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High Court of Australia |
THE SQUATTING INVESTMENT CO. LTD. v. FEDERAL COMMISSIONER OF TAXATION [1953] HCA 13; (1953)
86 CLR 570
Income Tax (Cth.)
High Court of Australia
McTiernan(1), Williams(1), Webb(2), Fullagar(3) and Kitto(4) JJ.
CATCHWORDS
Income Tax (Cth.) - Assessable income - "Income" - Acquisition of wool supplied by grower in course of business - Payment of full proceeds due - Subsequent gratuitous payment to class ascertained by criterion based on amount of wool supplied - "Income from personal exertion" - "Proceeds of . . . business carried on by taxpayer " - " Bounty or subsidy received in or in relation to carrying on of a business" - Income Tax Assessment Act 1936-1949 (No. 27 of 1936 - No. 66 of 1949) ss. 6, 25, 26 (g) - Wool Realization (Distribution of Profits) Act 1948 (No. 87 of 1948) ss. 7, 28, 29 - Wool Realization Act 1945-1946 (No. 49 of 1945 - No. 77 of 1946), ss. 9, 10 - National Security (Wool) Regulations (S.R. 1939 No. 108 - S.R. 1943 No. 88), reg. 30.
*These provisions are described in the judgments of the Court [1953] HCA 13; (1953) 86 CLR
570.
HEARING
Melbourne, 1952, October 21, 22, 23, 24.DECISION
1953, April 13.2. The case stated gives a detailed account of the manner in which the Australian wool clip was acquired and is being disposed of during and after the recent world war. It is unnecessary to set out these facts in any detail again. They have been discussed in three decisions of this Court; namely, Ritchie v. Trustees Executors and Agency Co. Ltd. [1951] HCA 38; (1951) 84 CLR 553 ; Maslen v. Perpetual Executors Trustees & Agency Co. (W.A.) Ltd. [1950] HCA 55; (1950) 82 CLR 101 and Poulton v. Commonwealth, a recent decision of Fullagar J. Unreported. . Maslen's Case [1950] HCA 55; (1950) 82 CLR 101 went on appeal to the Privy Council and is reported (1952) AC 215 . The statement of facts in Ritchie's Case [1951] HCA 38; (1951) 84 CLR 553 was objected to in certain respects by counsel for the appellant. At the time of the present argument the judgment in Poulton's Case Unreported. had not been delivered. The issues in all three cases were different from the present issue. It is sufficient to say that for the purposes of this appeal the facts, if they differ from the facts stated in the judgments in the other cases, must be taken to be the facts set out in the case stated. These facts need not be repeated in great detail. Some only are of particular importance on the present issue. (at p597)
3. On the outbreak of war an arrangement was made between the Governments of the United Kingdom and the Commonwealth by which the former Government agreed to purchase all wool produced in Australia for the period of the war and one wool year thereafter, except wool required for the purpose of woollen manufacture in Australia. The price to be paid for the wool was at a flat rate of 10.75 stg. (13.4375A) pence per lb. of greasy wool for the whole clip. (Subsequently increased by 15 per cent for the 1942/43 and following seasons.) The important term in that arrangement for present purposes is the term that the Governments would divide equally any profit arising from the resale outside the United Kingdom of wool purchased by the Government of the United Kingdom under the arrangement. To carry the arrangement into effect the National Security (Wool) Regulations were enacted which set up a Central Wool Committee charged with the administration of the regulations and all matters arising out of the arrangement. (at p598)
4. The regulations provided that no person should sell or buy any wool or wool tops, except in accordance with the regulations. They also provided that the sale of wool should be by appraisement and the property in every parcel of wool submitted for appraisement should pass to the Commonwealth when the final appraisement was completed in the manner prescribed by the instructions of the Central Wool Committee governing appraisement. It was necessary to appraise the wool because the Australian wool clip is of a diversified character and the value of a particular bale of wool could not be ascertained by applying the flat rate purchase price to the weight of the wool. By the method of appraisement adopted the total price received from the United Kingdom calculated at the flat rate was divided among the suppliers of the wool according to the value of the wool supplied. (at p598)
5. Regulation 30 provided that (1) all moneys payable by the Government of Great Britain under the arrangement made by that Government with the Commonwealth for acquiring Australian wool should be received by the Central Wool Committee and out of such moneys the Central Wool Committee should defray all costs, charges and expenses of administering these regulations, and make the payments for wool to the suppliers. (2) Any moneys which might be received by the Central Wool Committee from the Government of Great Britain under or in consequence of such arrangement over and above the purchase price payable by such Government thereunder for the wool and any surplus which might arise should be dealt with as the Central Wool Committee should in its absolute discretion determine. (at p598)
6. Pursuant to the regulations the whole of the Australian wool clip in each year during hostilities was acquired by the Commonwealth and the suppliers of the wool, in the manner set out in the case stated, received the whole of the compensation moneys to which they were legally entitled resulting from the compulsory acquisition of their wool. But the Central Wool Committee, from the inception of the wool purchase arrangement, had contemplated that any profit which the Commonwealth Government received from the Government of Great Britain in respect of wool sold outside the United Kingdom would be divided between the persons who supplied wool shorn from the living sheep, who would ordinarily be wool growers, and that the suppliers of skin wool would not participate. Mainly for this reason shorn wool was classified in the brokers' catalogues as "participating wool" and skin wool as "non-participating wool". To give effect to this term of the arrangement the Government of Great Britain opened a divisible profits account in which a record was kept in the United Kingdom of the sales of wool in other countries so that it could be ascertained whether any profit was being made on the sale of wool outside the United Kingdom. However, while large quantities of the wool purchased by the United Kingdom remained in store in Australia and elsewhere, it was impossible to determine whether there would eventually be any such profit or not and no distribution of profits from this account was ever made. (at p599)
7. The end of hostilities found the United Kingdom the owner of large stocks of wool, much of it held in Australia for storage or treatment or stored in the United States of America, purchased from the Commonwealth under the arrangement and wool purchased from New Zealand and South Africa under similar arrangements. A similar problem to that which arose at the end of the first world war again arose, namely, how to dispose of the stocks of carry-over wool in such a way as not to spoil the market and prejudice not only their disposal value but also the sale value of the current clips. As a result of negotiations conducted in the year 1945, an agreement intended to overcome this problem was reached between the Governments of the United Kingdom, Australia, New Zealand and South Africa and was called the Disposals Plan. To give effect to this agreement the Commonwealth Parliament passed the Wool Realization Act 1945, which came into force on 15th November, 1945. The plan is printed in the schedule to that Act. Pursuant to the agreement the United Kingdom arranged for the formation of United Kingdom - Dominion Wool Disposals Limited, a company incorporated in the United Kingdom (commonly called the Joint Organisation), and each of the other Governments set up a local subsidiary of the Joint Organisation. The Australian subsidiary is the Australian Wool Realization Commission set up by the Wool Realization Act 1945. (at p599)
8. The disposals plan provided that the stock of Dominion grown wool in the ownership of the United Kingdom at 31st July, 1945, would be transferred to the joint ownership of the United Kingdom Government and Dominion Government concerned and all wool subsequently acquired under the scheme would be held in joint ownership. It provided that the functions of the principal company would be primarily to buy, hold and sell wool as agent of the four Governments and generally to administer the scheme agreed upon between them. It provided for the purchase by the United Kingdom, by the existing methods of appraisement and bulk purchase, of the whole clip for the wool year 1945/46 (called the interim period) which was to become the joint property of the United Kingdom and Dominions concerned. After that year the usual practice of selling wool by auction was to be resumed but the Joint Organisation, through its subsidiaries, was to lift wool offered at auction (from stocks or current clips) for which the reserve price fixed by the Joint Organisation or better was not offered by a commercial buyer. (at p600)
9. The plan provided for the necessary capital contributions to be provided by the United Kingdom and Dominions and for the operating expenses of the Joint Organisation in carrying out the plan. It provided that the United Kingdom and the Dominion concerned would each take up 50 per cent of the original capital represented by the opening stock of wool grown in that Dominion to be handed over to the Joint Organisation. The opening stock was to be taken in by the Joint Organisation at its original cost (including f.o.b. payments) less the amount accumulated in the divisible profits accounts. In the case of Australia the opening stock was 6,796,000 bales the original cost of which was pounds stg. 106,796,829, the amount to the credit of divisible profits account was pounds stg. 19,489,223, so that the Commonwealth Government assumed a liability of over pounds stg. 40,000,000. (at p600)
10. The fund which until then, subject to a profit being finally realised, was in the discretion of the Central Wool Committee disappeared as a separate fund. Section 9 of the Wool Realization Act 1945 provided that the Wool Realization Commission should be substituted for the Central Wool Committee and should have and perform all the duties and should have and might exercise all the powers authorities and functions of the Central Wool Committee under, inter alia, the National Security (Wool) Regulations. Section 10 provided that any reference in the National Security (Wool) Regulations to the arrangement made between the Government of Great Britain and the Government of the Commonwealth should include and be deemed at all times, on and after 1st August 1945, to have included a reference to the Disposals Plan. It may be that, if there had been no further legislation, any ultimate profit the Commonwealth received from the operation of the Disposals Plan could have been disposed of in the discretion of the Commission and it may be assumed that this disposal would have been in accordance with the intention already mentioned. But the matter was not left there for, as will be seen, the Commonwealth Parliament stepped in and itself provided for the distribution of this profit. (at p601)
11. Payment of the Dominions' shares of the original capital was to be made in four annual instalments to which the Dominions' shares of the proceeds of sale by the Joint Organisation and of the net profit during the interim period were to be applied. The United Kingdom was to be reimbursed by each Dominion for half of the cost of the new clip of that Dominion purchased by the United Kingdom in the interim year and unsold at the end of the wool year. Each Dominion and the United Kingdom were to share equally in the provision of any further capital required by the Joint Organisation during the operation of the scheme for "boughtin" new wool of that Dominion. (at p601)
12. The plan provided that the operating expenses of the Joint Organisation should be borne equally between the industry and the Joint Organisation itself; that the share of the industry would be paid by the Dominion Governments primarily from the proceeds of a contributory charge on all sales of new clip wool and the share of the Joint Organisation would be made by deduction from the proceeds of sales by the Joint Organisation before application to capital repayment. The plan provided that, after deduction of one-half of the operating costs, the proceeds of all sales by the Joint Organisation together with certain other sums would be used for repayment of capital equally between the United Kingdom and the Dominion Government concerned. The ultimate balance of profit or loss arising from the transactions of the Joint Organisation in the wool of any Dominion would thus be shared equally between the United Kingdom and the Government of that Dominion. The plan provided that payments would be so adjusted that each Government would receive the sum to which it was entitled under the scheme, irrespective of any tax chargeable by the United Kingdom Government or a Dominion Government on profits arising from the operations of the Joint Organisation or its subsidiaries. (at p601)
13. It will be seen that the Disposals Plan introduced a complete departure from the agreement in the wool purchase arrangement that the Commonwealth should receive half of the profits (if any) arising from the sale by the Government of Great Britain outside the United Kingdom of wool purchased under that arrangement. That agreement imposed no financial obligations on the Commonwealth whatever. The whole task of disposing of the wool was left to the United Kingdom. If that disposal resulted in a profit half of that profit was to become the property of the Commonwealth. If it resulted in a loss the United Kingdom had to bear the whole of the loss. Under the National Security (Wool) Regulations the Central Wool Committee had complete discretion as to the manner in which that profit was to be distributed. The profit was not to be paid into Consolidated Revenue. It was to be paid to the Central Wool Committee, and that fact, together with the classification of shorn wool as "participating wool", raised an expectation that, in accordance with the intention of the Central Wool Committee already mentioned, the Commonwealth's share of any profit to arise under the Wool Purchase Arrangement would be distributed amongst the suppliers of shorn wool. Under the Disposals Plan the Commonwealth agreed to contribute large sums of capital and to become the joint owner with the United Kingdom of the stocks of Australian wool then undisposed of, the 1945/46 new clip to be acquired by appraisement, and any other Australian wool purchased by the Joint Organisation when the normal system of auction sales was resumed. (at p602)
14. As a result of the plan the Joint Organisation, on behalf of the United Kingdom and the Commonwealth Governments, became engaged in a huge business of reselling the carry-over wool, acquiring and realising the 1945/46 clip and purchasing new wool at auction and realising this wool. Out of these proceeds of sale, half the operating expenses were first to be paid and the United Kingdom and the Commonwealth Governments were then to be repaid their capital contributions in full if the proceeds of sale were sufficient for that purpose and, if they were not, pari passu. (at p602)
15. The business might have made a profit or a loss. In fact, it will make a large profit. It will be a profit made out of the process of realising the whole of the wool in question. If the wool had been owned jointly by private individuals, these profits might have been liable to be assessed for income tax under relevant laws. But naturally the Governments did not want to tax themselves and the Disposals Plan contains the provision with respect to taxation already mentioned. (at p602)
16. The Commonwealth Government decided to distribute its share of the profit
amongst the persons who supplied "participating wool"
for appraisement and for
that purpose passed the Wool Realization (Distribution of Profits) Act 1948.
It is intituled "An Act to
provide for the Distribution of any ultimate Profit
accruing to the Commonwealth under the Wool Disposals Plan, and for other
purposes".
The Act provides machinery for the distribution of this profit by
authorizing interim distributions out of the expected net profit
and a final
distribution when that profit has been finally ascertained. Part III of the
Act which is headed "Persons Entitled", containing
ss. 7-14, defines the
persons who are to share in these distributions. Section 7 is the leading
section. Its text is as follows:
"7.- (1.) Subject to this Act, an amount equal to each declared
amount of profit shall be distributed by the Commission
in accordance with this Act.
(2.) There shall be payable by the Commission, out of
each amount to be distributed under this Act, in relation
to any participating wool, an amount which bears to the
amount to be distributed the same proportion as the
appraised value of that wool bears to the total of the
appraised values of all participating wool.
(3.) Subject to this Act, an amount payable under this
Act in relation to any participating wool shall be payable
to the person who supplied the wool for appraisement.
(4.) Where two or more persons jointly supplied
participating
wool for appraisement, those persons shall, for
the purpose of determining their claims in relation to
that wool in any distribution under this Act, be treated
as one person". (at p603)
17. Sections 28 and 29, which are not contained in Pt. III, should also be
noticed. Section 28 provides that:
"No action or proceedings shall lie against the Commission
or the Commonwealth for the recovery of any moneys
claimed to be payable to any person under this Act, or
of damages arising out of anything done or omitted to
be done by the Commission in good faith in the
performance
of its functions under this Act". (at p603)
18. Section 29 provides that:
"Subject to this Act and the regulations, a share in a
distribution
under this Act, or the possibility of such a share,
shall be, and be deemed at all times to have been,
absolutely
inalienable prior to actual receipt of the share,
whether by means of, or in consequence of, sale,
assignment,
charge, execution or otherwise". (at p603)
19. The meaning and effect of Pt. III of the Act and s. 29 received the close
attention of the Privy Council in Maslen's Case (1950)
82 CLR 553 . It is
clear from the judgment of Lord Porter that the Board were of opinion that the
amount distributed to each supplier
under s. 7 was a voluntary personal gift
to that supplier and that, apart from any special provisions in the Act, it
became his property
to do with as he pleased. The Act contains certain special
provisions where the supplier has become bankrupt, or has died, or the
supplier was a trustee, or a company which has become defunct, or a
partnership which has been dissolved. It also contains a special
provision
where a mortgagee supplied the wool pursuant to the terms of his security. For
instance s. 10 provides that where participating
wool was supplied for
appraisement by a company which is defunct or by a partnership which has been
dissolved the rights, duties
and liabilities of a person to whom an amount is
paid in respect thereof shall be the same as if it were part of the proceeds
of
a sale of the wool by the company or partnership made at the time of the
supply of the wool for appraisement. Section 13 provides
that where
participating wool was supplied for appraisement by a mortgagee the mortgagee
shall have and be subject to the same rights,
duties and liabilities in
respect of the amounts paid to him under the Act in relation to that wool as
if that amount were part of
the amount which was paid on the appraisement of
the wool. This provision was obviously inserted so that the mortgagee would
have
to hand over to the owner of the equity of redemption in the wool the
whole or such part of the amount he received as was not required
to satisfy
the mortgage debt. None of these special provisions are directly relevant in
the present case for the wool was supplied
by the appellant company and this
company is still a going concern actively engaged in the business of growing
wool. In the absence
of authority it might, however, be contended that these
special provisions throw a light on the general intention of Pt. III of the
Act and indicate that the Commonwealth Parliament intended that all
distributions under the Act should be regarded as extra payments
of price for
participating wool. But this contention would not be consistent with the
construction the Board placed on Pt. III in
Maslen's Case [1950] HCA 55; (1950) 82 CLR 101 .
The Privy Council has held, it seems to us, that these special provisions are
not
sufficient, even
in the particular
cases to which they refer, to place the
payments in the same category as those received as of
legal right for the
wool
supplied.
That was the argument for the respondents which their Lordships
rejected. They decided that even
in these special
cases the provisions
in
question are directed only to identifying the persons who are to be the
ultimate recipients
of the personal
gift. They did not
go further and
stipulate that they are to be regarded for all purposes as if they were the
result
of a contract
or debt which came
into existence when the wool was
supplied for appraisement. "So to construe the wording would be
to do violence
to the admitted fact
that it is a gift". (at p605)
20. In Maslen's Case [1950] HCA 55; (1950) 82 CLR 101 , Connolly and Laffer were carrying on in partnership a pastoral business in Western Australia under the name of the Mardathuna Pastoral Company and supplied participating wool to the Commonwealth under the National Security (Wool) Regulations. By a deed of assignment dated 17th June, 1946, Connolly assigned to the respondents all his right title and interest in . . . the benefit of all contracts and engagements and book debts to which Connolly and Laffer might be entitled in connection with the said business together with all other assets of the business. By another deed dated October 2nd, 1946, Laffer assigned his half share to the first of the respondents. Connolly died on 28th December, 1946, and a sum of money was paid in 1949 by the Australian Wool Realization Commission to the appellants as the personal representatives of the assignor in his capacity as a former partner in a dissolved partnership as the share of that partnership in a distribution of sums under the Wool Realization (Distribution of Profits) Act in respect of participating wool supplied by it. The Privy Council held that the sum paid by the Commission under the Act was neither a debt nor an asset of the business, nor was it ever partnership property, but was a personal gift to the individual parties concerned and that accordingly it did not pass under the assignment to the respondents. . . . "as their Lordships have said, the sum paid is neither a debt nor an asset of the business nor was it ever partnership property. In their view it is a personal gift to the parties concerned". (at p605)
21. To our mind the construction which their Lordships have placed on Pt. III of the Act greatly assists the appellant here. The only provisions in the Income Tax Assessment Act which can be relied upon in support of the claim that the sum in issue is part of its assessable income are: (1) that portion of the definition of "income from personal exertion" which provides that such income includes the proceeds of any business carried on by the taxpayer; and (2) that portion which provides that such income includes any amount received as a bounty or subsidy in carrying on a business. (This portion refers to s. 26(g) of the Act which provides that the assessable income of a taxpayer shall include any bounty or subsidy received in or in relation to the carrying on of a business, and such bounty or subsidy shall be deemed to be part of the proceeds of that business.) The first provision does not mean that all the proceeds of a business are assessable income. All that it means is that the proceeds of a business which are assessable income by reason of some statutory provision or because they are income according to ordinary usages and concepts of mankind are to be classified as income from personal exertion and not as income from property. Colonial Mutual Life Assurance Society Ltd. v. Federal Commissioner of Taxation (1946) 73 CLR 604, at p 615 . The contention of the respondent is that the amount in dispute is assessable income because it is income according to ordinary usages and concepts; that it is, though voluntary, a payment for the wool supplied; that it is an addition to the compensation paid for the wool on appraisement and bears the same character as the payments made to discharge the appraised value; that it is, therefore, a further payment of income; that it is stamped with that character upon the proper interpretation of the Act pursuant to which it is paid; that it was received by the suppliers as further proceeds for their wool, and was a statutory payment made for the purpose of supplementing the price already paid so that the suppliers would receive full compensation for what turned out to be the value of their wool in the long run. We cannot accept this contention. The amount in dispute is not, in our opinion, of the same character as the payments made to discharge the appraised value. It is a gift and nothing more than a gift to the appellant. We refer to the illustration suggested by Williams J. to Mr. Adam during the argument of a wool grower who sold wool to a dealer who made a larger profit than he expected to make on the resale and sent the wool grower a cheque equal to portion of this profit accompanied by a letter explaining that he had done better than he expected out of the deal and would like to send the grower a further cheque as a gift in addition to the amount he had paid for the wool. In such a case the whole of the profit the dealer had made would clearly be part of his assessable income, part of the proceeds of the business he was carrying on, and the payment to the grower would be a voluntary personal gift proceeding from the bounty to the dealer and no more part of his assessable income than a personal gift actuated by any other motive. In Ryall v. Hoare (1923) 2 KB 447 Rowlatt J. discussed the kind of casual profits that were taxable under Case VI of Schedule D. of the Income Tax Act 1918 (Imp.) (8 & 9 Geo. 5. c. 40). His Lordship said: "The second class of cases to be excluded consists of gifts and receipts, whether the emolument is from a gift inter vivos, or by will, or from finding an article of value, or from winning a bet. All these cases must be ruled out because they are not profits or gains at all" (1923) 2 KB, at p 454 . See also Ayrshire Pullman Motor Services v. Commissioners of Inland Revenue (1929) 14 Tax Cas 754 ; Waddington v. O'Callaghan (1931) 16 Tax Cas 187 ; Commissioner of Taxation v. Happ (1952) ALR 382 . (at p607)
22. The position of the Commonwealth in the present case approximates to that of the dealer and the persons who supplied the wool to that of the grower in the illustration. So far as any ultimate profit received by the Commonwealth Government under the Disposals Plan can be regarded as income, it is the income of the Commonwealth. The decision of the Commonwealth Parliament to distribute this profit among the suppliers of participating wool as a voluntary gift cannot make the distribution part of their assessable income just because it is a distribution of a profit on which the Commonwealth might have had to pay income tax if it had been a private individual. The suppliers were not engaged in the business that made the profit. The Governments of Great Britain and the Commonwealth were engaged in that business. The profit the Commonwealth made out of that business belonged to the Commonwealth to dispose of as it chose. The mere fact that it chose to distribute this profit amongst the suppliers of participating wool is not sufficient to make the payment part of their assessable income. There is nothing in the Wool Realization (Distribution of Profits) Act to make each payment more than "a true gift to the supplier of the wool". The only connection between the submission of the wool for appraisement and the payments is that the Act uses that criterion for ascertaining who are the donees of the Commonwealth gift and the extent to which they are to benefit. It does not make the payments part of the proceeds of the submission of the wool for appraisement. The only true proceeds of this submission are the compensation moneys. They are the only moneys the Commonwealth was legally liable to pay. Distributions under the Wool Realization (Distribution of Profits) Act are payments which the Commonwealth was at complete liberty to make to anyone, and they would be gifts to whomsoever they were made. The choice of a class of deserving donees, whose efforts in the past had made it possible for the profit to be realised, does not alter the character of the payments or make the distributions part of their assessable income. The Commonwealth Parliament could, if it had wished, have said that these distributions should be regarded as assessable income. But it has not said so, and the provisions of ss. 28 and 29 of the Wool Realization (Distribution of Profits) Act appear to us to indicate the contrary. If the distributions are intended to be extra payments of price for the wool supplied for appraisement, it is strange that the persons entitled to the payments have no right of action to recover them from the Commonwealth and such payments are absolutely inalienable prior to their actual receipt. (at p608)
23. In the course of the argument we were referred to the long line of English cases which we had occasion to consider in the recent case Commissioner of Taxation v. Dixon [1952] HCA 65; (1952) 86 CLR 540 relating to the provisions of the English Income Tax Acts providing that all salaries, fees and other emoluments which come to a person by virtue of his office or employment are taxable even though they be paid voluntarily. This provision finds an echo in s. 26(e) of the Income Tax Assessment Act (Cth.). The reasoning in these cases must, we think, be applied with caution when the question is whether a voluntary payment which has some connection with a business operation is part of the proceeds of the business. In Chibbett v. Joseph Robinson and Sons (1924) 9 Tax Cas 48 the respondents, a firm of ship managers, were employed in that capacity by a steamship company, their remuneration consisting in part of a percentage of the company's annual net profits including interest on its investments which were considerable. The company went into liquidation and, inter alia, authorized the liquidator to transfer 50,000 pounds of 5 per cent national war bonds to the respondents as compensation for loss of office. In computing the liability of the respondents for income tax and excess profits duty, the sum of 50,000 pounds was included as part of the profits of their business as ship managers. On appeal the General Commissioners decided that it was not a profit and Rowlatt J. upheld this finding. In the course of his judgment his Lordship said: "Of course it is true that it is a trade receipt in this sense, that if these people had not been managers they never would have got it. It was not a gift to them as individuals or anything of that sort; it was because they were people of this kind". His Lordship said that the payment was in the nature of a testimonial for what the firm had done in the past. Three other cases to the same effect to which reference may be made are Beynon v. Thorpe (1928) 14 Tax Cas 19 , Cowan v. Seymour (1920) 1 KB 500 and Stedeford v. Beloe (1932) AC 388 where it was held that voluntary gifts given to a person in appreciation of past services were not taxable. In the last-mentioned case Lord Dunedin said, "Now . . . it has been held again and again that a mere voluntary gift is not . . . in the true sense of the word income. It is merely a casual payment which depends upon somebody else's good will" (1932) AC, at p 390 . Nothing more appears than that the distributions under the Wool Realization (Distribution of Profits) Act are being made to the suppliers of participating wool because they supplied that wool in the past. In the words of Rowlatt J. the distributions are gifts to them because they are people of that class. (at p609)
24. In the first world war, as in the recent war, the whole of the Australian wool clip was delivered to the Government of Great Britain under the arrangement made with the Commonwealth Government. It was a term of that arrangement that any profit made by the former Government from the sale of surplus wool should be equally divided between the two Governments. The British-Australian Wool Realization Association, usually known as B.A.W.R.A., was formed to take over the Commonwealth's share of the profits, which were by direction of the Commonwealth divided amongst the wool suppliers in the shape of cash, priority certificates and shares in the company. It is unnecessary to set out the scheme in any detail. It is described in the judgment of Ferguson J. in In the Estate of W.O. Watt (Dec'd.) (1925) 25 SR (NSW) 467; 42 WN 191 and in the cases that went to the Privy Council, Commissioner of Taxes v. British Australian Wool Realization Association Ltd. (1931) AC 224 and Commissioner of Taxes v. Union Trustee Co. of Australia Ltd. (1931) AC 258 . Apparently Queensland income tax was paid on the shares received by the supplier in the latter case. But the Privy Council are careful to say "Whether rightly or not, however, these shares were for Queensland income tax purposes treated as part of the testator's income for the year 1921 in which they were received" (1931) AC, at p 263 . In Watt's Case (1925) 25 SR (NSW) 467; 42 WN 191 the wool profits were still in the absolute disposal of the Commonwealth, although it had decided what it proposed to do with them, when the testator died and it was held that the shares, &c. received by the firm of which he was a member and by his executor after his death pursuant to wool supplied by the firm and the testator in his lifetime were not part of his estate for the purposes of death duty. Ferguson J. said: "As the Government had an absolute discretion in the matter, and might either have kept the money or have distributed it amongst whom they chose, the fact that they chose one set of people rather than another cannot change the essential nature of the transaction. When a man of his own free will hands his money over to another person to whom he is under no obligation, that is a gift" (1925) 25 SR (NSW), at p 487; 42 WN 191 . The decision of the Supreme Court was affirmed on appeal to this Court [1926] HCA 14; (1926) 38 CLR 12 . This passage supports the view that the distributions under the Wool Realization (Distribution of Profits) Act are simply gifts to the designated persons and nothing more and should not be equated to the payments the suppliers were legally entitled to receive as compensation for the acquisition of their wool. (at p610)
25. It is contended that this view is inconsistent with the reasoning in Ritchie's Case [1951] HCA 38; (1951) 84 CLR 553 . In that case the trustees of a settled estate had from time to time submitted for appraisement under the National Security (Wool) Regulations wool produced on a pastoral property carried on by them under a power given by the trust instrument. It was held that moneys received, pursuant to the Wool Realization (Distribution of Profits) Act, by the trustees as the suppliers of the wool were income of the settled estate and should be treated as a receipt of the pastoral business belonging to the profit and loss account of the year in which they were received. The case does not appear to have been cited to the Privy Council in Maslen's Case [1950] HCA 55; (1950) 82 CLR 101 . There are passages in the reasons for judgment which at first sight appear to assist the respondent. In particular it was said that the payments constituted receipts resulting from the operations of wool growing and it was contended that this meant they bore the same character as the appraisement moneys. This and other statements, like those in any other case, must be read "secundum subjectam materiam". The issue in Ritchie's Case [1951] HCA 38; (1951) 84 CLR 553 was different from the issue in the present case. Admittedly the trustees were not beneficially entitled to the payments and the question was whether they should be treated as income or capital in the trust accounts. The fact that the court decided that, in order to determine the respective rights of the life tenant and remainderman, the payments should be treated as income does not mean that the payments were necessarily assessable income of the trust estate. On any view the payments were windfalls - mere casual payments such as a wool grower would seldom receive in addition to the ordinary proceeds of the sale of his wool - and the question has often arisen whether such payments belong to the life tenant or remainderman of a settled estate. In Halsbury, 2nd ed., vol. 29, p. 644, it is said: "A tenant for life of settled property is entitled both to the ordinary income of the property, including the income of a fund set aside to provide for portions payable on his death, and to all casual profits which accrue during the subsistence of his tenancy for life, unless the settlement provides otherwise". Many instances are noted in the footnote to which may be added In re Lindsay's Settlement (No. 1) (1941) Ch 170 , in Re Pomfret's Settlement (1952) 1 Ch 48 . The mere fact that the life tenant is entitled to a casual payment does not make it part of his assessable income. (at p611)
26. There remains the question whether the 22,851 pounds was a bounty or subsidy received in or in relation to the carrying on of a business within the meaning of s. 26(g) of the Income Tax Assessment Act. That paragraph provides that such bounty or subsidy shall be deemed to be part of the proceeds of that business. In our opinion, this provision has no application to the present facts. The payments to which it refers are payments made for the purpose of assisting persons to carry on a business at the time the payments are made or, perhaps, to commence a business in the future. The appellant was, in fact, still carrying on a business of growing and selling wool in November, 1949. But it might not have been doing so. It might then have finally ceased to carry on business. Many suppliers who qualify for payments under Pt. III of the Wool Realization (Distribution of Profits) Act may have ceased to carry on business and the Act, as we have said, contains special provisions relating to suppliers who have died &c. Distributions under the Act cannot be bounties or subsidies within the meaning of par. (g) in some cases and not in others. The distributions relate to business operations past and closed, not to current operations. They are not bounties or subsidies within the meaning of the paragraph. (at p611)
27. For these reasons we would answer the first question in the negative and the second question does not arise. (at p611)
WEBB J. In Ritchie v. Trustees Executors & Agency Co. Ltd. [1951] HCA 38; (1951) 84 CLR 553, at p 580 this Court held that payments made under the Wool Realization (Distribution of Profits) Act 1948 were "receipts resulting from the operations of wool growing". This suggests that those receipts are assessable income as defined by the Income Tax Assessment Act 1936-1949; at all events as regards those suppliers of wool for appraisement who were also the growers of the wool, as most suppliers were. But it is submitted for the appellant taxpayer that, although Ritchie's Case [1951] HCA 38; (1951) 84 CLR 553 has not been overruled by Perpetual Executors Trustees and Agency Co. (W.A.) Ltd. v. Maslen (1952) AC 215 , still certain observations in Ritchie's Case [1951] HCA 38; (1951) 84 CLR 553 are inconsistent with the basis of the decision of the Privy Council in Maslen's Case (1952) AC 215 . In the latter case their Lordships observed (1952) AC, at p 230 that payments under the 1948 Act were "a true gift" to the suppliers of the wool for appraisement and that they were not the result of a contract or debt which came into existence when the wool was supplied for appraisement. That would not have been inconsistent with the payments being assessable income. But their Lordships also referred to the payments as "a personal gift". (at p612)
2. Although in the reasons for judgment in Ritchie's Case [1951] HCA 38; (1951) 84 CLR 553 the payments are not expressly referred to as a gift of any kind it is pointed out (1951) 84 CLR, at p 577 that no legal right to these payments had been conferred upon the wool suppliers until the 1948 Act was enacted, and that all that the suppliers had prior to such enactment was an assured expectation. If then the wool suppliers received something to which they had no legal right but only an expectation, it is difficult to see how there could have been anything but a gift. But gifts may be income and liable to tax. It was so held by the House of Lords in Blakiston v. Cooper [1908] UKHL 1; (1909) AC 104 where Easter offerings to the clergy were held to be taxable income. (at p612)
3. However, as already stated, in Maslen's Case (1952) AC 215 their Lordships characterized a payment under the 1948 Act as "a personal gift". In Seymour v. Reed (1927) AC 554, at p 559 Viscount Cave L.C. had already held that the net proceeds of a benefit cricket match should be regarded as "a personal gift and not as income from the appellant's employment". What his Lordship would have held if the gift had been of a proportion of the gate receipts at earlier matches in which the taxpayer had played to the financial benefit of his club we can only speculate. Here the amount of the gift is determined wholly by the value of the wool supplied for appraisement, and yet it is a personal gift. But if it is a personal gift for one purpose, I think it must be held to be a personal gift for all purposes. As I understand the term "personal gift" it is absolute and not relative; so that if the claim of an assignee of a partnership is defeated by the personal nature of a gift, so too is that of the Income Tax Commissioner. The description by their Lordships in Maslen's Case (1952) AC 215 of the payment as "extra proceeds" and "additional payment" may, I think, be disregarded like the expressions "extra profit" and "extra sum" as not intended to indicate the precise quality of the payment. But to the commissioner's claim that it is assessable income the answer is, I think, that the term "personal gift" was used to denote that precise quality; that its meaning is certain and not indefinite, is constant and not variable; and that it excludes income in the ordinary acceptation of the term i.e. as the term is used in s. 25 of the Income Tax Assessment Act. The quality of personal gift was not attributed to the Easter offerings to the clergy in Blakiston v. Cooper [1908] UKHL 1; (1909) AC 104 and those offerings were held to be income; it was attributed to the gift to the cricketer in Seymour v. Reed (1927) AC 554 and it was held that the gift was not income. In this regard I can see no difference between income from employment or from an office and income from a business. I realize that income may be assessable under s. 25 although it is not from any of those sources. In Commissioner of Taxation v. Dixon [1952] HCA 65; (1952) 86 CLR 540 this Court held that gifts that were not derived from such sources were nevertheless income under s. 25. That was because they were periodical and were for the maintenance of the donee and his dependants. That case indicates that even such undoubted personal gifts as charitable payments made e.g. to a pauper in a hospital or other institution for his maintenance therein are income within s. 25. They are not income from personal exertion or from property, apart from the statutory definitions, but they are still to be regarded as income within the ordinary meaning of the term. However, that is because the payments are recurrent, a consideration which had weight with Lord Phillimore in Seymour v. Reed (1927) AC, at p 570 . Here, however, we are dealing not with recurrent payments but with a single payment which moreover was not made for the maintenance of a donee and his dependants, as the payments in Dixon's Case [1952] HCA 65; (1952) 86 CLR 540 were assumed to be. (at p613)
4. For a time I took the view that the quality of the payment in question here as a personal gift merely gave rise to a doubt as to whether the payment was income within s. 25; but eventually I reached the conclusion that it was decisive in favour of the taxpayer. (at p613)
5. The commissioner also relies on s. 26(g) which makes assessable as income "any bounty or subsidy received in or in relation to the carrying on of a business". However, I think, as counsel for the taxpayer submit, that this provision is a compound expression designed to deal with payments received to assist in carrying on a business. This is not such a payment. (at p613)
6. I would answer the questions in the case - (i) No. (ii) Does not arise. (at p613)
FULLAGAR J. This matter comes before the Full Court on a case stated by the Chief Justice in an appeal by the Squatting Investment Co. Ltd. against its assessment to income tax on income derived by it in the year ended 31st December 1949. The calendar year is the company's accounting period for the purposes of the Income Tax Assessment Act 1936-1949. The appeal is concerned with certain sums received by the company during the accounting period in pursuance of the Wool Realization (Distribution of Profits) Act 1948. (at p614)
2. The company is incorporated in Victoria, and carries on (inter alia) the business of a wool grower in New South Wales and Queensland. This business was carried on by it during the years 1939 to 1946 inclusive, and the wool grown by it in the seven "wool years" 1939/40 to 1945/46 inclusive was supplied for appraisement and acquired by the Commonwealth under the National Security (Wool) Regulations. These regulations were made by the Governor-General under the National Security Act 1939 in order to give effect to the "Wool Purchase Arrangement", which was made between the Government of the Commonwealth and the Government of the United Kingdom very shortly after the outbreak of war in September 1939. The effect of the Wool Purchase Arrangement, the main provisions of the regulations, the system of appraisement and the general course of dealing established under the regulations, the position which existed at the termination of hostilities in 1945 and the events which led up to the passing of the Wool Realization (Distribution of Profits) Act 1948, are examined and explained in the judgment of the Court in Ritchie v. Trustees Executors & Agency Co. Ltd. (1951) 84 CLR 553 . I also had occasion recently to examine these matters at length for a different purpose in Poulton v. Commonwealth Unreported. . For a general history of the vast undertaking involved I think it sufficient to refer, without repeating it, to what was said in Ritchie's Case [1951] HCA 38; (1951) 84 CLR 553 , and to the very clear exposition of details which is contained in the present case stated. It is necessary, however, in order that the questions now arising may be understood, to refer briefly to certain points in that history. (at p614)
3. For the wool supplied by it for appraisement during the seven wool years the company received the appraised price (in all except the last year in two instalments) and also a further sum by way of adjustment to what was called "flat rate parity". All amounts so received were assessed as income of the company, and were taken into account as part of its assessable income of the accounting periods in which they were respectively received. This appeal is not concerned with any such amounts, but with certain payments made to it by the Wool Realisation Commission out of profits mainly derived from wool acquired by the Commonwealth during the seven wool years. (at p615)
4. The Wool Purchase Arrangement provided for the purchase by the United
Kingdom from the Commonwealth of all wool produced in Australia
(except wool
required for purposes of local manufacture) at a specified average price per
pound greasy. It also provided that the
United Kingdom Government and the
Commonwealth Government should divide equally any profit which might arise
from the resale by the
United Kingdom Government outside the United Kingdom of
wool purchased by it under the arrangement. It was in view of this term of
the
arrangement that reg. 30 (2) of the Wool Regulations provided:-
"(2) Any moneys which may be received by the Central Wool Committee from the
Government of Great Britain under or in consequence
of such arrangement over
and above the purchase price payable by such Government thereunder for the
wool and any surplus which may
arise shall be dealt with as the Central Wool
Committee shall in its absolute discretion determine". This sub-regulation
"conferred
upon the Central Wool Committee a discretion to determine how the
half share of profits payable by the United Kingdom under the Wool
Purchase
Arrangement should be dealt with and profits or moneys arising otherwise, as,
for instance, from wool tops or wool for manufacture
for export. The phrase
'any surplus which may arise' covered profits or moneys of the second kind"
(Ritchie's Case (1951) 84 CLR,
at p 572 ). It may be mentioned here that the
Central Wool Committee, which was constituted under the regulations, was
composed of
members representative of the various sections of the Australian
wool industry. The Central Wool Committee decided at a very early
stage that
the same course should be adopted as had been adopted in connection with the
similar wool scheme of the war of 1914-1918,
and that any profit which might
ultimately become available under the arrangement should be distributed among
suppliers of shorn
wool (i.e. wool shorn from the living sheep) to the
exclusion of skin wool (i.e. wool fell-mongered from the skins of dead sheep).
In pursuance of this decision wool supplied for appraisement was listed in the
brokers' catalogues prepared for appraisement purposes
as either
"participating" or "non-participating". "Participating" meant "participating
in any distribution of profit that may be
made". (at p615)
5. The wool purchased from the Commonwealth by the United The wool
purchased from the Commonwealth by the United Kingdom under
the arrangement
was dealt with in a variety of ways. Some of it was resold by the United
Kingdom Government outside the United Kingdom.
The accounts in respect of such
sales were kept in England by the United Kingdom Government, and these
included a "distributable
profits account". In 1945, however, when the war
with Germany came to an end, very large quantities of the wool purchased by
the
United Kingdom Government remained in store in Australia and elsewhere,
and it was quite impossible to determine at that stage whether
there would
ultimately be any profits to be dealt with in accordance with the Wool
Purchase Arrangement. One very serious problem
which presented itself was the
problem of disposing of the very large stocks of wool held by the United
Kingdom Government without
unduly disturbing the market or depressing the
prices of future wool clips. As a result of negotiations conducted about the
middle
of 1945, a plan was agreed upon between the Governments of the United
Kingdom and the Commonwealth for the winding up of the wool
scheme. To this
agreement, the Governments of New Zealand and South Africa (which had also
sold their entire wool clips during the
war years to the United Kingdom) were
also parties, but the wool of each Dominion was kept separate and distinct.
The plan was called
the "Disposals Plan", and it is set out in the schedule to
the Wool Realization Act 1945-1946. That Act received the royal assent
on the
11th October 1945, and came into force by proclamation on the 16th November
1945, but the plan took effect as from the 1st
August 1945. (at p616)
6. It will, I think, suffice if I summarise the effect of the Disposals Plan, so far as it related to Australian-grown wool, very much as I summarised it in Poulton's Case Unreported. . The stock of Australian-grown wool in the ownership of the United Kingdom at 31st July 1945 was transferred to the joint ownership of the United Kingdom Government and the Commonwealth Government, and was to be held and disposed of by a "Joint Organisation", which was to be incorporated as a private company in England and was to have an Australian subsidiary. The Australian subsidiary was the Australian Wool Realization Commission, which was constituted and incorporated by the Wool Realization Act 1945 (see s. 9(1)). The United Kingdom and the Commonwealth were each to take up fifty per cent of the original capital, which was represented by the opening stock of Australian-grown wool. The opening stock was to be taken into account at its original cost less the amount standing to the credit of the divisible profits account. (As to the effect of this, see Ritchie's Case (2).) Payment of the Commonwealth's share of the original capital was to be made in four annual instalments, but there was provision for each payment to be made out of current profits, if any. The ultimate balance of profit or loss was to be shared or borne equally by the United Kingdom and the Commonwealth. With regard to the wool year 1945/46 (described as the "interim period") it was agreed that the United Kingdom should purchase the whole clip in the same way as in the six preceding years, but it was to be handled by the Joint Organisation, and the Commonwealth was to reimburse to the United Kingdom one half of the cost of so much of the clip as remained unsold at the end of the wool year. In the following year (1946/47) the normal system of selling wool by auction in Australia was resumed. Actually in that year the Joint Organisation purchased a substantial quantity of Australian wool at auction sales. The plan provided that the operating expenses of the Joint Organisation should be borne equally by "the industry" and the Joint Organisation itself. The contribution to be made by the industry was provided for by Commonwealth legislation - the Wool (Contributory Charge) Assessment Act 1945 and the Wool (Contributory Charge) Act 1945. (at p617)
7. Section 9 (3) of the Wool Realization Act 1945 provided:-
"9. (3) The Commission shall have and perform all the duties, and shall have
and may exercise all the powers, authorities and functions,
of the Central
Wool Committee under - (a) the National Security (Wool) Regulations; (b) the
National Security (Wool Tops) Regulations;
(c) the National Security (Price of
Wool for Manufacture for Export) Regulations; and (d) the National Security
(Sheepskins) Regulations,
and for that purpose (i) the Commission shall, by
force of this Act, be substituted for, and be deemed to be, the Central Wool
Committee".
Section 10 provided: "10. Any reference in the National Security
(Wool) Regulations to the arrangement made between the Government
of Great
Britain and the Government of the Commonwealth shall include and shall be
deemed at all times, on and after the first day
of August, One thousand nine
hundred and forty-five, to have included a reference to the Disposals Plan".
(at p617)
8. In the years following the year 1945/46 the Joint Organisation made large profits from Australian-grown wool. These profits might perhaps have been dealt with by the Wool Realization Commission by virtue of ss. 9 (3) and 10 of the Wool Realization Act 1945 read with reg. 30 (2) of the Wool Regulations. But in fact the Commonwealth Parliament enacted legislation with regard to their distribution. That legislation is contained in the Wool Realization (Distribution of Profits) Act 1948, which came into force on 21st December 1948. This Act dealt with "the wool disposals profit", which it defined by s. 4 as including the Commonwealth's share of any profit ultimately arising from the operations of the Joint Organisation and also any moneys received by the Commonwealth from the United Kingdom Government in pursuance of an arrangement which had been made for the sharing of profits arising from the disposal of sheepskins acquired under the National Security (Sheepskins) Regulations. "The profits in connection with sheepskins, a comparatively minor matter, are thus treated, as might be expected, as an accession to the wool profits" (Ritchie's Case (1951) 84 CLR, at p 575 ). (at p618)
9. Section 4 of the Act defines "the net profit" as meaning the amount remaining after deducting from the "wool disposals profit" the expenses and charges of the Commission in administering the Act other than commission payable to brokers. It defines "appraised value" as meaning, in relation to wool, the value at which the wool was appraised under the Wool Regulations. It defines "participating wool" as meaning wool appraised under the Wool Regulations, being wool which was listed as participating wool in the appraisement catalogue used by the appraisers for the purpose of that appraisement. The practice and purpose of cataloguing wool supplied for appraisement as "participating" or "non-participating" have already been explained. Section 4 also defines the expression "declared amount of profit" as meaning an amount which has been specified in a notice published in the Commonwealth Gazette in pursuance of s. 6 of the Act. (at p618)
10. Section 5 of the Act provides that "As soon as practicable after the wool disposals profit has been ascertained, the Treasurer shall notify the amount thereof in the Gazette, and the amount so notified shall, for all purposes of this Act, be the amount of the wool disposals profit". Section 6 (1) provides that "At any time before the wool disposals profit has been ascertained, the Minister may, with the approval of the Treasurer and after consultation with the Commission, and if he is satisfied that the financial position under the Disposals Plan justifies his so doing, by notice published in the Gazette, declare an amount to be available for distribution under this Act out of the expected net profit". Sub-section (1) of s. 7 provides that, subject to the Act, an amount equal to each declared amount of profit shall be distributed by the Commission in accordance with the Act. Sub-section (2) of s. 7 provides that "There shall be payable by the Commission, out of each amount to be distributed under this Act, in relation to any participating wool, an amount which bears to the amount to be distributed the same proportion as the appraised value of that wool bears to the total of the appraised values of all participating wool". Sub-section (3) of s. 7 provides that, subject to the Act, an amount payable under the Act in relation to any participating wool shall be payable to the person who supplied the wool for appraisement. The words "subject to this Act", which occur in sub-ss. (1) and (3) of s. 7, refer to provisions of the Act which have no relevance in the present case. (at p619)
11. By notice published in the Commonwealth Gazette on 24th November 1949 in pursuance of s. 6(1) of the Act the Minister declared the amount of A25,000,000 pounds to be available for distribution out of the expected "net profit". In pursuance of this declaration and of s. 7 of the Act, the Wool Realization Commission on 30th November 1949 paid to the appellant company a sum of 22,581 pounds, being an amount calculated in accordance with s. 7(2) of the Act as a percentage of the appraised values of wool supplied by the company for appraisement in the seven wool years and listed in the relevant catalogues as participating wool. The amount paid was arrived at after deducting a "broker's commission" of one half of one per cent in accordance with the Act. It is this sum of 22,581 pounds that is in dispute in the present case. The Commissioner contends that this sum is assessable income of the company. The company contends that it is a receipt of a capital nature. If it be determined that the sum in question is income, the further question will arise whether it is to be treated as income of the year in which it was received or whether it should be distributed proportionally among the years in which the relevant participating wool was supplied for appraisement. (at p619)
12. The starting-point of the taxpayer company's argument is that the moneys in question were not paid in pursuance of any legal right vested in it or of any legal duty resting on the Commonwealth or the Central Wool Committee or the Wool Realization Commission. It was a mere voluntary payment - in substance a "gift". The Parliament of the Commonwealth chose, in the exercise of its constitutional powers, to direct the Wool Realization Commission to make the payment out of a particular fund in its hands. It, the company, is the mere recipient of a bounty, and such a bounty is not income any more than is a birthday present. (at p619)
13. That the payment was not made in pursuance of any legal obligation must be immediately conceded. During the war of 1914-1918 the entire Australian wool clip of several years was purchased by the United Kingdom under an "arrangement" very similar to that which was made on the outbreak of war in 1939, and a scheme was instituted in Australia for the appraisement and acquisition of wool very similar to that which was instituted in 1939. The arrangement provided for the sharing of certain profits between the two Governments. Certain suppliers of wool claimed a right to share in profits ultimately realised, and in the litigation which ensued two things were decided by this Court and affirmed on appeal to the Privy Council. One was that the "arrangement" conferred no legal right cognisable in any court but was a mere political arrangement between Governments. The other was that no supplier of wool for appraisement acquired any right to share in any "profit" which might come to the hands of the Central Wool Committee. No such statute as the Act of 1948 having been passed, it was held that the distribution of profits was a matter for the "wisdom, fairness and discretion of the Central Wool Committee" see John Cooke & Co. Pty. Ltd. v. Commonwealth (1922) 31 CLR 394; [1924] UKPCHCA 2; (1924) 34 CLR 269 . That the position was the same under the scheme adopted in the war of 1939-1945 is not open to question, and it is expressly so stated in Ritchie's Case (1951) 84 CLR, at p 577 . It has been generally considered, I think, that suppliers of wool for appraisement acquired on appraisement a legal right to the appraised price. The moneys paid later for adjustment to flat rate parity have never been the subject of any decision, but one would think that the regulations gave no legal right to receive these. And it is entirely clear that there was no legal right to receive any share of any profit. (at p620)
14. It by no means follows, however, from the fact that payments under the Act of 1948 must be regarded as "voluntary" that they do not possess the character of income. That payments, which there is no obligation to make to the recipient, may be income, is well illustrated by a long line of English cases of which Corbett v. Duff (1941) 1 KB 730 is a recent example. Here "the proceeds of any business carried on by the taxpayer" is, by s. 6 of the Income Tax Assessment Act 1936-1949, expressly included in the definition of "income from personal exertion". If the receipt in question here is to be regarded as the proceeds of a business carried on by the taxpayer it will be income in his hands and assessable accordingly. (at p620)
15. In the English cases, of which Corbett v. Duff (1941) 1 KB 730 is an example, the question has been whether a voluntary payment is so connected with an office or employment as to be properly regarded as part of the remuneration of that office or employment. If so, it is a profit or gain of that office or employment, and therefore taxable as income. The test generally applied is that stated by Lord Loreburn in Blakiston v. Cooper [1908] UKHL 1; (1909) AC 104, at p 107 . In Corbett v. Duff (1941) 1 KB 730, at p 740 , Lawrence J. said:- "if the payment, though voluntary, is remuneration for the office or employment, it is taxable, but, if it is personal in the sense that it is given to the person, not as the holder of an office or employment, but as a personal testimonial, it is not". A similar test should, in my opinion, be applied here. If a wholesale merchant gave a substantial Christmas present to his best customer, the value of the present would not be income. But, if A bought goods from B for 1,000 pounds, expecting to resell them for 1,500 pounds, and in fact resold them for 2,500 pounds, and, if A's heart were so softened by this happy event that he sent to B a cheque for 1,500 pounds instead of 1,000 pounds B would properly take the extra 500 pounds into his profit and loss account as part of the proceeds of the goods and that sum would be liable to assessment as income. It would be part of the proceeds of his business. (at p621)
16. The present case appears to me to be very much stronger than the example which I have taken, because, although the payment of a share of wool profit to the taxpayer was voluntary and not obligatory in a legal sense, there had throughout been an expectation and an understanding that the Central Wool Committee would make a distribution of any profit, which might ultimately be realised from the Wool Purchase Arrangement, among the suppliers of shorn wool for appraisement. It was in the light of this expectation and understanding that reg. 30(2) was enacted. It was at least partly because of it that no wool moneys were ever paid into consolidated revenue, but the vast sums received and paid were received and paid by the Central Wool Committee and its successor, the Wool Realization Commission, each of which bodies was representative of wool interests. It was because of the same expectation and understanding that shorn wool supplied for appraisement was catalogued as "participating" and skin wool as "non-participating". "Participating" meant participating in profit. The fact that the understanding might have been dishonoured, and the expectation disappointed, and the suppliers of shorn wool left without legal redress, cannot alter the nature of the share of profit when the understanding is honoured and the expectation realised. When once the nature of the whole scheme is understood, it seems impossible to avoid the conclusion that the moneys paid under the Wool Realization (Distribution of Profits) Act 1948 were in the most real sense part of the proceeds of the wool supplied for appraisement, and therefore part of the proceeds of the business carried on by the taxpayer. (at p622)
17. In Ritchie's Case [1951] HCA 38; (1951) 84 CLR 553 the question before the Court was not a question of liability to taxation, but I would regard the reasoning of the judgment in that case as decisive of the present case. In that case the trustees of the will of a testator, who died in 1905, were carrying on during the war a pastoral business, in the course of which they supplied wool for appraisement in each of the years 1939/40 to 1945/46 inclusive. The estate was settled by the will, which gave power to carry on the business. The trustees having received their due proportion in a distribution under the Wool Realization (Distribution of Profits) Act 1948, the questions arose whether the moneys so coming to their hands were income or corpus of the estate, and, if income, whether they were income of the year of receipt or ought to be distributed among the years in which the wool was supplied in proportion to the appraised value of wool supplied in each year. This Court, affirming the decision of the Full Court of the Supreme Court of Victoria unanimously held that the moneys were income of the estate, and income of the year in which they were received by the trustees. In the course of considering the first question, the Court said:- "It is clear that from the beginning the distribution, in whole or in part, of the Australian share of any surplus arising on divisible profits account was contemplated. The decision was taken administratively that skin wool should be excluded and wool was accordingly submitted for appraisement and appraised as participating and non-participating. That of course implied that the basis of distribution would be appraised value of the wool submitted" (1951) 84 CLR, at p 577 . After pointing out that there was no legal right to participate in profits the Court said:- "But courts should not be unmindful of the fact that administrative measures and understandings may, according to circumstances, raise an expectation almost as assured of realization as if it rested upon a foundation of legal right" (1951) 84 CLR, at p 577 . After referring to the contention of the appellants that the moneys belonged to corpus because they "formed an unsought and fortuitous accretion to the estate, the source of which lay in the bounty of the Commonwealth", the Court said:- "These contentions cannot be sustained. They are based upon isolated points in the transaction ending with the distribution of the wool disposals profit. The course pursued to give effect to the Wool Purchase Arrangement by the acquisition of wool from the grower must be considered as an entirety. The receipt of the payments is an actual consequence of the submission of wool for appraisement" (1951) 84 CLR, at p 579 . The Court added: "It is, of course, true that the Parliament, in the exercise of its legislative power, could have dealt in any manner it chose with the fund. But that legal fact does not determine the character or the consequences of the course which the Parliament actually took or the nature, as between capital and income, in trusts for successive interests, of the amounts distributed. They constitute receipts resulting from the operations of wool-growing. As possible or contingent receipts they were in contemplation when the appraisements were made. The title to receive them when in the end it is placed on a legal basis consists in the submission of shorn wool for appraisement for the purposes of the Wool Purchase Arrangement. The amount is a percentage of the appraised value of the wool so submitted" (1951) 84 CLR, at p 580 . (at p623)
18. It is, of course, not impossible that moneys, which trustees must treat as income in their estate accounts, may constitute a capital receipt for taxation purposes. But the whole of the reasoning in Ritchie's Case [1951] HCA 38; (1951) 84 CLR 553 is quite inconsistent with the view that the moneys now in question constitute a capital receipt for taxation purposes. The judgment is based from beginning to end on the view that those moneys were paid in respect of wool supplied for appraisement in the course of a business carried on by the taxpayer. They are attributable to that wool. They are paid because that wool has been supplied, and their amount is calculated by reference to the appraised value of that wool. They are proceeds of the taxpayer's business. (at p623)
19. It was argued that, even if it might have been right to treat as assessable income a share of profit derived by the United Kingdom from sales outside the United Kingdom and distributed by the Central Wool Committee under reg. 30(2), yet the profit, a share in which was actually distributed under the Act of 1948, was a different profit altogether and was outside the contemplation of the Wool Purchase Arrangement and the Wool Regulations. It is true that the Disposals Plan of 1945 did differ from the profit-sharing provision of the Wool Purchase Arrangement in a number of respects. But this cannot be regarded as affecting the conclusion that in substance and reality any amount distributable under the Act of 1948 in respect of wool supplied by the taxpayer company is part of the proceeds of that wool - part of what resulted to the taxpayer from the supplying of that wool for appraisement. Indeed, although the Disposals Plan involved a different method of pursuing a profit and a different source of profit, it was no more than a variation of the original profit-sharing arrangement, and s. 10 of the Wool Realization Act 1945, read with reg. 30(2) of the Wool Regulations, really placed any profit arising from the Disposals Plan in the same position as any profit which might have arisen from the original arrangement. If the point now taken by the taxpayer against the Commissioner had been taken by the Commonwealth against the suppliers of shorn wool, it is safe to say that it would have been regarded as a gross breach of faith. There was a variation of the divisible profits clause of the arrangement between the two Governments, but, as was said in Ritchie's Case (1951) 84 CLR, at p 580 , "The source of the distribution is in effect the fund arising under the divisible profits clause in the Arrangement". (at p624)
20. It was suggested by counsel for the company that the view taken in Ritchie's Case [1951] HCA 38; (1951) 84 CLR 553 did not altogether square with, or must be regarded as modified in some way by, the judgment delivered by Lord Porter for the Privy Council in Perpetual Executors Trustees & Agency Co. (W.A.) Ltd. v. Maslen (1952) AC 215 . The suggestion is, in my opinion, entirely without foundation. The question in Maslen's Case (1952) AC 215 turned largely on s. 10(3) of the Wool Realization (Distribution of Profits) Act 1948, which makes provision for a case where wool has been supplied for appraisement by a partnership and the partnership has been dissolved before payment of the amount attributable to that wool. There had in the particular case been, some years before 1948, an assignment by one partner to another of his interest in all the partnership assets, including book debts. Their Lordships stressed the fact that moneys paid under the Act were paid by way of bounty, that they were, in effect, a "gift". The absence of any obligation of any kind to pay anything to growers out of profits has, of course, never been doubted since the decision in John Cooke & Co. Pty. Ltd. v. Commonwealth (1924) 34 CLR 269 . In the view of their Lordships it assumed great importance in Maslen's Case (1952) AC 215, because it meant that it was impossible that the assignment could carry the share of wool profit which might ultimately be "given" in respect of wool supplied by the partnership. The share payable under the Act of 1948 went, therefore, to the individual partners (or their personal representatives) as the persons designated by the Act to receive it, and its destination was not affected by s. 10 or s. 11 of the Act. Thus their Lordships said:- "The correct view . . . is that it is a true gift to the supplier of the wool. It is not, and never was, part of the assets of the partnership" (1952) AC, at p 229 . And again: "it is a personal gift to the parties concerned, not passing under either assignment, nor is its destination affected by the terms of sections 10 or 11 of the Act of 1948" (1952) AC, at p 230 . The "voluntary" character of the payments was clearly and fully recognised and explicitly stated in Ritchie's Case [1951] HCA 38; (1951) 84 CLR 553 in which an entirely different question arose. Neither case has, in my opinion, any bearing on the other, and there is nothing in Maslen's Case (1952) AC 215 to derogate in any way from Ritchie's Case [1951] HCA 38; (1951) 84 CLR 553 . (at p625)
21. A word should be said in conclusion with regard to the "wool scheme" of the war of 1914-1918. In a matter of such great importance one would naturally look to see if any guidance could be there found, and although no binding authority is disclosed, the position is of interest. The Wool Purchase Arrangement of 1916, like that of 1939, contained a provision that the Commonwealth should be entitled to share in profits which might accrue to the United Kingdom Government on certain resales of wool by that Government. At the end of the war in 1918 a very similar position arose to that which arose in 1945, and a variation of the original agreement between the two Governments was agreed to. The scheme adopted was analogous to, but different in detail from, the Disposals Plan. In Commissioner of Taxes v. British Australian Wool Realisation Association Ltd. (1931) AC 224 Lord Blanesburgh, to use his own words in another judgment delivered on the same day, "traced in outline the history of that great scheme". Its central feature was the formation of a company, which was incorporated in Victoria on 27th January 1921 under the name of British Australian Wool Realization Association Ltd., and which came to be generally known as "B.A.W.R.A." or "Bawra". The nominal capital of the company was 25,000,000 pounds, divided into shares of 1 pound. The company took over for realization the whole of the surplus wool on hand, and, by direction of the Central Wool Committee, issued 12,000,000 shares and 10,000,000 pounds of what were called "priority wool certificates" to the Australian growers who had supplied shorn wool for appraisement. These shares and certificates represented, of course, the Commonwealth's half share in any profit that might accrue from the realization of the wool taken over by Bawra. For the sake of simplicity, I will refer only to the shares. The proportion of shares issued to each recipient was determined on precisely the same basis as was adopted by s. 7 of the Wool Realization (Distribution of Profits) Act 1948. The shares were listed on the stock exchanges and were readily transferable. (at p626)
22. After the war of 1914-1918, as after the war of 1939-1945, there was no legal or equitable right in any supplier to share in any profits. As Lord Blanesburgh said, "no individual supplier, however important, ever had in the eye of the law prior to the formation of the Association a right to any part of the Commonwealth Government's share of profits" (1931) AC, at p 235 . There was, however, the same expectation and understanding, and the shares were issued and received in full discharge of any obligation which might be held to subsist. The recipients were assessed to income tax in respect thereof by the Federal Commissioner and the State Commissioners, the shares being taken for the purpose of assessment at their market value, which was at the relevant times about 12s. 6d. They were assessed, of course, on the basis that the interest which they received in Bawra represented part of the proceeds of the wool supplied for appraisement - the proceeds of a business carried on. No objection was ever taken to any of these assessments, or, if any were taken, it was not carried to any Court, and the taxes assessed were paid. Very large sums were involved, and it may be safely assumed that this course was not adopted without taking the opinions of eminent counsel. Bawra ultimately sold the wool, which it had taken over, at prices totalling a sum very much larger than the value at which it had been taken into the opening accounts. No dividend was ever declared, but a series of reductions of capital were made, and confirmed by the Supreme Court of Victoria. Ultimately the company went into liquidation, and a final distribution was made in the winding up. The Commissioners sought to tax the amounts received by shareholders in pursuance of these reductions, but the shareholders objected and appealed, and they were ultimately successful in the Supreme Court of Queensland and in the Privy Council: see Commissioner of Taxes v. Union Trustee Co. of Australia Ltd. (1931) AC 258 . The shares, when received, had been treated as income, but the moneys received were received by way of realization of those shares and were capital. The analogy in the present case is, of course, with the original receipt of the shares, and not with the amounts received on the reductions of capital. (at p626)
23. The only remaining matter is the question whether the sum in question ought to be treated, as the Commissioner has treated it, as income of the year in which it was received, or ought to be distributed among the years in which the relevant wool was supplied for appraisement. I think this question also is covered by Ritchie's Case (1951) 84 CLR, at pp 583, 584 . The "criterion by which the question of beneficial right must be tested is to be found in the conceptions governing the ascertainment of the income of a pastoral business for a given year". There was no right to receive this sum or any sum. It could not properly be brought into the profit and loss account until it was received. There is no justification for any re-opening of past profit and loss accounts. For all purposes, including taxation purposes, it seems to me that it is "derived" in the year in which it is received. (at p627)
24. The questions asked by the case stated should be answered as follows:- (i) Yes. (ii) The year ended 31st December 1949. (at p627)
KITTO J. The question to be decided in this appeal is whether an amount paid to the appellant by the Australian Wool Realization Commission in pursuance of the Wool Realization (Distribution of Profits) Act 1948 formed part of the income derived by the appellant either in the year of receipt or in an earlier year. (at p627)
2. The amount in question was paid to the appellant "in relation to" its "participating wool": (s. 7(2) ), that is to say in relation to its wool which had been appraised under the National Security (Wool) Regulations and listed as participating wool in the appraisement catalogue used by the appraisers for the purpose of that appraisement: (s. 4(1), definition of "participating wool"). Moreover the amount was paid to the appellant as "the person who supplied the wool for appraisement": (s. 7(3) ). But it was not money which, before the Act was passed, the appellant had any legally enforceable right to demand, and the Act itself gave the appellant no right enforceable by action or other proceedings: (s. 28). (at p627)
3. Although the Commonwealth was not under any unsatisfied legal liability to the appellant, and the amount became payable simply because the Parliament chose to provide for its payment, it is not entirely accurate to call the payment a gift. Nevertheless the word has frequently been used in order to emphasise that there was no antecedent liability which the payment discharged. It must be observed at once, however, that even if it were correct to describe the payment as a gift in the strict sense of the word, the question we have to consider would still await an answer; for it is a commonplace that a gift may or may not possess an income character in the hands of the recipient. The question whether a receipt comes in as income must always depend for its answer upon a consideration of the whole of the circumstances; and even in respect of a true gift it is necessary to inquire how and why it came about that the gift was made. When, as in the present case, the word "gift", if it is to be used at all, must be used by way of imperfect analogy, it is specially important to recognise how inconclusive is that word for the purpose of deciding whether the receipt is of an income nature. (at p628)
4. I shall not describe in any detail the Wool Purchase Arrangement made between the United Kingdom Government and the Australian Government at the beginning of the war, the provisions and the working of the National Security (Wool) Regulations, or the agreement, embodying the Disposals Plan, which was approved by the Wool Realization Act 1945-1946. They are fully discussed in the judgments which have already been delivered, and I need not go over the ground again. The features that stand out as significant for the present problem when the whole history of the matter is surveyed seem to me to be few and clear-cut. (at p628)
5. In the first place, the National Security (Wool) Regulations took from a wool grower in the position of the appellant wool which in other circumstances he would have disposed of by the normal method of sale by auction, and they gave him in its place two things. One was a right to receive what reg. 30(1) described as "the payments for wool". In the administration of the regulations these payments comprised the appraised value of the appellant's wool (divided into an initial payment and the "retention money" paid at the end of the wool season), and the flat rate adjustment which was the appellant's proportionate share of the excess, ascertained at the end of the season, of the price received by the Commonwealth for the whole clip at the flat rate purchase price over the total appraised value of the whole clip. For the purpose of determining the income or non-income quality of these payments, no real distinction can be drawn between them and a price realized by sale. Indeed the regulations (reg. 15) actually described the compulsory disposition of wool in pursuance of their provisions as a "sale of wool . . . by appraisement". But that was not all. The grower also got, no less certainly than these payments, a chance of receiving something more, in effect an addition to the price, by an exercise of the discretion which reg. 30(2) entrusted to the Central Wool Committee. The discretion was conferred as an absolute discretion, but on wellknown principles it could not have been validly exercised otherwise than upon grounds within the scope of the regulations. The moneys to which the discretion extended (if any should come into existence) were thus significantly differentiated from moneys intended for the public purse, and solid ground was provided for an expectation that, as the history of wool in the previous war and considerations both ethical and political would all combine to suggest, any distribution that might be made under reg. 30(2) would be a distribution to the wool growers who had supplied wool for appraisement. That is to say that any such distribution would be made (not precisely, but as nearly as common knowledge suggests that it was either practicable or necessary to go), to the persons who had supplied shorn wool for appraisement. This expectation was, of course, confirmed by the action of the Central Wool Committee in causing all shorn wool to be designated "participating wool" in the appraisement catalogues, in contemplation, as the case stated sets out, that the Commonwealth Government's share of any profit to arise would be paid to the suppliers of shorn wool. The point which it is important to observe here is that the expectation thus created, resting as it did upon most substantial considerations, arose, together with and no less surely than the moneys which were paid in respect of the appraised value and the flat rate adjustment, in favour of the persons who supplied the shorn wool for appraisement; and together they formed the totality of that which the regulations gave those persons in place of their wool. It must have followed, if there had ever been a distribution under reg. 30(2), that the question whether moneys distributed to a particular supplier of wool were of an income nature would be answered yea or nay, according as the proceeds of his wool if sold at auction would or would not have constituted an income receipt in his hands. In the vast majority of cases, and certainly in the case of the appellant, whose wool had been produced for sale in the course of a business of growing and selling wool, the moneys received would certainly have had to be brought into the trading accounts, and would accordingly have gone to swell assessable income. (at p629)
6. The next point which emerges from a consideration of the history of the matter is that the fund out of which came the moneys now in question, though it was not the identical fund which reg. 30(2) contemplated, had such a relation to the wool supplied for appraisement that considerations were applicable to it which were not substantially different from those which have just been mentioned. This view was stoutly contested by counsel for the appellant, who contended that it had been too readily accepted by the Court in Ritchie v. Trustees Executors & Agency Co. Ltd. [1951] HCA 38; (1951) 84 CLR 553 . Counsel pointed out that immediately before the agreement containing the Disposals Plan took effect (as it did in Australia by virtue of the Wool Realization Act 1945), the potential sources of distributions to wool growers by the Central Wool Committee in exercise of its discretion under reg. 30(2) were of three description: Australia's one-half share of amounts which had been accumulated in an account known as the Divisible Profits Account; other moneys which had already arisen to the Committee; and such further moneys as might be derived from the continued operation of the Wool Purchase Arrangement. Clause 2(b) of the Financial Plan, which formed Pt. III of the agreement, disposed of the amounts accumulated in the Divisible Profits Account by authorizing the United Kingdom Government to retain them. The Wool Industry Fund Act 1946 disposed of all other moneys vested in the Central Wool Committee by diverting them to a Wool Industry Fund which it made applicable for certain purposes not material to be considered. And of course there could not be any further share of profits accruing under the Wool Purchase Arrangement, for that arrangement was brought to an end. The result, it was said, was to destroy the possibility of any distribution being made to wool growers under reg. 30(2); and the new scheme which came into being was so essentially different from the Wool Purchase Arrangement of 1939 that any moneys that might accrue to the Commonwealth in consequence of its operation must be regarded as completely unaffected by the expectation of further payment which the wool growers had formerly possessed. (at p630)
7. The points of difference were certainly not unsubstantial. First, it was pointed out, the Disposals Plan dealt with different wool from that covered by the Wool Purchase Arrangement, for it included the 1945/46 clip and any wool of later clips that might be purchased for the Joint Organization at auction. Moreover, whereas under the Wool Purchase Arrangement the wool to be sold was the property of the United Kingdom Government, under the Disposals Plan the wool dealt with by the Joint Organization was wool held in joint ownership by the United Kingdom and Australian Governments. Further, the profit in which Australia was entitled to share had been limited, under the Wool Purchase Arrangement, to profit on the sale of Australian wool outside the United Kingdom, whereas under the Disposals Plan it extended to profit on the sale of Australian wool wherever it might be sold. Again, instead of the Central Wool Committee being entitled to only one-half of certain defined profits but standing to lose nothing in the event of a loss being incurred on the resale of Australian wool by the United Kingdom Government, the Commonwealth became a shareholder in the Joint Organization, in effect paying for its share over E40,000,000 pounds (i.e. one-half of the E82,777,089 pounds mentioned in par. 33 of the case stated). By the same token, under the new plan the Commonwealth was entitled to have some say in the disposal of the wool, whereas under the old plan disposal was a matter for the United Kingdom Government alone. Because of these and other differences, the argument proceeded, the view should be accepted that any profit coming to the Commonwealth under the Disposals Plan not only belonged to it in point of law, but was unaffected by any such considerations favouring the persons who had supplied participating wool for appraisement as those which formerly applied to moneys falling within reg. 30(2); and for that reason the moneys which the Act of 1948 directed the commission to distribute were moneys which the Commonwealth was in the fullest sense free to dispose of as it saw fit. Add to that the fact that the Act chose as the recipients, not wool growers as such, but the persons who supplied wool for appraisement whether they had grown it or acquired it from the growers, and the right conclusion, it was said, is that the distributions were truly in the nature of gifts which cannot be classified as income, for they arose from the bounty of the Commonwealth to persons chosen by the Commonwealth in exercise of a complete freedom to apply its own moneys as it saw fit, persons chosen for reasons which were personal to them and which had no reference to any carrying on by them of income-producing operations. (at p631)
8. To take this view, however, is to get the whole matter out of focus. When the Commonwealth by cl. 2(b) of the Financial Plan gave up to the United Kingdom Government its half share of the amount standing to the credit of the Divisible Profits Account, it acquired by virtue of cl. 1 of the Disposals Plan an interest as joint owner with that government in the latter's accumulated stocks of Australian wool. Such possibility as there was that further profits might have arisen to the Central Wool Committee from the continued operation of the Wool Purchase Arrangement was, of course, wrapped up in the same stocks of wool. So that Australia's share of realized profit and the Commonwealth's rights under the old arrangement with respect to future profit both went into the acquisition by the Commonwealth of an interest as joint owner of the accumulated wool; and that meant that the wool growers' prospect of having distributions of those profits made to them by the committee under reg. 30(2) was in effect invested in the Australian wool which the Joint Organization was to turn into money. It is true that the Commonwealth Government also undertook by the Financial Plan to contribute to the Joint Organization fifty per cent of the original capital represented by the opening stock of wool; but as it turned out it was able to do this out of its share of the proceeds of sales of wool effected by the Joint Organization; so that the proceeds actually coming to the hands of the Commonwealth must be considered as really standing in the place of the Australian share under the Wool Purchase Arrangement of the profits, realized and prospective, which the Commonwealth gave up by entering into the 1945 agreement. It is also true that the Joint Organization would be selling, not only the accumulated stocks, but also such wool of later clips as it might buy with a view to supporting the market; but this was only a means; the main purpose of the Disposals Plan was to ensure the realization of the accumulated stocks in a manner as advantageous as possible to those who were interested in their profitable sale, while at the same time preventing prejudice to the sale of future clips: see the third paragraph of the preamble to the Wool Realization Act 1945. It is also clear that the Commonwealth's share of the profits of the Joint Organization would be received by the Commonwealth itself and not by the Central Wool Committee, and that the manner of their ultimate disposal would be determined by the Commonwealth and not by the committee. But it is evident that in a practical sense, as in a constitutional sense, the power of the Commonwealth to dispose of those profits was not unlimited; and it would be only a partial view of the situation which would lead one to describe the profits as the Commonwealth's own moneys which it might apply as it thought fit. The considerations which had operated to give substantial assurance that the committee would distribute amongst the wool growers any surplus that might have arisen in its hands operated now to give no less assurance that the Commonwealth would distribute amongst the same persons such profits as should become available for distribution by it in consequence of the working of the Disposals Plan. (at p632)
9. The Commonwealth having substantially fulfilled, by means of the Act of 1948, the expectations thus existing, what ground can there be for denying to the payments made under the provisions of that Act the same quality as would have belonged to distributions, if there had been any, under reg. 30(2)? It is nothing to the point that the Act of 1948 selected as the criterion for participation the fact of having supplied the wool for appraisement, as distinguished from the fact of having grown the wool for profit. What is to the point is that in truth and in fact the moneys distributed under the Act to the persons who supplied wool for appraisement cannot be regarded otherwise than as part of the total sum which has taken the place of the wool in the hands of those persons; and accordingly the principle (of which Commissioners of Inland Revenue v. Newcastle Breweries Ltd. (1927) 12 Tax Cas 927 , is perhaps the best-known example), is applicable here, that moneys received from any source, if in truth they represent items of a revenue account, must be regarded as received by way of revenue: Federal Commissioner of Taxation v. Wade [1951] HCA 66; (1951) 84 CLR 105, at pp 112, 123 . (at p633)
10. The Act of 1948 itself could hardly have made the position clearer. It harks back to the appraisement which took place under the regulations, and observes that some of the wool appraised was marked for future participation in distributions, being listed as participating wool. Specifically in relation to each lot of participating wool, it provides for a payment to the persons who supplied that wool for appraisement. The amount to be paid to each such person is regulated by means of a proportion sum, so that the whole of the wool disposals profit shall in the long run be divided amongst those who supplied participating wool, proportionately to the appraised values of their respective contributions to the mass. Subsidiary provisions are added; but there, in s. 7, at the heart of the statutory scheme, is the clearest recognition that both the individual's qualification to participate and the extent of his participation are referable to his having supplied particular wool for appraisement, and are referable to no other consideration. (at p633)
11. This being so, it may seem somewhat odd that support for the contention that the amount received is not income is claimed from the well-known line of decisions upon the question whether gratuitous payments are assessable as profits arising out of the recipient's employment or by reason of his office, within the meaning of English taxing statutes. The distinction those decisions have drawn between taxable and non-taxable gifts is the distinction between, on the one hand, gifts made in relation to some activity or occupation of the donee of an income-producing character, such gifts being variously described as accruing to the donee in virtue of his office (Herbert v. McQuade (1902) 2 KB 631, at p 649 ), or as remuneration (Beynon v. Thorpe (1928) 14 Tax Cas 1, at p 11 ; Seymour v. Reed (1927) AC 554, at p 559 ), or in respect of his past services (Beynon v. Thorpe (1928) 14 Tax Cas, at p 14 ), or substantially in respect of his services (Blakiston v. Cooper [1908] UKHL 1; (1909) AC 104, at p 107 ); and, on the other hand, gifts referable to the attitude of the donor personally to the donee personally, such as those which have been called mere gifts or presents made to the donee on personal grounds (Seymour v. Reed (1927) AC, at p 559 ), mere donations (Stedeford v. Beloe (1932) AC 388, at p 391 ), gifts moved by the remembrance of past services already sufficiently remunerated as services in themselves (Beynon v. Thorpe (1928) 14 Tax Cas, at p 14 ), payments peculiarly due to the personal qualities of the particular recipient, or personal gifts as marks of esteem and respect (Blakiston v. Cooper (1909) AC, at pp 107, 108 ). The application of the distinction thus drawn ought surely to be that amounts such as that now in question are to be regarded as income if they were received in relation to wool supplied for appraisement in the course of a business carried on for profit. The Act makes it plain that these amounts are made payable in respect of the wool which was supplied and because it was supplied; not because of any admiration for the personal qualities of the suppliers or because of gratitude for their having supplied wool for which adequate payment was considered to have been made already. (at p634)
12. The explanation of the appellant's reliance upon the line of cases just referred to is that in Maslen's Case (Perpetual Executors Trustees & Agency Co. (W.A.) Ltd. v. Maslen (1952) AC 215 ), Lord Porter, in the course of stating the reasons of the Judicial Committee, described as "personal gifts" certain payments of the very kind with which the present case is concerned. If I understood his Lordship to have used that expression in the sense which it has in the tax cases, I should of course put aside at once any inconsistent view of my own. But when account is taken of the actual problem to which the judgment was addressed, when one considers the precise question raised by the case and the competing views which had been reflected in the judgments delivered in this Court, it becomes, I venture to think, quite clear that in the context of their Lordships' judgment the expression "personal gift" has a meaning which not only affords no support for the argument of the appellant here but tends strongly in the opposite direction. (at p634)
13. The amount in question in Maslen's Case (1952) AC 215 had been distributed in relation to wool which had been supplied for appraisement by a firm consisting of two partners. After the wool had been so supplied, one of the partners assigned to a third party all his right title and interest as a partner in the assets of the partnership. Thereafter the partnership was dissolved. Upon a distribution being made under the Wool Realization (Distribution of Profits) Act 1948, the question arose whether the destination of the assignor's share in that distribution was affected by the assignment. In this Court [1950] HCA 55; (1950) 82 CLR 101 Latham C.J. and I considered that the question should be answered in the affirmative because of the provisions of sub-ss. (2) and (3) of s. 10 of the Act. Sub-section (2) provides that where participating wool was supplied for appraisement by a partnership which has been dissolved, an amount which would otherwise be payable to the partnership may be paid by the Commission to any partner; and sub-s. (3) provides that where an amount has been paid in pursuance of the section (and the amount in question in Maslen's Case (1952) AC 215 had been so paid), the rights, duties and liabilities of the person to whom it is paid in respect of the amount shall be the same as if it were part of the proceeds of a sale of the wool of the partnership, made at the time of the supply of the wool for appraisement. If the wool supplied for appraisement by the partnership in Maslen's Case (1952) AC 215 had been sold by auction instead of being supplied for appraisement, and part of the proceeds of sale had remained outstanding and had come in at the time when the distribution was made under the Act, the assignee would clearly have been entitled to that part of the proceeds of sale; and for that reason the majority of the Court considered that the assignee was entitled to the distribution moneys, not by force of the assignment itself, but by force of the parallelism which s. 10(3) required to be observed. (at p635)
14. Fullagar J. dissented. He considered that the main general provision of the Act was the provision in s. 7(3) that an amount payable under the Act in relation to any participating wool shall be payable to the person who supplied the wool for appraisement. He pointed out (1950) 82 CLR, at p 121 that the general principle of the Act was that the wool produced the profit, and the man who produced the wool should receive the profit. Sub-section (3) of s. 10 his Honour regarded as simply giving a particular legal character to a sum of money, and as doing so without creating the inferential consequences, first, that a debt must be regarded as having been owed to the suppliers of the wool as from the date on which they supplied it, and secondly, that any past transaction affecting debts owing to the suppliers at the time of the transaction must be deemed to have affected a notional debt created by the sub-section. (at p635)
15. Now, their Lordships of the Privy Council had to choose, as they said (1952) AC, at p 229 , between the two constructions, and they upheld the view of Fullagar J. They said (1952) AC, at p 227 that the sums paid by the commission were admittedly nothing but a gift, and (1952) AC, at p 229 that it would do violence to that admitted fact to construe the provisions (of s. 10) as going further than to require a member of a dissolved partnership to account to his former partner, that is to say as going so far as to stipulate that the money should be dealt with as if it were the result of a contract or debt which came into existence when the wool was supplied for appraisement. Thus their Lordships decided the case by giving effect to what they considered to be the intention permeating the Act, that is to say the intention that the man who supplied participating wool for appraisement, and (broadly) no one else, should participate in distributions. If I understand the judgment correctly, it was for the purpose of emphasising that intention that the expression "personal gift" was used to describe an amount paid to a participant in a distribution. The moneys payable under the Act, being bestowed as the Parliament had seen fit to bestow them, were described by their Lordships as "payable to the supplier" (1952) AC, at p 229 . "It is a true gift", they said, "to the supplier of the wool" (1952) AC, at p 229 ; "a personal gift to the parties concerned" (1952) AC, at p 230 . It seems clear that what their Lordships were insisting upon by their use of the term "personal gift" was that s. 10 must be construed in the light of the essential point in the scheme of the Act, which was that the wool disposals profits were to be put into the very hands from which participating wool had been compulsorily taken. So construed, s. 10 had the effect of attaching to those profits, when they reached the hands of a member of a partnership which had supplied participating wool for appraisement, the incidents which would have attached at the time when the wool was supplied to the proceeds of a sale of the wool made by the partnership at that time. That meant that it was incorrect to give the section such a retrospective operation as it would have if treated as allowing events occurring between the supply of the wool for appraisement and the distribution under the Act to alter the destination of the moneys distributed. The destination remained what it would have been if those events had not happened; the recipients were selected by reference to the fact that it was they who had supplied wool for appraisement; the Act operated in favour of them personally. (at p636)
16. The point which was decided in the particular case was that the assignment made by one partner after the partnership had supplied wool for appraisement, even though it was an assignment of his partnership interest as an entirety, could not operate under s. 10 to deprive the assignor of the right to receive for his own benefit his share of moneys distributed under the Act in relation to the partnership wool; for it was to him and his co-partners, and to them alone, that the Act intended the proper proportion of the wool disposals profit to go. It was to go to them as individuals personally selected as having themselves supplied for appraisement the wool to which the proportion related; it was bestowed upon them - given to them if you will - as individuals, personally; it was a personal gift to them. (at p637)
17. But this did not mean that moneys received in a distribution under the Act did not possess in the hands of the recipients the same character as would have attached to payments received in satisfaction of a legal right to be paid for the wool supplied. The argument their Lordships were concerned to deny was that the beneficial title to the moneys received was to be determined as if those moneys were paid in satisfaction of a debt which had arisen at the time of the supply and had remained unpaid until the date of distribution. Their Lordships decided, in effect, that s. 10(3) should be construed as operating only as between the former partners themselves (and of course their estates if they had died), and not so as to give rights to outsiders. And why? Because it was the partners who had supplied the wool; it was they who were the chosen beneficiaries of the Act. And bearing that fact in mind, all that s. 10(3) should be understood as doing was to require, for the purpose of adjusting the rights of the partners inter se, the hypothesis of a sale at the date of supply, that is to say a sale on the terms of immediate payment in cash, and not a sale on the terms that a debt for a portion of the price should remain outstanding so as to be exposed to divesting as a result of subsequent events. But all this being granted, the question remains, what was the character in which the subject matter of the "personal gift" came to the hands of the recipients? Their Lordships gave the answer and underlined it, I should have thought, when they described the payment (1952) AC, at pp 229, 230 as "the extra proceeds", "the extra profit", "the additional payment", and "the extra sum paid". There could hardly be a clearer recognition of the similarity in character of the moneys distributed under the Act and the moneys which at an earlier date had been paid for the wool under the regulations. (at p637)
18. It is pertinent to recall some remarks made by Atkinson J. in Calvert v. Wainwright (1947) KB 526 , which was a case concerning tips received by taxi drivers from their passengers. His Lordship said: "I shall deal with the authorities in a moment, but the principle which they establish, if I understand them correctly, is that tips received by a man as a reward for services rendered, voluntary gifts made by people other than the employers, are assessable to tax as part of the profits arising out of the employment if given in the ordinary way; but, on the other hand, that personal gifts, which means gifts to a man on personal grounds, irrespectively of and without regard to the question of whether services have been rendered or not, are not assessable. The commissioners have obviously misunderstood what is meant by a personal gift. They have not found that the tips were personal gifts: they have found that they were gifts given to the respondent personally, which is a totally different thing. Every tip is given to a man personally, but that merely means that it is given to him for his own benefit, and not for that of the employers. Having listened to the cases, the commissioners thought the words 'personal gift' meant given to him personally, whereas it is quite clear from the cases that what is meant by 'personal gifts' is a condensation of the full sentence personal gifts given on personal grounds other than for services rendered" (1947) KB, at p 527 . To describe the moneys in question in the present case as personal gifts in the sense of the tax cases would be to fall into the very error which the commissioners had made in Calvert v. Wainwright (1947) KB 526 . (at p638)
19. For these reasons I am of opinion that the receipt here in question was a receipt on income account. The question whether it should be included in the assessable income of the year of receipt or of an earlier year presents no difficulty. Under statutes such as that which the House of Lords had to consider in Gardner, Mountain and D'Ambrumenil Ltd. v. Inland Revenue Commissioners (1947) 1 All ER 650 , it is often proper to re-open the accounts of a past year and to attribute a subsequent receipt to that year as being the year in respect of which it arose. No such process is possible here, for under the provisions of the Income Tax Assessment Act which govern this case the inclusion of an amount in the assessable income of a year depends upon its having been derived in that year. There is no ground upon which the moneys in question here can be considered to have been derived in any year earlier than that in which the appellant received them. (at p638)
20. In my opinion the questions asked in the stated case should be answered:
(i) Yes.
(ii) In the year ended 31st December, 1949. (at p638)
ORDER
Questions in case stated answered as follows (i) No. (ii) Does not arise. Costs of case stated reserved for the judge disposing of the appeal.
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