IN THE HIGH COURT OF AUSTRALIA. Austral. ery and Inve: ed The REASONS FOR JUDGMENT. Delivered at... on_Frida 40358 A. H. Porriren, Activa Govr. Pras. AUSTRALIAN MACHINERY AND INVESTMENT COME, fe LIMITED Vs THE DEPUTY COMMISSIONER OF TAXATION JUDGMENT. RICH J. This appeal from an assessment under the Income Tax the of the parties Assessment Act 1936-1937 was heard on/admissions/and on the oral evidence of E. Watkinson, who was Governing Director of the Appellant Company during the relevant time. The appeal relates only to the financial year 1936/1937» Questions of principle were arsued and at the request of Counsel I reserved any question of quantume The Appellant Company, which is registered in Victoria, acquired interests in certain lands in Western Australia which were ; supposed to contain minerals. It floated twenty-seven subsidiary companies which were registered in Western Australia, and to each of these it sold and transferred some of these lands. The lands and the expenses of floatetion of the comnanies had cost the "Appellant company £52,836/5/8, and it received from the companies. in, payment twenty-seven parcels of fully paid shares of the total nominal value of £3,377, 18. . Page aR The Appellant company, then in Znglend, sola these. shares to seven English companies, from which it received as consideration £481,945/2/0 in cash, shares of a nominal value of £1,075,000, "and ek options to take up shares to the nominsl value of £4 p2u7, The Appellant company sold a large proportion of the shares and options acquired by it from the seven vlish companies) and, a8 so. a result, its assete, according to its accounts, increased, ln-vilue during the years 1933 and 1936 by £1,613,979/0/7 (aus). It also transferred to two English companies, the Kookaburr: company end the Austmac commany, such of the shares in the seven English companics as it had not itself sold, and akso certain other; : Shares belonging to it, and received in exchange shares, in the two: : companies. = ae The Appellant company had certain other mining "Nad in. Western Austrelia, It disposed of these to three Western australian 5 companies, the Lalla Rookh company, the Comet company , and the King © | : 4 3 2e of Creation company. The properties so disposed of had cost it £10,553/9/9, &hh,754/2/6 and £19,000 resvectively, and it received in respect of them fully paid up shares of the nominal value of £2,000, £60,000 and £25,000 respectively. It sold the Lalla Rookh shares in England for £42,000 and the Comet shares in England for £60,000. It took up 40,000 shares in the King of Creation company, paying £40,000 for them, and sold them to an Australian company for £40,000. The Appellant company also entered into a considerable number of other transactions, both in Western Australia and in England, which at is unnecessary to particularise for the purposesof the matters which have so far been argued before me. In England, the Appellant company has been assessed to income tax on the footing that it had carried on a trade in the United Kingdom, and was assessable on the profits arising therefrom. It was assessed on profits alleged to arise from the sale in England of the shares in the Western Australian companies to the seven English companies. On appeal to the Commissioners in England it was held . that the par value of those shares must be deducted as the costto the company of those shares, and on this basis there had been no profit. This decision is the subject of an appeal which has' not yet been heard. The questions which have been argued before me are whether all or any part of any income which accrued to the company by virtue of : these transactions was derived from sources within or.out of Australia, and whether any part of such income which was derived from a. source out of Australia was not exempt from income tax in the country in which it was derived, so as to be exempt from Australian income tax by virtue of section 23 (q) of the Income Tax Assessment Act, 1936. On the admissions of fact, I am of opinion that the Appellant company was engaged in the business of trading in shares: Commissioner of Taxes v. Melbourne Trust Ltds, 1914 A.C. 1001. Owning lends in Western Australia, it sold them to Western Australian companies for shares, and thus acquired a large number of shares which werelocelly situated in Australia: Brassard Ves pmi tes 4925 A.C, 3713 Re ve Williams, 1942 A.C. 544i. It has/been contended that any actual profit was made on this transaction. Having thus equipved itself with a large stock in trade of shares, it entered the English market, and began its operations there 3. by selling the shares at prices which included shares in certain English companies. In determining the source of any income which may have resulted from the ssles, it must he remembered that "source" in this sense is not a legal concept but something which a practical man would regard as a source. Legal concepts may enter into the question, "ut the ascertainment of source is "a practical hard matter of fact:" Nathan v. Federal Commissioner, 25 C.L.R. 183 at 189-190; Federal Commissioner of Taxation v. United aircraft Corporation, 68 C.L.R. 525, at pp. 937, 5383 Liquidator, Rhodesia Metals Ltd. v. Commissioner of Taxes, 1940 «.C. 774 at 789. I feel no dou t that if a person, trading in wares which ure locally situated in one country, makes a profit by selling them in another country, the source of his profit is in partthe wares and in part the contracts of sale, and the locality of the source is in part the locus of the wares and in part the locus of the contracts; cf. Maclaine & Co. v. Eecott, 1926 a.C. 424 at 432-2; Commissioner of Taxation (N.S.W.) v. Hillsdon Watts Ltd., 57 C.L.R. 36. if a person resident in australia set up a business of acquiring areas of land in australia and cutting them up into building lots which, through the medium of an agent, he proceeded to sell atjorofit in Bagland to prospective immigrants, itcould hardly be contended that the resultant income was derived from:a source wholly out of siustralia. Shares in australian companies (unless on a register outside australia) are, in the contemplation of the law, just as much locally situated in sustralia as is australian land. How any income derived from such sales should be distributed between the different local elements of the source is a question of fact, upon which no argument has peen addressed to me: cf. Federal Commissioner of Taxatio v. Lewis Berger & Sons (Australasia) Ltd., 39 C.L.R. 468; Michell v. Federal Commissioner of Taxation, 46 C.L.R. 413. To'the extent to which any income was derived from the sale by the Appellant company in England of the Western australian shares to the seven English companies, I am of opinion that the proportion of that income which should be treated as derived froma source in England is not exempt from taxation in England and is therefore exempt in australia, irrespectively of whether any income tax is in fact he demanded in England: Texas Co. (Australasia) Ltd. v. Federal Commissioner of Taxation, 63 C.L.R. 382. . As regards the other transactions of the Appellant company which are referred to in the admissions of fact, on the material contained in those admissions and the arguments which have been addressed to mey I am not at present in a position to say anything more definite than that, to the extent to which the company derived income by trading in England in shares in Bnglish comp other property not situated in Australia, it is not liable to Australian income tax if that income is not exempt from income tax in Bnglend. - If, at this stage, decisions are desired upon any other specific points, aprropriate questions.should be formulated, and the facts relevant to the questions segregated and stated. In these circumstances I shall stand the appeal over for further consideration with liberty to either party to apply.