Associated Newspapers Limited v Federal Commissioner of Taxation [1944] HCA 24

Associated Newspapers Limited v Federal Commissioner of Taxation [1944] HCA 24 - HCA 1944 case summary — Zoe

[33]

issued shares and accumulated profits and that these moneys will be found invested in the assets which constitute the company's commercial capital. It contains provisions to ensure that the amount of the capital employed will not be inflated by a company writing up its assets. The values attributed to the assets in the books of the company must therefore be examined in order to ascer- tain whether they comply with the values prescribed by s. 24 (2), and that sub-section must have been intended to prescribe values for all the assets that would appear in the books of a company such as the appellant in each accounting period with the exception of any capital, averaged over the accounting period, the income (if any) from which is not assessable income under the Income Tax Assessment Act (s. 24 (1) (ii) ), and any capital invested in share- holdings in any other company (s. 24 (1) (iii) ). The capital referred to in par. (iii) is omitted because the definition of " taxable profit" in s. 3 (1) provides that taxable profit means the amount remaining after deducting from the taxable income of the accounting period as assessed under the Income Tax Assessment Act (b) so much of any dividend received by a company in respect of its shareholdings in any other company as is included in the taxable income of the first- mentioned company of the accounting period. Amalgamations and reconstructions of companies could have occurred before the war and during the war. The object of an amalgamation is, either at once or in the future, to vest the assets of the companies which are to be wound up in order to carry out the amalgamation in an existing or new company, the shareholders in the companies which are to be wound up to exchange their shares in those companies for shares in the existing or new company. In the case of a recon- struction, a new company is formed to acquire the assets of an existing company, the shareholders in the latter company being given the right, which is usually exercised, to become shareholders in the former company. If the amalgamation takes the form of a sale of the assets of the existing companies to a new company, their cost to that company in money or money's worth can be readily ascertained for the purposes of s. 24 (Craddock v. Zevo Finance Co. Ltd. (1)). But an alternative method of amalgama- tion, achieving the same result and one that is commonly used in business (Lever Bros. Ltd. v. Inland Revenue Commissioners (2) ),

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full value for the shares which it had distributed to the shareholders in Sun Newspapers Ltd. In a practical business sense the cost of the assets which the appellant company eventually received from Sun Newspapers Ltd. was the value of these shares. These assets included the cost of establishing the circulation of the "Sun" and the other papers and periodicals published by Sun Newspapers Ltd., or, in other words, of establishing a goodwill for the business, and, as a matter of commercial accountancy, the cost could only be distributed between the tangible and intangible assets by valuing the tangible assets and attributing the balance of the - cost, as was done, to goodwill and establishment. The value of the shares in Sun Newspapers Ltd. showed that the establish- ment moneys had been well spent and this account should be treated, in my opinion, not as a balancing entry for moneys lost but as a valuable asset and therefore as goodwill. At the date, therefore, that the War-time (Company) Tax Assessment Act 1940- 1941 came into force the books of the appellant company purported to show the amounts which the acquisition of the assets of Sun Newspapers Ltd. including goodwill had cost the company. In the case of goodwill, which is part of the fixed capital of a company (Wilmer v. McNamara & Co. Ltd. (1) ), the books of the appellant company showed that the goodwill had cost £1,682,920 14s. 8d., but that this amount had been written down below cost by £182,920 14s. 8d. to £1,500,000. Where a company has acquired assets in this manner it is just as relevant to ascertain the cost of acquisition for many purposes of the Income Tax Assessment Act and of the War-time (Company) Tax Assessment Act as it is where the company has acquired them by purchasing the undertakings of the existing companies. For instance it is necessary to ascertain the cost of acquiring trading stock in order to give effect to s. 31 of the Income Tax Assessment Act, and of plant used to produce the assessable income to calculate depreciation under s. 56 (1) (b), and for the purposes of s, 24 (2) (a) and (b) of the War-time (Company) Tax Assessment Act. But s. 24 (2) (d) and (e) are the most important sub-sections on this appeal.

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Newsearers In support of this objection Mr. Weston relied on s. 170 (3) of the ™ Income Tax Assessment Act, which is incorporated in the War-time Feperat (Company) Tax Assessment Act by s. 34 of that Act. It was in uns. connection with this objection that the oral evidence was tendered Taxation. on behalf of the appellant and on behalf of the respondent. Mr. Kitto objected to this evidence, and it was admitted subject to objection, but I am of opinion that the evidence was admissible. As I said during the argument it is not clear to my mind, in view of the wide powers conferred upon the Court upon an appeal by s. 199 of the Income Tax Assessment Act, that the sub-section applies where a taxpayer, instead of accepting the assessment as correct, objects to it and the Commissioner then issues an amended assess- ment against which there is an appeal to the Court. But, assuming that it does apply in the present case, and accepting, as I do, the evidence tendered on behalf of the appellant of what took place at the interview on 29th May in preference to the evidence tendered on behalf of the respondent, I agree with Mr. Kitto that the mistake which the respondent made by his responsible officers in the assess- ment was one of fact and not of law. The evidence shows that in the Department there were two views with respect to the entry in the appellant's books relating to the £1,500,000. The Department in Sydney considered that it was an entry made to balance a loss on the realization of the shares, while the Department in Canberra considered that it represented an asset in the shape of a valuable goodwill. The difference of opinion whether the entry represented a loss or an asset was to my mind a difference on a pure question of fact. The appellant company objected to the assessment based on the assumption that it was a loss, and the respondent, rightly to my mind, gave effect to that objection. The amended assessment was based on the alternative assumption that the entry represented not a loss but an asset. It was therefore made to correct a mistake of fact and was not avoided by s. 170 (3).

At a glance

Court

Decision date

Before

Source

Judgment (68 paragraphs)