Midland Railway Co of WA Ltd v Commissioner of Taxation (Cth) [1950] HCA 49

High Court of Australia Kitto J. Midland Railway Co of WA Ltd v Commissioner of Taxation (Cth) [1950] HCA 49

Cur. adv. vult.

Kitto . delivered the following written judgment:—

Nov. 21 Kitto J

This is an appeal against an assessment by the respondent of the income tax payable by the appellant in accordance with the Income Tax Assessment Act 1936-1944, in respect of the income derived by the appellant during the year ended 30th June 1944.

The appellant is a company incorporated in England and carrying on business in Western Australia. Its income tax return in respect of the relevant year stated its taxable income as being £286,582 "as per attached reconciliation statement". The return was accompanied by copies of its balance sheet, revenue accounts relating to Australia and London respectively, a combined revenue account expressed in Australian currency, and a reconciliation statement by which the difference between the balance shown by the combined revenue account and the taxable income shown in the income tax return was accounted for.

The reconciliation statement disclosed that the company had treated as an allowable deduction a sum of £2,966, described as being "funded interest paid during year on 14/6/44 by redemption of Reversionary Certificates redeemable only out of the profits of the Company in accordance with the provisions of—(1) Special Resolutions of 29th September 1910, confirmed 14th October 1910, (2) Trust Deed securing Reversionary Certificates dated 15th April 1911, (3) Supplementary Trust Deed dated 8th June 1925". The sum of £2,966 had in fact been set aside out of the profits of the year ended 30th June 1943 as a provision for redemption of reversionary certificates, and had been expended by the company for that purpose as stated in the reconciliation statement.