Commissioner of Taxation (Cth) v WE Fuller Pty Ltd [1959] HCA 41

High Court of Australia Dixon C.J. Fullagar and Menzies JJ. Commissioner of Taxation (Cth) v WE Fuller Pty Ltd [1959] HCA 41

ORDER Question in the case stated answered Yes. The respondent taxpayer to pay the costs of the case stated.

Cur. adv. vult.

The following written judgments were delivered:—

Sept. 3 Dixon C.J.

The decision of this case turns upon the meaning and application of the word "income" in the expression "exempt income" which occurs in sub-s. (1) of s. 80 of the Income Tax and Social Services Contribution Assessment Act 1936-1953 and is defined in s. 6 (1) to mean income which is exempt from income tax and to include income which is not assessable income. Does the word cover bonus shares paid up out of the revaluation of capital assets or the amount by which they are paid up out of the revaluation? In my opinion the word "income" in that expression must receive its natural or ordinary legal meaning and has no artificial meaning fixed upon it by the Assessment Act and on that ground I think that the question should be answered that neither the bonus shares nor the amount by which they are paid up out of the revaluation is income within the meaning of the provision.

This answer is not determined by the capital nature of the "profit" disclosed by the valuation: the necessity of expressing the qualification about its capital source is only because the question could not have arisen if the profit had been on account of revenue. The answer turns upon the legal nature of the payment up and distribution of the bonus shares. It is an ordinary capitalization of profits accomplished in the ordinary way. It appears to me that the allotment of shares and the distribution of the share certificates cannot involve a receipt or derivation of income except under some artificial statutory definition of that word and that the appropriation of the aliquot part of the profit fund to the payment up of the shares does not involve the shareholder in a receipt or derivation of income. The objection to considering the allotment of the shares and distribution of the certificates to be income is that it is settled law that they are distributed and received as capital. It should perhaps be remarked that even if it were otherwise there is nothing before us to show that the shares were so readily convertible into money that the distribution could properly be held to be a derivation of income without the aid of any statutory provision deeming it equivalent to money. Nor is there anything before us to give a market value to the shares. "The capitalization of undivided profits, as fully paid-up shares, is by no means the bestowal of a benefit of the full face value of the shares" per Scrutton L.J. in Inland Revenue Commissioners v. Blott [1] .