C.L.R.) OF AUSTRALIA. 181 Case remitted to Supreme Court to be dealt H. ©. or A. with as may be considered just. Appellant —\°°*- 7 to pay costs of appeal. Uston THEATRES Lrp. Solicitors for the appellant, John Williamson & Sons. v. Marrick- Solicitors for the respondent, W. R. & F. B. Jones. VILLE ; BL, Boupixes Le Lr. a en (HIGH COURT OF AUSTRALIA.) THE DE GREY RIVER PASTORAL COM- ) PANY LIMITED .- . . . , J APPELLANT; AND _ THE DEPUTY FEDERAL COMMISSIONER ) OF TAXATION FOR WESTERN AUS- RESPONDENT. ; TRALIA | Income Tax — Assessment —Oompany — Assessable income — Pastoral business — 44 (, op A. Reduction of pastoral areas — Kffect of Act of Parliament — Sale of cattle — 1923, Profits from sale—Realization of assets—Proceeds of business—Earnings— Income Tax Assessment Act 1915-1918 (No. 34 of 1915—No. 18 of 1918), secs, Pern, 3, 146—Land Act Amendment Act 1917 (W.A.) (7 Geo. V. No. 19), sec. 30 (2). Sept. 19, 21. A pastoral company which owned several large stations in Western Australia starke J. being compelled by the Land Act Amendment Act 1917 (W.A.) to reduce the area of its holding, resolved to sell, and did sell, two of its stations and (to other purchasers) the bulk of the cattle upon those two stations, Held, that the company was assessable to Federal income tax in respect of the profit made on the sale of the cattle as being proceeds of the business carried on by the company and also earnings of the company. Apprat from the Federal Commissioner of Taxation. The De Grey River Pastoral Co. Ltd., having been assessed for Federal income tax for the year 1920-1921 by the Deputy Federal , VoL. XxXxv. 13 H.C. or A. 1923. ws De Grey RIveR Pastorar Co. Lrp. Deputy FEDERAL Commis- SIONER or TAXATION (W.A.). Sept. 21. HIGH COURT (19: Commissioner of Taxation for Western Australia, appealed to ¢ High Court from that assessment. and the appeal came on for hea before Starke J., in whose judgment hereunder the material fa are stated. Jackson, for the appellant. Dwyer and Thomas, for the respondent. Cur, adv. vult, Srarke J. delivered the following written judgment :— 'The appellant, the De Grey River Pastoral Co. Ltd., was establish d (inter alia) to acquire pastoral properties and to carry on the busi of graziers, farmers, and sellers of and dealers in real and personal property, live and dead stock, and produce of the soil of any kind It possessed several pastoral properties, of large area, in Western Australia, known as De Grey, Mulyie, Warrawagine, and Balfow Downs Stations. The former two adjoined one another, and o prised some 794,500 acres. The latter two also adjoined, but tl were some fifty miles distant from the nearest point of the other two stations, and they comprised about 2,440,000 acres. In 19 a Land Act was passed in Western Australia (7 Geo. V. No. 19), and by sec. 30 (2) it was enacted that the maximum area held by on person in the same Division should be 1,000,000 acres, and that any leaseholder was beneficially interested in an area exceeding the prescribed maximum, then his leases were liable to forfeit Substantially, the Company's leases were in the same Division; a in view of the Act, it resolved to dispose of its pastoral pro} known as Warrawagine and Balfour Downs, and the stock thereon Warrawagine was sold to one Rubin, Balfour Downs was sold Dunnet and others, and " the whole of the cattle including bullodl and exclusive of calves under one month old or unfit to trai mustered by the De Grey Co. upon the stations Warrawagine al Balfour Downs prior to 15th March 1921 or any extension theredl, but excluding 500 selected cows and 20 selected bulls," % sold to Copley and others. The price for each and every mol R.} OF AUSTRALIA. for delivery, or delivered during the currency of the agreement Copley and others, was the sum of £5 net per head on the ms. Under this agreement, the appellant had received, by 'Ist December 1920, a large sum of money. The appellant returned its gross income for its balancing period January to December 1920 (substituted in its case for the financial year of the Income Tax 'Acts), but claimed, in substance, a deduction of all profit arising from the sale of the cattle on Warrawagine and Balfour Downs Stations, in the circumstances hereinbefore mentioned. The Commissioner disallowed this deduction. Allowing for some adjustments, the net amount, for taxation purposes, involved in the deduction claimed is a sum of £8,144. " The appellant claims that this sum represents a realization of its assets, and not the proceeds of any business carried on by it, and that the sum is not otherwise taxable. It relies, in support of this contention, upon Commissioner of Taxation (W.A.) v. Newman (1) and Hickman v. Federal Commissioner of Taxation (2), decided in this Court. In my opinion the contention is untenable, both in fact and in law. 'These moneys are, in point of fact, proceeds of the business carried on by the appellant. The question, as Lord Buckmaster said in O'Kane & Co. v. Commissioners of Inland Revenue (3), is whether 'such proceeds arose from a method of realization inconsistent with acontinuing concern. Now, in my opinion, the acts of the Company 'itself afford the Court important evidence for the determination of this question of fact. The appellant Company " may well be held bound by its own actions" (Commissioner of Taxes v. Melbourne 'Trust Ltd. (4)). In its books the Company carried the proceeds of the sale of the cattle to Copley and others to a " Cattle trading account Balfour Downs—Cattle depasturing on Warrawagine pending 'realization " ; it showed a net profit on this account of £9,327, and 'that profit was carried into the general profit and loss account of the Company for its trading year ending on 31st December 1920. From (1) (1921) 29 C.L.R. 484. (4) (1914) A.C. 1001, at p. 1011; 18 (2) {i922) 31 CLR. 232. C.L.R. 413, at p. 421, (8) (1922) 126 L.'T. 707. af cattle—including bullocks and calves—mustered and notified as H- C. oF A. 1923. _~ De Grey RIVER PastoraL Co. Lap. v. Deruty FEDERAL Comans- SIONER oF Taxation (W.A.). Starke J H.C. oF A. 1923. =~ De Grey RIVER PASTORAL Co. Lrp. v. Deputy FEDERAL Comas- STONER or Taxatton (W.A.). Starke J. HIGH COURT the profit and loss account this sum was carried to the liabili side of the balance-sheet of the Company. Similar entries found in the accounts of the Company for the balancing perio ending on 31st December 1921. The total trading profits for trading year 1921 are stated at £18,584, of which, however, a su of £7,834 represents profits in respect of the cattle upon Warrawag and Balfour Downs. The accumulated profits of the Company the end of 1921 amounted, according to its accounts, to the sum o £65,677, and between 5th October and 8th April 1922 it de dividends to the extent of £45,078. But in April 1922 the Compan purported to apportion these dividends. It was resolved to t1 the first dividend as paid out of profits of the year ended 3k December 1918, and the remaining dividends as coming from taxa profits in the hands of the Company derived in the year ended 3h December 1921 and preceding years, in the ordinary sequ Assuming that the Company could properly make this appropria still it treated the accumulated fund of £65,677 in its hands a ordinary trading profits, divisible, if it should so resolve, among its shareholders. The sale to Copley and others was not, it ma be admitted, an example of ordinary methods of trading on the part of the Company, but it was not for the purpose of ending Company's trade. The Company still carried on its business on th of the Act passed by the Parliament of Western Australia. far as the external world was concerned," the Company was engag in trading, and its sale of cattle was merely a modification of usual method, brought about by the passing of the Act. Duwyer placed some reliance on the fact that some cattle and caly were excepted from the sale to Copley and others, and contends that this fact established the continuance of the Company's bt in relation to the Warrawagine and Balfour Downs Stations, am showed, consequently, that the proceeds of the sale were proceed of the business carried on by the appellant on these stations. — may be so, but I prefer to base my conclusions upon considerations already set forth. The proceeds of the sale to Copley and others are, in point of OF AUSTRALIA. in my opinion, assessable to income tax, whether they are or are not H- ©. or A. 'the proceeds of a business carried on by the appellant. There are other sums assessable to income tax as well as the proceeds of a business carried on by the taxpayer, e.g., earnings and income from property. The moneys accruing from this sale were, in my opinion, earnings, even if they were not the proceeds of any business carried on by the taxpayer. These gains and profits were not due to the mere realization of an asset, or to the change of an investment, or to the enhancement of capital. They were the results of a business operation. The transaction was no doubt forced upon the Company by the Act of Parliament, but the gains and profits nevertheless arose from the sale of stock which it had acquired or bred for the purpose of profit-making by sale. The Company made a profit in accordance with its scheme of business, though the method of realizing that profit was to some extent forced upon it by the Act. Profits so made are, in my opinion, income and assessable to tax. The appeal is dismissed with costs. Appeal dismissed with costs. Solicitors for the appellant, Parker & Parker. Solicitor for the respondent, Gordon H. Castle, Crown Solicitor for the Commonwealth, by Dwyer. Unmack & Thomas. B. L. 1923. De Grry RIVER PasTORAL Co. Lrp. v. Deputy FrpeRaL TAXATION (W.A.). Starke J.