Commissioner of Taxation v Co-operative Motors Pty Ltd [1995] FCA 442

C A T C H W O R D S TAXATION AND REVENUE - Income tax - assessable income - whether an ex gratia payment made in recognition of past representation as a distributor was income Income Tax Assessment Act 1936 (Cth) s25(1) Scott v Commissioner of Taxation (NSW) (1935) 3 ATD 142 Scott v Federal Commissioner of Taxation (1966) 117 CLR 514 The Squatting Investment Company Limited v Federal Commissioner of Taxation (1953) 86 CLR 570 Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47 Northumberland Development Co Pty Ltd v Federal Commissioner of Taxation (1994) 126 ALR 97 COMMISSIONER OF TAXATION V CO-OPERATIVE MOTORS PTY LTD No TG 22 of 1994 NORTHROP J HOBART 23 JUNE 1995

IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION No TG 22 of 1994 TASMANIA DISTRICT REGISTRY

ON APPEAL FROM THE TAXATION APPEALS DIVISION OF ADMINISTRATIVE APPEALS TRIBUNAL CONSTITUTED BY A DEPUTY PRESIDENT OF THE TRIBUNAL

B E T W E E N : COMMISSIONER OF TAXATION Applicant A N D : CO-OPERATIVE MOTORS PTY LTD Respondent

COURT: NORTHROP J PLACE: HOBART DATE: 23 JUNE 1995

MINUTES OF ORDER

THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The orders of the Tribunal be set aside and in lieu thereof it be ordered that the application to the Tribunal be dismissed and the decision of the Commissioner be affirmed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION No TG 22 of 1994 TASMANIA DISTRICT REGISTRY

ON APPEAL FROM THE TAXATION APPEALS DIVISION OF ADMINISTRATIVE APPEALS TRIBUNAL CONSTITUTED BY A DEPUTY PRESIDENT OF THE TRIBUNAL

B E T W E E N : COMMISSIONER OF TAXATION Applicant A N D : CO-OPERATIVE MOTORS PTY LTD Respondent

COURT: NORTHROP J PLACE: HOBART DATE: 23 JUNE 1995

REASONS FOR JUDGMENT

The question of law raised by this appeal from a decision of the Administrative Appeals Tribunal is whether the sum of $500,000.00, being "an ex gratia payment in recognition of the 25 year association with Toyota" paid by Toyota Motor Sales Australia Ltd ("Toyota") to Co-operative Motors Pty Ltd ("the Taxpayer"), was income derived by the Taxpayer under paragraph 25(1)(a) of the Income Tax Assessment Act 1936. The Tribunal held it was not income. The Commissioner has appealed from that decision claiming that the receipt of the sum was income derived by the Taxpayer. The Commissioner does not rely on paragraph 26(e) of the Income Tax Assessment Act. The ultimate facts found by the Tribunal are not challenged but in order to understand those facts a brief reference to some of the evidence is necessary. This will be done as an explanation of the relevant findings made by the Tribunal. The findings are taken from the reasons of the Tribunal but the terminology has been altered to conform to that used in these reasons. The essential findings were: "56.The Taxpayer had been in the general business of dealing in motor vehicles since 1913. Since about 1962, the predominant part of its business involved the distributorship and dealership of Toyota cars and parts, to the point where, by 1988, its involvement with Toyota was virtually the sole source of its revenue. Its relationship with Toyota was regulated by two contracts terminable on terms ... Given their terms, when the Thiess agreement was terminated by Toyota and the AMI (a related company) agreement not renewed, there was no breach on the part of these companies which would give rise to a claim for compensation. The fact that, when terminated, Toyota nevertheless paid some $500,000 to the Taxpayer thus requires detailed examination to determine the character of this receipt in the hands of the Taxpayer. 57. In the hands of the Taxpayer, the payment was exactly what was claimed for it by Toyota and accepted by the Taxpayer - an ex gratia payment "in recognition of past representation as a Distributor for the State of Tasmania on termination of the Company's Distributor status" ... no more, no less. True it is that the Taxpayer had a reasonable expectation that its relationship with Toyota would continue indefinitely and that it organised its business in accordance with that assumption. It was also recognised that the termination of the arrangements would have a major impact on the company's future operations and earnings. It is therefore understandable that it sought desperately to obtain some compensation for that loss. ... "