Shining Led v 68 C.L.R.]

Shining Led v 68 C.L.R.] - [1943] HCA 50 - HCA 1943 case summary — Zoe

[32]

use there was the source of the income. Incorporeal rights (e.g., goodwill) are becoming recognized as having a local situation: Cf. In ve Keene (1), in which a bankrupt was ordered to disclose secret formulae as being part of the assets of his business - See also Dickson v. Commissioner of Taxation (N.S.W.) (2). A formula is something of which a person may become aware ; it is a vendible commodity. An "invention" may be spoken of as property, notwithstanding that a grant of letters patent has not been obtained in respect of it. The respondent had property in Australia when it granted the right to use its trade secrets here. The right granted was a proprietary right which had a local situation. The respondent's blueprints were its property, brought to Australia for use there and to be returned after five years. Lovell & Christmas Ltd. v. Commissioner of Tames (3) is not applicable here; the language of the Act there in question was different in material respects: It did not contain either of the expressions "source" or "directly or indirectly " ;, the word "derived" was used. That case goes back to the old idea of looking to the place where a trade or business is carried on as the place from which - to the exclusion of others - income is derived. It cannot be applied to the language of the Commonwealth Act for the purpose of ascertaining the "source" of income. The case is not inconsistent with Commissioners of Taaation v. Kirk (4). Studebaker Corporation of Australasia Ltd. v. Commissioner of Taxa- tion (N.S.W.) (5), is likewise distinguishable: The Act in question did not contain the phrase " directly or indirectly," and the problem was necessarily one of the direct derivation of the income. The judgment of Starke J. reverts to the old idea of an indivisible source and is wrong in doing so. It is now recognized that income may be attributable partly to one source and partly to another: See Federal Commissioner of Taxation v. W. Angliss & Co. Pty. Ltd. (6). As to royalties, International Combustion Ltd. v. Inland Revenue Commis- stoners (7) decides, in substance, that their source is where they are earned. In the present case, if the source exists in part in America, it is so trivial that it can properly be disregarded. Commissioner of Taxes v. British Australian Wool Realization Association Ltd. (8) was decided on a Victorian Act, the relevant expression in which was "profits earned in or derived in or from Victoria"; there was no

[47]

The United Aircraft Corporation is a company incorporated in the State of Delaware in the United States of America which carries on business there as the manufacturer and seller of, inter alia, aero- plane engines. This company will be referred to as the American company. Commonwealth Aircraft Corporation Pty. Ltd., which will be referred to as the Australian company, is a company incorporated in Victoria which manufactures aeroplanes. On 6th April 1937 the companies made an agreement in New York. In form the agreement consisted of a grant by the American company to the Australian company of a licence to manufacture aeroplane engines of the type described in the agreement for a period of five years ending on 5th April 1942, with a provision for extension for a further five years. The agreement professes to grant rights to use Australian patents and registered designs and it contains a number of provisions relating to such patents and designs. The American company, however, did not in fact own any Australian patents or any designs registered in Australia. The American company agreed to deliver to the agent of the Australian company in New York drawings and specifications of the engine, together with manufactur- ing equipment, including patterns, dies, machines, tools, jigs, fixtures, gauges, &c. The patterns, &c., were to be paid for at prices to be agreed. The American company agreed to allow six technicians of the Australian company to visit its factory for the purpose of obtain- ing information, and further agreed to give to the Australian company such information and advice as might be reasonably required by it to enable it to manufacture the parts of the engine which were manufactured by the American company. The American company also agreed to lend a skilled engineer for a year to the Australian company, such engineer to be paid by the Australian company. In accordance with the agreement, drawings, manufacturing equip- ment, &c., were delivered in New York, and the Australian company duly paid for the equipment. Information and advice were given as required and one of the engineers of the American company came to Australia, where he worked for the Australian company, being paid by the Australian company.

[75]

poration of Australasia Ltd. v. Commissioner of Taxation (N.S.W.) (2) is cited by their Lordships without criticism (3). At an earlier date than the South African decision, Isaacs J., as he then was, anticipated these statements in the South African case in a passage in Nathan v. Federal Commissioner of Taxation (4), which was subsequently adopted in Studebaker Corporation of Australasia Ltd. v. Commissioner of Taxation (N.S.W.) (5). In Tariff Reinsurances Ltd. v. Commissioner of Taxes (Vict.) (6) I explained how I under- stood the phrase in the following passage : " This means, I suppose, that every case must be decided on its own circumstances, and that screens, pretexts, devices and other unrealities, however fair may be the legal appearance which on first sight they bear, are not to stand in the way of the court charged with the duty of deciding these questions. But it does not mean that the question is one for a jury or that it is one for economists set free to disregard every legal relation and penetrate into the recesses of the causation of financial results, nor does it mean that the court is to treat contracts, agreements and other acts, matters and things existing in the law as having no significance." As the question to be determined in this case is a question of fact a decision on one set of facts is not binding and is often of little help on another set of facts. In Premier Automatic Ticket Issuers Ltd. v. Federal Commissioner of Taxation (7) and Tariff Reinsurances Ltd. v. Commissioner of Taxes (Vict.) (8) - cases which may, perhaps, be regarded as borderline cases - the court considered that, on the facts in each case, the contract should be regarded as the sole source of income and that therefore the locus of the contract was the locus of the source. But it does not follow that, in every case where a contract is one of the sources, the contract should be regarded as the sole source: Cf. Commissioner of Taxation v. Cam & Sons Tid. (9) - a case which contains an interesting discussion of the principles germane to the question in this appeal. The question then is whether the source of the sum in question is within Australia.

[80]

patents in Australia for or in respect of the licensed engines or spare parts referred to in the agreement annexed to the admissions: See clause 12 of the admissions. The terms, wherever occurring, of "Ticence," "licensed" and " royalties" are not referable to any patent. And there is no evidence implicating the respondent company in any agency or profit-sharing transaction or division of net earnings. It has no part nor lot in the Australian company's business. Although property exists in the plans and drawings, &c., supplied to the Australian company, the moneys in question, part of the consideration paid to the respondent company, cannot be regarded as derived from property used by the latter company or on its behalf in Australia. These moneys were derived not from the pieces of paper, but from the supply in America of the informa- tion recorded on the pieces of paper, information which was capable of being used in Australia or elsewhere. Ifa person purchased a car from another in New York on credit, with the intention of taking it to Australia and there using it as a taxi, the fact that he discharged his indebtedness out of the proceeds of his taxi business remitted by him from Australia would not make the moneys received in America by the seller moneys derived by him from property in Australia in any relevant sense. In the instant case the taxpayer received two sorts of payments, one obviously in respect of the con- tracts alone and things done under it in America, and the other in respect of things done under it in America and in Australia. The former payments are clearly not derived from a source in Australia. Their source may be regarded as substantially the contract. There would be no more justification for saying that their source was of Australian origin than for saying that an American shopkeeper who sells an Australian tourist an article in New York derives income from a source in Australia because the tourist paid for it out of income which he had received in Australia. It would make no difference if the shopkeeper gave him credit and he remitted the price from Australia. But in relation to the other payments which are called royalties the source as a question of fact should, I think, be regarded partly as the contract and partly things done in pursu- ance of the contract. These things included the handing over in America by the American company to the Australian company of property belonging to the American company ; the user in accord- ance with the contract by the Australian company of this property or its rights in the same in Australia; the payment in America by the Australian company for the user in Australia of this property or the rights therein by that company. I am not prepared to draw

[108]

Tn ascertaining source account must be taken of the fact that at the present day the element of contract is involved in most receipts by way of income unless they are derived from public or private bounty and the royalties now in question are no exception from this general rule. The importance of the contract element in the deriva- tion of any particular set of receipts depends upon the circumstances. In some cases it may be the only important element, so that the locus of the making of the contract is the locus of the source of the receipts. In others it may be relatively unimportant, so that the place where the contract was made is negligible in determining the locus of the source. In others again the facts may be such as to necessitate attribution of part of the receipts to the locus of the making of the contract and of part of them to some other locus as a source (Federal Commissioner of Taxation v. W. Angliss & Co. Pty. Lid. (1) ; Commissioner of Tawation (N.S.W.) v. Hillsdon Watts Ltd. (2)). A decision as to the locus of the source upon one set of facts, although it may be authoritative for any principles of law which may be laid down, is no authority for determining the fact of source upon other and different facts. To adopt the words of the Chief Justice in Tariff Reinsurances Ltd. v. Commissioner of Taxes (Vict.) (3) : - " It is a question of fact whether income (or profits) is derived from a particular country. In Federal Commissioner of Taxation v. W. Angliss & Co. Pty. Ltd. (4) my brother Starke sets out and examines a number of cases which have dealt with this subject. It is there shown that the question which arises is really a question of fact and that no absolute rule of law can be stated the application of which will make it possible to determine all cases." This must be determined in every case by what "a practical man would regard as a real source of income " (Nathan v. Federal Commis- sioner of Taaation (5)), and, as Higgins J. pointed out in Mount Morgan Gold Mining Co. Ltd. v. Commissioner of Income Tax (Q.) (6), the source from which income is derived or the place where it is earned is not necessarily identical with the place where the business is carried on.

At a glance

Court

Decision date

Before

Source

Judgment (149 paragraphs)

Parties