Hancock v Federal Commissioner of Taxation [1961] HCA 90

High Court of Australia Fullagar J. Dixon C.J. Kitto, Menzies and Windeyer JJ. Hancock v Federal Commissioner of Taxation [1961] HCA 90

ORDER Order in each appeal:Appeal dismissed with costs.

Cur. adv. vult.

1959, Sept. 4 Fullagar J. delivered the following written judgments:—

George Hancock v. Commissioner of Taxation.

This is an appeal by a taxpayer against an amended assessment of income tax. The relevant year of income is the year ended 30th June 1949. The taxpayer returned his income from property of that year as £2,694, and tax was originally assessed on that amount (together with certain income from personal exertion) by an assessment, notice of which was given on 27th March 1950. The effect of the amended assessment, notice of which was given on 6th November 1953, was to increase the taxpayer's income from property by £17,759. The notice of amended assessment also, under s. 226 of the Income Tax Assessment Act, charged the taxpayer with "additional tax", amounting to £6,503, on the ground that he had omitted assessable income from his return. At the hearing before me counsel for the Commissioner conceded that the amended assessment could not be justified otherwise than by the application of s. 260 of the Assessment Act, which avoids, as against the Commissioner, certain classes of "contracts, agreements and arrangements". The case arises out of certain transactions in which the taxpayer and two companies, named respectively Mulga Downs Pty. Ltd. and Rowdell Pty. Ltd., were concerned. It is desirable to state the facts in some detail.

Mulga Downs was incorporated in Western Australia in 1919. It was at all material times the owner of a very large property in the northern part of Western Australia, on which it has carried on a generally prosperous pastoral business. It was a private company within the meaning of the Assessment Act. In 1949 its issued capital consisted of 18,945 fully paid ordinary shares of £1. These shares (apart from one share, which may be ignored) were held, and had for a long time been held, by members of two families—the Lefroy family and the Hancock family. The Lefroy family held a substantial majority of the shares, seven members holding between them a total of 11,209 shares. The remaining shares (a total of 7,735 shares) were held, as to 6,730 shares by Mr. George Hancock (the taxpayer), as to 5 shares by Mrs. L. Y. M. Hancock, and as to 1,000 shares by Mr. Langley Hancock, who is a son of the taxpayer. The five shares owned by Mrs. L. Y. M. Hancock did not enter into the transactions about to be mentioned, and when I speak of the Hancock shares, I shall be referring only to those of Mr. George Hancock and Mr. Langley Hancock. Up to about 1936 the taxpayer resided on the station and was manager of the company's business, and from 1936 to 1949 he was actively associated with the management. It is said—and I see no reason to doubt it—that he had long entertained a hope or ambition that the Hancock family should own the whole of the shares, or at least a controlling interest, in the company.