Federal Commissioner of Taxation v Blakely [1951] HCA 17

IW UE CEU 8) Ger Dist, 156 CLR 447

See

Abe. (3 ALe.

tte

rat 630 sp 2.

HIGH COURT (1951.

[HIGH COURT OF AUSTRALIA.]

FEDERAL COMMISSIONER OF TAXATION AppELuant ;

AND

BLAKELY i . 5 i : 5 . RESPONDENT.

H.C. or A, Income Tax (Cth.)—Assessment—Shareholder in company—Company ceasing to

1951. SH

MELBOURNE, March 19-21.

Sypnry, April 27.

Latham ©.J.,

Di

ixon and.

Fullagar JJ.

ize

a - . Ales

carry on business—No formal liquidation—Assets appropriated by shareholders — Accumulated profits—Capital or income—* Dividend" paid by company out of profits—Distributions to shareholders by a liquidator in the course of a winding up—Income Tax Assessment Act 1936-1942 (No. 27 of 1936—No. 50 of 1942), ss. 6, 44, 47.

A company of which B. and his wife were sole directors and shareholders was incorporated in Victoria. It carried on business for a time and made profits but did not declare any dividend. It then ceased to carry on business, and thereafter B. and his wife carried on in partnership the business which the company had previously conducted. The partners appropriated the assets of the company and discharged its liabilities. No action was taken to put the company into liquidation, and no liquidator was appointed. Notice was given to the Registrar-General under s. 295 of the Companies Act 1938 (Vict.) that the company had ceased to carry on business, and it was dissolved pursuant to that section. On the basis that it represented accumu- lated profits of the company, the Federal Commissioner of Taxation assessed B. to income tax in respect of a proportion of the amount B. had received as a result of the appropriation of the assets.

Held that no part of the amount was assessable income under the Income Tax Assessment Act 1936-1942. There had been no distribution by the company by way of dividend out of profits of the company within s. 44 of the Act, because (by Latham C.J.) an appropriation by shareholders of the assets of a company by their own act could not be regarded as a distribution by the company ; (by Dizon and Fullagar JJ.) what was received by B. was not an income receipt but was of a capital nature. Section 47 of the Act did not apply, because there had been no distribution by a liquidator in a winding up of the company.