JUDGMENT to 3887 SB CATCHWORDS Income Tax - Ascertainment of assessable income ~- Distinction between income and capital - Sales of property acquired for re-sale and profit-making schemes - Land - Profit arising from carrying out of profit-making scheme. Income Tax Assessment Act 1936 - s.26(a), Divisions 5 and 6 of Part III BONFAM PTY. LTD. (AS TRUSTEE FOR THE M.J. RISHWORTH FAMILY TRUST) v. THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA VG369 of 1987 Jenkinson J. Melbourne 22 July, 1988 IN THE FEDERAL COURT OF AUSTRALIA ) VICTORIA DISTRICT REGISTRY ) No. VG369 of 1987 GENERAL DIVISION ) IN THE MATTER of the Income Tax Assessment Act 1936 and IN THE MATTER of an appeal thereunder against an assessment of income tax for the year ended 30 June 1982 BETWEEN: BONFAM PTY. LTD. (AS TRUSTEE FOR THE M.J. RISHWORTH FAMILY TRUST) Applicant AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent CORAM: Jenkinson J. PLACE: Melbourne Fy DATE: 22 July, 1988 REASONS FOR JUDGMENT Michael John Rashworth's wife died 1n April 1977. Bya deed dated 1 June 1978 a discretionary trust was constituted of a settled fund, then $100, of which Bonfam Pty. Ltd. was trustee and of which defined classes of persons related in blood or by marriage or adoption to Mr. Rishworth were to be beneficiaries. The trust, known as the M.J. Rishworth Family Trust, was 2. constituted on advice tendered to Mr. Rishworth by his accountant that a family trust should be constituted "for the sole purpose", according to the accountant's affidavit, upon which he was not cross-examined, "of securing long term investments, which would return an income so as to maintain and educate" Mr. Rishworth's two children, who were then aged respectively 9 and 12 years. Bonfam Pty. Ltd. was at all material times "associated with" the accountant's company, Bongiorno & Partners Pty. Ltd. Who its directors at any time were does not appear. Mr. Rishworth deposed that while Bonfam Pty. Ltd. was trustee of the M.J. Rishworth Pamily Trust he "was duly authorised to act on its behalf as its agent", but that he was at no time a director. Counsel for the parties to the appeal treated - and desired that I should treat - Mr. Rishworth's mind as at all material times the controlling mind of Bonfam Pty. Ltd. in relation to the matters with which this appeal is concerned. Ina return of income in respect of the year of income ended 30 June 1982 Bonfam Pty. Ltd. disclosed its receipt, as trustee of the M.J. Rishworth Family Trust, of an amount of $124,488, described in the return as "a capital receipt" and as having been included in the return as such in "accordance with" a return of partnership income which is identified. This latter return, in respect of the same year of income, concerns what is described therein as a "joint venture" of Antow Pty. Ltd. and Bonfam Pty. Ltd. It discloses a receipt by those two companies of $345,000 as what is called "Contract Dealings Surplus", deduction from that amount of certain "Expenses" aggregating $96,023, and shows each company to have received $124,488 of the balance of $248,977. This return also characterises what each company received as "a capital receipt". 3. In September 1983 the respondent Commissioner served notice of an assessment of the liability to income tax, in respect of the year of income ended 30 June 1982, of "Trustee For M J Rishworth Fam Trust" (sic), which specified $124,489 as the taxable income of that taxpayer. An accompanying adjustment sheet disclosed that that amount was considered to be "income received from the partnership of Antow and Bonfam P/L". In October 1983 Bonfam Pty. Ltd. lodged with the Commissioner its objection in writing against the assessment. By a deed made on 15 December 1983 Mr. Rishworth, in exercise of power conferred on him by the trust deed, removed Bonfam Pty. Ltd. and appointed John Rishworth & Associates Retail Marketing Services Pty. Ltd. as trustee of the M.J. Rishworth Family Trust. In June 1986 the Commissioner served notice of his decision wholly disallowing the objection. The notice was addressed to "The Trustee for the M.J. Rishworth Family Trust". The firm of solicitors who have acted in the appeal for the applicant sent to the respondent in July 1986 this letter: "Re: M.J. Rushworth Family Trust Your Reference: 75 602 759/1/82 We refer to your Notice of Decision on objection dated 25th June, 1986. We act for the taxpayer. We have been instructed by our client to request you to treat this objection as an appeal and to forward it to the Supreme Court of Victoria for determination." The respondent Commissioner not having complied with this request by lst September 1987, s.4(2) of the Jurisdiction of Courts (Miscellaneous Amendments) Act 1987 required, on and after that date, that the request be treated as a request to refer the 4. decison on the objection to this Court. The title of the notice of referral to this Court named the applicant "M.J. Rishworth «& Associates Pty. Ltd". On the second day of the hearing of the appeal an order was made, with the acquiescence of counsel for the parties, amending the title by substituting for that name the name "John Rishworth & Associates Retail Marketing Services Pty. Ltd". Discussion later during the hearing resulted in Mr. de Wijn of counsel for the applicant informing the Court that he and his instructing solicitors were instructed to appear for Bonfam Pty. Ltd. and to give that company's consent to its being substituted as the applicant in the appeal, if it appeared to the Court that the appeal should be so constituted. There is no direct evidence as to the identity of the person to whom reference was made as "our client" in the letter dated 28 July 1986 requesting reference. But there is in my opinion no doubt that it was upon Bonfam Pty. Ltd. that the liability to pay the tax assessed fell in October 1983, and that the notice of objection against that assessment was given in the name and on behalf of that company. In the absence of evidence to the contrary I infer that the request to refer the decision on the objection to the Supreme Court was also lodged on behalf of that company. Having regard to the reasoning of Williams J., 1n which Dixon C.J. concurred, in Deputy Commissioner of Taxation v. Brown (1958) 100 C.L.R. 32 at 49-50, I am of the opinion that Bonfam Pty. Ltd. has the right of "appeal", the exercise of which constitutes this proceeding, as I am also persuaded that it was Bonfam Pty. Ltd. which initiated the process of invoking that right by lodging the request for referral. It will be ordered 5. that the notice of referral and all subsequent proceedings be amended by substituting Bonfam Pty. Ltd. as applicant. Until 1982 Mr. Rishworth, who was 49 years old at the time the appeal was heard this year, had been employed by a member of the group of companies commonly known as Woolworths, in the last years of his employment as a senior merchandise manager. He had never before 1980 engaged in transactions concerning real property, except the purchase of his own home. Basil Evan Hetrel, who at material times controlled Antow Pty. Ltd. ("Antow"), was an experienced property developer. Mr. Hetrel's wife had been a close friend of Mrs. Rishworth and after the latter's death the friendship between Mr. and Mrs. Hetrel and Mr. Rishworth continued and strengthened. In 1979 Mr. Hetrel and Mr. Rishworth canvassed the possibility of joining in investing in land. The case for the applicant is that the enterprise contemplated by the two men ~- and the enterprise upon which Antow and Bonfam Pty. Ltd. ("Bonfam") later embarked in furtherance of what the two men had contemplated - was the purchase and development for commercial use of a piece of land and the leasing of the developed land at a rent sufficient to afford each of them a reasonable annual return over a substantial period of years on the capital invested as well as the benefit of an expected appreciation in the value of the land. The case for the respondent, on the other hand, is that the two men contemplated - and caused the two companies to undertake - the purchase and development for commercial use of a piece of land in the course of which the companies' interest in the land would be sold if and whenever it should appear that sale would be more profitable than leasing the developed land. The commercial development contemplated was, it was common ground, the construction of a supermarket and associated car parking facilities. According to Mr. Hetrel's evidence he followed what he said was a common practice of supermarket site developers in enquiring of supermarket chain operators as to the areas in which they might be interested in taking a lease of premises. He was informed by Woolworths' property manager that Woolworths might be interested in taking a lease of supermarket premises at Wonthaggi, he swore. With advice and assistance by a Wonthaggi estate agent Mr. Hetrel procured a contract for the purchase of a piece of land in Wonthaggi by Antow. The contract, which was dated 1 July 1980, provided for a purchase price of $200,000, payable by a deposit of $2,000, an instalment of $18,000 "in accordance with Special Condition 4" and the balance "in accordance with Special Condition 5". Special conditions 4, 5 and 6 provided: "A, Subject to Special Condition 6 the instalment of - EIGHTEEN THOUSAND DOLLARS ($18,000.00) shall be payable at the expiration of fourteen days after the latter of : (a) the issue to the Purchaser of all town planning permits, land use permits, building permits and other permits from all relevant authorities which are required and necessary to enable the Purchaser to erect on the land sold herein such development for commercial retail purposes and attendant carparking incorporating not less than 50,000 square feet of net retail space and containing such conditions in respect of such town planning permits, land use permits, building permits and other permits as are agreeable to the Purchaser, and (b) The execution by Woolworth (Victoria) Limited of a Lease in respect of the development to be erected on the land containing terms and conditions agreeable to the Purchaser and _ to Woolworth (Victoria) Limited. 5. Subject to special condition 6 the residue of ONE HUNDRED AND EIGHTY THOUSAND DOLLARS ($180,000.00) shall be payable at the expiration of twelve months of the date hereof or at the expiration of a period of sixty days from the date of the receipt by the Purchaser of the last of the town planning permits, land use permits, building permits and other permits aforementioned and of the executed Lease between the Purchaser and Woolworth (Victoria) Limited as hereinbefore mentioned whichever is the later. 6.(a) This Contract is conditional upon the following matters which it is agreed are conditions precedent to the Contract : (i) the obtaining and receipt by the Purchasers of all necessary and required town planing permits, land use permits, building permits and other permits from all relevant authorities to enable the Purchaser to erect on the land sold herein a development for commercial retail purposes for not less than 50,000 Square feet of net retail space and attendant car-parking, and (ii) the:receipt by the Purchaser of a duly executed Lease from Woolworth (Victoria) Limited pursuant to which Lease' the Purchaser demises to Woolworth (Victoria) Limited the whole of the development to be erected on the land solid herein, pursuant to such town lanning permits, land use permits, building permits and other permits containing such terms and conditions, as are agreeable to the Purchaser and Woolworth (Victoria) Limited. (b) If at the expiration of twelve calendar months from the date hereof all of the conditions set out in Clause 6 (a) above have not been satisfied for any reason whatsoever, including the inacceptability to the Purchaser of any terms, conditions, agreements, covenants or stipulations contained in any or all of the said town planning permits, land use permits, building permits and other permits or lease then the Purchaser shall have the right to either : (i) avoid this Contract whereupon all moneys paid hereunder by the Purchaser to the Vendors or the Vendors' Agents shall be refunded by the Vendors in full and without any deduction whatsoever, or (ii) in its full and absolute discretion waive any of such conditions hereinbefore then not satisfied and elect to proceed with the contract." At the beginning of 1981 Linkon Design & Building Pty. Ltd. was engaged by Antow to draw plans of the projected supermarket building and an adjacent car park. Negotiations with Woolworths for a lease of the land after it had been developed were carried on by Mr. Hetrel. On 15 June 1981 the Borough of Wonthaggi granted a permit to Antow to construct a supermarket and ancillary works on the land. By a deed made on 26 June 1981 the contract for purchase of the land was varied to provide for the immediate payment of $3,000 as "additional deposit" and for an extension to 24 months of the period of 12 months specified in special conditions 5 and 6. On 29 September 1981 the Borough of Wonthaggi cancelled the permit issued in June and granted another, substituted permit to Antow. By an agreement in writing dated 22 October 1981 between Antow and Allen Holdings (Australia) Pty. Ltd. ("Allen") Antow agreed, in consideration of $345,000 to be paid to it by Allen, to procure the substitution of Allen as 9. purchaser of the land in accordance with provisions for such a substitution which Antow's contract for purchase of the land contained, to hand over to Allen the permit granted by the Borough of Wonthaggi and the plans prepared by Linkon Design & Building Pty. Ltd., and to procure "the execution by Woolworths (Victoria) Ltd. of a valid Agreement to Lease incorporating an approved unsigned Lease of the property and the assignment thereof to Allen or its nominee". Performance of the last stated of the obligations undertaken by Antow was not required. The contract between Antow and Allen is silent as to the rent payable under the contemplated lease, and silent as to all other terms of that lease. Mr. Hetrel's evidence was that his negotiations with Woolworths had brought him, "by the middle of 1981", to a state of reasonable confidence that Woolworths would contract for a lease, at a rent of $6 per square foot per annum, of an area of 40,000 square feet (the lessee paying all outgoings), to commence when the projected supermarket development works had been completed. He also gave evidence that Allen, so far from requiring that Antow procure an agreement for a lease to Woolworths, insisted that Antow withdraw from negotiations with Woolworths, which Allen declared that it would itself conduct. The partnership income tax return showed the following expenses as paid or payable by Antow and Bonfam : 10. "Commission Paid 13,000.00 Design Costs 70,000.00 Legal Expenses 6,175.00 Survey Fees 6,848.00 96,023.00" Antow treated the net proceeds of the transaction with Allen, $248,977, as a profit of its joint venture with Bonfam which they shared equally. The agreement between the two companies was wholly oral, save for any terms which may be implied, and no written record of the making, or of performance by Bonfam, of the agreement, except the income tax returns, was tendered in evidence. The respondent did not suggest that agreement had not been made between the companies for the acquisition and development of the land. The parties to the appeal are in dispute only as to what the purposes and intentions were which animated Mr. Rishworth in making on Bonfam's behalf the agreement for the joint venture. Each of Mr. Hetrel and Mr. Rishworth gave evidence that they decided that the contemplated transaction with Woolworths would be carried out without introducing reference to Mr. Rishworth's interest because it was felt by them that some persons who were servants or directors of Woolworths might be disinclined to favour such a transaction with an employee of Woolworths. (In the result, according to Mr. Hetrel's evidence, the man who dealt with him on behalf of Woolworths knew that Mr. Rishworth was interested in the transaction.) Mr. Rishworth trusted Mr. Hetrel to honour their oral arrangement. 11. Mr. Rishworth also reposed confidence in Mr. Hetrel's judgment and experience so as to commit Bonfam to the proposed transaction on the advice of Mr. Hetrel. Mr. Hetrel's evidence was that his knowledge and experience of property developing enabled him to predict with reasonable confidence the financial outcome of the proposed transaction. Thus he knew in 1980, according to his evidence, that if Woolworths decided to take a lease it would be willing to pay rent of about $6 per square foot per annum for 40,000 square feet, or $240,000 per annum, together with all outgoings. He was able, he swore, to estimate the total cost of purchasing and developing the land, including interest charges incurred before the commencement of the projected lease to Woolworths, at $2,070,000. His evidence was that he believed, when the contract for purchase of the land was made in the middle of 1980, that interest on a loan of that total sum would be available at a rate of about 13.5 per centum per annum , or $279,000 per annum. Thus he predicted a loss during the first year of Woolworths' tenancy of about $39,000. His judgment was, he swore, that rent increases under provisions commonly included in leases of the kind contemplated would bring about the result that after about four or five years from the commencement of the tenancy the annual rent would equal the annual interest of $279,000. Thereafter the two companies would over a period of years share, according to Mr. Hetrel's evidence, a gradually increasing profit on their investment, and they could also expect an enhancement of the market value of the land. 12. Each of Mr. Hetrel and Mr. Rishworth gave evidence that sale of the land or of any interest of Antow and Bonfam in it before the projected lease had run for a substantial period was not contemplated by either of them in 1979 or 1980 as a course of action which they might wish to take. It was not until interest rates on loans of the kind which would have been required to fund their venture rose higher in 1981 than Mr. Hetrel had anticipated an 1980 that any thought of such a sale was entertained, according to their evidence. In lieu of the annual interest charge of about $279,000 which Mr. Hetrel had anticipated when in 1980 he predicted the financial outcome of the venture, an annual interest charge more than $100,000 greater was the prospect which faced Antow and Bonfam in October 1981, when the contract with Allen was made. That was the reason, according to the evidence of Messieurs Hetrel and Rishworth, why the projected development and the letting of the supermarket to Woolworths by the joint venturers had become too expensive for them to sustain. s I find that the annual interest charge was reasonably anticipated by Messieurs Hetrel and Rishworth in October 1981 to be likely to be of the order suggested. A rent in excess of $9.50 per square foot per annum would on that basis have been required to equal the annual interest charge. The annual rent which according to Mr. Hetrel's evidence he thought in the middle of 1981 Woolworths would be willing to pay was $6 per square foot. No evidence was adduced of any attempt by Mr. Hetrel to persuade Woolworths that the relatively high interest rates payable on borrowed funds in the latter half of 1981 should be matched, if those rates had not fallen when the contemplated lease commenced, 13. by a rent substantially higher than $6 per square foot. Nor was any evidence adduced of the rent which Woolworths in fact agreed to pay for its lease of the supermarket. Mr. Hetrel's evidence was that he did not contemplate sale of the joint venturers' interest in the Wonthaggi land until he was approached in August 1981 by Frederick Winston Guihenneuc, who enquired whether Antow would consider selling its interest in the land. Mr. Guihenneuc confirmed Mr. Hetrel's evidence that he raised the subject with Mr. Hetrel, but there was evidence that Mr. Rishworth informed an officer of the Taxation Department, during a discussion of the transaction which took place in October 1986 in the presence of Mr. Rishworth's solicitor, that it was Mr. Hetrel who approached Allen "via an agent". Mr. Guihenneuc was an estate agent with whom Mr. Hetrel had been previously associated and who acted on behalf of Allen in negotiating the agreement of October 1981. a I am not persuaded that the intention of Mr. Hetrel or of Mr. Rishworth was, when the contract for the purchase of the land was made in July 1980, to persevere in exploitation of the land by taking for its letting in its developed state the rent it would yield. I think it more probable than not that neither of them contemplated as the preferable course a long deferred gain from rent and later, ultimately, from sale. On the predictions which Mr. Hetrel swore that he made there would be losses substantially in excess of $39,000 before any gains were made if the land were leased by the joint venturers to Woolworths, and the gains would not commence until four or five years after the lease 14. had commenced. The evidence does not disclose what time Mr. Hetrel thought in July 1980 would elapse before the land yielded rent, but on the whole of the evidence it seems unlikely that he thought it would be less than two years. Notwithstanding the testimony of Messieurs Hetrel and Rishworth, I think they both hoped and intended , in and before July 1980, that the land would be sold at a profit after its development as a supermarket site had been made lawful and before any lease to Woolworths had run for many months. The circumstances which the evidence discloses raise an inference, which, notwithstanding the testimony of Messieurs Hetrel and Rishworth, I am persuaded to draw, that the two companies, at the will of their controllers, engaged in a profit-making undertaking. The first step was obtaining the right to dispose of freehold title to the land and the next step was obtaining the right to dedicate the land to use as a supermarket. The undertaking was, as I find, that if and when those rights were obtained the advantages which those rights conferred should be exploited for profit in whatever way should then seem best. One way of exploitation which, as I * find, Messieurs Hetrel and Rishworth contemplated in and before July 1980 was a transaction of the kind in fact effected with Allen, and to be effected at the stage at which the transaction with Allen was in fact effected : soon after the two rights had been obtained. The transaction which each of Mr. Hetrel and Mr. Rishworth testified was the only transaction they had contemplated as occurring after the two rights had been obtained - lease by Antow on behalf of the joint venturers to Woolworths over a period of years - may have been contemplated by them as one of the possible ways of exploitation. But I do not find that it was the only way, nor that it was the 15. way which either preferred in or before July 1980. The undertaking was that the two rights to which I have referred ~ the right to dispose of freehold title and the right to dedicate the land to a particular commercial use - should be assured to the joint venturers before they were committed to any very large expense, and that the enhancement of the market value of the land, which they expected upon their acquisition of both tights, above the price they would have conditionally agreed to pay for the land should be realised as their profit, of the undertaking, diminished only by the expenses incurred in gaining those rights. This was "a plan, design or programme of action devised and put into effect for the purpose of making a profit", exhibiting "features which give it the character of a business deal", to adopt the description given by Gibbs J. of a profit-making scheme within s.26(a) of the Income Tax Assessment Act 1936 in Steinberg v. Federal Commissioner of Taxation (1975) 134 C.L.R. 640 at 699. The realisation of the expected profit would necessarily wait upon the "occurrence of the expected enhancement of value and upon the availability of a buyer. It may be that Messieurs Hetrel and Rishworth contemplated in July 1980 that the joint venturers might have to bear themselves the expense of development and might have to fund the interest on their borrowings as best they could out of the rent Woolworths would pay for the land while they waited to realise the profit they hoped to gain by sale. But I am persuaded, on the balance of probability, that they hoped and planned to sell, as in fact they did sell, before incurring substantial development costs, virtually the whole of which they expected that they would be borrowing. 16. Certainly I am not persuaded to the contrary. It was submitted by Mr. de Wijn that if, contrary to his submissions, the profit arising from the joint venturers' transactions with respect to the Wonthaggi land were assessable income of a partnership, and so part of the "net income" of that partnership within the meaning of that expression in Division 5 of Part III of the Income Tax Assessment Act 1936, yet no part of the sum received by the taxpayer Bonfam as its share of that profit was "net income" of the M.J. Rishworth Family Trust within the meaning of that expression in Division 6 of that Part of the Act. This was so, according to the submission, because the sum received was not income, but corpus of that trust. The reasoning upon which Mr. de Wijn relied in support of that submission is that of Lockhart and Fitzgerald JJ. in Federal Commissioner of Taxation v. Walsh (1983) 83 A.T.Cc. 4415. In that case what was in question was a liability which the Commissioner contended had been imposed on the trustees of a trust by s.94 of the Income Tax Assessment Act 1936 as in force in respect of the year of income ended 30 June 1973. The liability for which the Commissioner contended could not be established unless, in terms of s.94(5)(a)(i), the case was one in which "the assessable income of a trust estate includes the net income or a share of the net income of another trust estate". The trustees had received $1,768 in respect of five units, held by them as part of the trust estate, in another trust known as the P.J. Walsh Family Unit Trust. The trustee of the P.J. Walsh Family Unit Trust, a company which is called Syncarpia in the judgments, had 17. joined with two other companies in a joint venture to buy a piece of land and sell it soon afterwards at a profit. Syncarpia's share of the net proceeds of the venture was distributed to the beneficiaries under the P.J. Walsh Family Unit Trust and the sum of $1,768 was the taxpayer trustees' share of that distribution. The question then was whether that sum was "a share of the net income of another trust estate", namely the trust estate of the P.J. Walsh Family Unit Trust, within the meaning of that phrase in s.94(5)(a)(i). Fitzgerald J. observed (83 A.T.C. at 4435-4436): "Subsection 6(1) of the Act defines 'partnership' to mean, unless the contrary intention appears, an association of persons carrying on business as partners or in receipt of income jointly, but not to include a company. There is no definition in the Act of 'carrying on business' although 'business' is defined in subsec. 6{1) to include 'any profession, trade, employment, vocation or calling' but not to include 'occupation as an employee'. Because the first part of the definition of 'partnership' in subsec. 6(1) of the Act speaks of carrying on business 'as partners', it seems that it imports' the requirements of a partnership under. the general law. Subsection 5(1) of the Partnership Acts 1891 (Qld.), as amended, provides that partnership is the relation which subsists between persons carrying on a business in common with a view of profit. Section 6 of the Queensland Partnership Acts requires that regard be had to rules which it sets down in determining whether a partnership does or does not exist. On any view of the matter, there was no partnership for present purposes unless Syncarpia and the other two companies constituted an association of persons (i.e. legal persons) which were: (i) carrying on business; or (ii) in receipt of income jointly. I. propose to assume that there was a partnership and to consider the consequences 18. of a partnership under each alternative separately. Carrying on business If, in their isolated land dealing for profit, Syncarpia and its co-venturers were carrying on business in partnership, the only asset of such partnership was the land. The partners held the legal title to the land as tenants in common. However, the land as a whole was, on this hypothesis, a partnership asset. The interest of each partner, including Syncarpia, was not, or was not merely, a legal tenancy in common in the land but a beneficial interest in the whole land commensurate with its right to a proportion of the surplus after the sale of the land and the payment of partnership debts and liabilities: F.C. of T. v. Everett 80 ATC 4076; (1980) 54 A.L.J.R. 196. Tf there was such a partnership, it was its interest in the partnership which Syncarpia held on trust and which constituted the presently relevant trust estate of P.J. Walsh Family Unit Trust. The partnership sold its assets - its sole asset - the land. It paid off its debts, principally at least what it had borrowed to purchase the land. It was left with its profit. Whether that profit was income of the partnership by virtue of subsec. 26(a) of the Act (as the Commissioner contended), or the proceeds of sale were income of the partnership by virtue of subsec. 25(1), the profit constituted the partnership's 'net income' as defined in sec. 90 of the Act. Syncarpia's 'assessable income' relevantly consisted of its interest in the profit: subsec. 92(1) of the Act. Because Syncarpia was a partner in its capacity as trustee of the P.J. Walsh Family Unit Trust, its assessable income aS a partner in the partnership was derived by it in its capacity as trustee of the P.J. Walsh Family Unit Trust. Upon the division between the partners of the partnership profit from the sale of the partnership asset, the partnership came to an end. Further, the relevant trust estate of the P.J. Walsh Family Unit Trust (the interest in the partnership held by Syncarpia as trustee of the P.J. Walsh Family Unit Trust) then ceased to exist. Although, for income tax purposes, the partnership profit was net income of the partnership and Syncarpia's interest in the partnership profit was 19. assessable income, Syncarpia did not receive 1ts share of the partnership profit as income from, i.e., as it is sometimes put, as the fruit of, its interest in the partnership. Syncarpia received its share of the partnership profit in satisfaction and extinguishment of its interest in the partnership which as I have said, was the relevant trust estate of the P.J. Walsh Family Unit Trust. Receipt of income jointly The other basis upon which the Commissioner contended that, for income tax purposes, a partnership existed between Syncarpia and the other two companies was that they were in receipt of income jointly. The assumption upon which it 1S necessary to consider this aspect of the matter is, of course, that a partnership did not otherwise exist; that is to say, Syncarpia and the other two companies were not, in the transaction relating to the land, carrying on business as partners according to usual concepts. Thus, it is not immediately relevant that, where there is a true partnership (i.e. a partnership which satisfies the requirements of a general law and not merely the latter part of the definition in subsec. 6(1) of the Act), the gross income of the partnership is earned jointly by the partnership, the outgoings of the partnership are joint outgoings of the partners, and the profits of the partnership are the profits of the partners: see B. & H.G. Rowe v. F.C. of T. 82 ATC 4243. The hypothesis, for the moment, is that there was an isolated transaction by three tenants in common resulting in the sale of their land at a profit. Subsection 25(1) of the Act therefore has no current relevance; the material income of the partnership was not the gross proceeds of the sale of the land. The only income which might have been received jointly by Syncarpia and its co-venturers for present purposes is the profit arising from the sale: sec. 26(a) and 26AAA of the Act. The only asset of any such partnership was again the land. Again, the partners held the legal title to the land as tenants in common. There is nothing in the Act of which I am aware which attributes to such a notional partnership for income tax purposes any of the consequences of a true partnership under the general law. Each of the partners accordingly also held the beneficial title to its interest 20. in the land as a tenant 1n common. Syncarpia of course held its interest in the land on trust for the P.J. Walsh Family Unit Trust. It was its interest in the land which, on this hypothesis, constituted the presently relevant trust estate of the P.J. Walsh Family Unit Trust. The partnership, or at least the partners, sold the land. The partners paid off their joint debts, and were left with the profit. That profit was income of the partnership by virtue of subsec. 26(a) of the Act and constituted the partnership's 'net income' as defined in sec. 90 of the Act. Therefore, Syncarpia's 'assessable income' relevantly consisted of its interest in the profit (subsec. 92(1) of the Act). However, Syncarpia was a partner in its capacity as trustee of the P.J. Walsh Family Unit Trust so that its assessable income as a partner in the partnership was derived by 1t in its capacity as trustee of the P.J. Walsh Family Unit Trust. Once again, upon the division between the partners of the partnership profit from the sale of the partnership asset, the partnership came to an end. Further, the relevant trust estate of the P.J. Walsh Family Unit Trust (Syncarpia's interest in the land which it held as trustee for the P.J. Walsh Family Unit Trust) then ceased to exist as_ such. Although, for ancome tax purposes, the partnership profit was net income of the partnership and Syncarpiajs interest in the partnership proper was assessable income, Syncarpia did not receive its share of the partnership profit as income from, i.e. as the fruit of, its interest in the land. Syncarpia received its share of the partnership profit in return for its interest in the land which, as I have said, was the relevant trust estate of the P.J. Walsh Family Unit Trust." The reasoning of Lockhart J. was similar. In my opinion the reasoning of Lockhart and Fitzgerald JJ. does not support Mr. de Wijn's submission. First, both of those judges stated that it was common ground between the parties 21. to the appeal that the sum of $1,768 was taxable in the taxpayer trustees' hands under s.98 (the sole beneficiary being under the disability of infancy and being presently entitled to the income of the trust estate), without expressing any doubt about the correctness of that agreed view. It was only the question of liability to the "further tax", for which s.94(11) provided, that was in issue. And Fitzgerald J. and the other member of the Court, McGregor J., who dissented on the question at issue, both stated that agreed view as also their own views. Second, neither Lockhart J. nor Fitzgerald J. suggested that the sum of $1,768 was not part of "the assessable income of [the] trust estate" of which the taxpayer trustees were the trustees, within the meaning of that phrase in s.94(5)(a)(i). Third, s.94 falls in Division 5 of Part III and accordingly the definition of "net income" in s.95 for the purposes of Division 6 is inapplicable to that phrase in s.94(5)(a)(i). In my opinion Antow and Bonfam were, in relation to the Wonthaggi land, "an association of persons carrying on business as partners", within the defined meaning of the word "partnership" in s.6(1) of the Income Tax Assessment Act 1936, and the sum of $248,977 was profit arising from the carrying out of a profit-making undertaking of the partners and, by virtue of s.26(1) and Division 5 of Part III, net income of the partnership. Bonfam's individual interest in that net income constituted net income of the M.J. Rishworth Family Trust in respect of the year of income ended 30 June 1983, within the meaning of Division 6 of Part III, and by virtue of s.99(4) the trustee, Bonfam, is liable 22. to pay the tax assessed. The appeal should be dismissed with costs. I certify that this and the 21 preceding pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Jenkinson. (Pe Associate Dated: 22 July, 1988 Mr. J.W. de Wijn Counsel for the Applicant Solicitors for the Applicant : Fernon & Ludescher Mr. C.M. Maxwell Counsel for the Respondent Solicitor for the Respondent Australian Government Solicitor Dates of Hearing 6, 7, 8 and 11 April, 1988