Phillips v Federal Commissioner of Taxation [1947] HCA 50

High Court of Australia|1947-07-01|Before: Williams J

In April 1939, the appellant purchased a newsagency and paid £3, At about the same time he was granted by the landlords shop a lease for a term expiring on 16th May 1944. On 23rd March 19

*The Income Tax Assessment Act 1936- 1944 provides : -

By s. 83: " In this Division ' lease * when used in relation to a premium means the lease granted, assigned or surrendered, or where the premium is for or in connexion with any goodwill or licence means the lease of the land to which such goodwill or licence is attached or connected * prem- jum' means any consideration in the nature of a premium fine or foregift payable to any person for or in con- nexion with the grant or assignment by him of a lease, or any consideration

income - Premium - Goodwill - Newsagency | Lease - Sale of goodwill attached to or connected with the land - Assignn transfer of lease - Lease terminated and weekly tenancy granted - Surr Tease - Income Tax Assessment Act 1936-1944 (No. 27 of 1936 - No.

purchaser to be accepted by the landlords as the tenant of the shop Both parties to the contract belie the Tease granted in April 1939 would expire on 30th April 1944, Nezo took place between the purchaser and the landlords, with the consent appellant, with the result that the purchaser became the weekly tena1

for or in connexion with the # of a lease, or for or in conn any goodwill or licence attache connected with land a lease 0 is granted, assigned or 9

By s, 84 (1): "The asses come of a taxpayer shall include, in addition to rent, any ium received by him in the income, and any consider: received for or in connexion assent to any grant or a

red for the goodwill a sum which exceeded by £854 the amount paid by 1947.

for the goodwill in 1939. 'The Commissioner included this sum of £854 | ~~ BA Po sdladts smeeesablo income' for the year ended 30th June 1944 pur- PHTEEIPS " suant t0 8. 84 of the Income Tax Assessment Act 1986-1944. FEDERAL

Comis- Held that the sum of £854 did not form part of the appellant's assessable coven oF

income on the grounds : - (i) That the real value of the goodwill of such a Taxartow. business did not attach to the land within the meaning of s. 83 (1) of the Act Tye but consisted in the appointment of the proprietor as the exclusive agent for

~ the newspaper companies; (ii) that the creation of the weekly tenancy,

__ ope as a surrender of the appellant's lease but that such surrender and

_ the creation of such weekly tenancy did not amount to a granting or surrender-

of a lease within the meaning of the relevant words,

tswood, New South Wales, and paid the sum of £3,266 8s. for goodwill. The business was carried on on premises leased for purpose for a term of years. The appellant sold the business rch 1944 under a contract in writing. The goodwill was in pursuance of the contract at the sum of £4,120 19s. so appellant received for the goodwill the sum of £854 more ie had paid for the goodwill in 1939. On 30th April 1944, 'on which the purchaser was to enter into possession, the ranted to the appellant had still sixteen days to run but both es to the contract believed that the lease would expire on 30th nd the contract was entered into on this basis. The lease assigned by the appellant to the purchaser who, after ms, became the weekly tenant of the shop as from 30th assessment of the appellant in respect of income derived the year ended 30th June 1944, the Commissioner included sum of £854 in the appellant's assessable ineome as income erty on the ground that it was a net premium received in nm with the assignment of the business premises. "age by the appellant having been disallowed he appealed th Court. iaterial facts and the relevant statutory provisions in the judgment: hereunder.

Prmtars v. Feperat Coymts- SIONER OF TAXATION.

aemeaeane Hirani which Allen was nee Pans on at 3 Victoria Avenue, Chatswood. He paid £3,266 8s. for the goodwil At about the same time he was granted a lease of this shop by landlords for a term of four years and eleven months, expiring 16th May 1944. On 23rd March 1944 he contracted in writing | sell this business to MacDowall, the contract providing that posse sion should be given to the purchaser on 30th April 1944. Clat 2 of the contract provided that the vendor would sell and purchaser would buy the goodwill of the business (including vei interest in newspapers and all other agencies); such tena fixtures, fittings, plant and chattels on the premises as might included in an inventory to be approved by a certain ie accountants ; and the stock on hand on the date of possessi Clause 6 provided that the accountants should report to Jo Fairfax Pty. Ltd., Associated Newspapers Ltd. and Consolidat Press Ltd. (ireuare called the newspaper companies) the num! of units of circulation which should, in the opinion of the accoul tants, be taken as the fair average weekly circulation of the b and the price of the goodwill should be the amount of the val thereof to be made by the newspaper companies on the basis of calculation or such other basis as they thought fit. Cla provided that the price for the tenant's fixtures, fittings, pl chattels and stock should be the valuation determined by valuer appointed by the parties and approved by the newsp companies. Clause 10 (a) provided that the vendor should arr: for the purchaser to be accepted by the landlords as the tena 390 Victoria Avenue as from the date of completion, and that t purchaser should pay such reasonable expenses, if any, as mii be incurred by the vendor in procuring such acceptance. Claw 21 provided that the contract was subject to the newspaper eee mad in writing to the accountants on or before

purchase price to be paid under the contract. The goodwill was valued in pursuance of the contract at

he tha paid for the goodwill in 1939. In the assessment of appellant for the financial year Ist July 1944 to 30th June 194 in respect of income derived during the year of income ended 30t June 1944, the respondent included this sum of £854 in the ass income of the appellant as income from property on the ground it was a net premium received in connection with the

the business premises. The appellant objected to the inclusion his sum in his assessable income, but the objection was disallowed. then appealed to this Court, and the question for decision is this sum was rightly included or not.

The respondent relies on s. 84 of the Income Tax Assessment ia 1944, which provides that the assessable income of a

shall include any premium received by him in = year ble

on 83 of the Act defines " premium" to mean : - * any tion in the nature of a premium fine or foregift payable \y person for or in connexion with the grant or assignment by a lease, or any consideration for or in connexion with the of a lease, or for or in connexion with any goodwill or 'attached to or connected with land a lease of which is ted, assigned, or surrendered ; and where any of the foregoing ons derations is payable in more than one amount each such mou nt shall be deemed to be a premium."

Be material words in this section are " any consideration in the 'nature of a premium paid for . . . any goodwill attached to ir land a lease of which is granted assigned or surrendered." 'conditions must be fulfilled before the £854 can be a premium | the meaning of these words: (1) the consideration in the of a premium must have been paid for goodwill ; (2) this must have been attached to 390 Victoria Avenue ; (3) a

'appellant does not dispute that the £4,120 19s, could hae a ration in the nature of a premium, but he objects to the of the £854 in his assessable income on the grounds : was not paid for any goodwill attached to 390 Victoria and (6) that even if the goodwill was so attached no lease nd was granted assigned or surrendered within the meaning relevant words. The respondent contends that the goodwill newsagency business was attached to this land because it e that the business was being carried on. In the adjust- et forwarded with the notice of assessment it was stated of this land had been assigned, On 30th April 1944, 0 which the purchaser was to enter into possession, the ted to the appellant had still sixteen days to run, but both the contract believed that this lease would expire on 30th the contract was entered into on this basis. This lease

was never assigned by the appellant to MacDowall. Counsel for

the respondent was therefore unable to rely on an assignment But negotiations took place between MacDowall and the landlord with the consent of the appellant with the result that the purel became the weekly tenant of the shop from 30th April 19: in my opinion this operated as a surrender of the existing by the appellant to the landlords: Halsbury's Laws of Eng! 2nd ed., vol. 20, p. 272. Accordingly counsel for the respond submitted that a lease had been surrendered, or alternatively a lease had been granted within the meaning of the relevant wor T shall now proceed to examine both grounds of objection. x (a) There was no particular advantage in the shop being situat at 390 Victoria Avenue. At one time Allen was carrying on bi in another shop. The agreements between the agent and the 1 paper companies did not require the agent to carry on busi any particular shop. All that they provided was that the a should not appoint any sub-agent or supply any agent or sub- with any of their publications without their consent in writing, that the agent should not in any way directly or indirectly dis of, deliver or supply beyond the limits of the area assigned to The shop could therefore be situated at any convenient place area. The newspapers and other publications, particularly newspapers, are sold chiefly by delivering them at the houses o residents in the area. The area contains a number of persons would naturally purchase such publications locally, and the ab: of competition ensures that they will purchase from the sole lo agent. Accordingly the real value of the goodwill of such a bus lies in the appointment of the proprietor as the exclusive ag the newspaper companies to purchase their newspapers and publications wholesale and to sell them retail in the prescribed or in other words in the agent being the sole source of suj that area. It is a case in 'which, in the words of Lord Eldo Kennedy v. Lee (1), "the good-will of a trade follows from, ai connected with, the fact of sole ownership." Z (b) The definition of premium in s. 84 includes three (i) Any consideration in the nature of a premium fine or fo payable to any person for or in connection with the grant or ment by him of a lease. The words " by him" make it plain th this consideration must be received by the person who gral assigns the lease. (ii) Any such consideration for the sui a lease. The consideration for the surrender of a lease ordinarily be a payment by the landlord to the tenant. Ah

(1) (1817) 3 Mer. 441, at p. 452 (36 E.R. 170, at p. 174]

payment to the landlord to induce the latter to surrender ease, but it would not be an ordinary use of language to describe |a payment as in the nature of a premium fine or foregift. A of premises to which a valuable goodwill was attached would likely to make a payment in the nature of a premium to a d to obtain a surrender of the lease. The only natural "ation of the words in such a context is to a payment by a dlord to the tenant. The words " by him" would not be appro- at in this limb. (iii) Any such consideration for any goodwill icence attached to or connected with land a'lease of which is assigned or surrendered. 'The question is whether to fall this limb the payment for the goodwill must be made to the or or assignor of the lease by the lessee or assignee, or to the 'who surrenders the lease by the landlord. Counsel for the pondent relied on the absence of the words "by him" from this b of the definition and contended that it was sufficient that a lease the land was granted assigned or surrendered as part of the

action. But these words would be quite inappropriate in a ion of words which include surrendered as well as granted

-a title to the possession of the land. He might acquire such a title by purchasing the land, but s. 83 is not concerned with acquisition of freehold but only with the acquisition of leasehold If the purchaser purchased the goodwill from the owner of Lhe could require the owner to grant a lease. If he purchased Iwill from a lessee, the lease could be assigned. But he ) acquire a leasehold title as in the present case by the the goodwill surrendering his existing lease to the landlord landlord granting a new lease to the purchaser. But in t would be only natural for the landlord to insist upon the 'of a premium to him as consideration for the grant of the v lease. The third limb includes the case of a licence as well as a goodwill attached to or connected with land. The effect nee is to make an act lawful which without it would be licence attached to or connected with land must be an authority to do some act on that land which would be unlawful, as for instance to carry on the business of a on premises which require to be licensed under the Liquor States. Land to which a goodwill or licence is attached value in addition to its ordinary improved value. although made separately for the right to enjoy this

for instance in that of an onerous lease, the tenant might H- C- " A.

the lease granted or assigned is of the same nature as a bonus the grant or assignment of the lease and is therefore placed in same category for the 'purposes of income tax. So too pa; made by a landlord to obtain a surrender of a lease of land to wh a goodwill or a licence is attached are of the same nature wheth there is a separate payment for the value of the goodwill or licence or it is included in a single payment for the surrender. The wh payment is made to obtain immediate possession of land which h a special value instead of leaving the possession outstanding for he balance of a term. In my opinion the natural grammatical co struction of the third limb is that the payment for the goodwill

ee the lease. This agktomnibiee harmonises with ss. 85 an of the Act. In particular ss. 85 (1) (b) and 88 (1) (6) clearly intel that the consideration in the nature of a premium paid for surrender of a lease must move from the landlord to the ten:

In the present case the £4,120 19s. was not paid by the landlo: to the appellant to induce him to surrender his lease, and it not paid by MacDowall to the landlords to induce them to grant him alease. It was not paid to the landlords at all. It was not there-_ fore a consideration within the meaning of the third limb. It was a payment made by MacDowall to the appellant because he and not the landlord owned what was of real value, namely the pers right to carry on business as the exclusive agent of the newspap companies in a certain area and to transfer that right to a purch: of whom and at a price of which they approved. The goodwill of this business was attached to the area within the boundaries of w1 it was confined. But it was not in any way attached to ee ticular premises in that area.

For these reasons I am of opinion that the appellant i is centit e to succeed on both grounds.

Appeal allowed with costs. Order respond to amend the assessment under appea excluding the sum of £854, Liberty

apply. Solicitors for the appellant, McMaster, Holland & Co.

At a glance

Court

Decision date

Before

Source

Judgment (39 paragraphs)