Ord Forrest Pty Ltd v Commissioner of Taxation

The company was incorporated in March 1969 under the Companies Ordinance 1962 A.C.T.; a few days later it borrowed from one of its two shareholders, who was also beneficially entitled to the only other issued share in its capital, the sum of $1,050,000, at call free of interest. On the same day it bought from that shareholder for cash two large parcels of shares in listed companies for $1,035,055. On 23rd April 1969 it borrowed from that same shareholder a further $1,450,000, again at call free of interest, which it immediately lent, on the same terms, to two other proprietary companies. Five minutes after the holding of the board meeting at which these three transactions were resolved upon a further meeting was held at which it was resolved that, that shareholder having now called for repayment of $2,480,000 of her loan moneys, that sum be repaid to her. At that same meeting she then applied for 24,800 ordinary shares of $1 each in the company's capital at a premium of $99 per share, accompanied by a cheque for $2,480,000, and those shares were then allotted to her and a resolution passed that a general meeting be convened on short notice to convert all the then issued capital of the company into preference shares. This general meeting then followed, only twenty minutes after the commencement of the preceding board meeting, and the appropriate resolutions were carried; all that need be noted is that the rights of preference shares were limited to a fixed preference dividend of four per cent and to priority as regards capital (not including premium moneys) and dividends on a winding up or reduction of capital but with no right to further participation in profits or assets; the preference shares conferred no voting rights.

Then, at a further board meeting held twenty minutes after that general meeting, it was noted that application had been received by allottees for eight ordinary shares of $1 each at a premium of $99 per share, accompanied by cheques for a total of $800, and it was resolved that the eight shares applied for should be allotted. These shares thus constituted the only issued shares having any voting rights and, because of the very limited other rights attached to the existing preference shares, would obviously be of great value in a company owning such valuable assets. The Commissioner, in applying s. 18 (2) (c) of the Gift Duty Assessment Act to ascertain their value, has arrived at a total value of $2,591,280 for these eight shares.

It is in these circumstances that the Commissioner invokes the provisions of the Gift Duty Assessment Act as justifying his assess ment of the company to duty. The critical question is, of course, whether the allotment of these eight shares constituted a gift for the purposes of the Act. If it did then, no evidence having been called to show that the amount of the assessment, a default assessment, is, in point of valuation of the property the subject of the gift, excessive, this appeal will fail and the assessment will stand - s. 23 of the Act.

A "gift" is defined in s. 4 (1) of the Act; the effect of that definition, so far as presently relevant, is to make any disposition of property a "gift" if the consideration in money or money's worth passing from the disponee to the disponor is not fully adequate.

Two issues arise for determination; was the allotment a "disposition of property" and, if so, was the consideration passing from each allottee, a disponee, to the company, the disponer, "fully adequate"?

"Disposition of property" is defined, first by giving it a meaning encompassing all types of alienations of property and then by adding six additional meanings which are to be included within its defined meaning the first of which is "(a) the allotment of shares in a company". That phrase describes accurately enough what took place on 23rd April 1969 when the eight shares were allotted; what then occurred was no more and no less than "the allotment of shares in a company". Paragraph (a) of the definition of "disposition of property" has not hitherto been judicially considered and appears to have no counterpart in any analogous legislation either in Australia or overseas. However, its words are, I think, clearly applicable to the present case; the meaning they convey cannot be confined, as was suggested, to the procuring by a third party of the allotment of shares by a company; whether or not they would include such a transaction I need not now determine. No statutory context has been suggested as requiring any departure from ordinary meaning. The fact that reference is made to the allotment of shares "in", rather than "by", a company seems to me of no significance, an allotment of a company's shares will be effected by resolution of a meeting either of its directors or of its members, depending upon the terms of its articles, and in either event is perforce an allotment "by" the company; in describing an allotment of shares, if shares in a company rather than in some other enterprise are intended to be referred to, the only likely ambiguity lies in that which is allotted rather than the entity making the allotment; the words "in a company" thus add a useful measure of precision to what goes before by making it clear that it is only the allotment of shares in companies, and not in other joint ventures, that is being dealt with.

It follows that in my view the allotment of eight shares on 23rd April 1969 fell within the meaning of a "disposition of property" as defined in s. 4 of the Act.

I pass now to the second issue, concerned with adequacy of consideration. For the company it was contended that the allotment of a share at par or at any premium above par is inherently incapable of constituting a transaction for other than fully adequate consideration, at least so long as the par value is paid in cash by the allottee. Because the payment of par value entitles the successful applicant for allotment to have his shares treated as fully paid up and invests him with all the rights conferred upon a member by virtue of his holding of a share it must follow, it is said, that in such a case there can never be any inadequacy of consideration. The company has received all that, as a matter of law, it is entitled to and the proper test of adequacy of consideration in such a case is whether or not the shares may properly be described as fully paid up.

To my mind this confuses the legal effect of the contract between company and allottee with the quite distinct question whether the consideration in that contract is adequate. The legal effect of the contract is to entitle the company to receive no more and no less than the amount per share stipulated for, be it par or par plus a premium; in this respect it does not differ from any other contract by which a price becomes payable, save for the restraint imposed by the law upon the issue of shares at a discount except in accordance with s. 59 of the various Australian Companies Acts. To regard the full extent of the actual contractual obligation of a contracting party as necessarily constituting a fully adequate consideration is erroneous; yet this is, in effect, what the company's submission amounts to.

It is, I think, irrelevant to the present question that directors are not, in all circumstances, obliged to exact from applicants for shares in a company the full premium that market demand would make possible. Likewise it seems to me not to the point to say, even if it were true, a matter to which I will return later, that a company suffers no detriment to itself in failing to demand of applicants for its shares as great a premium as those shares could command. The definition of gift in s. 4 of the Act does not concern itself with detriment to the disponor but rather with whether or not the consideration passing to it from the disponee is "fully adequate".

The test of adequacy of consideration passing from disponee to disponor required by the definition of "gift" necessitates some criterion against which it is to be measured. In the ordinary case of a disposition of property by way of alienation of property by the disponor in favour of a disponee the criterion must, I think, be the value of the property received by the disponee; the consideration in money or money's worth passing from the disponee is to be contrasted with the value of that property, there being made "a comparison of the value of what was promised or paid with the value of what was given" - McGain v. Federal Commissioner of Taxation [1] . The result of that comparison will determine the adequacy of the consideration. Quite apart from the inference arising from the words of the definition of "gift" that this is the appropriate process for the testing of adequacy of consideration, s. 18 (1) (c) and (2), s. 31 (4) (a) (i) and s. 33 (8) make clear the relevance in this regard which the Act assigns to the value of the property comprised in the gift and which is the subject of the disposition of property in question.

I see no reason for adopting any different view where a disposition is not by means of an ordinary alienation of property but, instead, takes the form of an allotment of shares; only in this way can effect be given to the requirement, implicit in the definition of "gift", that the adequacy of the consideration, which must be in money or money's worth, is to be determined by comparing it with some comparable yardstick.

It was argued that the fact that it is the act of allotment of shares which par. (a) designates as the relevant disposition makes it proper to disregard the value of the shares allotted when determining the adequacy of the consideration and, instead, to adopt, as the standard with which the consideration from the disponee is to be contrasted, the par value of those shares.

I find no justification, either in the Act or as a matter of general principle, for doing this. There is, I think, to adopt Sir Cyril Radcliffe's expression used in argument in Humphrey v. Gold Coast Selection Trust Ltd. [1] , no "lawyers' mystery" which requires that the par value of shares should be taken to be their actual value - and see Murphy v. Australian Machinery and Investment Co. Ltd. per Atkinson J. [2] who earlier [3] had said of Humphrey's Case [4] that that whole case negatived any suggestion that the shares there in question had to be taken at their par value; instead their value was a question of evidence. Those two cases each involved the ascertainment of the cost to promoters of mining companies of shares allotted to them so that on the subsequent sale of those shares their profits and gains might be computed for income tax purposes; the problem for the court was therefore different from the present but the rejection of par value as indicative of actual value is noteworthy.

1. (1946) 30 Tax Cas. 209, at p. 223. 2. (1947) 30 Tax Cas. 244, at p. 255. 3. (1947) 30 Tax Cas., at p. 253. 4. (1946) 30 Tax Cas. 209.

Although no occasion has arisen in the past for any judicial consideration of s. 4 (1) (a) of the Gift Duty Assessment Act there are to be found dicta treating the allotment of shares at less than market value as involving inadequacy of consideration on the allottee's part.

In Mendes v. Commissioner of Probate Duties (Vict.) [5] , Kitto J. with whose reasons and conclusions Taylor J. agreed, in describing the circumstances of that case, spoke of the allotment by a company of certain shares to the appellant, the son of the deceased, and said of them [1] :

The "B" shares were worth at all material times £1 19s. 4d. each but the son paid for them only £1 per share, so that they were all issued to him otherwise than for a full consideration in money or money's worth. Again, his Honour said [2] : In the first place, it is a case in which an issue of shares by a company otherwise than for full consideration in money or money's worth, and therefore wholly or partly in the nature of a gift to the person who takes them up, may be assimilated to a gift inter vivos by the deceased for the reason that the deceased held shares in the company at the time of the issue, so that the issue for less than full value necessarily reduced the value of the deceased's property at that time. In the first of these passages his Honour saw nothing inappropriate in describing an allotment at par of shares worth more than par as involving an absence of full consideration. In the second his Honour was concerned to explain the way in which what he earlier had called "a share transaction in circumstances which gave it a practical resemblance to a gift by" the person controlling the company in question was, by the Victorian probate duty legislation, assimilated to an actual gift by that person and thus included in that person's notional estate for purposes of assessment of probate duty; he clearly regarded the issue of shares at an issue price less than their value as involving an absence of full consideration and as being in the nature of a gift to the allottee. 1. (1967) 122 C.L.R. 152. 2. (1967) 122 C.L.R. 152, at p. 156. 3. (1967) 122 C.L.R., at p. 159.

In Gorton v. Federal Commissioner of Taxation [3] , gift duty was not sought to be assessed against the companies whose shares were allotted to nephews of the deceased, she having procured those allotments; instead her estate was assessed, reliance being placed upon par. (f) of the definition of "disposition of property". In rejecting this approach the Chief Justice and Taylor J., in a joint judgment, said [4] :

There was no moment of time when any change in the value of the shares in the hands of the nephews took place. All that can be said is that the transaction into which the deceased entered ensured that when the nephews acquired the property in the shares, they should have a value beyond the actual consideration which the nephews would pay for them. Their Honours thus recognized that the allottees of shares thereby acquired assets worth more than the consideration which they had paid for them, namely par value plus a set premium. In his dissenting judgment, Windeyer J. [1] said that the views of the majority appeared to leave open the very question now before me, whether there were gifts made by the allotting companies to the nephews. 1. (1965) 113 C.L.R. 604. 2. (1965) 113 C.L.R., at p. 624. 3. (1965) 113 C.L.R., at p. 627.

In Lowry v. Consolidated African Selection Trust Ltd. [2] , the respondent sought to treat as an outgoing deductible from its profits and gains the premium foregone by it when it allotted shares to its employees at par, those shares having a much higher market value; it failed because the foregoing of a premium on the issue did not involve it in any expense for the purpose of its trade. In arriving at that conclusion Viscount Maugham described what the company had done, saying that it "has made a present to its employees" [3] .

1. [1940] A.C. 648. 2. [1940] A.C., at p. 666.

In the absence of authority to the contrary I would conclude that there was here a gift by the company to each of the allottees. But it is said that there are decisions of this Court to the contrary; counsel for the company relies principally upon Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [4] . In that case the appellant company, following confirmation of a resolution for reduction of capital and distribution of surplus assets, transferred to two shareholders, who together held all but one of the issued shares in its capital, certain shares of other companies by way of a distribution in specie. The question was whether those transfers were dutiable as on a conveyance without consideration, with inadequate consideration or with a bona fide consideration of not less than unencumbered value of the property conveyed. Dixon J. was able to discern two aspects of the transaction, which he described as "perhaps two sides of the same thing", whereby an adequate consideration might be seen. First, the reduction of capital and the distribution in specie was an effectuation of a provision of the contract of membership of the company; allotment and payment up of shares conferred upon their holder a right to have the company's assets dealt with in accordance with the various ways required or authorized by the articles; the distribution in specie was one such way; it was a realization of the rights obtained by the acquisition of shares and the consideration given was "the payment up of the share capital in satisfaction of the liability for the amount of the share received on allotment" [5] . Secondly a member's contribution of the amount of his share measured his right to any return of capital which the company might make and determined the proportion in which he shared with others in a distribution of excess assets. A return of capital in cash would be a discharge pro tanto of the shareholder's claim upon the company's assets and where, instead, a shareholder took, on a reduction of capital, an aliquot part of the company's assets, in which he had had an interest consisting of a congeries of rights in personam, the consequent reduction in amount and value of his share afforded an adequate consideration in money and money's worth.

1. (1948) 77 C.L.R. 143. 2. (1948) 77 C.L.R., at p. 153.

I do not regard any part of the reasoning of his Honour as touching upon the present case. The stated case recited that the shares in question had been paid up in full and his Honour referred to and relied upon this fact in the course of his reasoning. However neither the reasoning nor the case itself raised any question concerning the transaction involved in the original allotment of shares or the consideration therefor. It was enough that the shares were fully paid shares, as such they entitled the holder to a proportionate "interest" in the company's assets; that "interest" might come to represent in value far more than the original capital which had been contributed but its distribution involved no element of gift, no inadequacy of consideration. However because fully paid shares confer such rights it by no means follows that for an allottee to pay up in full the shares allotted to him excludes the possibility that the consideration passing from the allottee to the company may not be fully adequate when the purposes of gift duty fall for consideration.

The arbitrarily fixed par value of a share, if paid up, must, under our system of shares having a par value, confer upon the holder his "interest" in the company's assets but that system says nothing about the adequacy of par value as consideration in the contract of allotment; it does no more, for presently relevant purposes, than, first, to assure those who deal with a company, if the shares be fully paid up, that at the time of allotment there was a contribution in cash to the company's capital of the par value of the share or a contribution otherwise than cash, details of which are available to the public for inspection; if the shares are only partly paid it ensures that the members may be made liable for the balance payable on their shares. Secondly it defines the extent of the allottee's total liability as a member of a limited liability company. It seems to me to have no legitimate function as a criterion of the adequacy of consideration passing from the allottee to the company; the very fact that shares may be allotted, as in the present case, at a large premium over par value in itself denies to par value the character of conclusive arbiter of adequacy of consideration unless it be said, contrary to reality, that whenever a premium is paid the allottee is paying in excess of an adequate consideration for the allotment to him of his shares.

If, as Dixon J. says in Howie's Case [1] , it be proper to regard a shareholder's "interest" in a company's assets as a congeries of rights in personam having "an equivalence not only from a logical but from a realistic point of view" with an aliquot part of those assets it must, I think, follow that, because the value of his share will depend upon the value of that aliquot part, it will not bear any relationship to par value, nor will par value necessarily represent adequate consideration for the allotment of that share.

The judgment of Williams J. in Howie's Case contains the following passage much relied upon by the company on this appeal [2] :

When the person to whom the shares are allotted pays or assumes the liability to pay for the shares in money or money's worth, full consideration in money or money's worth moves from him to the company for all the rights which he acquires under the memorandum and articles of association. Later in the judgment reference is again made to this aspect when his Honour says [3] : The capital of a successful company is usually represented by assets which, after providing for the claims of creditors, exceed in value the amount of the paid up capital. But as I have said the amount payable to a company for a share is limited. Unless the share is issued at a premium it is the nominal amount of the share. The payment of that amount or the assumption of liability to pay it must therefore provide, in the absence of some special provision like that in the English Finance Act, full consideration for the right to receive any distributions of money or assets which the shareholder subsequently received from the company. His Honour goes on to refer to the wide repercussion which would result were this not so, referring specifically to the Gift Duty Assessment Act; I take his Honour to have in mind that the Act would otherwise render dutiable as a gift any distribution by a company of cash or assets of a value in excess of the paid up value of shares. 1. (1948) 77 C.L.R., at p. 157. 2. (1948) 77 C.L.R., at p. 159.

The first of these observations occurs as part of a train of reasoning by means of which his Honour supports the proposition which he states at the outset, that upon the taking effect of a special resolution for payment off of capital in excess of a company's wants the company becomes indebted to its members to the extent of their respective rights under that resolution. Having stated that proposition his Honour then goes on to say [1] :

A company obtains capital by the issue of its shares. These shares cannot be issued at a discount but may be issued subject to the payment of their nominal amount or at a premium. The amount payable may be satisfied by the payment of money or by some other proper consideration. Then follows the first passage set out above, followed in turn by the conclusion that a debt is created because members have, for valuable consideration, acquired the legal right to be paid. 1. (1948) 77 C.L.R., at p. 157.

It followed, in his Honour's view, that although in the case of a successful company its assets would probably be worth more than the total paid-up capital, nevertheless fully paid shares entitled their holders to participate in a distribution of those valuable assets of the company, the payment up of the shares providing full consideration for any distribution received from the company.

If applied literally and taken out of the context of the facts in Howie's Case [2] and of the question raised for decision in that case the passages from the judgment of Williams J. relied upon do support the company's submissions. To so understand them is, I think, to disregard what it was with which his Honour was there concerned. His Honour's concern was with the adequacy of consideration for a transfer of shares upon a distribution in specie and his Honour held that by paying up a share in full, or assuming liability therefor, full consideration was given for the right which found its consummation in the distribution. If so understood the references made to full consideration do not, I think, bear upon the present question. What I have already said concerning the judgment of Dixon J. in Howie's Case [2] does, I think, apply equally to that of Williams J.

1. (1948) 77 C.L.R. 143. 2. (1948) 77 C.L.R. 143.

Davis Investments Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [3] was also relied upon in so far as the judgments in that case applied or explained Howie's Case [2] . For present purposes they take the matter no further, I think, than does Howie's Case [2] , being wholly concerned, like it, with the search for adequacy of consideration on the occasion of the transfer by a company to its shareholders of assets in the form of shares.

1. (1958) 100 C.L.R. 392. 2. (1948) 77 C.L.R. 143. 3. (1948) 77 C.L.R. 143.

It is not irrelevant to see how the courts have, for other purposes, regarded the allottees of shares having a value greater than the price paid on their allotment. Those cases in which employees of companies have been rewarded by this means have, in the United Kingdom, turned upon questions of whether, and if so when, the financial advantage to the employee of such a transaction is taxable in his hands as an emolument of office and in some cases the question has been complicated by the introduction into the transaction of an option granted to the employee to take up, in the future, shares at a presently specified allotment price. The courts have spoken of such an allottee as having derived a gift or extra remuneration for his services - Abbott v. Philbin [1] ; as having made a profit - Weight v. Salmon [2] , Abbott v. Philbin [3] ; as having received something valuable beyond the par price at which the allottee was privileged to obtain the shares - Weight v. Salmon [4] ; the allotting company has been described as a donor - Abbott v. Philbin [5] .

1. (1960) 39 Tax Cas. 82, at p. 130. 2. (1935) 19 Tax Cas. 174, at p. 194. 3. (1960) 39 Tax Cas., at p. 96. 4. (1935) 19 Tax Cas., at p. 190. 5. (1960) 39 Tax Cas., at p. 113.

The company's contentions appear to me to involve two misconceptions, each associated with what is said to be a leading case establishing a presently relevant proposition. The first is that payment of par value necessarily imports payment of fully adequate consideration for the allotment of a share; because that is the full price demanded for those rights and because by its payment the share thereby becomes fully paid up it must be a fully adequate price, payment of par value conferring upon the allottee all the rights which he is capable of acquiring as a shareholder. This proposition relies upon the reasoning of this Court in Howie's Case [6] ; I have already sought to show that that decision does not in fact justify the proposition. Indeed the relevance of par value is, I think, quite limited. Its significance is confined to questions which may arise as between a shareholder and a company or its liquidator once he attains the status of shareholder; by payment of par value he satisfies his liability in respect of his share so that thenceforth neither the company nor its liquidator can require further payment from him; his liability is limited to par value and that liability he has paid. However par value has no part to play in the measurement of the adequacy of the consideration passing from allottee to company in that particular instance of a disposition of property which is described in s. 4 (1) of the Gift Duty Assessment Act as "the allotment of shares in a company".

The second misconception is involved in the proposition that a company which allots at par shares having a value greater than par does not thereby suffer any financial detriment. This proposition is said to be based upon Hilder v. Dexter [7] , but that case is, in fact, no authority for it. Their Lordships were there considering the terms of s. 8 (2) of the Companies Act 1900 U.K.; which was concerned with transactions made at the expense of a company's shares or capital money. The Earl of Halsbury and Lord Robertson agreed in the judgment of Lord Davey and his Lordship does say [1] that where shares of greater than face value are allotted at par the benefit to the allottee "is not obtained by him at the expense of the company's capital". However, the emphasis here lies upon the reference to "capital"; his Lordship had earlier said that such an allotment "may or may not be at the expense of the company". He recognized that, in the absence of good reason dictating an issue of such shares at par, their issue at that price would be at the company's expense, although not at the expense of its capital.

1. [1902] A.C. 474. 2. [1902] A.C., at p. 480.

If these two misconceptions be put aside there remains, in my view, no reason to view the transaction here in question as other than one falling within the terms of the Act and as properly involving the company in liability to gift duty. The appeal will be dismissed with costs. There will be the usual order as to exhibits.

From this decision the appellant appealed to the Full Court.

The appellant, a limited liability company registered in the Australian Capital Territory with a share capital, allotted to eight applicants eight ordinary shares in its capital at a premium of $99 a share, receiving against the allotment $800. At the time of that allotment, its nominal capital was $30,000 divided into 30,000 shares, of which 24,802 were first preference shares carrying only the right to a fixed preference dividend at the rate of four per cent per annum on the capital paid up thereon but not including any premium paid in respect thereof. The activities of the appellant and its principal shareholders antecedent to the allotment of the eight shares is set out in the narrative of events in the reasons for judgment of my brother Stephen against whose judgment this appeal is brought. The overall purpose of those activities along with the allotment of the eight shares is apparent enough but, in my opinion, irrelevant to the precise question which arises for decision in this case.

According to the respondent's calculations, based on the balance sheet of the appellant, the allottees of the eight shares would have received $323,910 per share if there had been a realization and distribution of the appellant's assets immediately upon the allotment. This sum was said by the respondent to be the "value" of the shares. The respondent's calculations are not challenged by the appellant. The value of the shares thus calculated was compared by the respondent with the sum paid by the allottees on allotment. The conclusion proposed by him is that this comparison shows that the consideration paid for the allotment of the shares was inadequate in the sense required by the definition of gift in s. 4 (1) of the Gift Duty Assessment Act 1941-1967 Cth (the Act).

The respondent, exercising his power under s. 23 of the Act, assessed the appellant, who had made no return under s. 19 of the Act, for gift duty on the amount of the "inadequacy of consideration" thus calculated. The assessment was made on the footing that the allotment of the shares by the appellant was a "disposition of property" within the meaning of the Act, that the appellant was the donor and the allottees were the donees. Upon appeal to this Court against the assessment, it was upheld by my brother Stephen and the appellant's appeal was dismissed.

The appeal to this Court raises the sole question whether the allotment by the appellant of the eight ordinary shares at a premium of $99 each was a gift by the appellant within the scope of the Act. It is as well for the discussion of the question that I set out the relevant parts of the Act: Section 11 -

Subject to this Act, gift duty at rates declared by the Parliament, shall be levied and paid in respect of every gift made on or after the date of the commencement of this Act -

(a) by a person (not being a body corporate) who is domiciled in Australia, or by a body corporate which is incorporated under the law of any State or Territory which is part of the Commonwealth - of any property wherever situated; or

(b) by any other person - of any property which is situated in Australia at the time when the gift is made.

Section 17 - Where any disposition of property is made and consideration in money or money's worth passes from the disponee to the disponor but the disposition constitutes a gift for the purposes of this Act by reason of the consideration not being, or, in the opinion of the Commissioner, not being, fully adequate, the value of the gift shall, for the purposes of this Act, be the extent of that inadequacy. Section 4 (1) - "disposition of property" means any conveyance, transfer, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes -

(c) the grant or creation of any lease, mortgage, charge, servitude, licence, power, partnership or interest in property;

(d) the release, discharge, surrender, forfeiture or abandonment, at law or in equity, of any debt, contract or chose in action, or of any interest in property;

(e) the exercise of a general power of appointment of property in favour of any person other than the donee of the power; and

(f) any transaction entered into by any person with intent thereby to diminish, directly or indirectly, the value of his own property and to increase the value of the property of any other person;

"donee" means any person who acquires any interest in property under a gift, and, where a gift is made to a trustee for the benefit of another person, includes both the trustee and beneficiary;

"gift" means any disposition of property which is made otherwise than by will (whether with or without an instrument in writing), without consideration in money or money's worth passing from the disponee to the disponor, or with such consideration so passing if the consideration is not, or, in the opinion of the Commissioner, is not, fully adequate;

"property" includes real property and personal property and every interest in real property or personal property.

The assignment of a money sum to the shares in the capital of a company incorporated with limited liability under the company legislation performs several functions in the structure and operation of the company. The amount at which the share is rated in the capital of such a company sets the upward limit of the amount the shareholder can be called upon to contribute to the company's financial affairs: it also operates, along with the number of shares respectively held by shareholders, to fix their relative participation in the assets and income of the company so far as they are at any time distributed by the company. But, in my opinion, that sum, though spoken of as the "par value" of the share, is not in any presently relevant sense the value of the share, nor in any proper sense is the amount paid on allotment a price paid for the share. The amount is the contribution to the capital of the company which the company requires for the possession of a share in that capital. The amount paid on allotment is a liability of the company, so shown in its balance-sheet.

Thus, at the outset, I cannot accept an argument proposed on behalf of the appellant that the amount paid on allotment represented the full "consideration" for the acquisition of the shares. Reliance for this proposition was placed on the remarks of Williams J. in Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [1] , where his Honour said, "A company obtains capital by the issue of its shares. These shares cannot be issued at a discount but may be issued subject to the payment of their nominal amount or at a premium. The amount payable may be satisfied by the payment of money or by some other proper consideration. But all shares must be paid for in full by money or money's worth. When the person to whom the shares are allotted pays or assumes the liability to pay for the shares in money or money's worth, full consideration in money or money's worth moves from him to the company for all the rights which he acquires under the memorandum and articles of association." But his Honour was not there adverting to such a problem as is presently raised and, in my opinion, was intending no more than that to pay or provide in money's worth the amount required by the company for the allotment of the share or shares is to fully pay for them so that they are properly called fully paid and carry the rights of a fully paid share. If more had been intended, with due respect, I could not agree with his Honour's remarks.

There is, in my opinion, no necessary relationship between the amount paid for or paid up upon a share in a company and the value of that share. There may be no exclusive method of determining that value but at any rate it is not to be ascertained by finding the "par value" or the amount paid on allotment for a fully paid up share.

The commencing point in the consideration of the problem in this case whether an allotment by a company of a share in its capital attracts liability to gift duty under the Act is, in my opinion, s. 11. So far as presently relevant, gift duty is payable in respect of every gift by a body corporate incorporated under the law of a Territory of any property wherever situated. A share in the capital of a company is property - see definition of "property", s. 4 (1). But was there a gift by the appellant of a share in its capital? To answer this question, the definition of gift must be examined. According to the exclusive definition given by s. 4 (1) it is "any disposition of property which is made otherwise than by will (whether with or without an instrument in writing), without consideration in money or money's worth passing from the disponee to the disponor, or with such consideration so passing if the consideration is not, or, in the opinion of the Commissioner, is not, fully adequate". There must therefore be a disponor and a disponee with a consideration for the disposition moving from the one to the other. Consideration here, in my opinion, carries the significance of price, the payment of money or money's worth for the transfer of property, not being limited, of course, to contractual arrangements.

A company in allotting a share in its capital does not sell or transfer the share. Having its capital divided into shares of a nominal or par "value", it allots a share to an applicant therefor on payment of a sum of money. In no sense, in my opinion, is there a transfer or alienation of property by the allotment: nor is the allotment money what it purports to be - a contribution to the capital of the company. It is not in any relevant sense a consideration. The company does not part with any property, though by the allotment it diminishes its capacity to continue to allot shares: i.e. it reduces the amount of its unissued capital. But, of course, taking suitable steps, it may increase that capital. When it does so, it does not increase its property any more than it diminishes its property when it allots a share.

But the respondent Commissioner's argument is that the inclusion of "the allotment of shares in a company" in the definition of "disposition of property" has the effect of necessarily making the allotment of shares in the course of raising capital a relevant disposition of property, the company a disponor and the amount paid on allotment the consideration for the disposition. Of course, if this submission is accepted, every time a company allots a share in increasing its capital without charging the premium which an examination of its financial position would justify, it makes a gift. The company and the allottee would be liable for gift duty.

Some attempt was made to escape this conclusion by resort to the exemptions contained in s. 14 (f). But the company does not make allotments of shares in its capital in the course of carrying on its business, whatever that might be, nor is the allotment made for the purpose of obtaining any commercial benefit. I would not regard the acquisition of share capital as the obtaining of a commercial benefit within the meaning of par. (f). Further, the gift is constituted according to the argument by the failure to demand an adequate premium. It can scarcely be said that this is done for the purpose of obtaining a commercial benefit for the company.

But not only does the argument result in a commercial absurdity: it fails, in my opinion, because of the words of the definitions themselves. I have already pointed out the elements in the definition of gift - disponor, disponee and consideration. Disposition is exclusively defined as a "conveyance, transfer, assignment, settlement, delivery, payment or other alienation of property". So far, undoubtedly, the definition calls for a transaction which transfers property (including, of course, money) from one party to another. The list which follows, as "included", are, in my opinion, but examples of various means by which in particular circumstances an alienation of property, using that term in its widest import to include a transfer of value, may be effected. Thus, every grant of a licence or power does not involve the alienation of property. The "inclusion" of these transactions in the definition of "disposition of property" indicates, in my opinion, that the grant or creation of a licence or a power is a disposition in so far as it involves the alienation of property. It may very well be that most of the other instances in pars (b) to (e) inclusive would, without specific mention, have been comprehended by the general words of the definition of "disposition of property" in an Act such as the Gift Duty Assessment Act. Perhaps the same cannot be said of par. (f) as value is not ordinarily thought of as itself property, divorced as it were from the thing valued. The definition of property in s. 4 (1) is not large enough to embrace the concept in par. (f). But the essence of par. (f) is the alienation, the transfer or movement of value from the property of one person to the property of another.

There are circumstances in which, in association with other transactions, an allotment of shares may effect an alienation of property from one person to another, neither being the company of whose capital the shares form part. But, as indicated, every allotment does not involve an alienation or transfer of property.

I therefore construe the inclusion in the definition of "disposition of property" of the various transactions as not departing from the basic concept of an alienation of property, and as doing no more than ensuring that the particular nature of the described transactions does not preclude their classification as dispositions to the extent to which they involve the transfer or movement of property or value from one person as his property to another as his property. Most necessarily will do so: some only in particular circumstances.

An allotment of shares, as I have pointed out, does not transfer any property from one person to another although by the allotment rights are created in the allottee which are themselves, when created, property. Thus, it seems to me that the allotment in this case was not a gift by the appellant to the allottees.

No attempt was made in this case to rely on par. (f). It was correctly understood that no question of a change in value of the eight shares could arise. Gorton v. Federal Commissioner of Taxation [1] settles that point.

Accordingly, in my opinion, the assessment should be set aside. Being of this opinion, no question arises in this case of adequacy or inadequacy of consideration. But it should be observed that the applicant for a share pays or agrees to pay for a share in the company's capital such sum as the company resolves to demand or require for the allotment of that share. There is no sum with which to make a comparison in order to determine adequacy or inadequacy of that sum in any relevant sense. Even in the relationship of the directors to the company, they are not bound to demand on allotment such amount by way of premium as could be justified by the financial situation of the company.

I agree in the reasons of the Chief Justice. Accordingly I would allow this appeal.

This is an appeal from a judgment of Stephen J. confirming an assessment of the appellant to gift duty under the Gift Duty Act 1941 Cth (as amended). The facts strictly relevant to the decision of the appeal could be stated in a sentence but it is perhaps convenient to recount the circumstances of the case in a little greater detail. The appellant was incorporated as a company on 17th March 1969 under the law of the Australian Capital Territory. Its situation at 11.30 a.m. on 23rd April 1969 was as follows. Its capital then was $30,000 divided into 30,000 shares of $1 each. The only two shares which had been issued were held respectively by Mrs. Palfreyman and her husband, and he held his share as trustee for her. Mrs. Palfreyman had lent the appellant a total sum of $2,500,000 at call and free of interest. At 11.35 a.m. on 23rd April 1969 the directors of the appellant held a meeting at which it was reported that Mrs. Palfreyman had called for repayment of $2,480,000 of the moneys lent and it was resolved that a cheque for that amount should be drawn in her favour in part repayment of her debt. At the same meeting there was tabled an application by Mrs. Palfreyman to be allotted 24,800 ordinary shares of $1 at a premium of $99 per share, accompanied by a cheque for $2,480,000. It was resolved that Mrs. Palfreyman be allotted 24,800 ordinary shares of $1 each at a premium of $99 per share and that a share certificate should issue forthwith. At 11.55 a.m. on the same day, at an extraordinary general meeting of the appellant called on short notice, a special resolution was passed converting each of the 24,802 shares of $1 already issued into preference shares of $1 each and amending the articles so as to provide that the capital of the company should be $30,000 divided into 25,000 preference shares of $1 each and 5,000 ordinary shares of $1 each, and that the preference shares should confer on the holders thereof the following rights and privileges and should be subject to the following conditions:

(a) the said shares shall not confer any right to vote at any general meeting of the company. The holders thereof shall be entitled to notice of and to attend any general meeting of the company.

(b) the said shares shall carry the right to a fixed preference dividend at the rate of 4% per annum on the capital paid up thereon respectively but not including any premium in respect thereof.

(c) the said shares shall rank in a winding up and on a reduction of capital both as regards capital and dividend up to the commencement of the winding up in priority to all other shares in the capital of the company.

(d) the said shares shall not carry the right to any further participation in the profits or assets of the company or in any amount paid by way of premium upon any share subscribed for in the company.

Finally, at 12.15 p.m. on 23rd April 1969 at a further meeting of directors it was noted that applications had been received for eight ordinary shares of $1 each at a premium of $99 per share. These applications had in fact been made respectively by four children of Mrs. Palfreyman and by a trustee company as trustee for certain of her grandchildren. The directors resolved to allot eight shares in accordance with the applications, and these shares were allotted and cheques totalling $800 were received in payment for them.

The Commissioner, by his assessment (which was a default assessment made pursuant to s. 23 of the Gift Duty Assessment Act 1941 Cth (as amended) ("the Act")), has treated the allotment of the eight shares made on 23rd April 1969 as a gift whose value was $2,590,480, being, in his opinion, the value of the shares less the consideration paid for them. He arrived at the value of the shares by determining the value of the net assets of the company as at 23rd April 1969, and by deducting an amount of $24,802 which in his opinion was the amount required for repayment of 24,802 four per cent preference shares. No evidence as to the value of the shares, or of the appellant's assets, was led by the appellant and if there was a gift the value attributed to it by the Commissioner must be taken as correct since it has not been "shown to be excessive" as required by s. 23.

The effect of the above transactions was that $2,500,000 was lent by Mrs. Palfreyman to a company which she controlled, the resulting debt of the company to Mrs. Palfreyman was largely extinguished when she was allotted further shares, all her shares were converted from ordinary into preference shares with limited rights and eight ordinary shares were then allotted to her relatives, or to a trustee company on their behalf, none of whom had, prior to the allotment, been a shareholder in the company, and each of whom paid an amount of $100, being par value plus a premium, for each share, although, on a winding up, an ordinary shareholder could have expected to receive about $323,910. By these transactions the value of Mrs. Palfreyman's property was diminished and her relatives became entitled to shares worth very much more than they had paid for them. No gift within the meaning of the Act was made by Mrs. Palfreyman: Gorton v. Federal Commissioner of Taxation [1] . The question for decision, however, is whether the allotment made in these circumstances was a gift by the appellant within the meaning of the Act.

By s. 11 of the Act (as by s. 4 of the Gift Duty Act 1941 Cth (as amended)) gift duty shall be levied and paid in respect of every gift made, inter alia, by a body corporate incorporated under the law of any Territory of the Commonwealth. The duty, which is due and payable on the making of the gift (s. 25 (1) of the Act), is a debt jointly and severally due by the donor and the donee to the Queen on behalf of the Commonwealth (s. 25 (2)). The questions what is a "gift" and who is a "donee" or a "donor", may be answered for present purposes by a consideration of the definitions of those expressions contained in s. 4 (1) of the Act, which are as follows:

"donee" means any person who acquires any interest in property under a gift, and, where a gift is made to a trustee for the benefit of another person, includes both the trustee and beneficiary;

"gift" means any disposition of property which is made otherwise than by will (whether with or without an instrument in writing), without consideration in money or money's worth passing from the disponee to the disponor, or with such consideration so passing if the consideration is not, or, in the opinion of the Commissioner, is not, fully adequate.

The words "disposition of property" are defined by s. 4 (1) as follows: "disposition of property" means any conveyance, transfer, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes,

(c) the grant or creation of any lease, mortgage, charge, servitude, licence, power, partnership or interest in property;

(d) the release, discharge, surrender, forfeiture or abandonment, at law or in equity, of any debt, contract or chose in action, or of any interest in property;

(e) the exercise of a general power of appointment of property in favour of any person other than the donee of the power; and

(f) any transaction entered into by any person with intent thereby to diminish, directly or indirectly, the value of his own property and to increase the value of the property of any other person.

It is apparent from these provisions that in determining whether there was a gift which attracted gift duty two questions arise, namely, was there a disposition of property within the extended definition contained in s. 4 (1) and, if so, did fully adequate consideration, in money or money's worth, pass from the disponee to the disponor? The words "disponee" and "disponor" are not defined. In their ordinary meanings (if one assumes that "disponor" is the same word as "disponer") they refer to the person to whom property is conveyed and the person who conveys it. However, it is impossible to regard these words in s. 4 (1) as applying only to a "disposition of property" which is a disposition or conveyance in the ordinary sense. The Act proceeds on the assumption that if there is a disposition of property there must be a disponor and a disponee; in the context of s. 4 (1) the disponee must mean the person to whom a disposition, as defined in the sub-section, is made, and the disponor must be the person who makes it. Similarly, the words "donor" and "donee" do not assist in determining whether a transaction attracts gift duty: in the present case, if the allotment of shares was a gift, the appellant, which made the allotment, is, by definition, the donor, and the allottees (including the grandchildren as well as the trustee company), having acquired an interest in property under the gift, are donees.

The question then is, was the allotment a disposition of property? An allotment of shares cannot be described as a disposition of property in the ordinary meaning of that expression. When a share is allotted, nothing is transferred or conveyed from the company to the shareholder. The person who becomes a shareholder by the allotment and issue of the share does not acquire any property in the assets of the company: Macaura v. Northern Assurance Co. Ltd. [1] ; Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [2] . What he acquires is the share, which is a separate right of property: Bradbury v. English Sewing Cotton Co. Ltd. [3] . Moreover, the share does not pass from the company; before allotment the share does not exist as a piece of property; it is only when it is allotted and issued that the rights which it confers are created: In re V. G. M. Holdings Ltd. [4] . However, the definition of "disposition of property" extends to transactions which are not dispositions in the ordinary sense. In Grimwade v. Federal Commissioner of Taxation [5] , Williams J. said:

It appears to me that pars. (a) to (f) were included in the definition of disposition of property for the purpose of including in the definition transactions which might otherwise not be held to fall within the ordinary meaning of a disposition or other alienation of property and that each paragraph is complete in itself. An appeal was allowed from the judgment of Williams J. in that case but not on grounds that affect the correctness of those remarks, which in my opinion were correct. They are supported by the form of the definition itself. Further, it may now be taken as settled that par. (f) of the definition is intended to include transactions which would not fall within the other parts of the definition - Grimwade v. Federal Commissioner of Taxation [6] ; Gorton v. Federal Commissioner of Taxation [7] - and the fact that par. (f) is complete in itself strongly supports the view that it was intended by the legislature that each of the lettered paragraphs of the definition should be self-contained. In my opinion, the allotment of shares in a company is a "disposition of property" within the meaning of the definition, notwithstanding that the allotment could not be described as a "conveyance, transfer, assignment, settlement, delivery, payment or other alienation of property", or as a "disposition of property" in the ordinary sense of those words. 1. [1925] A.C. 619, at p. 633. 2. (1948) 77 C.L.R. 143, at p. 152. 3. [1923] A.C. 744, at p. 767. 4. [1942] Ch. 235, at pp. 240-241. 5. (1949) 78 C.L.R. 199, at p. 208. 6. (1949) 78 C.L.R., at p. 215. 7. (1965) 113 C.L.R. 604, at p. 622.

If an allotment of shares in a company is a disposition of property it must follow, in my opinion, that the disponor, for the purpose of that disposition, is the company which made the allotment and the disponees are the persons to whom the allotment was made. It must further follow that any allotment of shares in a company which is made without fully adequate consideration passing from the allottee to the company is a gift. The value of the gift will be the extent of the inadequacy of the consideration - s. 17 of the Act. In deciding whether consideration is fully adequate it is, as a general rule, necessary to compare "the value of what was promised or paid with the value of what was given": McGain v. Federal Commissioner of Taxation [1] . Where the relevant disposition of property is an allotment of shares, there will be a gift if the value of the shares exceeds the amount paid or promised to be paid for them.

In the present case there was an allotment of shares in a company, and therefore a disposition of property. The amount paid for the shares ($800) was less than their real value ($2,591,280), and the consideration passing from the disponee to the disponor was therefore not fully adequate. It must therefore be held that there was a gift to the extent of the inadequacy, unless, for some reason, as a matter of construction, the words of the statute should be understood to be subject to some reservation or qualification which they do not themselves express.

In support of the view that there was no gift a number of arguments were advanced on behalf of the appellant. In the first place it was said that the payment of the nominal value of shares in a company must as a matter of law amount to adequate consideration for their allotment; alternatively it was submitted that if this were not so, it would never be possible for an allottee to pay a consideration that was fully adequate, and indeed that any increase in the amount of premium that might be paid would serve only to increase the value of the gift. Secondly it was submitted that if every allotment of shares, at less than their real value, attracted gift duty, the consequences would be so startling, and would cause such inconvenience to the commercial community, that they could not possibly have been intended by Parliament. It was therefore submitted that the words of par. (a) of the definition of "disposition of property" should be given a restricted meaning and that it should be held that they were intended only to apply to the case in which a person intending to make a benefaction has paid the allotment moneys to a company and requested the company to allot the shares to another.

It is convenient to turn immediately to the second argument of the appellant. I would agree that it would be a striking departure from existing notions if, for example, a bonus issue of shares in a public company were held to be a gift. In my opinion, however, it does not follow from the decision of Stephen J. that every allotment of shares in a company, at a price lower than the real value of the shares, is a gift. The allotment will be a disposition of property, but whether the consideration will be fully adequate will not depend simply upon how much the allottee pays or promises to pay. Where a company makes a bonus issue, or a new issue at a price below the real value of the shares, to persons who are already shareholders, there will ordinarily be no want of full consideration. In such a case, speaking generally (for of course there may be special circumstances that make a difference), the making of the new issue of shares is no more than "a fulfilment or satisfaction of the rights of the shareholder as such" (Davis Investments Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [1] ), and the payment up of the share capital when the original shareholding was allotted provided the consideration for the acquisition of the rights which the shares conveyed, and therefore for any subsequent distribution of capital or profits in satisfaction pro tanto of those rights. The relevant principles are discussed in Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [2] . The facts of that case were that a company, pursuant to a resolution for reduction of capital, returned capital to the shareholders by distributing in specie, at the values in the company's books, certain paid-up shares in other companies. The actual values of those shares were greater than the book values. It was held that the transfers to the shareholders were made upon a bona fide consideration in money or money's worth of not less than the unencumbered value of the property conveyed, within the meaning of s. 66 (3B) of the Stamp Duties Act, 1920-1940 N.S.W.. Dixon J. said [3] that there were "two aspects of the transaction in which an adequate consideration in money or money's worth may be seen". As to the first of these aspects - that the reduction and distribution was "an effectuation of a provision of the contract of membership" - Dixon J. said [4] :

The allotment of the share and the payment up of the liability thereon conferred upon the holder for the time being of the share a right to have the assets of the company used and applied in the various ways in which the articles expressly or impliedly require or authorize and this is one of them. It is an effectuation or realization of the rights obtained by the acquisition of the share in the same way as is the distribution of a dividend. The consideration given is the payment up of the share capital in satisfaction of the liability for the amount of the share incurred on allotment. Secondly Dixon J. said [1] that the contribution by a shareholder to the capital of the company "measures his right to any return of capital which the company may make either as a going concern or in a winding up". Williams J. [2] expressed similar views, and pointed out that when a dividend is declared, or a special resolution to return capital takes effect, the moneys payable to the shareholders are not gifts, but the shareholders have the legal right to sue for them [3] . The reasoning of the members of the Court in that case is in my opinion entirely apposite to the situation where a company uses undistributed profits to pay up bonus shares which are allotted to existing shareholders in proportion to their holdings, or offers rights which contain an element of bonus to its shareholders in proportion to their holdings. 1. (1958) 100 C.L.R. 392, at p. 409. 2. (1948) 77 C.L.R. 143. 3. (1948) 77 C.L.R., at p. 152. 4. (1948) 77 C.L.R., at pp. 152-153. 5. (1948) 77 C.L.R., at p. 153. 6. (1948) 77 C.L.R., at pp. 156-157. 7. (1948) 77 C.L.R., at p. 157.

Of course, what has just been said is only applicable where the issue is made to existing shareholders, and would not apply, for example, where a company issued shares to its employees, or placed shares with particular buyers, not already members of the company, at a price less than their full value. A transaction of that kind would, however, in appropriate circumstances be exempt from gift duty under s. 14 (f) of the Act as being a "gift which is made in the course of carrying on a business, for the purpose of obtaining any commercial benefit "

For these reasons it appears to me that the gravely inconvenient consequences suggested will not result if the words of s. 4 (1) are given the effect which they appear to have if construed in accordance with ordinary principles. In any case, those words are in my opinion unambiguous, and there is no other provision of the Act that would require some special or limited meaning to be placed upon them.

The argument that the payment of the par value of a share must necessarily provide full consideration for its allotment is in my opinion impossible to accept. It would be contrary to common commercial experience, and indeed to common sense, to suggest that a share is necessarily worth no more than its nominal value. It is established by many decisions, including a number in this Court, and constantly acted upon in practice, that the value of a share, for purposes of duty, is its real and not its nominal value. Although a company, on making an allotment of shares, is not legally bound to require the payment of more than their nominal value, it does not follow that to pay the amount of the nominal value is to provide fully adequate consideration - if the shares are worth more, the consideration will be inadequate to the extent of the difference. In support of their argument on this point (which understandably was not very strongly pressed) counsel for the appellant placed some reliance on some passages from the judgment of Williams J. in Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.), [1] . Williams J. said [2] :

A company obtains capital by the issue of its shares. These shares cannot be issued at a discount but may be issued subject to the payment of their nominal amount or at a premium. The amount payable may be satisfied by the payment of money or by some other proper consideration. But all shares must be paid for in full by money or money's worth. When the person to whom the shares are allotted pays or assumes the liability to pay for the shares in money or money's worth, full consideration in money or money's worth moves from him to the company for all the rights which he acquires under the memorandum and articles of association. Later, his Honour went on [3] : The capital of a successful company is usually represented by assets which, after providing for the claims of creditors, exceed in value the amount of the paid up capital. But as I have said the amount payable to a company for a share is limited. Unless the share is issued at a premium it is the nominal amount of the share. The payment of that amount or the assumption of liability to pay it must therefore provide, in the absence of some special provision like that in the English Finance Act, full consideration for the right to receive any distributions of money or assets which the shareholder subsequently receives from the company. To understand these passages it is of course necessary to remember the context in which they were spoken. I have already referred to the circumstances of that case and to the reasons by which the decision was supported. Williams J. was not there concerned with the adequacy of the consideration for the issue of the shares, but with the question whether there was consideration for the distribution to the shareholders. He probably intended to say no more than that the consideration for the issue of the share (which it may be assumed was then adequate) also provided full consideration for any subsequent distribution of money or assets which the shareholder might receive in satisfaction of the rights which he obtained when the share was issued to him. He did not in my opinion intend to say that the payment of the nominal value of a share is necessarily fully adequate consideration for its allotment, and I could not in any case accept such a proposition. 1. (1948) 77 C.L.R. 143. 2. (1948) 77 C.L.R., at p. 157. 3. (1948) 77 C.L.R., at p. 159.

The further submission of the appellant was that since any premium paid on the issue of a share becomes an addition to the assets of the company, it would never be possible for a person to whom shares are issued to pay full value for them. Any increase in the amount of the premium would simply increase the value of the assets of the company, and therefore the value of the share, so that an attempted calculation of the amount of full consideration would result in infinity. This submission, if correct, would support the view that notwithstanding the apparently clear words of par. (a) of the definition of "disposition of property", the legislature could not have intended that an allotment of shares could amount to a gift by the company making the allotment. The submission proceeds on the assumption that the shares should be valued by reference to the amount which the assets of the company would realize upon a liquidation, and on that assumption has some plausibility when directed to a case in which, under the articles of the company, the shareholder who has paid the premium is in a specially favourable position when assets are distributed. However, this argument would obviously be untenable when applied to the case of a public company whose shares are listed on a stock exchange. In such a case the value of a share in the company is normally its market value, which is readily ascertainable. The problem of determining the value of a gift of such a share seems to me no different in principle from that which arose in Salmon v. Weight (Inspector of Taxes) [1] . In that case, a director was, by reason of services rendered to his company, authorized to purchase a number of the company's shares at par, and, on his application, shares were allotted accordingly. It was held by the House of Lords that the difference between the amount paid for the shares and the amount for which they could have been sold on the market was a taxable profit. In a similar case arising under the Act, that difference would also represent the value of a gift made by the company to the director (although the gift might be exempt under s. 14 (f)). However, it hardly requires a reference to authority to establish that in the case of an allotment of a share which is listed on the stock exchange, full consideration will be provided if the market value is paid. It is therefore not right to say that it is never possible for an allottee to pay full consideration for the shares allotted - that statement is plainly not true where the shares are listed on the stock exchange. The provisions of the Act can apply sensibly to such an allotment at least.

Once this conclusion is reached it is difficult to discern any justification for placing on the words of the Act an unnatural meaning that would prevent them from applying to an allotment of shares in a private company. In my opinion the Act, properly construed, has the effect that an allotment of shares in a company is a gift by the company if the consideration for the allotment is less than the true value of the shares. It follows that, in asking whether there was a gift, it is necessary to determine, on the one hand, the value of the shares, and, on the other, the value of the consideration. These values must be found at the time of the gift, i.e. at the very moment of allotment, and before the consideration paid for the shares is brought in as an accretion to the company's assets. If the shares allotted were listed on the stock exchange, their value would be determined by finding the market price, and not by inquiring what in fact the allottees paid, and similarly, where the shares are in a private company, the amount paid as consideration for the allotment should not be taken into account in determining the value of the shares. In the present case, as I have said, it must be accepted that each share was worth $323,910, and, in those circumstances, it is manifest that a consideration of $100 per share was not fully adequate.

In my opinion the decision of Stephen J. was correct, and the appeal should be dismissed.

The circumstances in which this appeal has been brought and the elements of the transaction which gives rise to the issue for consideration have been set forth in the reasons for judgment prepared by Gibbs J. and I need not recount them.

The initial and principal question is whether the allotment to eight applicants of one ordinary share each in the capital of the appellant company on 23rd April 1969 was a "disposition of property" within the meaning of that expression as it is defined by s. 4 (1) of the Gift Duty Assessment Act 1941-1967 Cth. If this question is to be answered in the affirmative, there is the further question whether the Commissioner could properly form the opinion that the allotment was a disposition of property made without full consideration passing from the disponee to the disponor and that it therefore constituted a gift.

An unissued share in the capital of a company is not property; it is no more than a unit or fraction of the company's nominal capital which may be issued in accordance with the provisions of the memorandum and articles of association. When allotted, but not before, it bears the character of a proprietary right, a chose in action that is vested in the shareholder.

The allotment of shares in a company is certainly not a disposition of the company's property; nor, for the reasons already stated, can it be described with accuracy as a "disposition of property" in the ordinary sense of that expression.

This conclusion is, however, of little assistance to the appellant, for s. 4 (1) defines the expression as meaning

any conveyance, transfer, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes,

The definition goes on to include other transactions each of which for the purposes of the statute constitutes a disposition of property.

It might be thought that the specific inclusion in the statutory definition of the allotment of shares in a company itself provides a convincing answer to the appellant's contention. However, the appellant submitted that full effect should not be given to the statutory definition and that it should be read as applying only to the allotment of shares brought about at the instance of a third party so that there could be attributed to the third party a disposition of property in circumstances where, but for the statutory definition, that consequence would not obtain. The basis of the submission was that the statutory definition would, unless so restricted in its construction, be productive of far-reaching consequences of such gravity that they could not reasonably be attributed to the legislature.

It was said that if every allotment of shares is held to be a disposition of property the gift is made whenever a share is allotted for a consideration less than its true value. The issue of bonus shares and the allotment of shares at par when their value is greater are common instances in which the company making the issue or allotment is necessarily making a gift, so the argument runs. The argument loses much of its force once it is recalled that no element of gift can be involved in an allotment of shares, whether bonus shares or shares allotted for a cash consideration, to shareholders of a company in proportion to their existing shareholding. In such cases, notwithstanding the absence of any payment or the existence of a discrepancy between the value of the shares and the price paid for them, the allotment is made to a member in satisfaction of the rights which he enjoys as a shareholder of the company under its memorandum and articles of association. In Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [1] , it was acknowledged that a payment to shareholders by way of reduction of capital, in the words of Dixon J. [2] , "means that the shareholder in satisfaction of his proportionate "interest" in the assets, an interest consisting of a congeries of rights in personam, takes an aliquot part of the assets".

1. (1948) 77 C.L.R. 143. 2. (1948) 77 C.L.R., at p. 154.

Where the articles of association entrust to the directors power to issue the unissued capital of the company, the power is a fiduciary power to be exercised bona fide in the interests of the corporators as a whole (Ngurli Ltd. v. McCann [3] ). When issuing shares which have a value greater than the consideration payable for them the directors must give close consideration to the rights of the shareholders under the memorandum and articles, including the right of a shareholder to participate in the distribution of the company's assets on a winding up or on a reduction of capital, for an issue of shares made otherwise than on the footing that shareholders will participate proportionately may significantly affect the value of the rights of existing shareholders. An issue of bonus shares, or of shares having a value greater than the consideration payable for them, to shareholders in proportion to their existing holdings, is therefore in a very real sense a satisfaction of their existing rights.

A comparison of the situation of a shareholder before and after a new issue is made indicates that no gift to a shareholder arises when a company allots to shareholders bonus shares or for a cash consideration shares having a greater value than the amount payable for them in the course of making a new issue to shareholders in proportion to their existing holdings. In the case of a bonus issue there is no accretion to the assets of the company. The shareholders' proportionate right to participate in the distribution of the assets on a winding up or on a return of capital remains unaffected. In the case of the issue of shares for cash the assets of the company are increased only by the total value of the consideration payable in respect of the allotment. Consequently the amount which the shareholder can expect to receive on a distribution of the assets of the company is increased, but it is increased only by the amount of the consideration which he has provided for the allotment of the new shares which he acquires.

Nor is any difficulty occasioned when a company makes an offer to shareholders of renounceable rights to take up new shares in proportion to their existing holdings. The shareholder is then at liberty to sell his rights to take up new shares. The difference between the value of the new share when allotted and the amount payable to the company for it reflects the value of the right to take up the share which is itself a satisfaction of the existing shareholder's rights under the memorandum and articles of association. The company receives full consideration in the form of the amount payable by the allottee and in the satisfaction of the rights of the existing shareholder. There is therefore no element of gift in the offer which the company makes to its shareholders. The situation is not altered when an existing shareholder alienates for a consideration his right to take up a new share; the company in allotting the new shares satisfies what has become the allottee's right to participate in the new issue and it receives from him the amount payable in respect of the allotment of the new share.

The appellant's argument finds some foothold where a company makes an issue of shares, not to its existing shareholders in proportion to their holdings, but by way of placement to persons who may or may not be shareholders. Here, if full effect is to be given to the statutory definition, there is a gift once it appears that the value of the shares exceeds the consideration payable for them. A like result ensues when a company makes an issue of employees' shares for a cash consideration less than the true value of the shares. Mr. Jeffrey for the Commissioner sought to find an answer to these and other difficulties in the provisions of s. 14 (f) of the Gift Duty Assessment Act. Whether that provision exempts from gift duty an inadequacy of consideration payable in respect of a placement of shares or an issue of employees' shares is a difficult question upon which I express no opinion. For present purposes I am willing to assume that gift duty is payable in such cases. This possibility does not strike me as a remarkable consequence or at any rate one so extraordinary that the Court should be deflected from giving effect to the language in which the statutory definition of a "disposition of property" is expressed.

One further argument was advanced by the appellant with the same end in view. It was said that it is impossible in the case of a company whose assets exceed its liabilities to charge a premium on the issue of a share which will bring the value of the share and the amount payable in consideration of its allotment into equilibrium. The higher the premium the more it will swell the assets of the company and increase the value of the share.

The argument overlooks several considerations. First, the valuation of a share by reference to its "assets backing" is not the normal mode of valuing a share in a company. Where resort properly can be had to market valuation or valuation on an income basis, a company making a new issue may be able to exact a premium which will dispel any suggestion of a gift. Secondly, so long as the new shares are not given preferred rights to participate in a distribution on a winding up, the accretion to the company's assets brought about by a premium will go to augment the value of the existing shares. It follows that if the premium is fixed at a sufficient high level the consideration payable for the share can be equated to the amount that it would bring on a winding up.

There will be some cases in which it is difficult or impossible to estimate the amount of a premium which will accurately reflect, when taken together with the nominal value of the share to be allotted, the value of that share. But I am unable to discern in this circumstance any sufficient ground for confining the statutory definition.

I am in agreement with what Gibbs J. has said with reference to the submission that, even if there is a disposition of property, there is no gift because the payment of par value is necessarily full consideration for the allotment of a share. The submission should be rejected for the reasons given by Gibbs J.