Commissioner of Taxation (Cth) v Blakely [1951] HCA 17

High Court of Australia Latham C.J. Dixon and Fullagar JJ. Commissioner of Taxation (Cth) v Blakely [1951] HCA 17

ORDER Questions in case answered as follows:—

(a) No.

(b) Unnecessary to answer.

Case remitted to Kitto J. Costs of case to be costs in appeal.

Cur. adv. vult.

The following written judgments were delivered:—

April 27 Latham C.J.

This is a case stated by Kitto J. in an appeal by the Commissioner of Taxation from a decision of a Board of Review constituted under the Income Tax Assessment Act 1936-1942.

Bob Blakely Transports Pty. Ltd. was a private company within the meaning of s. 104 of the Act. The respondent Robert Blakely and his wife were the only shareholders and directors of the company. The respondent owned 3,000 and his wife 2,000 fullypaid shares. No dividends were declared by the company. Income tax was duly paid by the company under Div. 7 of Part III. of the Act in respect of its undistributed but distributable income. On 19th August 1941 the company ceased to carry on business and the respondent and his wife then carried on in partnership the business which the company had previously conducted. They simply appropriated all the company's assets, paid off its liabilities, and retained and subsequently disposed of the assets of the company. On 5th September 1941 a notice was sent to the Registrar-General under the Companies Act 1938 Vict. by accountants acting on behalf of the company stating that the company had ceased to carry on business on 19th August 1941. The procedure prescribed by s. 295 of the Companies Act was followed, and the company was dissolved on 26th July 1944.

The commissioner assessed the respondent to income tax in respect of a "dividend" received by the respondent from the company. The commissioner treated £5,000 as having been received by way of return of paid-up capital. The balance he treated as representing the profits of the company. The respondent's share of that balance (after adjustment in respect of taxes payable by the company but not recorded in the accounts of the company) was £2,165, of which the respondent was treated as entitled to three-fifths, namely £1,299. This amount, it is contended for the commissioner, is a dividend paid to him by the company out of profits derived by the company and is therefore claimed to be taxable under s. 44 (1) of the Income Tax Assessment Act 1936-1942.