AL Hamblin Equipment Pty Ltd v Commissioner of Taxation

A contractor not intending to seek renewal of such a lease at the expiration of its term may either simply allow the term to expire, the lessor then selling the equipment, perhaps for less than the residual value, or may prefer, instead, to negotiate a purchase of the leased equipment before the expiry date of the term at what is described, somewhat loosely, as the "pay-out figure", being the sum of residual value and any future rental payments less some allowance for accelerated payment of these. Leases usually confer no right of purchase but this can, it seems, readily be arranged with lessors and results in a termination of the lease and the vesting of title to the equipment in the contractor.

A contractor requiring the use of new equipment in place of that currently being leased by it may wish to take advantage of the fact that, although new earth-moving equipment cannot readily be purchased from suppliers at a discount off list price, a similar financial result can be obtained by taking advantage of the somewhat inflated prices offered by suppliers for used equipment if "traded-in" on the purchase of new equipment. A contractor who does not own the equipment he uses but instead leases it from a finance company has nothing to "trade-in" in this way but by buying from his lessor the old equipment which he is currently using may then "trade it in" to the supplier and thus obtain the benefit of these inflated prices, which appear to be available not merely to an actual buyer who offers a "trade-in" but also to a contractor who will procure a finance company to buy the new equipment so that it may be leased to that contractor.

This is, subject to an important qualification, what occurred in two of these four appeals, nos. 6 and7 of 1973, and the Commissioner has assessed to tax as income in the taxpayer's hands the difference between the cost of leased equipment when sold by the lessor, the finance company, to the lessee, the taxpayer, at the "pay out figure" and the price paid or allowed by the supplier for that same equipment as a "trade-in". The qualification to which I have referred is that it was not in fact the original lessee that wished to acquire new equipment but rather an affiliated company; the original lessee, A. L. Hamblin Equipment Pty. Ltd., was, until 30th June 1968, the equipment-supplying company of the Hamblin group and it sublet to its affiliate, A. L. Hamblin Constructions Pty. Ltd., the company in the group operating as the actual earth-moving contractor, all necessary plant. After that date the construction company dispensed with the services of the intermediary equipment company. The transactions here in question occurred at about the time of this change and in consequence while it was the equipment company which was the original lessee it was the construction company which was to use the new plant, leasing it from a finance company which it would cause to purchase that new plant from the supplier. The other two appeals, nos. 8 and9 of 1973, also concern dealings in earth-moving equipment, but arise out of somewhat special circumstances unlikely to be of such common occurrence in the earth-moving industry.

In the first, no. 8 of 1973, the appellant taxpayer is again the equipment company; it and another quite unconnected earth-moving contractor, Bruce Rhoades & Co. Pty. Ltd., each determined at about the same time that it would be desirable to exchange an item of earth-moving equipment in its own possession for an item of similar equipment in the possession of the other; both parties were leasing their respective units from finance companies and might have purchased them from their respective lessors and then have effected an exchange, accompanied by payment of an agreed sum representing the difference in value between the two units. Instead they agreed that after purchase of the units from the respective lessors, the units should be sold to the one finance company, which would then let on lease the two units, the Rhoades company leasing the unit formerly leased by the equipment company and, conformably with the new policy of the Hamblin group, the construction company, rather than the equipment company, leasing the other unit.

The difference between the "pay-out figure" of $20,625 which the taxpayer paid on the purchase of its original unit from its original lessor and the sum of $50,000, the price at which it sold that unit to the finance company which then leased it to the Rhoades company, has been treated by the Commissioner as assessable income in the taxpayer's hands.

In the remaining appeal, no. 9 of 1973, the appellant taxpayer is the construction company. In 1970 it embarked for the first time upon work as a sub-contractor in a very large civil engineering project; this required it to re-equip itself with new heavy earth-moving equipment. This project was being undertaken by the Irrigation and Water Supply Department which agreed to assist with finance for the necessary plant, worth about one million dollars, but required that the head contractor, Transfield (Qld) Pty. Ltd., own the plant, leasing it to its sub-contractor, the taxpayer. The taxpayer accordingly procured Transfield to buy the necessary plant from the supplier so that it might then lease it to the taxpayer. This involved a very large order for new plant and when the taxpayer sold to the supplier much of its old plant which it no longer required it received generous prices in recognition of the fact that it had procured the placing of that large order by Transfield and this despite the fact that it was not itself the purchaser of any new equipment.

In the case of two of these items of old plant, a scraper and a tractor, the taxpayer "paid out" the finance company that was, in one case, leasing and, in the other, letting out on hire-purchase the relevant unit. The Commissioner has assessed it to tax on the difference between these "pay-out" figures and the much larger sums allowed by the supplier when those units were "traded-in".

Having earlier decided what new plant would be required for work on the new project the taxpayer later decided that an additional item of plant, costing some $130,000, would be required and it procured its acquisition in the same way by Transfield from the same supplier but without any further used plant being "traded-in". Nevertheless the supplier then credited the taxpayer with $5,000 describing this as a "no trade discount" or, as was said in evidence, as an additional subsidy or trade allowance; this sum the Commissioner has also included in the taxpayer's assessable income.

Having stated, in outline, the general circumstances of these four appeals it is necessary to examine each rather more closely in order to determine to what liability to income tax they may give rise.

In the case of appeals nos. 6 and7 the Commissioner relies upon s. 26 (a) of the Income Tax Assessment Act, also contending, in the alternative, that the profits in question are income according to ordinary usage and therefore assessable under s. 25 (1) of the Act. The taxpayer, while not denying that it bought the items of equipment in question from its lessor so that it might sell them to the intended supplier of new equipment and with the expectation of making a profit in so doing, contends that s. 26 (a) is inapplicable because its purpose in buying the items was not that of profit-making by sale; their purchase was no more than one step taken towards the ultimate goal of re-equipment with new plant, the relevant purpose was the carrying out of this re-equipment. It also contends that the profits were in no sense income in accordance with ordinary concepts.

The three units involved in appeals nos. 6 and7 consisted of two tractors and a scraper. The first tractor, a Caterpillar 955, was on lease to the equipment company for two years from 18th July 1967 and in March 1968 had been standing idle for some time, projects on which it had been used having been completed; it was not earning anything and was not thought to be needed in the immediate future. Accordingly it was decided that it should be disposed of. The scraper was also then held on a two year lease which had commenced on 11th August 1967. In May 1968 it was found to be of too small a capacity for the work required of it; it had also had some years of use and was giving trouble. It was decided that it too should be disposed of. The third unit, a D9 tractor, was on lease to the equipment company for two years from 6th July 1967 and had, in June 1968, just completed some five months of service on hire to the New South Wales Main Roads Department where it had developed engine trouble and had been returned to the taxpayer's depot. To repair it would have taken some months; a tractor in working order was urgently required and rather than incur delay in having it repaired it was decided to dispose of it and purchase a new machine in its place.

Here then were three units each of which the taxpayer had, for good reason, decided to dispose of. Each was subject to a lease having a substantial unexpired term and the taxpayer was confident that if it wished it could then and there negotiate a purchase of the unit from the lessor by paying the balance of future rental payments plus the predetermined residual value less, perhaps, some allowance for accelerated payment of these sums.

It also believed that it could, as an alternative, merely return the units to the respective lessors, who would then seek purchasers for each of them, the price at which they might ultimately be sold determining the financial consequences to the taxpayer of its adoption of this course; any delay encountered by the finance company in selling might, no doubt, prejudice the making of any allowance for accelerated payment which the lessor might otherwise give the taxpayer. More importantly, a sale by a lessor at less than residual value would result in a corresponding liability by the taxpayer to the lessor. There would be no incentive for a finance company to seek diligently the opportunity of a favourable sale of a unit since it was entitled to look to the taxpayer for any deficiency in sale price as compared with residual value. Should a finance company in fact be able to effect a sale at more than residual value it would be under no obligation to give the taxpayer the benefit of that excess. Thus this course involved risk of incurring liability to make good a deficiency and held out no possibility of profit.

Accordingly, if the taxpayer could acquire title to the units and itself effect a prompt sale at a good price this was more advantageous to it than the alternative of returning the units to the lessors; however to attempt to sell a unit to some third party rather than use it as a "trade-in" with the supplier of new earth-moving equipment was regarded by Mr. Hamblin as unsatisfactory; it would, he said, involve delay and difficulty in finding a suitable buyer. What was, I think, more to the point and was, I believe, well appreciated by Mr. Hamblin was that no third party would be prepared to pay as much for a unit as would a supplier of new equipment taking the old equipment as a "trade-in". Evidence from a senior employee of the supplier which in fact bought these three units as "trade-ins" described its trade-in prices for used units as involving a subsidy; no other buyer could have been expected to pay this subsidized price. The position is accurately enough described by this witness when he said "it appears to me that it is practice to subsidise a trade-in rather than probably offer a straight out discount, and this is certainly what applied in the earth-moving industry".

Thus, so long as the taxpayer wished to re-equip itself, the financially advantageous course was for it to acquire title to the old equipment it had been using and then sell that old equipment to the supplier of the new, thereby obtaining the benefit of the subsidy which the supplier was prepared to provide. This course could confidently be regarded as likely to result in a substantial profit on the sale, or "trading-in", to the supplier of new equipment of the old units which the taxpayer had acquired from the finance company.

As might be expected, the taxpayer in fact adopted this course. As Mr. Hamblin himself said, it would have been foolish and inconvenient to have adopted either of the other alternatives which were open.

It is apparent that the adoption of any one of the three courses open to the taxpayer would have attained the ultimate object of disposing of old units so that new units might be acquired in their place. The course in fact adopted was selected because of the obvious financial advantages it offered to the taxpayer and which were attributable to the policy of the supplier in subsidizing the price it was prepared to pay for old units traded in. To take advantage of that subsidy the taxpayer had to purchase the old units it was to trade-in and it did so knowing that it would be able to resell at enhanced prices. It thus sought to profit by the resale of old units which it purchased from lessors with the intention of reselling. That it adopted this particular procedure as a step towards the accomplishment of its ultimate aim of providing new equipment for its affiliated company in place of its old leased equipment does not in any way detract from the fact that the dominant purpose in buying the old equipment was to take advantage of the subsidy available to it by reselling that old equipment at an enhanced price. Its purpose in acquiring the units of plant was profit-making by resale and this remains so notwithstanding that, were attention to be directed not to the acquisition but to the larger transaction of re-equipment with new plant in place of old, a wider purpose might be discerned. The particular means adopted to carry out the re-equipment plan was selected because it would yield a profit and it involved, as a necessary element, the step of acquisition so that there might be a resale of what was acquired. That suffices to attract the first limb of s. 26 (a).

This is not such a case as was dealt with by Menzies J. in Chapman v. Federal Commissioner of Taxation [1] and again by Walsh J. in Smith v. Commissioner of Taxation [2] ; it is not a question of two distinct purposes existing, one in relation to a part of the property and another in relation to the remainder. Nor does it raise the familiar problem of more than one purpose operating, the task then being to determine which purpose is the dominant one. From the evidence it is clear that in each instance information was at all times in the possession of the taxpayer which would have enabled it to calculate the probable amount it would have to pay to the lessors to purchase the old units and Mr. Hamblin said that he always thought that a profit would be disclosed by their resale, on a "trade-in" basis, to the supplier of new equipment, although he could not recall whether in each instance he actually confirmed in advance the amount required to buy the old units and compared that amount with the amount offered for them by the supplier.

1. (1968) 117 C.L.R. 167. 2. (1972) 46 A.L.J.R. 518.

The actual procedure adopted was such as to ensure that the taxpayer would not be committed to a sale of old equipment unless confident that a profit would result from it. The first step taken was to obtain from the supplier of new equipment the value, for "trade-in" purposes, of the old equipment, the taxpayer indicating its intention of buying new equipment but not at that stage binding itself to do so. The taxpayer would then ascertain from the finance company the payout figure on the old equipment. Only after that payout figure was known would a firm order for new equipment, with a credit against its price for the "trade-in" value of old equipment, be given by the taxpayer.

The difference between the amounts paid by the taxpayer to the finance companies on the purchase by it of the old units and the amounts credited to the taxpayer on the sale of those old units to the supplier of new equipment is, then, in my view, assessable in its hands under the first limb of s. 26 (a) of the Act. In those circumstances it is unnecessary for me to express any view as to whether or not those amounts would in any event be assessable as income, according to ordinary concepts within s. 25 of the Act.

The Commissioner also relied upon the fact that it was the construction company, not the taxpayer, which was to acquire new equipment under lease from a finance company which it would have procured to purchase the new equipment from the supplier. In the circumstances it is also unnecessary for me to express any views as to the significance of this circumstance.

I turn now to appeal no. 8, relating to the transaction with Bruce Rhoades and Co. Pty. Ltd. The taxpayer, the equipment company, had on lease a tractor with scraper which was found to be unsuitable for the work upon which it was then engaged; an approach was made to the supplier of new earth-moving equipment with a view to acquiring a larger piece of equipment, at the same time trading in this scraper. The supplier, in October 1970, made four alternative offers of suitable new equipment and was willing to accept the scraper as a "trade-in", the amount which would be allowed on the "trade-in" being either $35,000 or $40,000 depending upon which of these offers the taxpayer might accept. In the event this transaction did not proceed; instead, a machine was leased for some time from the supplier and negotiations commenced with the Rhoades company for the disposal by the Hamblin group to it of the scraper and the acquisition, in return, of a tractor which the Rhoades company had on lease.

The Hamblin group would have been content to purchase the scraper from its lessor and then to effect a simple exchange of it for the Rhoades company's tractor, which that company would, in the meantime, have purchased from its lessor, an adjusting payment of $5,000 being made by the Rhoades company to take account of what was thought to be the difference in value between the two units. Such a transaction would not have given rise to any assessable income in the hands of the taxpayer; the "pay-out figure" which it would have had to pay to its lessor would, presumably have represented approximately the value of the scraper and it would then have disposed of the scraper for a price represented by the value of the Rhoades company's tractor plus $5,000 which, on the evidence, together represented, again, the value of the scraper. In fact it would have been the construction company, and not the taxpayer, which would have received the tractor but, however the financial consequences of this might have been reflected in the accounts of the two companies of the group, the taxpayer should not have incurred any liability to income tax as a consequence.

However, for reasons which may be the subject of speculation but do not sufficiently appear from the evidence, the Rhoades company was not content to adopt this course. It instead, after negotiation, fixed a price of $45,000 for its tractor, thereby fixing the sale price which the taxpayer required for its scraper at the sum of $50,000, being $5,000 more than the price of the tractor. The Rhoades company also required that, instead of a direct exchange of units, each company should sell its unit to a finance company, which would then lease the unit of one to the other and vice versa, save only that it would be the construction company, not the taxpayer, which would take a lease of the tractor. That the price of $50,000 bore little relationship to market value is apparent from the fact that even the inflated "trade-in" price which the supplier was prepared to offer would not have exceeded $40,000. The actual market value of the scraper was probably much less than $50,000 and may have been in the vicinity of the amount of the pay-out figure paid by the taxpayer for the scraper, just over $20,000.

I am satisfied that the exclusive concern of the taxpayer in carrying out the transaction involved in the appeal was the acquisition by the Hamblin group of the use of the Rhoades company's tractor in exchange for the taxpayer's scraper and that it was only due to the insistance of the Rhoades company that the transaction took the form it did and involved the placing upon the taxpayer's tractor of a price of $50,000. Not only is this not a case of the deliberate selection by the taxpayer of one of a number of courses open to it, the criterion of selection depending upon which course would yield a profit; it is not an instance of acquisition with the dominant purpose of profit-making by resale. It is, on the contrary, when viewed in the light of its special facts, a case somewhat similar in principle to that considered by Gibbs J. in Loxton v. Federal Commissioner of Taxation [1] . As his Honour there pointed out, it is not enough that property be acquired for the purpose of selling it [2] ; it must have been acquired for the purpose of making a profit by selling it. This purpose is, in fact, wholly lacking in this instance. It mattered not to the Hamblin group what price was fixed as the price at which the scraper was to be sold so long as it was a price $5,000 more than the purchase price of the tractor; the greater the sale price of the scraper the more, no doubt, would the construction company be required to pay to the finance company by way of rental under its lease of the tractor. An enhanced price for the scraper would, for the time being, provide the taxpayer with additional liquidity and the Rhoades company was no doubt alive to this in insisting upon the transaction taking the form it did; however there would be a reckoning in due course, consisting of the reflection of the scraper's enhanced price in the correspondingly enhanced rental charges payable by the construction company under its lease of the tractor. In this important respect this transaction is very different from those with which the appeals the subject of nos. 6 and7 of 1973 are concerned; in those the difference between the "pay-out" figure and the "trade-in" figure represented a true gain to the taxpayer, here the difference between the "pay-out" figure and the sale price to the finance company represented no more than temporary financial accommodation.

1. (1973) 47 A.L.J.R. 95. 2. (1973) 47 A.L.J.R., at p. 98.

For these reasons I conclude that the taxpayer is not assessable to tax under the first limb of s. 26 (a) in respect of any profit disclosed by this transaction.

The fact that it was the construction company, rather than the equipment company, which was to be the lessee from the finance company of the Rhoades' unit does not, I think, affect the conclusion at which I have arrived. I conclude from the evidence that the management of both companies tended very much to regard them as one entity and did not form any purpose of deriving a profit for the equipment company at the expense of inflated lease rentals payable by the construction company. The purpose of the former in acquiring the scraper was, I find, unaffected by the consideration that it would be the latter which would be the ultimate lessee of the tractor.

On this appeal no argument was addressed to me based upon the second limb of s. 26 (a) but s. 25 (1) was, as I understand it, relied upon, it being said that there was here an instance of income, understood in accordance with ordinary concepts and usages. This exchange transaction, if such it may be called, was a wholly unusual one so far as concerned the business of the taxpayer and was, moreover, concerned with the disposal of an item of the taxpayer's profit-making subject matter, its plant. It does not possess, to my mind, any of the attributes ordinarily regarded as those of a transaction of a revenue nature giving rise to income as commonly understood. Section 25 (1) appears to me to have no application.

The last of these appeals, no. 9 of 1973, concerns, first, the receipt by the construction company of the sum of $5,000 from the suppliers of earth-moving plant, described as a subsidy or trade allowance. Secondly there are two amounts of profit on a scraper and a tractor acquired by the taxpayer and then disposed of as "trade-ins". I deal first with the item of $5,000. There is a little more that needs to be added to my earlier statement of the relevant facts concerning it. The Commissioner relied upon s. 25 (1) and s. 26 (e) for his inclusion of this amount in the assessment. For the taxpayer it was said to be akin to a gift, a voluntary payment made by the supplier in lieu of allowing a discount, and to be of a wholly unprecedented nature so far as concerned the experience of the Hamblin group. The sales manager of the supplier which made the payment of $5,000 spoke of it as paid with respect to the sale to Transfield of the extra item of plant and described the buyer, Transfield, as having been introduced to his firm by Mr. Hamblin but he regarded the payment as an additional subsidy, intended to replace the discount which, in all the circumstances, the taxpayer would have been allowed had it itself bought for cash the extra item of plant. According to Mr. Hamblin's evidence he initially requested and was conceded such a discount at a time when he thought that the taxpayer would be the actual buyer of all necessary new plant; when it later transpired that Transfield was to be the buyer what was to be a discount allowed to the taxpayer became a payment to it.

On this evidence I cannot conclude that s. 26 (e) is applicable because the payment was not, I think, in the words of that subsection, made "in respect of, or for or in relation directly or indirectly to any services rendered" by the taxpayer; the introduction of Transfield as a very large buyer of equipment would no doubt have disposed the supplier to look favourably upon the taxpayer, but this it already did, the taxpayer was already an established customer and had itself intended to be the buyer until it became necessary to substitute Transfield in its place. Following what was said in Constable v. Federal Commissioner of Taxation [1] , I conclude that, since the payment was not in any sense attributable to any service of introduction performed by the taxpayer, s. 26 (e) does not apply.

For the purposes of s. 25 (1) of the Act the character of a receipt in the hands of the taxpayer is to be determined having regard to all the circumstances of the case and those circumstances establish, to my mind, that here it bore the nature of proceeds of a trade or business and hence was assessable income.

The evidence shows that the supplier of plant would have allowed a direct discount to the taxpayer of $5,000 had it been a cash buyer of the additional item of plant, having earlier made purchases of machinery worth almost $1 million; such a discount would not, of course, have been assessable income, it would not have been income at all but rather a saving of capital expenditure; in fact, of course, the taxpayer was not the buyer of any machinery and could not obtain this financial benefit in the form of a discount. The evidence also reveals that the supplier was in the habit of subsidising the purchase of plant by granting generous "trade-in" allowances but this means of affording to the taxpayer a financial advantage was also closed to it in this instance since it had no old plant to be "traded-in". It was the willingness of the supplier to provide a financial benefit to the taxpayer, coupled with the curious position that the taxpayer was neither a buyer of new plant nor a seller of old, that resulted in recourse to strained nomenclature in seeking for an apt description of the $5,000 payment. The sales manager of the supplier called it an "additional subsidy or an amount of money to be appropriated over the overall trade allowance" and said it was intended to replace what the taxpayer would have got if it had been buying plant; the supplier's own financial records show it as a "discount" on purchase of plant; Mr Hamblin spoke of it as a discount. In fact it was no discount to the taxpayer if discount means, as I think it must, a reduction in price paid, because no price was paid by the taxpayer.

I think that a proper conclusion, on the evidence, is that any contractor, having had past trading relations with the supplier such as those which the taxpayer had enjoyed and having been concerned with a very large order of new plant from the supplier, could anticipate that in one way or another a substantial financial benefit would be afforded it by the supplier. This benefit must, I think, properly be regarded as an incident of the present taxpayer's business as an earth-moving contractor, involving it, as it does, in the replacement from time to time of worn-out plant. If that benefit takes the form of a receipt of moneys rather than a saving of expenditure and if it is neither a gift made because of the personal qualities of the taxpayer, as it clearly was not, nor is of a capital nature, as it might be if taking the form of part of the price received on the disposal of used plant, then to my mind it bears the character of income. It is a trade receipt of an income nature being part of the proceeds of the business carried on by the taxpayer received as an incident of carrying on that business: Squatting Investment Co. Ltd. v. Federal Commissioner of Taxation per Fullagar J. [1] and per Kitto J. [2] and, on appeal [3] ; H. R. Sinclair & Son Pty. Ltd. v. Federal Commissioner of Taxation per Taylor J. [4] and per Owen J. [5] ; Scott v. Federal Commissioner of Taxation per Windeyer J. [6] . I accordingly conclude that the Commissioner correctly assessed the taxpayer to tax on that payment. The fact that the form the benefit took was unprecedented in the taxpayer's experience appears to have been due simply to the fact that the particular and unusual circumstances necessitating that form had not arisen before; in any event the fact that the form of this benefit is unprecedented will not prevent it from being received on revenue account if it results, as I think it does, from a transaction incident to the conduct of the taxpayer's business.

1. (1953) 86 C.L.R. 570, at p. 620. 2. (1953) 86 C.L.R., at pp. 628, 634-638. 3. (1954) 88 C.L.R. 413, at p. 432. 4. (1966) 114 C.L.R. 537, at p. 544. 5. (1966) 114 C.L.R., at p. 547. 6. (1966) 117 C.L.R. 514, at pp. 526-527.

The other aspect of this appeal, relating to the surplus disclosed by a comparison between the "pay-out" and "trade-in" figures on two old items of equipment disposed of by the taxpayer to the supplier, has features differing in some ways from the circumstances in the appeals the subject of nos. 6 and7 of 1973. Three differences exist; first, the actual buyer of new plant was in this case not a finance company but rather Transfield; secondly, the particular Hamblin company which traded in its old equipment, being in this instance the construction company, was also the intended lessee from Transfield of the new equipment; lastly, one of the two items of old equipment traded in had not previously been leased by the construction company, instead it was held by it under a hirepurchase agreement before being "paid out". The first two of these differences of fact cannot in any way avail the taxpayer in distinguishing these transactions from those the subject of the two earlier appeals. As to the third it was said that because a hire-purchase agreement was in question there was no acquisition at a time when any purpose of resale at a profit existed.

The relevant hire-purchase agreement is in the customary form and under it it is only by the exercise of the option to purchase that any acquisition of property in the goods subject to the agreement may be effected. Accordingly there is, in my view, no ground for regarding the relevant date of acquisition as being any earlier than the date of exercise of the option. The property here in question to which the first limb of s. 26 (a) is to be applied consists of the right of ownership of the item of plant the subject of the hire-purchase agreement; it was by the sale of title to the plant to the supplier that a profit was derived. Until exercise of the option the taxpayer had no title but merely the opportunity of acquiring title. Accordingly the date of acquisition, for the purpose of s. 26 (a), should, I think, be regarded as the date of exercise of the option to purchase rather than the date of entry into the hire-purchase agreement. At the date of exercise of the option there existed the same purpose as caused the taxpayer to "pay-out" under leasing agreements, a purpose of reselling at a profit. Accordingly no distinction is, in this respect, to be drawn between equipment under hire-purchase and leased equipment.

The amount of any profit assessable under s. 26 (a) will ordinarily be ascertained as the difference between the cost of acquisition of that which is resold and the resale price. When acquisition results from the exercise of an option it may on occasion be necessary to include in the total cost of acquisition the value of the option at the date of its exercise: Executor Trustee & Agency Co. of South Australia v. Federal Commissioner of Taxation (Bristowe's Case) per Kitto J. [1] . In the present case the Commissioner has calculated the relevant profit by deducting from the resale price the full price of the equipment as shown in the hire-purchase agreement. It was not contended that this involved any error in assessment of which the taxpayer could complain.

It follows that the case of this item of equipment, held by the taxpayer on hire-purchase rather than on lease, is in no way distinguishable from those items which were held on lease prior to being "paid out".

I accordingly conclude that the assessment the subject of the appeal in no. 9 of 1973 was correctly made by the Commissioner.

There remains for determination one matter, affecting only the two appeals in nos. 6 and7 of 1973; the relevant assessments in those two appeals are amended assessments which issued more than three years after tax became payable under the original assessments and which the Commissioner was authorized to make only if s. 170 (2) was applicable. For the taxpayer it was contended that that subsection was inapplicable since there had been such a full and true disclosure by the taxpayer as satisfied s. 170 (3); accordingly the amended assessments were made out of time and were unlawful.

What must be disclosed fully and truly are "all the material facts necessary for" the assessment of the taxpayer. I have found that not only were the items of old plant concerned in these appeals acquired by the taxpayer for the purpose of resale, as is indeed conceded, but that the taxpayer's relevant purpose was that those resales should be at a profit. The purpose of the taxpayer at the time of acquisition is a fact and a highly material one and it is apparent from the taxpayer's returns that this fact was not disclosed. That is, in my view, fatal to the taxpayer's contention that disclosure was full and true. It is well established that the disclosure required is of the relevant facts and not of the tax consequences which they may produce and it may seem to be demanding an excessive disclosure to require a taxpayer to volunteer the nature of the purpose actuating him in acquiring assets which he subsequently sells. However where the taxing legislation fixes upon a taxpayer's purpose as decisive of liability to tax, as does s. 26 (a), it appears to me to be inescapable that full disclosure calls for disclosure of the relevant purpose.

The failure to disclose this purpose is not the omission of mere "explanatory detail confirmatory of a conclusion" which the Commissioner "could and should have reached on the facts before him": W. Thomas & Co. Pty. Ltd. v. Federal Commissioner of Taxation per Windeyer J. [1] . Unlike the facts of that case the Commissioner was not, in the present instance, placed in any position, having regard to the material in the taxpayer's return, to infer that the taxpayer possessed the relevant purpose at the date of acquisition, a purpose not only of reselling but of reselling at a profit. In Austin Distributors Pty. Ltd. v. Federal Commissioner of Taxation [2] , Menzies J., having stated that a disclosure which left the Commissioner to speculate as to some of the material facts was not a sufficient disclosure, went on to test the adequacy of disclosure by asking:

If advice were to have been sought by the taxpayer whether or not the sum in question was a taxable premium, would the person from whom that advice was sought have required more information than this return disclosed to the Commissioner? If that test be applied in the present case it leads to only one conclusion, that there was lacking any full disclosure. 1. (1965) 115 C.L.R. 58, at p. 75. 2. (1964) 13 A.T.D. 429, at p. 433.

The Commissioner contended that in a number of more detailed respects there were failures to make full and true disclosures but with these I need not deal in view of my conclusion as to non-disclosure of the relevant purpose.

So far as I am aware, the full import of adequacy of disclosure in a case where assessment depends upon the taxpayer's purpose at a particular time has not previously been considered in this Court although as I read the judgment of Windeyer J. in Elsey v. Federal Commissioner of Taxation [1] it proceeds upon the same footing as that which I have adopted. I am conscious that in adopting the view I do it may mean that in the case of disputed amended assessments involving s. 26 (a) the taxpayer will seldom be able to rely upon having made a full disclosure. However this appears to me to be an inevitable consequence of what is involved in the requirement that all material facts be disclosed.

The appeals in each of nos. 6, 7 and9 of 1973 are dismissed. I allow the appeal in no. 8 of 1973 and remit the relevant assessment for amendment in accordance with these reasons for judgment. There will be the usual order as to exhibits.