Federal Commissioner of Taxation v Hyland [1926] HCA 55

37 C.L.R.] OF AUSTRALIA. 569

[HIGH COURT OF AUSTRALIA.]

FEDERAL COMMISSIONER OF kA Bie

PAITON Sf. 14h aic ted shone ' seat iP AND

3 . s '4 y " . ReEsponpent.

e Tax—Assessment—Income—Shares distributed by company—Capitalization of H.C, o A. profits—" Current assessment" —Income Tax Assessment Act 1922 (No. 37 of 1926. 1922), secs, 16 (b), 20, 21. ay

See. 16 (b) (ii) of the Income Tax Assessment Act 1922 provides that the ae ae ar. 26;

assessable income of any person shall include, in the case of a member or "yyy 10, shareholder of a company which derives income from a source in Australia,

"the face value of shares distributed by a company to its members or rke J. _ shareholders in consequence of the capitalization of the whole or any part of yyne 8,9, 10, _ the assessable income of the company which it is liable to include in its return 16. for the purposes of its current assessment." Knox 035

Held, by Ieaace, Higgina, Gavan Duffy and Rich JJ. (Knox C.J. dissenting), "en emo

that the distribution of shares there referred to is a distribution made in the *4 Rich JJ- year next following the year in which the company has earned the income the whole or part of which it has capitalized.

Decision of Starke J. reversed.

neome tax for the year 1922-1923 in respect of his income for the 1921-1922, appealed from that assessment to the High Court. 'The appeal was heard by Starke J., in whose judgment hereunder e material facts appear.

H.C. or A.

1926. ~ FepEraL Commis- SIONER OF Taxation v Hyzanp.

May 10.

HIGH COURT [1926.

Owen Dizon K.C. and Russell Martin, for the appellant. Sir Edward Mitchell K.C, and Herring, for the respondent.

Cur. adv. vult.

Srarke J. delivered the following written judgment :—

Penfold's Wines Ltd. took over an established business from a company of the same name, and during the first year of its trading, ending 30th June 1921, it made a profit of £68,591, which was carried to a Development Reserve Account. At an extraordinary general meeting of the company held on 6th December 1921, a resolution was carried that a dividend of one shilling and fourpence and four-fifths of a penny per share, amounting to the sum of £42,000, be declared from the profits earned during the year ended 30th June 1921, and that it be paid out of the moneys which were placed to the credit of development reserve, and that in lieu of payment of cash, shares to the full value of such dividend be issued to the shareholders entitled to the dividend in accordance with their respective rights thereto. The resolution was confirmed on 22nd December 1922. This resolution was acted upon, and proper entries made in the books of the company. The sum of £42,000 was carried to a Bonus Shares Distribution Account, and thence to Capital Account, and ultimately share certificates were issued to shareholders in accordance with the resolution and appropriate entries made in the Share Register. The genuineness of the transaction was not in any wise challenged, and I see no reason to suspect it, though it is uncertain when the entries in the various accounts were made, and some, at least, appear to have been made after the year 1922. Pursuant to the resolution of the company, 20,608 shares were issued or allotted to the appellant Hyland during the financial year 1921-1922, and the Commissioner has included the face value of those shares, namely, the sum of £20,678—it should be £20,608—in his assessable income for the financial year 1922-1923. It is from the inclusion of this sum in the assessment that an appeal has been brought to this Court.