Armco (Australia) Pty. Ltd. v Federal Commissioner of Taxation [1948] HCA 49

High Court of Australia Williams J. Latham C.J. Starke, Dixon, and McTiernan JJ. Armco (Australia) Pty. Ltd. v Federal Commissioner of Taxation

ORDER The Court being evenly divided the appeal was, by virtue of the provisions of s. 23 (2) (a) of Judiciary Act 1903-1947, dismissed with costs.

Cur. adv. vult.

June 20, 1947 Williams J . delivered the following written judgment:—

This is an appeal by Armco (Australia) Pty. Ltd. from a refusal by the respondent to allow the sum of £59,947 11s. 6d. as a deduction from the assessable income of the appellant derived during the year of income ended 31st October 1944. This year of income was adopted by the appellant and accepted by the respondent in lieu of the year ended 30th June 1944. The appellant claims that this sum should have been allowed as a deduction under the provisions of s. 51 (1) of the Income Tax Assessment Act 1936-1944. This section provides that:—

All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income.

In its income tax return for the year in question, the appellant claimed the whole of this sum as an allowable deduction, but at the hearing the appellant limited its claim to approximately onehalf of this sum.

The appellant was incorporated in the State of Victoria in 1933, and carries on there and elsewhere in Australia the business of a steel merchant and fabricator. It has a nominal capital of 40,000 shares of £1 each of which 37,000 have been issued and are fully paid. It is a subsidiary of Armco International Corporation, a company incorporated in the U.S.A. which holds all the issued shares except two. For the purposes of its business the appellant purchases from the parent company large quantities of steel sheets for resale in Australia. The contracts of sale are made, and delivery of the goods takes place in the U.S.A. and the purchase money is payable in dollars there. Until towards the end of 1937 the appellant paid the purchase money in cash, and for that purpose bought the necessary dollars in the U.S.A. before or at the time of each transaction. But from 23rd December 1937 to 15th September 1938, the parent company gave the appellant credit for the goods it purchased from time to time. The indebtedness of the appellant to the parent company was converted in the books of the appellant from the price payable in dollars to Australian currency at the rate of exchange existing at the date of each shipment of the goods. The result was that on 15th September 1938 the appellant was indebted to the parent company on current account for unpaid purchase money for steel sheets in the sum of $541,664.85 (shown in the books of the appellant in Australian currency as £136,110 14s. 8d.).