Gibb v Commissioner of Taxation

I agree that, if the word "income" in the sub-section is used only in its ordinary commercial sense, the receipt by a shareholder of bonus shares would not be a receipt or derivation of income nor, I think, would the notional or actual crediting to a shareholder in a company in circumstances such as here existed of an amount appropriated by the company to pay up shares issued to him as fully paid be a receipt or derivation of income by the shareholder. In this I agree, with respect, with what Dixon C.J. said in Fuller's Case [2] . But it is, in my opinion, necessary to go further and ask whether income in s. 47 (1) does not include everything which, for the purposes of the Act, is given the character of income, whether or not the actual word "income" is used in the Act to describe it. If the word is given this extended meaning, then I am of opinion that the transaction as a result of which Gibbsons Investments Limited received the bonus shares resulted in the derivation by it of an amount of "income" equivalent to the paid-up value of the shares.

The conclusion to which I have ultimately come is that when s. 47 (1) speaks of "income derived by the company", that is to say by the company which is in course of liquidation, the phrase covers not merely those receipts which would be regarded as income in the ordinary sense of the word but also all those transactions and things which, for the purposes of the Act, are treated as the derivation of income and that if Gibbsons Investments Limited derived a benefit which the Act treats as income, whether it was or was not part of that company's assessable income, then the distribution made by its liquidator to the extent to which it represented that benefit falls, in my opinion, within s. 47 (1). The paid-up value of the bonus shares issued to Gibbsons Investments Limited was a "dividend" within the definition of that word in s. 6 which includes

the paid-up value of shares distributed by a company to its shareholders to the extent to which the paid-up value represents a capitalization of profits. And the effect of the definitions of "income from personal exertion" and "income from property" is, in my opinion, to bring dividends into the category of "income from property". This was the conclusion reached by Menzies J. in Fuller's Case [1] and, with respect, I agree with it. Section 44 (1) appears to me to proceed upon this footing and provides that, subject to the section, the assessable income of a shareholder in a company shall - if he is a resident - include dividends paid to him by the company out of profits derived by it from any source. It is true that s. 44 (2) (b) (iii) provides that the assessable income of a shareholder shall not include dividends paid wholly or exclusively out of profits arising from the revaluation of assets not acquired for the purpose of resale at a profit if the dividends paid from such profits are satisfied by the issue of shares in the company declaring the dividend. Its effect is to take such a dividend out of or perhaps to prevent it falling into the category of assessable income with the result, in the present case, that the paid-up value of the shares issued by Gibb & Miller Limited to Gibbsons Investments Limited, being a "dividend paid wholly or exclusively out of profits arising from the revaluation of assets not acquired for the purpose of resale at a profit", formed no part of the latter company's assessable income. But although this dividend did not form part of the company's assessable income, the Act, in my opinion, regards it as income. This accords, I think, with the view stated by Fullagar J. in Fuller's Case [1] . His Honour had earlier expressed the opinion that the application by a company on behalf of a shareholder of an amount representing the latter's share of capitalized profits in payment of bonus shares issued to that shareholder in circumstances similar to those in the present case was a derivation of "income" by the latter in the ordinary or commercial sense of that word. He went on, however, to say that even if it were wrong to hold that the taxpayer in such a case had derived income in the generally accepted sense of that word s. 44 (1), read with the definitions in s. 6 of "dividend", of "income from personal exertion", and of "income from property", clearly treats the amount represented by the face value of bonus shares as income - income for all the purposes of the Act . With respect, I agree, and I think the same view should be taken of the meaning of the word income in s. 47 (1). The judgment of Menzies J. in that case seems to me to have followed the same line of reasoning. The Act, his Honour said, expressly includes "bonus shares (which are by their nature capital) within the definition of dividends (which are by their nature income). The result, prima facie, is to give everything that falls within the definition of dividends the character of dividends, that is, income" [2] , and "It is my opinion, therefore, that the Act does give to the paid-up value of bonus shares, the character of income" [3] . 1. (1959) 101 C.L.R. 403. 2. (1959) 101 C.L.R., at p. 421. 3. (1959) 101 C.L.R., at p. 424. 4. (1959) 101 C.L.R., at p. 425.