Dickson v Federal Commissioner of Taxation [1940] HCA 46

OF AUSTRALIA. 687

(HIGH COURT OF AUSTRALIA.}

arsSON ' 7 'i . . APPELLANT; AND

THE FEDERAL COMMISSIONER OF TAXA-} TION . . . . 7 ; aI RESPONDENT.

Income Tas (Cth.)—Assessable income—Dividend—Unvealized profits—Issue of H.C. or A ; bonus shares—Revaluation of fixed assets—Income Tax Assessment Acts 1936 1939-1940.

(Vos. 27 and 88 of 1936), secs. 6, 44 (2) (b) (iii)*. Sa Mexpourne, For many years, the A Co. had owned 117,414 shares in the BCo., and its 193

balance-sheets throughout had shown these shares at their actual cost. In Mar 23, 24; December 1934 the B Co. out of undistributed profits allotted the A Co. Jun 58,707 fully paid-up shares by way of bonus, making a total holding of 176,121 shares, which were shown on 30th September 1935 in the next balance-sheet 'of the A Co. at the same figure as the cost of the original 117,414 shares, Oct. 31;

After this distribution of shares, and with the intention of issuing bonus or. 1, 2.

MeTik

shares to its members so that they would not be taxable as income, the A 940, Co. had its holding in the B Co. revalued by accountants, who certified that py, each share was worth not less than 24s. Although worth considerably more than 24s., the B Co's. shares were on 11th October 1935 taken into the accounts of the A Co, at 24s. each, and, out of the profit arising from that revaluation, bonus shares were issued to members of the ACo. In assessing a member of the A Co, to income tax, the Federal Commissioner of Taxation included in his income the bonus shares so received by him.

Tatham C.F, Dixon and vat JJ.

_ * The Income Tax Assessment Acts 1936 provided ;—By sec. 6, that "divi. —-dend'* includes . the paid-up value of shares distributed by a com- "pany to its shareholders to the extent to Which the paid-up value represents "a capitalization of profits," and