Commissioner of Taxation v Nandan, Nitya [1995] FCA 1046

CATCHWORDS INCOME TAX - Appeal to the Administrative Appeals Tribunal (Taxation Appeals Division) - partnership agreement providing for division of profits equally - variation by deed of dissolution -retiring partner to receive specific amount as "share of the undrawn profits of the partnership" in the current year - whether retiring partner assessable as to specific amount or as to half of profit as subsequently ascertained - whether question of law Chateney v Brazilian Submarine Telegraph Company Limited [1891] 1 QB 79 Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Administrative Appeals Tribunal Act 1975 (Cth) s 44 Income Tax Assessment Act 1936 (Cth) s 90 Commissioner of Taxation v Nitya Nandan (No. TG 18 of 1995) Judge: Heerey J Date: 1 December 1995 Place: Hobart

IN THE FEDERAL COURT OF AUSTRALIA) ) TASMANIAN DISTRICT REGISTRY ) No. TG 18 of 1995 ) GENERAL DIVISION ) B E T W E E N: COMMISSIONER OF TAXATION Appellant - and - NITYA NANDAN Respondent JUDGE: Heerey J DATE: 1 December 1995 PLACE: Hobart IN THE FEDERAL COURT OF AUSTRALIA) ) TASMANIAN DISTRICT REGISTRY ) No. TG 18 of 1995 ) GENERAL DIVISION ) MINUTE OF ORDERS The Court orders that: 1. The application will be dismissed with costs, including reserve costs. 2. The decision of the Administative Appeals Tribunal made on 10 March 1995 is affirmed. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

B E T W E E N: COMMISSIONER OF TAXATION Appellant - and - NITYA NANDAN Respondent JUDGE: Heerey J DATE: 1 December 1995 PLACE: Hobart REASONS FOR JUDGMENT The respondent Mr Nitya Nandan carried on a pharmacy practice in partnership with Mr John Liddy. On 30 July 1992 the two men entered into a deed of dissolution of the partnership as from 1 July 1992. The Commissioner included in Mr Nandan's assessable income for the 1992 tax year the sum of $35,332 being 50 per cent of the net profit of the partnership for that year. Mr Nandan contended that he should be assessed for only $15,000 being his share of the 1992 net profits as agreed with Mr Liddy. Mr Nandan's contention was upheld by the Administrative Appeals Tribunal (Taxation Appeals Division) constituted by Deputy President A M Blow. The Commissioner now appeals to this Court. The Partnership The partnership was constituted by an agreement in writing between Mr Nandan and Mr Liddy dated 7 November 1980. Mr Nandan in effect bought a half share in an existing practice being carried on by Mr Liddy. By clause 4 the partnership was deemed to have commenced on 1 August 1980 and was to continue for a term of three years from that date and thereafter indefinitely unless determined in the manner provided for. Clause 17 provided for termination on three months written notice by one partner in which event the other partner would have an option to purchase the share of the retiring partner at a price calculated by taking 12.5 per cent of the gross turnover for the year to the previous 30 June and 50 per cent of plant, debtors and stock. By clause 9 the partners were to be "entitled to the partnership property and the net profits of the partnership in equal shares". Clause 11 made the usual provision for the keeping of books and preparation of annual accounts and for the division of the net profits (if any) between the parties equally. Clause 12 provided that during the continuance of the partnership each partner could draw out of the partnership bank account a monthly sum of $1000 "on account of his share of the profits" but if the account at the end of the year showed drawings were in excess of the partnership share then the partner should repay that excess to the account. The Dissolution The case before the Tribunal and in this Court turned on the construction of the dissolution deed and in particular clause 11 which provided: 11.1 Clause 9 of the Partnership Agreement is amended by adding at the end thereof the words "or in such other shares as the parties shall agree upon". 11.2 The Retiring Partner shall be entitled to Fifteen thousand dollars ($15,000) as his share of the undrawn profits of the partnership in the financial year ending 30th June 1992.