Commissioner of Taxation (Cth) v McConochie

Commissioner of Taxation (Cth) v McConochie - [1960] HCA 3 - HCA 1960 case summary — Zoe

[6]

I am of opinion that this cannot be right. What the taxpayer sold or agreed to sell was not wool but sheep. No price was fixed by him for a sale of the wool to the purchaser of the sheep. Perhaps it might be right to imply in the contract a term that in the contingency of the sale of the sheep falling through by the default of the purchaser the wool moneys held by the wool-selling brokers should be handed to the vendor, the taxpayer. But no such contingency arose. The contract was performed: the sheep were delivered and the purchase price for them was paid. That took place in the next year of income, that beginning 1st July 1953 and ending 30th June 1954. The result was that the proceeds of the wool became payable absolutely by the brokers to the purchaser of the sheep. What the contract of sale yielded to the taxpayer was the price of the sheep. Among the live-stock taken into account by the taxpayer as at the end of the year of income ending 30th June 1953 were the sheep afterwards delivered to the purchaser pursuant to the contract all of which had been shorn by that purchaser under the terms of the contract. In his return of income for that year the taxpayer included the sheep under gross sales. That basis was of course appropriate on the footing, which the taxpayer adopted and perhaps correctly, that the property in the sheep passed to the purchaser only when the sheep were delivered. The price of the sheep, that is to say, £7 7s. 6d. a head, is the only consideration which passed to the taxpayer under the contract. It is nothing to the point that under the contract the purchaser became entitled, or was obliged, to shear the sheep in advance of the property passing and to sell the wool. The contract gave the taxpayer as vendor of the sheep no right to payment for the wool, that is unless possibly in the event which did not occur of the contract failing by reason of a default of the purchaser. If on the other hand the hypothesis be adopted that, contrary to the view upon which the taxpayer's returns were constructed, the property in the sheep passed under the contract immediately it was made, that is to say that the contract amounted to a sale de praesenti, not to an executory agreement to sell de futuro, then it would be equally indefensible to include in the assessable income the proceeds of the wool as a separate item. On the footing that the property in the sheep passed immediately on the signing of the contract it might have been right to take at once into the live-stock account as sales the whole purchase money of £7 7s. 6d. per head, notwithstanding that payment was postponed until the next accounting period, when delivery would be made. But that would mean that the value of the sheep could not be included at the end of the year expiring 30th June 1953 in the live-stock account, when that account was made up in accordance with s. 32 of the Income Tax and Social Services Contribution Assessment Act 1936-1953. We are told that in fact they were included by the taxpayer in his return at £4 2s 0d. a head, the taxpayer having elected for value at cost. But there could be no separate inclusion of the proceeds of the wool. It would remain true that the wool was not sold, it was the sheep; that there was no separate consideration for the wool bargained for and none received.

[14]

The relevant facts are that the respondent, R. K. McConochie of "Willancorah", a grazier, bought in October 1952 3,150 wethers at 82s. 0d. per head. On 7th March 1953 he sold to Mrs. Ellison of "Narringa" 3,120 of these wethers at 147s. 6d. per head. In the contract the sheep, which had been inspected and approved on behalf of the purchaser, were described by breeding and drop and it was stated "Numbers more or less believed to be approximate but not guaranteed". The purchaser was given the right to reject "lame, blind and sheep unfit to travel". Delivery was to be on 1st July 1953. It was agreed that in the meantime the sheep were to be shorn about March 1953 by the purchaser at her expense but under the supervision of the manager of "Willancorah" and the wool consigned to the Australian Mercantile Land and Finance Co. Ltd. for sale on the purchaser's account but with the stipulation that "proceeds are to be held by the A.M.L. & F. Co. Ltd. until the sheep are paid for". Clauses 4 and 8 of the contract are as follows: "4. The vendor is to receive from the purchaser a pro rata proportion of the wool proceeds on a per head basis on any difference between the number of sheep shorn and the number finally delivered." "8. In the event of the purchaser selling the sheep before 1st July the proceeds are to be held in trust by George Paul, Agent, Wellington until 1st July on account of Mrs. H. R. Ellison the aforesaid purchaser." The vendor was to run the sheep at "Willancorah" free of agistment until 1st July. There were special stipulations in the event of "Willancorah" becoming flooded, or of apprehension of this. What was described as pro forma delivery was to be given and taken and the stock counted on 1st July 1953 at "Willancorah," and such delivery was to be considered actual delivery (without further count) upon payment in full. It was also provided that until payment in full "the purchaser shall hold the stock (or the proceeds of the sale, if resold) as agent only and upon trust for and at the disposal of the vendor or his agents".

[16]

The Commissioner broke up the contract and what was done thereunder into two transactions, namely: first, a sale of the wool clip from the flock at a price equivalent to the net proceeds of the sale after a deduction for shearing, cartage, etc. (£12,496), which, so it was claimed, took place in the year of income ended the 30th June 1953; and, secondly, a sale of 3,114 sheep in three months' wool on 12th August 1953 at approximately 70s. 0d. per head, this transaction occurring in the following year of income. It was contended that this splitting up of what occurred corresponded with the reality of the situation and that the form of the contract between the respondent and Mrs. Ellison must yield to that reality. This I reject at all points. The reality of the situation was clearly enough the sale of a flock of sheep at a stipulated price per head, but because it was intended that the price should not be paid before 1st July 1954 and in the meantime the sheep should be shorn and the wool sold, and because it was contemplated that the sheep might be sold by the purchaser before 1st July 1954, provisions were inserted in the contract relating to the proceeds of the wool and of the sheep, if sold, to ensure that whatever happened, there would be available for payment to the respondent vendor a substantial part, at least, of the purchase price. The agreement, however, recognized clearly enough that the wool clip should belong to the purchaser, and the attempt of the Commissioner to treat it as belonging to the vendor, as is shown by the adjustment sheet already referred to, and the more subtle attempt of his counsel to treat the property in the wool as passing to the vendor by sale upon the shearing at a price determined by the net selling price of the wool at later dates, are both entirely contrary to the agreement between the vendor and the purchaser. Whatever the wool brought, the price of the sheep was 147s. 6d per head and there is no basis upon which the consideration eventually paid can be treated as made up of two variables, one the net proceeds of wool and the other the consideration for the sheep sold and delivered, calculated by deducting the net proceeds of wool from a figure arrived at by multiplying 147s. 6d. by the number of sheep delivered.

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Judgment (27 paragraphs)

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