Millard v Federal Commissioner of Taxation [1962] HCA 28; (1962) 108 CLR 336 (12 June 1962)

HIGH COURT OF AUSTRALIA

MILLARD v. COMMISSIONER OF TAXATION [1962] HCA 28; (1962) 108 CLR 336

Income Tax (Cth)

High Court of Australia
Taylor J.(1)

CATCHWORDS

Income Tax (Cth) - Assessable income - Taxpayer a registered bookmaker - Agreement with company that taxpayer should carry on bookmaking business on behalf of company as its agent - Shares in company owned by taxpayer and his family - Whether taxpayer liable to assessment for income of company - Income Tax and Social Services Contribution Assessment Act 1936-1958 (Cth), s. 260.

HEARING

Melbourne, 1962, May 22, 23;
Sydney, 1962, June 12. 12:6:1962
APPEAL under the Income Tax and Social Services Contribution Assessment Act 1936-1958.

DECISION

June 12.
TAYLOR J. delivered the following written judgment:-
For some years prior to 5th May 1957 the appellant was a registered in and about Melbourne. But on that date he entered into an agreement with a company which had been incorporated during the previous month - R. F. Millard Pty. Limited - and it is this agreement and the attendant circumstances which have given rise to the questions which have been debated in this case. The agreement recited that the appellant had for many years carried on the business of a bookmaker, that he was licensed to operate as a bookmaker by leading racing clubs in Victoria and elsewhere and that the parties to the agreement had agreed that as from the date thereof the company should take over from the appellant and carry on the said business on its own behalf on the terms and conditions thereinafter appearing. Thereupon it was provided that as from the date thereof the company should take over from the appellant and carry on the said business on its own behalf (cl. 1) and that, as from the same date, the appellant should carry on all bookmaking activities thitherto carried on by him on his own behalf for and on behalf of the company as its agent (cl. 2). By cl. 3 the company bound itself to pay the appellant for his services as such agent the sum of 3,500 pounds per year payable by equal quarterly instalments in each year during the continuance of the agreement. The appellant, on his part, bound himself to apply from time to time for all necessary renewals of his bookmaking licences and to use his best endeavours to obtain any further licences which might become necessary from time to time to enable him fully to carry on the said business as the agent of the company (cl. 5). By cl. 6 he undertook not to conduct any wagering activities whatever whether as bookmaker or bettor on his own account and to account to the company for all wagering and betting transactions of whatever nature conducted by him. All expenses properly incurred by the appellant in connexion with his services to the company were to be paid by the company (cl. 7). The agreement was to continue until determined by mutual consent or pursuant to the provisions therein contained. By cl. 9 the agreement was determinable by either party giving to the other six months' notice in writing and by cl. 8 it was specified that in the event of the appellant's licences to operate as a bookmaker being endangered "by virtue of the agreement" it should forthwith be at an end. In that event the appellant was to be at liberty to carry on the said business on his own behalf and without let or hindrance by the company. (at p339)

2. The company was incorporated with a capital of 5,000 pounds divided into 5,000 shares of 1 pounds each and the appellant, his wife and his accountant, J. R. Booth, were its first directors. Within a matter of a few days the whole of the company's shares were issued, as to 3,000, to the appellant and, as to the remaining 2,000, in parcels of 500 to the appellant's wife and three children respectively. Since then there have been several re-arrangements of the shareholding in the company and the appellant, his wife and children each hold now an equal number of shares. The appellant paid for his shares on 6th May 1957 and on the same day he lent to the company the sum of 2,000 pounds "until shares allotted to his family had been paid for". However, this latter sum was refunded to the appellant on the following day. Payment for shares issued to the appellant's wife and children was made on or about 26th June 1957. This was done by cheques drawn by a company known as Riddell Creek Pty. Limited in which the appellant and his family were substantial, if not the only, shareholders. On the same day R. F. Millard Pty. Limited paid to the appellant an amount of 1,202 pounds in respect of his interest in two racehorses and the sum of 3,000 pounds on account of a debt owing to him by Riddell Creek Pty. Limited. For what it is worth, however, there was no transfer of the registration of the racehorses and no assignment to the company of any part of the debt owing to the appellant by Riddell Creek Pty. Limited. The amount of 1,202 pounds was said to be the cost to the appellant of his interest in the two racehorses. But Mr. Booth regarded them rather as a liability than as an asset and the company seems to have disposed of its interest in them in the following year for a little over 70 pounds. (at p340)

3. It is said that the appellant commenced to operate pursuant to the terms of the agreement on 18th May 1957. According to the evidence this was the first day upon which he claims to have fielded as the agent of the company. He provided himself with funds from the company's bank account for this purpose on 17th or 18th May 1957 and on Monday, 20th May 1957 he paid into the company's account the sum of 4,252 pounds which represented the profit on the intervening bookmaking operations. From this time onwards, it is claimed, the appellant never fielded as a bookmaker other than as agent for the company but it is apparent that, apart from the provision of funds from the company's bank account to finance the bookmaking operations and the regular deposit of profits to the company's bank account, the bookmaking business was conducted precisely as it had been conducted before the agreement was entered into. The appellant was the person who held the various club bookmaker's licences, the person who applied for and obtained the necessary certificates of registration pursuant to the Bookmakers' Act 1953 (Vict.) and the enactments which replaced it and he was the person liable to pay duty under the provisions of the Stamps Acts. At no time was it suggested to any of the clubs concerned or to the Bookmakers and Bookmakers' Clerks Registration Committee that he wished merely to operate as an agent of the company and there was nothing in the manner in which the bookmaking operations were carried on to indicate that he was acting otherwise than as a principal. (at p340)

4. In these circumstances the appellant made a return of income in respect of the year ended 30th June 1958 which showed his taxable income for that year as 8,093 pounds. But the respondent assessed the appellant's tax on a taxable income of 36,584 pounds. Nearly the whole of the difference between these two sums, namely 28,486 pounds, represented what was said to be income of the appellant "as disclosed in accounts submitted by R. F. Millard Pty. Limited". In fact it seems to have been a net amount calculated by reference to the sums paid by the appellant into the company's account during the relevant period. To this assessment the appellant lodged objections which, in substance, alleged that the amount in question was the income of the company, that it was not that of the appellant and that he had no right or interest therein. (at p341)

5. In support of the assessment a number of contentions were raised. Some of these were based upon the form of the agreement, and others suggested that it was void or illegal having regard to the Bookmakers' Act 1953 (Vict.) and, in particular to s. 9 thereof. Another contention was based upon the proposition that the transaction was beyond the corporate powers of the company. Additionally the submission was made that the agreement was a sham and, finally, it was said that it was a contract or agreement which, pursuant to s. 260 of the Income Tax and Social Services Contribution Assessment Act (Cth), the Commissioner was entitled to treat as void as against him. Of some of these submissions I propose to say little. But it is desirable to discuss the form of the agreement and to appreciate its somewhat unusual characteristics. First of all it should be noticed that the agreement provided that as from the date thereof the company should take over and carry on the business on its own behalf. If it is implicit in this provision that the appellant undertook to assign or transfer the business to the company it is clear that he was bound to do so without any further consideration than that provided for his services by clause 3. In fact there was no assignment or transfer of the business and it is reasonably clear that the parties did not intend that there should be any such further dealing. If this is not apparent merely from a perusal of the agreement it is made abundantly clear by the provisions of clause 8 which provides that the agreement was to "be at an end" in the event of the appellant's licences "being endangered by virtue" of its existence and that the appellant should be at liberty to carry on the business on his own behalf and without let or hindrance by the company. In the second place there were practical difficulties in the way of the company carrying on business as a bookmaker and I have no doubt that the appellant was aware of these. It was impossible for the company to obtain registration as a bookmaker under the Bookmakers' Act 1953 for s. 4 of that Act makes it clear that applications for certificates of registration may be made only by male persons not less than twenty-one years of age. And without a certificate of registration the company could not obtain the benefit of the proviso to s. 14 of the Instruments Act 1914 (Vict.) (now Instruments Act 1958, s. 14) nor that conferred by the proviso, introduced in 1953, to s. 96 of the Police Offences Act 1928 (Vict) (now Police Offences Act 1958 s. 96). The position of the appellant fielding as an agent for an undisclosed principal was the subject of some discussion but for reasons which will appear I do not propose to discuss this matter. Nor do I propose to discuss the question whether the agreement was illegal in that, if that section applied to bodies corporate, it contemplated continued breaches of s. 9 of the Bookmakers' Act 1953. It is, I think, sufficient to say that even if the agreement be regarded as valid and effective according to its tenor it was one clearly within the provisions of s. 260 of the Income Tax and Social Services Contribution Assessment Act. (at p342)

6. The appellant says that the agreement found its origin in the advice tendered to him by his accountant. He says that his accountant kept saying to him that everything he (the appellant) was doing was going up but that he "never finished with any more capital in the bank". The accountant pointed out, in effect, that if things continued to go on in the same way the appellant would not be able to make sufficient provision for his wife and children. "After going into the matter carefully" the appellant asked the accountant "if he could see any way where we could lawfully pay less tax and finish up with more capital". The agreement apparently represented the suggested solution to this problem and it was thereupon drawn up and executed. To my mind it is about as plain as it could be that the whole purpose and effect of the agreement was to split the appellant's income into a number of parts in order to minimize the amount of tax which would become payable. Any other effect of the agreement was entirely subsidiary to this. With the recent cases of Hancock v. Federal Commissioner of Taxation [1961] HCA 90; (1961) 108 CLR 258 and Mayfield v. Commissioner of Taxation (1961) 108 CLR 303, 323 in mind I find it unnecessary to enter upon any discussion concerning the ambit of the section for in the present case the whole of the amount in question was received by the appellant, it was the return from his own bookmaking activities and the provision made by the agreement for the subsequent disposition of the resultant profit was quite clearly merely for the purpose of avoiding taxation. That being so the appeal should in my opinion be dismissed. (at p342)

ORDER

Appeal dismissed with costs.