Parke Davis & Co v Commissioner of Taxation

The appellant, Parke Davis & Co., is a company incorporated under the laws of Michigan, and has its headquarters at Detroit. For a considerable period that company carried on business as a manufacturing chemist in the United States of America, and it also carried on business, by means of branches, in other parts of the world, including Australia.

However, in 1945 a decision was made to incorporate another company which would carry on the business of Parke Davis & Co. in places outside the United States of America. A company was then incorporated under the laws of Colorado and called Parke Davis & Company Limited and in accordance with the purposes for which it was so incorporated it took over, among other businesses, the business carried on by the parent company in Australia. It was incorporated on 1st July 1945, and its issued capital comprised 1,000 shares at one dollar each. Of these shares, 995 were issued to the parent company; the five remaining shares were issued to five persons who were nominees of Parke Davis & Co.; they were in fact the directors of Parke Davis & Co. Ltd., that is to say, the company incorporated under the laws of Colorado. Accordingly neither company came within the definition of a "resident" as applied to a company contained in sub-s. (1) of s. 6 of the Income Tax Assessment Act; both were companies resident outside Australia.

From 1st July 1945 the new company carried on business in Australia, but for reasons which are not explained it was determined to recall the decision to carry on the business abroad by a company constituted in Colorado and revert to the previous practice. On 30th April 1946, only ten months later, the overseas business was, so to speak, restored to the parent company. Because the accounting period for which the returns under the Income Tax Assessment Act were made up ended on 31st October in each year the period of activity of the Colorado company extended over two accounting periods or years of income. For the determination of the question in the case stated however we are substantially concerned only with the later of the two years of income.

The decision to terminate the arrangement was given effect on 18th February 1946. On that date resolutions were passed at meetings of directors of each company which provided for carrying out the decision. In order to revert to the former position certain measures of a formal nature were necessarily required and they were taken by the directors of each of the two companies concerned at Detroit.

There was a special meeting of the board of directors of Parke Davis & Co. Ltd., that is, the subsidiary company incorporated in Colorado. A number of formal steps was taken to see that the meeting was properly constituted and then resolutions in substance were passed which had the following effect: it was resolved that a plan of liquidation of the corporation should be adopted. The plan adopted was based upon an agreement which had been made between the two companies. The agreement recited the material facts, to which I have briefly referred, and went on to recite that it was desired to distribute and transfer within the fiscal and taxable year, namely, the year ending 30th November 1946 (sic.) all of the property of the Colorado company in complete cancellation or redemption of all its shares. The agreement then proceeded to state that therefor the parties thereto adopted a plan of liquidation of the Colorado company consisting in the distribution to the Michigan company, the parent company, of all of the property of the Colorado company in complete cancellation or redemption of all of the shares of the Colorado company and the transfer to the Michigan company of the property of the Colorado company, subject to any and all debts, liabilities and obligations of the Colorado company, which should be assumed and discharged by the Michigan company. The Michigan company agreed, upon receipt of the property to surrender to the Colorado company all the shares of the latter company issued and outstanding in complete cancellation or redemption thereof. The parties further authorized the dissolution of the Colorado company in accordance with the laws of the State of Colorado.

The resolutions which adopted this plan of liquidation proceeded to authorize the complete liquidation of the corporation in accordance with the plan and in conformity with the laws of Colorado and to authorize the president and secretary of the corporation to execute and deliver the plan of liquidation of Parke Davis & Co. Ltd., i.e. of the Colorado corporation. It was further resolved that the consent of the sole stockholder, Parke Davis & Co., incorporated in Michigan, should be procured and that all should be done that was necessary to effect the dissolution of the corporation in accordance with the requirements of the corporation laws of the State of Colorado.

The appellant, Parke Davis & Co., of Michigan, also held a special meeting of directors: the meeting adopted the plan and passed complementary resolutions to those passed by the Colorado company. The case stated also says that, as one step in what is called by the case the liquidation and dissolution of the Colorado company under the agreement, the Michigan company, being the sole stock-holder, having voting power of all the issues of outstanding stock, consented in writing to the liquidation and dissolution of the company, and that thereafter, on or about 22nd July 1946, the consent was filed. It adds that the corporation laws of Colorado, in the events which had happened, required that the consent should be filed.

That agreement was, according to the statement in the case stated, duly and fully carried into effect during the accounting period ended 31st October 1946, that is, the Australian accounting period. The Colorado company ceased business in Australia on 30th April 1946 and the Michigan company resumed business in Australia by means of the branch on 1st May 1946.

It is said in the case stated that the distributions made to the Michigan company, as shareholder of the Colorado company, during the accounting period in Australia ended 31st October 1946, pursuant to the agreement that was entered into, included profits derived by the company from sources in Australia amounting to the sum of £106,414. It is further stated, and it is of course a most important fact, that the said distributions represented income derived by the company, that is, other than income which had been applied to replace a loss of paid-up capital.

The appellant company was assessed to tax in respect of the year ended 31st October 1946, but the sum of £106,414 was not included in the assessable income which formed the basis of the assessment. In 1952, however, the commissioner forwarded to the appellant an amended assessment in respect of that year of income. In the amended assessment the commissioner began by including the £106,414 as part of the assessable income of the Michigan company. He did so on the footing of s. 47 of the Income Tax Assessment Act 1936-1947 and its operation on s. 44. It appeared, however, that certain tax had been paid in Australia in respect of the earlier accounting period, for, as I have said, the period during which the business was conducted by the Colorado company covered two accounting periods. Not only had tax been paid in Australia, but tax had been paid in the United States in respect of the same profits. The commissioner therefore decided to reduce the £106,414 by figures which I need not go into representing these taxes and the reduction left a balance of £65,179. The question in the case stated is really whether that £65,179 should have been included in the assessable income in respect of the Michigan company for the accounting period ended 31st October 1946. The exact form of the questions asked must, however, be considered a little more closely later.

We think that the answer to the question which I have formulated is that that sum should be included in the assessable income. I shall state the positive reasons for arriving at that conclusion before going to the arguments by which it was sought to intercept the conclusion.

I have said that both companies were residents outside Australia, and that that followed from s. 6 (1). If one passes from s. 6 (1) to the very general provisions of s. 25, it will be found that it is provided that the assessable income of the taxpayer shall include, where the taxpayer is a non-resident, the gross income derived directly or indirectly from all sources in Australia, which is not exempt income. Section 23 exempts from income tax specific incomes and classes of income described in lettered paragraphs. Paragraph (r) exempts income derived by a non-resident from sources wholly out of Australia. Sub-division D of Div. 2, ss. 44-47, deals with dividends, and s. 44 deals with the assessability of dividends. Sub-section (1) of s. 44 is as follows: "The assessable income of a shareholder in a company (whether the company is a resident or a non-resident) shall, subject to this section - (a) if he is a resident - include dividends paid to him by the company out of profits derived by it from any source; and (b) if he is a non-resident - include dividends paid to him by the company to the extent to which they are paid out of profits derived by it from sources in Australia."

From that provision it is necessary to turn to s. 47. Sub-section (1) of s. 47 provides: "Distributions to shareholders of a company by a liquidator in the course of winding up the company, to the extent to which they represent income derived by the company (whether before or during liquidation) other than income which has been properly applied to replace the loss of paid up capital, shall, for the purposes of this Act, be deemed to be dividends paid to the shareholders by the company out of profits derived by it."

For reasons which will subsequently appear the taxpayer is bound to treat certain of the conditions stated in s. 47 as fulfilled; certain of them it is open to him to dispute. But we think that s. 47 (1) should be treated as having an application which is independent of considerations of locality and the like and as being concerned only with a certain kind of transaction; that kind of transaction it brings within the ambit of the provisions of s. 44 (1) which relate to the assessability of dividends. Accordingly, we think that in this particular case the transaction does fall within s. 47 (1). It falls within it because the assets which were handed over by the liquidator to the parent company included as an unseparated part profits made in the requisite accounting period. That the assets included income derived in Australia is a fact admitted in the case stated, and it is also stated, as has been pointed out, that those assets distributed represented such income derived by the company other than income properly applied to replace a loss of paid-up capital. This handing over of assets to the parent company was a distribution to shareholders of the Colorado company in the course of winding up that company falling within the opening words of s. 47 (1). The extent to which the profits distributed as part of the assets handed over represented such income attributable to the year of income ended 31st October 1946 has been ascertained. I will have something to say about the question of a winding up under Colorado law and of a liquidator's powers under the law of Colorado, but, accepting the view that there was a liquidator and that there was a winding up of the Colorado company, it appears to us that it follows that by consequence of s. 47 (1) the distribution to the parent company should to the extent stated be deemed to be dividends paid to it as a shareholder by the Colorado company out of profits derived by it.

Taking the view that s. 47 is independent of considerations of locality, and is concerned solely with what I may term the abstract question, whether a given transaction is to be brought within the provision that deals with the assessability of dividends, we then go back to that provision, namely, s. 44 (1). We think that s. 44 (1) is intended to provide the territorial criteria for including a dividend in the assessable income of a shareholder. Section 44 (1) (b) gives the criterion for judging the source of a dividend in the case of a shareholder who is a non-resident. For s. 44 (1) (b) provides that the assessable income of a shareholder in a company shall, if he is a non-resident, include dividends paid to him by the company to the extent to which they are paid out of profits derived by it from sources in Australia. By force of s. 47, the transaction I have described must be treated as having resulted to the extent of £106,414 in a dividend. By that I do not mean an actual dividend, but part of a distribution which in terms is to be deemed to be a dividend. The question that remains under s. 44 (1) (b) is whether the source from which that dividend was paid was in Australia, and that question is answered by the facts in the case stated which show that to the extent of £106,414 the profits included in the distribution represented income earned in Australia. So far as ss. 44 (1) and 47 are concerned that would appear to bring the imputed dividend, if I may so call it, within the assessable income. But there remains to be considered the operation of s. 23 (r), considered, of course, in conjunction with s. 25 (1) (b).

Section 23 (r), it has been argued, is an overriding provision which must be considered before you go to the process through which I have gone of applying s. 44 (1) (b), or for that matter, s. 47. Doubtless it is not impossible to construe the Act so as to give s. 23 (r) an overriding effect, an effect which would mean that at all hazards and despite all other considerations it must be applied to control every other provision and to do so independently of what subsequently appears. At all events the argument began with that contention; it was then said that it is well settled that prima facie the source of a dividend paid to a shareholder is the share, that the locality of the share is fixed by the register upon which the shareholder is registered and that therefore the register determines conclusively in point of law what is the locality which is the source of the dividend. An alternative view of the construction of the Act is that s. 23 (r) is a general provision expressing a policy of the Act, a general provision that you might expect the Act to carry into effect as to particular subjects by specific provisions, and that where in the rest of the Act there are specific provisions with respect to sources of income, those provisions may be taken as fulfilling or carrying out or, if the word is preferred, as being epexegetical to, s. 23 (r).

We take the latter view of the place of s. 23 (r) in the Act, and we are of opinion that s. 44 (1) (b) is an explicit provision to which effect must be given. It is true that the paramount policy expressed in s. 23 (r) of confining the assessable income of a non-resident to his income from sources wholly within Australia remains, but it is not right to interpret s. 23 (r) independently of every other provision of the Act. It is not right to suppose that in its application to income consisting of dividends it must have an operation that is independent of anything that may be found upon the same subject in any subsequent provision of the Act and on that supposition to treat it as necessarily meaning that inasmuch as a shareholder derives his dividend from his share the locality of the source of the dividend is the locality of the share and that that is the place of the register upon which the shareholder is registered in respect of the share. On the contrary, it must be read with s. 44 (1) (b) which is the particular provision giving specific effect to s. 23 (r) in the case of dividends. When s. 44 (1) (b) is read with s. 23 (r) there is no apparent inconsistency; on the contrary s. 44 (1) (b) appears to carry out the scheme of the general provision in providing that the assessable income of a shareholder in the company, when the shareholder is non-resident, is to include dividends paid to him by the company to the extent only to which they are paid out of profits derived from sources in Australia. The case stated says in terms that part of the assets of the Colorado company was profit derived here by it and that that profit was transferred to the Michigan company in the transaction of 18th February which I have described. Section 47 operates upon the transaction so that the income derived from Australia is deemed to be a dividend paid to the shareholder, the appellant company, and, in the view which I have expressed, that completes the chain of provisions operating against the taxpayer so as to expose the residue of the £106,414, namely, £65,179, to assessment.

From that positive statement I pass to the arguments which are advanced against the conclusion. The first argument was that in fact there was no liquidator and no winding up which would satisfy s. 47. The reasons for that lay in some extracts from the Corporation Laws of Colorado which were annexed to some amendments of the case stated. An objection was taken by the respondent to the admissibility of such an argument and a preliminary question was embodied in the case stated inquiring whether it was open to the appellant to maintain the contention. The objection was that such a contention lay completely outside the appellant's notice of objection. It is desirable to interpolate at this point a short account of the course of the proceedings before us.

Notices of objection were delivered to the amended assessment, which accepted the assumption that there was a winding up and that there were liquidators. The grounds of the notice of objection proceeded on the footing that the words of s. 47, "by a liquidator in the course of winding up the company" were satisfied, at all events, except for the words "course of". A case was stated on that basis. Reasons were subsequently discovered for doubting whether, under the laws of Colorado, there had been a winding up or a liquidator within the meaning of s. 47 and of the definition of liquidator contained in s. 6 (1). Proposed amendments to the case stated were put forward and the learned judge who signed the case stated was inclined to entertain them provided that further rectifications were made in the statements of fact. The amendments having been amended they were incorporated into the case stated. But unfortunately the notice of objection necessarily stood and, after hearing a preliminary argument as to the admissibility of the contention that there was no liquidator and no winding up, we gave a ruling which I shall repeat for the purposes of record. We said: "We take the first question in the amended case stated as directed to a contention on behalf of the taxpayer that there was, on the facts of this case considered in relation to the law of Colorado, no winding up and no liquidator within the meaning of s. 47 of the Income Tax Assessment Act 1936-1947 and that the case falls within Commissioner of Taxation (N.S.W.) v. Stevenson [1] and Federal Commissioner of Taxation v. Blakely [2] . We think that the contention does not fall within the notice of objection and therefore cannot be advanced by the taxpayer."

1. (1937) 59 C.L.R. 80. 2. (1951) 82 C.L.R. 388.

It was for that reason that I said that it must be assumed by us as it had been originally by the parties that under the laws of Colorado there was a winding up, that the winding up was by a liquidator, and that the conditions of s. 47 to that extent were satisfied.

I must add, for myself, that having studied the plan of liquidation, the agreement, and the resolutions which were passed at Detroit by the directors of the two companies, I feel considerable misgivings as to the foundation in fact of the contention which it was sought to advance, namely, that there was no proper winding up and no proper liquidator under the laws of Colorado. There seem to me to be reasons for believing that, in all probability, those who drew up these very carefully worded documents knew what they were doing; an interpretation of the corporation laws of Colorado seems open which would justify the view that there was a proper winding up by liquidators. But we may pass that by. Under our ruling the argument has proceeded on the basis that, for the purpose of s. 47 (1), there was a liquidator and there was a winding up.

It was said, however, that even if you accepted that view nevertheless you could not conclude, when you looked at the laws of Colorado and looked at the facts, that the assets were distributed and the distribution was made in the course of that winding up. I have some doubt whether such a contention is consistent with the grounds of the notice of objection, but be that as it may, the contention is based on the view that the supposed liquidators undertook the discharge of the debts, and that that was not in accordance with what we know of the laws of Colorado.

But the acceptance of this hypothesis does not, in our view, mean that the liquidation or the winding up fell outside s. 47 because the distribution was not in the course of that winding up. It seems clear enough that what was done was done in purported pursuance of a regular winding up and if there were deviations from what the law of Colorado provided they were not enough to take the winding up outside s. 47 and bring the transaction inside the doctrine of Stevenson's Case [1] , and Blakely's Case [2] , which is the purpose of the appellant's argument.

1. (1937) 59 C.L.R. 80. 2. (1951) 82 C.L.R. 388.

The third point taken was that on its terms s. 47 was not applicable to foreign companies. The argument was supported by reference to s. 23 (r) and, to some extent, to s. 25 (1) (b), but in the main the argument was based on the terms of s. 47 (1) itself.

There is, we think, no real foundation for the argument. Section 47 (1) is a provision dealing with a transaction according to its character. Its purpose is obvious enough. The section was first enacted in an earlier form to meet the situation, made clear enough by Inland Revenue Commissioners v. Burrell [3] which decided in effect that a distribution of a mass of assets, although in a colloquial sense they represented or contained profits, was a distribution of capital. There is no ground, we think, for adding territorial restrictions to s. 47. That does not mean, of course, that in the description of the transactions s. 47 gives, in reference to winding up and to a liquidator, and so on, grounds may not be found for saying that some particular procedure or process prescribed by a foreign law will be outside the terms of the section. But it is, we think, of general application, quite independently of questions of locality. It is when a transaction comes within the terms of s. 47 that you go back to the provisions relating to locality if the case be one of a non-resident. It is at that stage that you consider the source of the imputed dividend.

It was strongly contended, as I have said, that s. 23 (r) is an over-riding provision, and I think, in justice to the contention, I should go back to it although in describing our positive view I have already said something about its place in the Act. The contention is based upon the view that nothing really can rise higher than s. 23 (r), and that you begin by applying that; that you apply it according to your conception of the general law as to what is "source"; and that any other provisions of the Act are subordinate to that conception and must be read subject to it. An analogy was sought in Reid v. Federal Commissioner of Taxation [1] . That case, which was decided on s. 23 (q) and has no direct relation to s. 23 (r), deals with exemptions by reason of the income in question having already borne tax. It appears to me to lend no assistance to the argument on s. 23 (r) but it is perhaps desirable to point out that the legislature immediately overruled it by the enactment of s. 44 (1A). It was further sought to rely on Commissioner of Taxation (N.S.W.) v. Freeman [2] . That is not reported in Commonwealth Law Reports, and I shall not give reference to all the collateral reports in which it is to be found, but for present purposes, I have been using the report in the Australian Law Journal (1956), vol. 30, p. 42. That case was concerned with certain provisions of the Income Tax (Management) Act 1936 of New South Wales the last year of the operation of which was, I think, 1942-1943. I think that it would not be useful to institute a comparison between the provisions of the Commonwealth legislation and those of the New South Wales Income Tax (Management) Act 1936 as amended. It is enough to say that at one point in the complicated facts of Freeman's Case [2] a question did arise as to the source of a dividend, and that for the purposes of the expression used in the New South Wales Act, we thought that the fact that the dividend was derived from a share on a register in New South Wales showed that the source was in New South Wales. The joint judgment of the Court concludes by a reference to Nathan v. Federal Commissioner of Taxation [3] . That case, which involved the consideration of the Income Tax Assessment Act 1915 Cth fastened on the place where the profits were made as the source from which the dividend was derived. In Freeman's Case [2] , the Court said: "We do not understand Nathan's Case [3] to decide that the locality where a company derives the profits from which it pays dividends must be regarded exclusively as the source of a shareholder's dividend receipts. If it does, it is, it seems to us, in conflict with the reasoning in such cases as Canadian Eagle Oil Co. Ltd. v. The King [1] and Inland Revenue Commissioners v. Reid's Trustees [2] " [3] . The judgment went on to discuss those cases briefly.

1. (1947) 73 C.L.R. 282. 2. (1956) 30 A.L.J. 42. 3. (1956) 30 A.L.J. 42. 4. (1918) 25 C.L.R. 183. 5. (1956) 30 A.L.J. 42. 6. (1918) 25 C.L.R. 183. 7. (1946) A.C. 119. 8. (1949) A.C. 361. 9. (1956) 30 A.L.J., at p. 48.

It will be apparent from the emphasis placed on the word "exclusively" that the Court, in deciding Freeman's Case [1] was contemplating the possibility that a dividend may be attributed to different sources according to the character of enactment dealing with the matter and perhaps according to the facts, and that the Court did not intend to say that the only source to which a dividend could be imputed was the locality of the share. In the present case we are of opinion that the answer to the contention lies in the view we take of the relationship of s. 44 (1) (b) and s. 23 (r). The view we take of the relationship is that s. 44 (1) (b) is not cumulative upon and independent of s. 23 (r), but is carrying out s. 23 (r) and stating what, in the case of a dividend received by a non-resident, is the source for the purposes of s. 23 (r). If it were treated as cumulative and independent it would mean that in the case of a non-resident holding shares in an Australian company, assuming that for the purpose of s. 23 (r) so construed the share was regarded as the source of a dividend upon it, he would be liable to tax on dividends paid out of Australian profits if his shares were upon an Australian register of the company but not liable to such tax if his shares were upon a register kept in some place out of Australia by the company.

A further argument was advanced, an argument on the construction of s. 47, and though for myself I have a little difficulty in apprehending its full significance, it was, if I correctly understand it, as follows: Section 47 deems what is not a dividend to be a dividend. It deems what in fact is a capital distribution under, for example, Burrell's Case [2] to which I have already referred to be a dividend. But it goes no further. In an earlier shape, namely, as the Income Tax Assessment Act stood from 1928 to 1934, the provision now standing as s. 47 contained words which are not there now, and the words are these: "To the extent to which it" (that is the distribution) "represents income derived by the company which would have been assessable in the hands of the members or shareholders if distributed to them by a company not in liquidation". It is said that without this qualification, of which the now s. 47 has been deprived, or something like it, you cannot dissect the imputed or fictional dividend deemed to exist by s. 47, or trace it for the purposes of or under s. 44 (1) (b).

Mr. Wallace, who advanced that argument, quoted a passage from the judgment of Sir George Rich in International Hotel Ltd. v. McNally [1] : "The word "deemed" introduces an artificial definition which in my view is only intended to be applied as long as the conditions exist for which it is intended to apply" [2] . The learned counsel went on to say that the submission that he made was that s. 47 creates a fiction which is incomplete for the purpose of applying it to s. 44 (1) (b). He suggested that what is lacking in s. 47 when you come to apply it to a non-resident, is this: it should contain and in fact before 1934 it did contain, words saying that, to the extent to which it represents income which had been derived by the company from sources in Australia, the distribution should be deemed to be dividends paid to the shareholders in and out of profits derived by it from sources in Australia. Then, he concluded, you could apply s. 44 (1) (b). That is, the suggestion is that since these words are absent you are thrown back to a position where you are adding a fiction to a fiction, and that you cannot do that; nor, to express it according to an amended statement, can you add a fact to the fiction. Whatever may be the precise significance of this contention the answer is provided simply by the words of s. 47; they are explicit, and go back obviously to s. 44 (1) (b). You take the terms of s. 47 (1): you have only to identify the transaction and find that there is a distribution to shareholders of the company and that the transaction fits that description; then, subject to its being in the course of a winding up, it must, for the purposes of the Act, be deemed to be dividends paid to the shareholders by the company. That, in my view, brings them immediately within the terms of s. 44 (1) (b). Perhaps you do insert a fiction into s. 44 (1) (b) but, when you have done that, you treat it as a reality. And, for the purposes of s. 44 (1) (b), you proceed to do the tracing of the source of that imputed dividend to the profits from which it comes. That, no doubt, sets an extremely difficult task in some circumstances, but it is a task of accountancy and not of law. Difficult as it may be, it cannot disturb the real meaning of the two sections stated in combination, and, so far as the present case is concerned, the agreed facts between the parties show that it has already been done.

1. (1940) 64 C.L.R. 24. 2. (1940) 64 C.L.R., at p. 28.

Finally, almost at the end of the catalogue of contentions, a constitutional objection is raised. It was said that both s. 44 (1) (b) and s. 47 were enacted before the Statute of Westminister; that they depended upon constitutional powers that then existed; and that there was, in the enactment of those two sections and the combination of them, an excursion outside the limits of the territorial power of the Commonwealth. That contention will not, as it appears to me, stand examination. Assuming that there were no other answer to the objection, it is quite plain that the territorial jurisdiction of Australia to enact s. 44 (1) (b) of the Income Tax Assessment Act was based on the derivation from sources in Australia of the profits which are taxed. Once that is seen to be the basis for assessment under s. 44 (1), the Australian Commonwealth was at that time perfectly at liberty to proceed to tax those profits in the hands of any person to whom they were distributed by any means however circuitous. The territorial limitations upon legislative power did not form a ground for invalidating a tax provision, provided that the basis of the tax was sufficiently associated with Australia to make it a matter of Australian concern.

There is one further matter to deal with. Portion of the tax paid by the Michigan company was paid under the Wartime (Company) Tax Assessment Act 1940-1946. It is stated in the case stated that pursuant to the provisions of s. 17 of the Wartime (Company) Tax Assessment Act 1940-1946 the parent Michigan company elected to have the Colorado company as its subsidiary treated as a branch of the parent company in respect to the accounting period ended on 31st October 1945, which, be it noted is the previous year of income to that with which we have been dealing. The case stated gives the tax assessed upon the Michigan company for the accounting period ended 31st October 1945, but does not elaborate what happened in relation to that sum. In the notice of objection a figure is given for the wartime (company) tax on the taxable income for the ten months of the Colorado company's operations. Having heard some argument about the question whether an amount is to be deducted for wartime (company) tax we came to the conclusion that on the material in the case stated it was not possible to deal effectively with the question which it was sought to raise and we therefore announced that we would not determine it upon this case stated.

The questions in the case stated are these: (1) Were the distributions referred to in par. 12 of the case stated "distributions by a liquidator in the course of winding up the company" within the meaning of s. 47 of the said Act? (2) If not whether it is open to the appellant to maintain that the distributions referred to in par. 12 of the case stated were otherwise than by a liquidator in the course of winding up the company? (3) Whether the said sum of £65,179 or any, and if so what, part thereof is to be included as income for the purpose of calculation of the taxable income derived by the appellant during the accounting period ended on 31st October 1946?

We preferred to hear the objection which is the subject of question (2) argued first and we shall answer that question thus: - In response to question (2), declare that it is not open to the appellant to maintain that the distributions referred to in par. 12 of the case stated were otherwise than by a liquidator in the course of winding up the company, except in so far as the words "in the course of" may be relied upon. We shall declare that for that reason question (1) ought not to be considered or answered.

As to the third question, we will answer it Yes, the whole sum of £65,179, subject however to any claim which the appellant, that is the Michigan company, may make out for an allowance from that amount of the payment of wartime (company) tax.

The costs of the case stated will be dealt with by the learned judge disposing of the appeal.