholders. That condition in itself is merely as to personnel, and is a pure question of fact. It is irrespective of the interests held by the corresponding shareholders. Evasion, however, would be simple if the legislation stopped there. A comparatively few shareholders in each company might hold practically all the interests in both.

Sub-sec. 2 then adds a second presumption of an evidentiary character, making a certain quantum of interest conclusive of identity of personnel in two companies. It says: "If not less than three-fourths of the paid-up capital of each of them is held by or on behalf of shareholders of the other." The word "shareholders" is indefinite as to number. The necessary quantum of interest in company A may be held by one or more shareholders in company B, and in either case, so far as company B is concerned, the presumption is satisfied. If, conversely, the same fact can be proved as to the interest in company B being held by shareholders in company A, the presumption is completely satisfied, and then sub-sec. 1 operates, because the statutory evidence exists.

But it may be that the shareholders of company B who own the controlling interests in company A neither register their own names nor those of any nominees, but procure company B itself to be registered as the shareholder. In that event, evasion is further prevented by the third presumption. It is interpretative merely. It is as if it said "shareholders shall include the company of which they are shareholders." The shares in company A which are held by company B are deemed to be held by "shareholders" of the latter company. It does not go further. For the Commissioner it was contended that "shareholders" must be read as "the shareholders." It is impossible to interpolate the word. Not only would it be judicial legislation, but it would be a reversal of the evident intention of the enactment. It would convert a term "shareholders," purposely left indefinite, into an expression definite, because ascertainable if necessary, and at all events completely inclusive.

The second presumption is satisfied as to one limb, namely, as to the paid-up capital in the Queensland Insurance Co. held by shareholders in the Burns, Philp Co. But as to the paid-up capital in the Burns, Philp Co., the Commissioner fails to show that the necessary quantum is held by shareholders in the Queensland Insurance Co. That Company holds no shares in the Burns, Philp Co., nor do its shareholders hold more than 33 per cent of the paid-up capital in that Company. Though its shareholders in fact do not hold the necessary quantum of the paid-up capital in the Burns, Philp Co., the Commissioner urges that they must be deemed to do so, because, since the Burns, Philp Co. shareholders are deemed to hold three-fourths of the paid-up capital in the Queensland Co., it is a necessary legal presumption that the same shareholders hold at least three-fourths in both Companies, thereby satisfying the first sub-section. The fallacy of that argument is twofold. First, as I have already stated, "shareholders" is a term indefinite, and so the suggested consequential presumption could not arise. But next, the presumption of the Burns, Philp Co. being individual shareholders—even if they were all its shareholders—has not any legal effect in satisfying the requirements of sub-sec. 1, unless it is accompanied by the correlative proof, either by facts or legislative presumption, that the Queensland Co. shareholders held the necessary quantum of interest in Burns, Philp & Co. The one limb of the second presumption is inert by itself; and to use it as is suggested is really to treat the section as saying if shareholders in one of the two companies hold at least three-fourths of the paid-up capital in the other, the two companies shall be deemed to be one. That brings the matter to earth, and shows that the position urged for the Commissioner is not sustained by the section.

The question should, in my opinion, be answered in the negative.

Rich J.

The joint assessment of the Queensland Insurance Co. and of Burns, Philp & Co. Ltd. can only be maintained if the Commissioner's interpretation of the last sentence in sec. 40 of the Land Tax Assessment Act 1910-1926 is correct.

Shareholders in the Queensland Insurance Co. held only 33 per cent of the paid-up capital of Burns, Philp & Co. Ltd. Burns, Philp & Co. Ltd. held 50.2 per cent of the paid-up capital in the Queensland Insurance Co., and shareholders in Burns, Philp & Co. Ltd. held 29.5 per cent of the paid-up capital in the Queensland Insurance Co. Therefore, apart from the last sentence of sub-sec. 2 of sec. 40, it is clear that the provision would not apply, because it could not be said that shares representing not less than three-fourths of the paid-up capital of each of these Companies are held by or on the behalf of the shareholders of the other. But the Commissioner says that by virtue of the last sentence the fact that only 33 per cent of the capital of Burns, Philp & Co. Ltd. is held by shareholders of the Queensland Insurance Co. may be ignored. He starts with the obvious fact that the whole of the capital of Burns, Philp & Co. Ltd. is held by its shareholders. This he contends satisfies one of the conditions. He then adds to the 29.5 per cent of the capital in the Queensland Insurance Co. held by or on behalf of shareholders in Burns, Philp & Co. Ltd. the 50.2 per cent of that capital held by Burns, Philp & Co. Ltd. itself, thus making more than three-fourths. He contends that he is warranted in doing this because the last sentence of sub-sec. 2 provides "shares in one company held by or on behalf of another company shall for this purpose be deemed to be held by shareholders of the last-mentioned company." By treating Burns, Philp & Co. Ltd. as "the last-mentioned company" within this provision, he gives shareholders of Burns, Philp & Co. Ltd. a double character. They, or some of them, are constructively shareholders of three-fourths of the paid-up capital of the Queensland Insurance Co. and, as all of them are ex hypothesi shareholders in Burns, Philp & Co. Ltd., these constructive shareholders in the Queensland Insurance Co. hold paid-up capital in Burns, Philp & Co. Ltd. But why should they be deemed to hold three-fourths of the paid-up capital in Burns, Philp & Co. Ltd.? The provision does not say that the shares held by that Company in the Queensland Insurance Co. shall be deemed to be held by each and every of the shareholders in Burns, Philp & Co. Ltd., but only "by shareholders." As actual shareholders in the Queensland Insurance Co. hold only 33 per cent of the capital in Burns, Philp & Co. Ltd., there remains 42 per cent of that capital which, in order to make the three-fourths, must be held by persons who constructively possess the character of shareholders of the Queensland Insurance Co. But there is nothing in the provision contained in the last sentence of sub-sec. 2 which can operate to bring about this result. All it requires even on the Commissioner's construction is that shareholders, few or many, in Burns, Philp & Co. Ltd. shall be considered as the holders of the shares in the Queensland Insurance Co. actually held by Burns, Philp & Co. Ltd. The result is that the Commissioner's view cannot be maintained. This is not due to any slip in the legislation but to the fact that the last sentence in sub-sec. 2 was enacted for a purpose entirely different from that to which the Commissioner has sought to apply it. The draftsman of sub-sec. 2 provided for the case of land being held in severalty by two companies which, although distinct legal entities, represented beneficial interests which were not distinct but approached identity. If three-fourths of the capital of each was held by shareholders of the other the several titles were to be considered joint. But a ready means of evasion would be apparent if the legislation stopped there, because it would be only necessary to register a holding company for either of the two land-owning companies and sub-sec. 2 could not apply because the shares of one company would be held by a holding company and not by members of the other company. The last sentence of the sub-section was therefore introduced so that for the purpose of ascertaining whether three-fourths of the shares of each were held by members of the other the interposition of "another company"—the holding company—would be ignored and the shares it held should be attributed to the shareholders of the holding company. Thus, if shareholders of the holding company own three-fourths of the capital of the other land company and the holding company holds three-fourths of the capital of its land-owning company, the provisions of sub-sec. 2 are satisfied. For such a purpose it was entirely appropriate to use the expression "held by shareholders of the last-mentioned company" because it is utterly immaterial whether it is held by few or many. All that is necessary for such a purpose is that the land company's shares shall be deemed to be vested in persons possessing the character of members of the holding company. It is for this reason that the words "another" company are used and not "the other company." Another company is the natural reference to the third entity. Indeed, the true scope and purpose of the provision would not have been lost sight of if due weight had been given to the words "for this purpose." "This purpose" is the purpose of ascertaining whether shares representing not less than three-fourths of the paid-up capital of each of the two companies are held by or on behalf of shareholders of the other of them. Upon the Commissioner's contention an affirmative conclusion would be reached on this question in the case when all the shares in one company were held by another. The truth is that sec. 40 is not addressed to anything but an attempt to sever the ownership of land by using two or more companies to own separate parcels. Sec. 39 deals with the case of a company as well as the case of natural persons holding shares in another company which owns land. When the legislation proceeded to sec. 40 it turned to another subject.

I answer the question in the case in the negative.

Starke J .

The question is whether Burns, Philp & Co. Ltd. is liable to be jointly assessed for land tax with the Queensland Insurance Co. Ltd., under sec. 40 of the Land Tax Assessment Act 1910-1926, in respect of lands owned by the Companies at noon on 30th June 1927. That section is as follows:—"(1) Any two or more companies which consist substantially of the same shareholders shall be deemed to be a single company, and shall be jointly assessed and liable accordingly, with such rights of contribution or indemnity between themselves as is just. (2) Two companies shall be deemed to consist substantially of the same shareholders if not less than three-fourths of the paid-up capital of each of them is held by or on behalf of shareholders of the other. Shares in one company held by or on behalf of another company shall for this purpose be deemed to be held by shareholders of the last-mentioned company." Burns, Philp & Co. Ltd. held 50.2 per cent of the paid-up capital of the Queensland Insurance Co. Ltd., and its shareholders held 29.5 per cent of the paid-up capital of the Insurance Company. The Queensland Insurance Co. Ltd. held no shares in the capital of Burns, Philp & Co. Ltd., and its shareholders held no more than 33 per cent of the paid-up capital of Burns, Philp & Co. Ltd.

Applying the section to these facts, shareholders in Burns, Philp & Co. Ltd. held 79.7 per cent of the paid-up capital of the Queensland Insurance Co. Ltd.—actually, or by force of the provision that shares "held by or on behalf of another company shall for this purpose be deemed to be held by shareholders of the last-mentioned company." The Queensland Insurance Co. Ltd., however, held no shares in Burns, Philp & Co. Ltd., and its actual shareholders held no more than 33 per cent of the paid-up capital of Burns, Philp & Co. Ltd.

But it is said that all shareholders of Burns, Philp & Co. Ltd. are or are deemed to be shareholders in the Queensland Insurance Co. Ltd. in respect of the shares held by Burns, Philp & Co. Ltd. in that Company; further, that the shareholders of Burns, Philp & Co. Ltd. hold all its paid-up capital; therefore, that not less than three-fourths of the paid-up capital of Burns, Philp & Co. Ltd. is held by shareholders of the Queensland Insurance Co. Ltd. In my opinion, the argument is untenable. The critical words are: "shares in one company held by or on behalf of another company shall for this purpose be deemed to be held by shareholders of the last-mentioned company." The "purpose" relates to the preceding clause, namely, the purpose of determining whether not less than three-fourths of the paid-up capital of each company is held by shareholders of the other. But the presumption is not general, and applies only to the case of a company holding shares in another company. And here the Queensland Insurance Co. Ltd. held no shares in Burns, Philp & Co. Ltd.

Little importance attaches, I think, to the omission of the definite article before the word "shareholders" where it last occurs in sec. 40 (2).

The question stated should be answered in the negative.

Case remitted to Rich J., with the opinion of this Court that the question submitted should be answered in the negative. Costs of the case to be costs in the appeal.

Solicitors for the appellant, Minter, Simpson & Co.

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