Deputy Federal Commissioner of Taxation v Evans Ltd [1933] HCA 28; (1933) 49 CLR 480 (9 June 1933)

HIGH COURT OF AUSTRALIA

Deputy Federal Commissioner of Taxation Respondent, Appellant; and Evans Limited Appellant, Respondent.

H C of A

On appeal from the Supreme Court of Western Australia.

9 June 1933

Rich, Starke, Dixon, Evatt and McTiernan JJ.

Phillips, for the appellant.

Fullagar, for the respondent.

The following judgments were delivered:—

June 9

Rich J.

I think the facts in this case bring the payment in question within sec. 16, sub-sec. (d) of the Income Tax Assessment Act 1922-1929 and within the principle of the previous decisions of this Court of which the latest is Clarke v. Federal Commissioner of Taxation[1]. In my opinion the appeal should be allowed.

Starke J.

In my opinion the decision of this Court in Clarke v. Federal Commissioner of Taxation[2] governs this case. The transaction as embodied in the document before us shows that the premises in question were sub-let in consideration of a premium or sum of £7,380 and certain covenants and other stipulations set forth in the sub-lease. In the face of a transaction so recorded I fail to understand precisely why the payment in question should not be treated as a premium and a premium within sec. 16, sub-sec. (d), of the Act.

Dixon J.

I agree that the decision of this Court in Clarke v. Federal Commissioner of Taxation[3] excludes the contention that sec. 16 (d) is confined to the payment of money on an assignment of a lease and shows that it includes sums of money paid by a lessee for the purpose of obtaining a lease. In this case Dwyer J. seems to have considered that the transaction which the documents were intended to carry into effect was in the nature of a sale of capital assets including the lease held by the taxpayer. In fact the transaction included and must have included the grant of the sub-lease. For not only was a large sum of money payable immediately to the sub-lessor, but also a weekly payment was required which was sufficient to pay the rent for which he was liable and to give him a profit of almost £10 per week. Therefore it was necessary to carry out the transaction in the form which was adopted. The argument that this conclusion involves the proposition that capital profits and capital sums are taken into account as being assessable income is not to the point. It might, perhaps, have formed the foundation of an attack upon the validity of the provisions as infringing sec. 55 of the Constitution, but such an attack has not been made. In any event, where sums of money are obtained which in one aspect may be said to be a capitalization of future profits and in another aspect may be said to be nothing more than ordinary taxable income paid in advance they do not for that reason alone necessarily cease to be taxable in an Income Tax Act and become another subject of taxation.

Evatt J.

In my opinion the case of Clarke v. Federal Commissioner of Taxation[4] decides the main point of this appeal in favour of the Commissioner.

The only matter I wish specially to refer to is this. The learned Supreme Court Judge appeared to consider that it was open to him to go behind the documents in order to find out "the substance" of the transaction between the parties. As to that, I agree with what has been said by my brother Starke. In this case the form of the transaction cannot be distinguished from its substance; its substance is its form, and its form its substance.

I therefore agree that the sum of £4,260, which was payable and paid under the document of sub-lease, was demanded and given as a premium in connection with a leasehold estate.

The appeal should therefore be allowed.

McTiernan J.

I agree that the appeal should be allowed.

Appeal allowed.

Solicitor for the appellant, Albert A. Wolff, Assistant Crown Solicitor for Western Australia.

Solicitors for the respondent, Downing & Downing.

[1] [1932] HCA 46; (1932) 48 C.L.R. 56.

[2] [1932] HCA 46; (1932) 48 C.L.R. 56.

[3] [1932] HCA 46; (1932) 48 C.L.R. 56.

[4] [1932] HCA 46; (1932) 48 C.L.R. 56.