Steinberg v Commissioner of Taxation

In 1949 Mr. Steinberg commenced to carry on in partnership with his two brothers, Reuben and Matthew, the business of furniture manufacturers. In 1953 the wives of the three partners, including Judith, Mr. Steinberg's wife, became members of the partnership. It then acquired a retail firm in Murray St., Perth, and commenced to carry on a furniture retailing business under the name of Murray's Furnishing Stores. The business prospered until 1955 when its turnover was $360,000 and its profit in excess of $28,000 for the year.

However, the firm then ran into difficulty. The premises in which it carried on business were acquired by Woolworths Ltd. and the partnership was compelled to move to other premises. Thereafter its business fell away. Within two years the turnover had fallen to $250,000 and the profit to $11,000 per annum. It was then decided that the partnership should look for some other income-producing venture.

In 1956 Mr. Steinberg had become acquainted with Percy Markham, a real estate agent. In that year Mr. Steinberg became a member of a syndicate formed by Mr. Markham to acquire land at Gosnells, an outer suburb of Perth, with a view to its resale at a profit. Thereafter Mr. Steinberg, at Mr. Markham's invitation, became a member of a number of syndicates formed for the purpose of acquiring land and re-selling it at a profit. The syndicates, thirteen in all, were formed and carried on business in the succeeding years. The last syndicate was formed in December 1969. Each syndicate acquired a large parcel of land in outlying suburbs of Perth; the land was unsubdivided land. Without exception the syndicates were profitable, some exceedingly so. The profits thus made formed part of the assessable income of the syndicate members and were disclosed as assessable income in the partnership and individual tax returns. In some instances Mr. Steinberg held his interest in the syndicate as a nominee for Murray's Furnishing Stores, sometimes in his own right and in one case as a nominee for his wife and himself.

In addition Mr. Steinberg became a member of a syndicate which acquired land at Kelmscott with his wife, his brothers and their wives in 1967. The land was sold at a profit in subdivision. In the same year with his wife and two sons Malcolm and Gordon he formed a syndicate which acquired land at Swan View. In 1969 he formed two syndicates in which his wife and a family company, as well as himself, and in one case his two sons, were members. One syndicate acquired land at Gosnells which was sold at a profit and the other acquired land at Kelmscott which is still held.

In 1963 on the advice of his accountant Mr. Eli Rhine, steps were taken by Mr. Steinberg to reorganize his affairs so as to reduce his liability to income tax and for estate planning purposes. These steps, which I shall set out in detail, resulted in a change in the membership of the partnership of Murray's Furnishing Stores. Mr. Steinberg was advised that he and his wife should transfer their assets to a new partnership, M.J.S. Investments, and that a number of discretionary trusts should be created to become members of that partnership.

With this end in view, eighteen deeds of trust were executed on 1st June 1963. Mr. Rhine was the trustee appointed under each deed. Judith Steinberg was the settlor under three deeds of trust, including the Judith Steinberg No. 2 Trust. In each case the sum of fifty dollars was settled on the trustee who was given power to enter into a partnership, in addition to power to invest. The trustee was required until the expiration of eighty years to hold the trust fund upon trust to divide or apply the whole of the income between all or any of the persons living and included in the class of beneficiaries mentioned in the Schedule to each deed in such proportions and in such manner as he in his absolute discretion might think fit. Subject to these provisions, the trustee was directed to hold the capital and income upon trust for the members of the class living at the end of eighty years. The trustee was given power to pay or apply the whole of the trust fund to any one or more of the beneficiaries before the expiration of the eighty years (cl. 1). Power was conferred on Mr. Steinberg or his wife to remove trustees and appoint new trustees (cl. 7).

The beneficiaries of the Judith Steinberg No. 2 Trust were expressed to include the husband, children (except Gordon Steinberg) and remoter issue of Judith Steinberg. There were variations in the description of the class of beneficiaries under each of the deeds, but they included the children of Mr. Steinberg and his wife, sometimes excluding one of the children and sometimes including Mrs. Steinberg, although she was not a beneficiary under the three deeds under which she was a settlor.

On the same day a deed of partnership was executed between Mr. Steinberg, Mrs. Steinberg and Mr. Rhine as trustee of the eighteen trusts. The business of the partnership was expressed to be general dealers and investors. The capital was $1,000. The deed provided that the partners should be deemed to hold units in partnership. The units were divided into two classes, A units and B units.

The deed of partnership provided that Mr. Steinberg and his wife were each to hold fifty dollars in A units and that Mr. Rhine as trustee of each of the trusts was to hold fifty dollars in B units. The A units carried the right to cast fifty-one per cent of the rights exercisable at every general and committee meeting of partners, but in other respects they carried limited rights. The holders of A units were entitled to a preferential payment out of the annual profits of an amount not exceeding ten per cent of the nominal amount of the A units held, but no further right to participate in the distribution of profits. Likewise they were entitled on a winding up to a return in property of the original capital but no right to receive any distribution in excess.

On 1st June 1963 Mr. Reuben Steinberg, Mr. Matthew Steinberg and their two wives agreed in writing to M.J.S. Investments, the new partnership, succeeding to the capital and interests of Mr. and Mrs. Steinberg in the partnership of Murray's Furnishing Stores. On the same day Mr. Steinberg sold to M.J.S. Investments his one-sixth share in Murray's Furnishing Stores as at that date for the sum of $10,000 or such higher figure as the Commissioner of Stamps might assess and Mrs. Steinberg likewise sold her one-sixth share for the sum of $19,600 or such higher figure as the Commissioner of Stamps might assess.

By a deed dated 1st July 1963 Mr. Steinberg sold to M.J.S. Investments his 1,000 A class and 200 D class shares in Malgor Pty. Ltd., together with the shares which he held in a company known as Indoor Amusements Games Pty. Ltd., for the sum of $32,400 or such higher figure as the Commissioner of Stamps might assess as the value for the purpose of stamp duty. On the same day Mrs. Steinberg sold to M.J.S. Investments her 500 B class shares.

As a result of these transactions the sole asset of the trusts was their investment in the partnership M.J.S. Investments which acquired the assets of Mr. and Mrs. Steinberg including their interests in Murray's Furnishing Stores. As Mr. Rhine explained in his evidence profits earned by the partnership Murray's Furnishing Stores would be distributed between its members, including M.J.S. Investments, and thereby to the trusts which were members of that partnership. The consequence was that Mr. and Mrs. Steinberg would receive less income from Murray's Furnishing Stores than they would have received had the arrangement not been made.

By Act No. 110 of 1964 amendments were made to the Income Tax Assessment Act which adversely affected the liability to income tax of discretionary trusts. On 24th July 1965 Mr. Rhine "liquidated" the trusts by making a distribution of their assets, the B units in M.J.S. Investments to each member of the partnership as follows: To Mr. Steinberg 125 B units held by five trusts, including the Judith Steinberg No. 2 Trust; to Mrs. Steinberg 125 B units held by five trusts; to Malcolm Steinberg 100 B units held by four trusts; and to Gordon Steinberg 100 B units held by four trusts. The transfer of the units was approved by the other partners in Murray's Furnishing Stores. The result was that the membership of the M.J.S. Investments partnership consisted of Mr. Steinberg and the three members of his family. M.J.S. Investments continued to be a member of the Murray's Furnishing Stores partnership, together with Mr. Steinberg's two brothers and their wives.

An understanding of these arrangements is essential to an appreciation of the various appeals which arise for decision. As will appear, the affairs of the Steinberg family were to become more complex when Malgor Pty. Ltd., a company which Mr. Steinberg caused to be incorporated, acquired land at Rockingham and was subsequently wound up, the liquidator transferring the land in specie to the shareholders, and the members of the family acquired the share capital of Golden West Land Development Co. Pty. Ltd., a company which owned land at Wanneroo. This company also was wound up and its land transferred in specie to its shareholders. There is at this stage no occasion to deal with the history of the two companies; it is recounted more conveniently when I come to consider the appeals that relate to the profits made on the sale of the land at Rockingham and Wanneroo.

The sale of land at Innaloo - appeal by the trustee of the Judith Steinberg No. 2 Trust.

In February 1965 Murray's Furnishing Stores sold land at Innaloo, near Perth, to the Grove Shopping Centre Ltd. for $100,400, thereby making a profit of $60,298. At that time M.J.S. Investments held a one-third interest in Murray's Furnishing Stores, the members of M.J.S. Investments being Mr. and Mrs. Steinberg (each holding A units with limited rights) and the eighteen trusts (each holding B units), including the Judith Steinberg No. 2 Trust.

The profit was disclosed in the partnership income tax return lodged by Murray's Furnishing Stores for the year ended 30th June 1965. It was claimed that the profit did not form part of the assessable income of the partnership on the ground that the land was purchased for the purpose of developing it as a site for a hotel and a shopping centre. It was said that the land was ultimately sold because the development contemplated could not be carried out and because funds were required for the purpose of investing in a land-owning company called Golden West Land Development Co. Pty. Ltd.

The trust was assessed to income tax for the year ended 30th June 1965 on the footing that its share of the profit made on the sale of the land at Innaloo formed part of its assessable income for the year. Its taxable income as returned was $378, to which was added the sum of $1,124 reflecting its share of the profit on the sale of the land, and the sum of $1,658 representing the trust's share of profit on the sale of shares in Malgor Pty. Ltd., making a total of $3,160. The trustee objected to the inclusion of both amounts as assessable income.

As a preliminary to the history of the acquisition and sale of the land at Innaloo I should mention Mr. Steinberg's acquisition of a hotel site in the Nollamara area. In 1958 acting on behalf of Murray's Furnishing Stores, he tendered successfully for the site which had been made available by the State Housing Commission. The amount of the tender was $24,500. The partnership did not proceed with the project of building a hotel on the land by reason of its inability to raise the necessary finance for the construction. Mr. Steinberg made efforts to raise a substantial loan in Perth and in Melbourne but he was unable to do so on satisfactory terms. In October 1958 he requested the Housing Commission to defer payment of the balance of the purchase price on the ground that he and his associates were having difficulty in securing sufficient mortgage money, but the request was refused. In the result the land was returned to the Housing Commission.

In December 1959 Mr. Steinberg was informed by an estate agent that a property at Innaloo, being lot 1 at the corner of Oswald St. and Scarborough Beach Road, containing seven and three-quarter acres, owned by Mr. Frank Randall, was for sale. Mr. Steinberg inspected the property and was shown a letter dated 26th November 1959 from the Perth Road Board stating that the town planning board would not agree to rezoning of the land which permitted shops or industry, but would consider development as a public building, including a hotel. The letter did not rule out the possibility of development of the land for a supermarket or a department store limited in area.

On 29th January 1960 Mr. Steinberg paid Mr. Randall $110 for an option to purchase as follows: (i) five acres for $15,000; (ii) the whole of the land (excluding a part not less than one and one-sixth acres in area) for $27,000; or (iii) the whole of the land for $32,000. It is not entirely clear whether Mr. Steinberg exercised the option to purchase the whole of the land (excluding one and one-sixth acres) shortly thereafter, but on 11th February 1960 he paid the sum of $400 on behalf of himself and his two brothers to Mr. Randall as an initial deposit on the purchase of the whole of the land less the one and one-sixth acres for the price of $25,000.

On the next day, 12th February 1960 an agreement was executed by Mr. Randall as vendor and Mr. Steinberg and his two brothers as purchasers. It provided for the sale and purchase of the five-acre parcel of land for $15,000. It acknowledged that the sum of $800 had already been received as a deposit and it provided that the sum of $4,200 should be paid as a further deposit on execution and the balance of $10,000 by equal half-yearly payments. Clause 20 of the agreement gave the purchasers an option (to be exercised on or before 12th May 1960) to purchase the parcel of land being not less in area than one and one-sixth acres for $10,000. Clause 21 gave the purchasers an option to acquire the balance of the land, in the event that the vendor elected within three years to sell that land, at a valuation.

Neither the evidence nor the documents demonstrate with clarity whether the land which was the subject of cl. 21 of the agreement was acquired by Mr. Steinberg and his brothers. But within six weeks of the making of the agreement of 12th February 1960 Mr. Steinberg, acting on behalf of himself and his brothers, granted the Waikiki Motel Ltd. an option to purchase part of lot 1, being four and a half acres, and including the land which was the subject of cl. 21, for the sum of $56,000, subject to the obtaining of a provisional certificate for a general publican's licence. This option was expressed to expire on 22nd December 1960. It was followed by an agreement dated 27th September 1960 by which the three brothers granted to the company an option to acquire the whole of the land in lot 1 until 22nd October 1961 for the sum of $50,000. It seems that little or nothing was done in connexion with the land until the option expired on 22nd October 1961.

Mr. Steinberg says that it was then decided to develop the site as a site for a hotel, shopping centre and service station. Mr. Duirs, an accountant experienced in developments of this kind, was retained. On 22nd November 1961 he made an application to the Shire of Perth for its approval to the proposed development, but the shire indicated that it was not prepared to approve the hotel/motel development which involved direct access to Scarborough Beach Road. Despite further efforts on the part of Mr. Duirs and Miss Feilman, a town planner who had also been engaged, to secure approval on the basis of favourable road access, neither the Shire of Perth nor the town planning board was willing to approve a hotel development on the site of a kind which the owners considered satisfactory. By letter dated 15th January 1962 on the instructions of Mr. Steinberg, Mr. Duirs offered the whole site (excluding the service station only) to the Swan Brewery Co. Ltd. for purchase for the sum of $60,000, on terms that the company was to be responsible for all development work required by the local authority. The offer was immediately rejected.

In evidence Mr. Steinberg said that up to 12th January 1962 he was considering the formation of a syndicate to develop the land as a site for a hotel and a shopping centre. He admitted that he had taken no steps before that date to seek finance or to invite a retailer to take an interest in the shopping centre because, as he said, he was waiting for the site to be rezoned. He claimed that shortly before the offer was made to the Swan Brewery Co. Ltd. on 15th January he came to the conclusion that "we were not going to get anywhere with the site" because there was very little hope of approval of a development with satisfactory road access. It was, he claimed, a consequence of his reaching this conclusion that the offer was made to the Swan Brewery Co. Ltd. He still had it in mind that part of the land might be developed as a shopping centre, although from that time onwards he abandoned the proposal for development of part of the site as a hotel.

Thereafter nothing was done in connexion with the land until the middle of 1963 when Mr. Gordon Campbell approached Mr. Steinberg and said that his firm would be pleased to promote the land, or part of it, as a shopping centre. Mr. T. Ahern was approached with a view to his firm becoming the retailer in the shopping centre. Mr. Ahern requested the submission of layout plans and instructions were then given to Messrs. Oldham, Boas & Ednie-Brown to prepare suitable plans for such a development. The plans were prepared in or about the month of April 1964 at a fee of $210. However, Mr. Ahern indicated that his firm was not interested in the proposal.

Although on the documents it appears that Mr. Steinberg initially acquired the option to purchase and later that he was acting on behalf of himself and his two brothers, the return of income was lodged by the partnership Murray's Furnishing Stores and assessments issued to the members of the partnership, including the trustee of the Judith Steinberg No. 2 Trust. It is accepted by the parties that the land was acquired by the partnership Murray's Furnishing Stores and sold by that partnership.

In support of the assessment reliance was placed on both parts of s. 26(a). The onus is on the taxpayer to show that the profit made does not fall within either part of the provision. To escape the first part of the provision the taxpayer must show that the land was not acquired for the purpose of profit-making by sale, that resale at a profit was not the partnership's sole or dominant purpose in acquiring the land (see Evans v. Deputy Federal Commissioner of Taxation (S.A.) [1] , per Rich, Dixon and Evatt JJ.).

The taxpayer's case rests mainly on the oral evidence of Mr. Steinberg and it is necessary that I weigh his evidence carefully for it was not corroborated by his brothers or by the other members of the partnership. I have come to the conclusion that his evidence concerning his attitude and that of his associates to the purchase of the land is open to such serious doubt that I am not prepared to accept it. My reasons for that conclusion may be shortly stated.

Mr. Steinberg, as his earlier association with the Markham interests showed and his later association with these and other interests was to show, was a man with a keen eye for the prospect of making a profit by the purchase and sale of land. However, throughout his evidence he was at pains to disavow any skill, experience or perception in that field. In these appeals three large parcels of unsubdivided land on the outskirts of Perth were purchased on Mr. Steinberg's decision and were subsequently resold at a very large profit. In each case Mr. Steinberg says that the land was not bought for resale, but for retention for a purpose which would yield income and that the prospect of profitable resale did not occur to his mind, firmly fixed as it was on other and distant prospects not mentioned in s. 26(a). In each case the profit made was not contemplated by Mr. Steinberg and the manner of its making was apparently not foreseen by him. In my view this account conveys a picture of Mr. Steinberg's talents which is too modest by far for in my assessment he is an astute and able businessman with a keen sense for the prospect of a profit.

There are a variety of circumstances which combine to invest Mr. Steinberg's account of the purpose for which the land was bought with an air of improbability. His account of his intentions, and those of the partnership for which he is acting, is best summarized in his own words: "We were going to build a hotel motel and a shopping centre, but if we didn't get a licence it would be a motel and shopping centre." Yet all that he had at the time of purchase by way of assurance that the land could be developed for these purposes was the letter dated 26th November 1959 which raised doubts concerning the future use of the site for shops, a supermarket or a department store.

The development proposed by Mr. Steinberg required substantial expenditure. Apart from his expressed belief that finance could be obtained, no evidence was offered of the Steinbergs' financial resources at the time or of the availability of finance. The failure of the Nollamara venture due to lack of finance in the previous year would have alerted Mr. Steinberg to the difficulty of procuring capital on satisfactory terms.

The principal point of criticism of Mr. Steinberg's account is that his actions after the purchase of the land were inconsistent with his earlier intentions as he expressed them. Within six weeks of the purchase he granted an option to purchase the major part of the land for $56,000 to Waikiki Motel Ltd. The option was extended to 22nd October 1961. Shortly after its expiry he caused the land to be offered to the Swan Brewery Co. Ltd. for $60,000 excluding a service station site which he hoped to sell independently. These actions he sought to explain by saying that the option was granted because it was then realized that the shopping centre could be more readily developed with the proceeds of sale of the hotel site and that by early 1962 he realized that he had little hope of securing approval of his proposals for the development of the hotel. I am not convinced that these explanations are accurate; indeed, I think it more likely that Mr. Steinberg had envisaged the sale of the site from the moment when he decided to buy it. According to him the development of the land for a hotel was his primary purpose, yet on his account he was prepared to abandon that purpose within six weeks of the purchase. At the time when the land was offered to the Swan Brewery Co. Ltd. his proposals for development were under consideration by the town planning board and a decision had not been received on that proposal.

At no time did Mr. Steinberg seek finance for the development of the land. Nor did he seek to interest a major retailer in participating in a shopping centre there until the middle of 1963. In the intervening three years he had displayed a masterly inactivity, except for his attempts to secure approval of a hotel development. Those attempts do not evidence an intention to develop; they are consistent with a desire to achieve the highest price on resale by selling the site on the footing that there was a firm town planning approval for the erection of a hotel. The hypothesis remains that profit-making by sale was the purpose for which the land was acquired. I do not regard Mr. Steinberg's evidence of intention, which is unsubstantially, if not wholly, uncorroborated, as dispelling that hypothesis.

I am therefore not satisfied on the probabilities that the land at Innaloo was not acquired for the sole or dominant purpose of profit-making by sale (see Evans v. Deputy Federal Commissioner of Taxation (S.A.) [2] ). It was objected that none the less that part of the proceeds of sale received by the Judith Steinberg No. 2 Trust was not assessable income because there was no evidence to show that it or the partnership of which it was a member had acquired the land for profit-making by resale. The Murray's Furnishing Stores partnership which sold the land differed in its membership from the partnership which bought the land, by reason of the formation of the trusts, the formation of the M.J.S. Investment partnership and the transfer by Mr. and Mrs. Steinberg to that partnership of their assets, including their interest in the Murray's Furnishing Stores partnership, in July 1963.

Had the point been available to the appellant in this appeal, it may have proved difficult of resolution. A partnership is not an entity distinct from its members; it is not the partnership that carries on business as such, but the individual members who carry on business in partnership (Income Tax Commissioners for City of London v. Gibbs [3] ). Section 6 of the Income Tax Assessment Act defines "partnership" to mean an association of persons carrying on business as partners or in receipt of income jointly. But neither this definition nor the provisions of div. 5 of Pt III relating to partnerships qualifies the principle of the general law that a partnership is not a distinct legal entity (see Rose v. Federal Commissioner of Taxation [4] ; Federal Commissioner of Taxation v. Happ [5] ). By virtue of ss. 90 and 92 the assessable income of a partner includes his individual interest in the "net income" of the partnership, which expression is defined to mean the assessable income of the partnership, calculated as if the partnership were a taxpayer, less certain allowable deductions.

1. [1942] A.C. 402. 2. (1951) 84 C.L.R. 118. 3. [1952] A.L.R. 382; (1952) 9 A.T.D. 447; 5 A.I.T.R. 290.

For the purpose of applying s. 26(a) to the profit made on the sale of land which constituted partnership property it would have been necessary to ascertain the purpose for which the property was acquired by the members who constituted the relevant partnership. In this case the relevant partnership, Murray's Furnishing Stores, consisted of Mr. Steinberg's brothers and their wives and the members of the M.J.S. Investments partnership which was created on 1st June 1963 but did not acquire the interests of Mr. and Mrs. Steinberg in Murray's Furnishing Stores until 1st July 1963.

In the light of the finding which I have already made, the interest in the land which the four continuing partners acquired must be regarded as having been acquired for the purpose of profit-making by sale. But it does not necessarily follow that the same could be said of the incoming partners. As it happens, I should not have come to a different conclusion had the question arisen for decision, for no evidence has been led with a view to satisfying me that the trusts acquired their interests in the Murray's Furnishing Stores partnership otherwise than with a view to the sale of the Innaloo land at a profit. What I have said would not dispose of the difficulty of ascertaining how much of the profit made on the sale of the land constituted assessable income of the trusts.

However, these difficulties may be put aside because, when regard is had to the relevant returns of income and the notice of objection, the point is not available to the taxpayer. The return of income lodged on behalf of Murray's Furnishing Stores disclosed the profit as a capital profit made by that partnership, constituted as it was after the transactions entered into in June and July 1963. The statement accompanying that return which related the circumstances in which the land had been acquired and sold proceeded on the footing that the partnership which sold the land in 1965 was the partnership which bought it in 1960. The notice of objection to the assessment lodged on behalf of the trustee of the Judith Steinberg No. 2 Trust took as its principal ground the contention that the land at Innaloo was not acquired by the Murray's Furnishing Stores partnership for the purpose of profit-making by sale and that the sale did not form part of the carrying on or carrying out of a profit-making undertaking or scheme. The objection did not take the point that the partnership which sold the land was a different partnership from the partnership on whose behalf the land was acquired, or that the acquisition by the trust took place in July 1963 or that the trust had acquired an interest in the land for a purpose different from the purpose for which the land had initially been acquired in 1960. Accordingly, I am of opinion that the submission made on behalf of the taxpayer in this respect is not open to it under the notice of objection. I am therefore of opinion that the appeal fails so far as it relates to the profit made on the sale of land at Innaloo.

The second question, which concerns a profit made on the sale of shares in Malgor Pty. Ltd., will be more conveniently taken up when I deal with the profits made on the purchase and sale of land at Rockingham.

The sale of shares in Malgor Pty. Ltd. and the sale of land at Rockingham.

The acquisition of a large parcel of land at Rockingham in 1960, the incorporation of a company known as Malgor Pty. Ltd. which became the purchaser of that land, the allotment of shares in the capital of that company to members of Mr. Steinberg's family, the sale of one-half of those shares to Mr. Markham, the liquidation of the company followed by the transfer of the land in specie to its shareholders and its ultimate sale at a vast profit give rise to a number of questions of considerable difficulty.

The appeals raise the following issues concerning the shares in Malgor Pty. Ltd. and profits made on the sale of the land at Rockingham: (a) whether the profit of $1,655 made by the Judith Steinberg No. 2 Trust on the sale of shares in Malgor Pty. Ltd., beneficially owned by M.J.S. Investments, to Mr. Markham in July 1964 was assessable income by virtue of ss. 25 and 26 of the Act ( Appeal No. 3 of 1972 by the trustee of the Judith Steinberg No. 2 Trust); (b) whether the profit of $8,778 made by Malcolm David Steinberg on the sale of 250 C shares in Malgor Pty. Ltd. to Mr. Markham in July 1964 was assessable income by virtue of ss. 25 and 26 of the Act ( Appeal No. 4 of 1972 by Malcolm David Steinberg); (c) whether the sum of $10,442, being the taxpayer's share of the profit of $48,648 made on the sale of the land at Rockingham in the year ended 30th June 1970, was assessable income of Morris Steinberg by virtue of ss. 25 and 26 of the Act ( Appeal No. 2 of 1972 by Morris Steinberg); and (d) whether the sum of $19,410, being the taxpayer's share of the profit of $48,648 made on the sale of the land at Rockingham in the year ended 30th June 1970, was assessable income of Malcolm David Steinberg by virtue of(Appeal No. 5 of 1972 by Malcolm David Steinberg).

Some issues set out above involve more precise questions, but they are more conveniently discussed when the relevant circumstances have been stated comprehensively. Once again it is necessary to to keep steadily in mind the transactions which took place in June and July 1963 respecting the affairs of Mr. and Mrs. Steinberg for, as in the case of the land at Innaloo, they have an importance.

In or about the month of June 1960 Mr. Steinberg was approached by Mr. Charles Heppingstone, a stock and station agent, who had available for sale a property owned by the McLarty family, which was in the vicinity of Mandurah some twenty-eight miles from Perth. The land had an area of 700 acres and was used for grazing purposes. Mr. Steinberg drew Mr. Markham's attention to the land and they inspected it together. Mr. Markham considered that the land should be bought and proposed that a company should be formed under the name of the Southern Pastoral Co. However, the company was not formed and the land was purchased in the name of Mr. Markham who formed a syndicate in accordance with his usual practice. Mr. Steinberg became a member of the syndicate. It is acknowledged by Mr. Steinberg that the land was acquired for the purpose of resale. As yet the land has not been resold.

In July 1960 Mr. Heppingstone informed Mr. Steinberg that another grazing property owned by the McLarty family was available for sale. This property consisted of 1,267 acres of land south of Rockingham. It was fenced; it had a windmill with water troughs for cattle and good natural pasture. The land was situated a mile or less from the sea and was in a rural area. There was no urban development in the vicinity. At the time, the McLartys had cattle grazing on the property.

Mr. Steinberg inspected the land and decided that he would buy it. In evidence he said: "I was interested in it from a grazing point of view. I thought it would be an ideal site to make up a grazing property, somewhere where later on I could retire to, when circumstances warranted it, and I had in mind to make it quite a show place. I did really have that in mind."

On 1st August 1960 he secured an option to purchase the land from Mr. Edwin McLarty, the vendor. The option recited that in consideration of the payment of $100 the vendor granted an option to purchase the land at a price of $15 per acre, payable as to $5,000 by the way of deposit and as to the balance within twelve months at six per cent interest. The option was expressed to expire on 15th August. Mr. Steinberg exercised the option and paid $5,000 to the vendor on 13th August 1960.

On 7th November 1960 Malgor Pty. Ltd. was incorporated at the instance of Mr. Steinberg. It became the purchaser of the Rockingham land and its principal object was expressed in its memorandum of association as the acquisition of land for pastoral pursuits and the conduct of the business of farming and grazing. Its initial shareholders were Mr. Steinberg and Mrs. Judith Steinberg. As a result of an issue of shares made in March 1961 they held 100 A class and 100 B class shares respectively in the company.

The statutory general meeting of the company was held on 27th January 1961. According to the minutes of that meeting Mr. Steinberg, who was elected chairman, reported: "As yet the company had not embarked upon any definite land development but was considering a number of propositions." In evidence Mr. Steinberg said that the resolution referred to "a certain number of ideas" as to what they were going to do with the farm. He said: "It was just for the purpose of developing the farm. That was what we were considering."

Early in 1962 Malgor Pty. Ltd. made application to the Commercial Bank of Australia for an advance. The bank requested Mr. Steinberg to obtain a valuation of the Rockingham land. A valuation was obtained from Mr. Gordon Campbell, a real estate agent and valuer, who inspected the land and valued it for the purpose of obtaining mortgage finance. In his report he stated that the land had potential for subdivision, an opinion which he confirmed in his oral evidence, by reason of its situation and the development of industry south of Perth in the Kwinana region.

In a report made by the relieving manager, Mr. Williamson, to the inspectors of the bank, which I admitted in evidence under s. 79C of the Evidence Act, 1928-1967 W.A., the business of the company was given as "graziers" and it was stated that the company had been formed to purchase the property "as a grazing property and future subdivisional proposition and with a view to providing financial security for sons". An advance of $12,000 was granted.

Mr. Steinberg denies that he told the bank that the land had been purchased for subdivision and that he had any such purpose in mind at the time. His evidence on the point was as follows:

At the time you exercised the option, did you see this land as having future subdivisional prospects? - No. It was in the middle of nowhere. It was purely a rural area, and it was a farming proposition.

Did you at any stage see it as having future subdivisional prospects? - Only in 1933 when they brought out the Metropolitan Region plan.

He did concede, however, that any information given to the bank must have come from him.

At the time of the purchase of the Rockingham land Mr. Steinberg had no knowledge or experience of farming and grazing. Apart from such conversations as he had with the McLartys and Mr. Charles Heppingstone he did not obtain any advice with respect to using the land for farming and grazing purposes. After acquisition of the land he had some discussion with Mr. Heppingstone's brother, Hubert, with a view to Hubert selecting and running cattle on the property, but nothing came of this proposal. Hubert advised Mr. Steinberg that the property could be run successfully only in conjunction with another property because the land suffered from a copper deficiency and the cattle became "coasty" and debilitated. He said that therefore it was suitable for seasonal grazing only, the use to which it had in fact been put by the McLartys. However, Mr. Sloan, a neighbouring grazier, disagreed with this opinion and expressed the view that the difficulty could be overcome by copper dressing and putting copper elements in the water.

At no time did Mr. Steinberg or the company use the land for grazing purposes. Their activity was limited to one occasion when, according to Mr. Steinberg, they dressed sixty or seventy acres with superphosphate and strawberry clover as an experiment. For some months after the purchase the McLartys were allowed to graze cattle on the land. Nothing was thereafter done until the end of 1961 when Mr. Sloan, the neighbour, was permitted to graze cattle on the land in return for a payment of $100 per annum, making a firebreak and keeping up fences. This arrangement continued until the land was ultimately sold to Rockingham Park Pty. Ltd. in 1969.

Some time before 1956 a plan had been prepared for the Perth metropolitan region by Professor G. Stephenson and Mr. G. A. Hepburn. It showed part of the land at Rockingham within an area designated "primarily for residential use" and the balance as "public open space". This plan, known as the "Stephenson Plan", became the basis of Interim Development Order No. 1 of 3rd September 1956 under s. 7A of the Town Planning and Development Act W.A.. It was the subject of a formal announcement made in May 1955 by the minister for town planning and it was given wide publicity at the time. By that order a large portion of the subject land was designated "proposed area for urban development", the balance being designated as "public purposes".

In 1963 Interim Development Order No. 1 was superseded by the Metropolitan Regional Scheme which was gazetted on 30th October 1963 under the Metropolitan Region Planning Scheme Act, 1959 W.A.. Under the scheme a portion of the subject land comprising some 550 acres was designated "urban deferred" and the balance was set aside for "parks and recreation".

Mr. Steinberg asserts that he was quite unaware of the zoning of the land until September or October 1963 when, according to him, publicity was given to it in the press. He says "it was just out of curiosity that I went up to the town planning board". He then ascertained that a portion of the land was zoned for urban development. He claims that having ascertained this information, he abandoned his intention to use the property for grazing purposes and was minded to sell it thereafter to the best advantage.

I have already mentioned that before 1963 Mr. Steinberg held 100 A class shares and his wife held 100 B class shares in Malgor Pty. Ltd. In 1963, before the transactions of June-July 1963, 900 A class and 200 D class shares were issued to Mr. Steinberg, 400 B class shares to Mrs. Steinberg and 500 C class shares to Malcolm Steinberg. The issue of shares to Malcolm Steinberg had come about in circumstances described by Mr. Rhine in his evidence. He said:

In about August 1962 Mr. Morris Steinberg said to me: "I want to give 500 shares to Malcolm". At that time the company owed him approximately $4,000 which he paid in, but the books were not written up until about a year afterwards. It was only a very, very small company and I didn't write up the books on a day-to-day basis, but just at the end of the year when it came to the taxation, and I had forgotten his implicit instructions, and I simply apportioned the $4,000 to the credit of his loan account, his wife's loan account and his son's loan account, and then issued shares against which I debited the cost; if I had followed the instructions implicitly I would of course have issued the shares to him initially and then transferred them from him back to his son, but I took a short cut, not realizing there would be any implications such as this. The sum of $4,000 which Mr. Rhine mentioned was the payment which Mr. Steinberg had made on behalf of the company to Mr. McLarty in respect of the land at Rockingham.

In consequence of the dispositions made on 1st July 1963 by Mr. and Mrs. Steinberg of their assets to M.J.S. Investments, the shares which they held in Malgor Pty. Ltd. became partnership property of M.J.S. Investments. Malcolm Steinberg continued to hold beneficially the 500 C class shares which had been allotted to him.

Early in 1964 Mr. Steinberg informed Mr. Markham that he was short of funds and was unable to get an extension of his overdraft with the Commercial Bank. Mr. Markham suggested that he approach the National Bank. Mr. Steinberg acted on this suggestion but was unsuccessful. Shortly thereafter it was agreed that Mr. Markham would purchase a half-interest in the land at Rockingham for $50,000. On 31st July 1964 an agreement between Malgor Pty. Ltd. and Mr. Markham was executed by which the company agreed to sell Mr. Markham a half undivided share in the land at Rockingham for $50,000 payable as to the sum of $2,000 by way of deposit on the execution of the agreement. The document was executed by Mr. Steinberg on behalf of the company. It does not appear that Mr. Steinberg was authorized by the company to execute the agreement on its behalf.

It seems that Mr. Steinberg then discussed the transaction with Mr. Rhine who advised that the transaction should not be carried out in the form of the agreement executed by Mr. Steinberg and Mr. Markham. He advised that there should be a transfer of half the share capital in Malgor Pty. Ltd. to Mr. Markham, in lieu of the transfer of a half-interest in the land.

Mr. Steinberg says that Mr. Rhine so advised because a sale of shares would enable Mr. Steinberg and his family to receive the purchase price, whereas a sale of the land would leave the purchase price in the hands of the company. A memorandum was prepared by Mr. Rhine in which he set out the steps that should be followed in order to implement his advice. The heading of the memorandum was "Suggested method of selling half interest in land in order not to attract tax liability". Mr. Rhine in evidence said that the reference to tax liability was a reference to the liability of avoiding income tax on the dividends which would be paid by the company to its shareholders out of profits to be made by the company on the sale of a half-interest in the land. The steps proposed by Mr. Rhine included the proposal that the company should, after the share transfers had taken place, go into a members' voluntary liquidation and convey the land to the shareholders in satisfaction of loans made to the family and the return of their share capital. He pointed out that the land would then be held as tenants in common as follows: M.J.S. Investments 17/44; Malcolm Steinberg 5/44; Markham Interests 22/44.

The advice given by Mr. Rhine was executed. On 31st July 1964 the directors of Malgor Pty. Ltd. approved the transfer to Mr. Markham of 500 A and 100 D class shares by Mr. Steinberg, of 250 B class shares by Mrs. Steinberg and 250 C class shares by Malcolm Steinberg. Mr. Markham says that some of these shares were transferred to members of his family, not to himself, but in my opinion he is mistaken. In my opinion it was later that members of his family acquired an interest in the land.

Thereupon Mr. Rhine, who had formerly kept the books of the company and lodged its taxation returns, handed the books over to Mr. Warner, Mr. Markham's accountant, and he acted for the company. On 8th April 1965 Mr. Steinberg concurred in the removal of the company's bank account to the National Bank of A/asia Ltd., Mr. Markham's bank. On the same day Mr. Steinberg notified the company that during his absence abroad he had appointed Mr. Markham his attorney under power to act for him in all matters pertaining to the company.

Subsequently Mr. Markham formed the Safety Bay Land Syndicate by bringing in Leslie Gunzberg and Ellen Louisa Michelides to whom he transferred some of the shares in the company which he had acquired. After the company had been wound up the syndicate was expanded by the admission of further members, but the evidence does not reveal when this occurred.

As early as 12th March 1964 before he had taken a transfer of shares in the company, Mr. Markham sought approval from the town planning board of the release of 200 lots annually in the area zoned as "deferred urban". This perhaps was no more than a preliminary inquiry by Mr. Markham designed to establish that the land could be subdivided and developed before he agreed to purchase a one-half interest.

However, after a one-half interest had been transferred to him he set about securing the necessary approvals and sought to interest likely purchasers. On 4th February 1965 he wrote to the town planning board and submitted a proposal on behalf of Malgor Pty. Ltd. for the subdivision of the land zoned "deferred urban" and asked that it be altered to "urban". He made a similar request on behalf of the company to the Shire of Rockingham on 29th April 1965. The town planning board gave its approval to subdivision on 25th March 1966.

On 18th August 1966 a special resolution for the voluntary winding-up of Malgor Pty. Ltd. was passed at an extraordinary general meeting of shareholders. At that meeting it was unanimously resolved that the liquidator divide among the members in accordance with their respective shareholding in the company the following undivided shares in the land in specie, namely: To Leslie Gunzberg 73/2200; Percival Wynyard Markham 991/2200; Ellen Louisa Michelides 36/2200; Morris Steinberg 600/2200; Judith Steinberg 250/2200; Malcolm David Steinberg 250/2200. By a transfer dated 3rd March 1967 the liquidator transferred the Rockingham land in specie to the persons set out above.

The shares in the company held by Mr. and Mrs. Steinberg were assets of the M.J.S. Investments partnership, as were the interests in the land which they acquired in specie from the liquidator. To give effect to the entitlement of the members of the family in that partnership Mr. and Mrs. Steinberg transferred their interests in the land with the result that, apart from the 250/2200 share in the land which Malcolm David Steinberg enjoyed in his own right, the members of the family held the following interests in the land: Malcolm David Steinberg 68/792; Gordon Steinberg 68/792; Morris Steinberg 85/792; Judith Steinberg 85/792; holding between them as tenants in common in the shares set out above 306/792 undivided shares of an estate in fee simple.

Mr. Markham continued in his efforts to sell the land. On 26th April 1967 he submitted a proposal for the rezoning, subdivision and sale of the land to the Minister for town planning and followed this with an application to the Shire of Rockingham for the rezoning of the "deferred urban" land as "urban".

Subsequently he offered the land to Page, Johnson & Co. of the United Kingdom. He was authorized at a meeting of the syndicate to travel to the United Kingdom in connexion with the negotiations. The syndicate indemnified his expenses to the extent of $3,000. The negotiations proved unsuccessful but shortly thereafter Mr. Markham commenced negotiations with Rockingham Park Pty. Ltd., the ultimate purchaser.

Mr. Steinberg asserted that the Safety Bay Land Syndicate consisted exclusively of Mr. Markham and those persons whom he brought into the venture. This was denied by Mr. Markham who said that the syndicate included the Steinbergs. Mr. Markham was an impressive witness and I accept his evidence on this question. The documentary evidence indicates that Mr. Markham acted on behalf of the company after he became a shareholder in seeking to obtain approvals from the shire and the town planning board and in seeking to find a purchaser. Apart from the ultimate negotiations with Rockingham Park Pty. Ltd., Mr. Steinberg did not participate in these activities. Indeed, when half of the shares in the company were transferred to Mr. Markham, Mr. Steinberg acquiesced in Mr. Markham having control of its activities. The books were kept by Mr. Markham's accountant and the bank account was transferred to Mr. Markham's bank. A letter dated 12th September 1967 from Mr. Markham to the National Bank states that after the company went into voluntary liquidation those interested in the land, including the Steinbergs, were members of the syndicate which had its bank account with the National Bank, Messrs. Markham, Steinberg and Gunzberg accepting responsibility for the overdraft.

The ultimate sale of the land to Rockingham Park Pty. Ltd. was effected by two contracts of sale. The first, dated 15th May 1969 related to the sale of the one-half interest in the land held by Mr. Markham and the persons whom he had brought in. The purchase price was $750,000 payable as to the sum of $50,000 by way of deposit, as to the sum of $100,000 by four equal annual instalments commencing on 1st May 1970 and as to the sum of $600,000 by ten equal annual instalments commencing on 1st May 1974. So much of the purchase price unpaid at any time was to carry interest at five per cent per annum. The contract gave the purchaser a right to rescind in the event that the Steinbergs did not agree to sell their one-half interest to the purchaser on or before 1st November 1969.

Mr. Markham did not have authority to sell the Steinberg interests to Rockingham Park Pty. Ltd. He transmitted at least one offer from that company to Mr. Steinberg which was rejected. Ultimately Mr. Steinberg accepted a purchase price equal to that paid to Mr. Markham and his associates. The sale was effected by a contract dated 3rd November 1969 in which Mr. and Mrs. Steinberg and their two sons were the vendors, agreeing to sell the following shares in a one-half undivided interest in the land: Morris Steinberg 2125/19,800; Judith Steinberg 2125/19,800; Malcolm Steinberg 3950/19,800; Gordon Steinberg 1700/19,800. By the contract the balance of the purchase price remaining after payment of the deposit of $50,000 was made payable by ten equal annual instalments commencing on 1st November 1974.

The appellant sought to show that the land at Rockingham was bought as a grazing property with the intention that it should be retained for that purpose and that it was not acquired for the purpose of profit-making by sale. It was urged that Mr. Steinberg's evidence established the nature of his intentions and those of Malgor Pty. Ltd. There are a number of considerations which induce me not to accept Mr. Steinberg's evidence concerning his intentions and those of the company before and at the time of purchase.

First, at this time Mr. Steinberg had as a member of the Markham syndicates a record of investment in land for resale at a profit. Less than two months before he took an option over the land at Rockingham he had been offered grazing land further south of Perth and the Kwinana industrial area by Mr. C. Heppingstone, the stock and station agent, who subsequently offered him the Rockingham land. Yet he did not purchase that land for grazing and made it available to Mr. Markham to form a syndicate for the purpose of profit-making by sale. Despite this he said that he regarded the Rockingham land as a grazing and not as a subdivisional proposition until October 1963. I find it difficult to accept that Mr. Steinberg, with this background, did not give serious consideration to the possibility of profitable resale. I find it difficult also to accept that he was quite unaware until October 1963 that there was a real prospect that a significant part of the land would be zoned as "urban" or "deferred urban" land.

Apart from his other interests in land which would have made him aware of the importance of zoning and of the developing town plan which had been emerging for the Perth region since 1956, he knew Mr. Markham and other agents who would have been aware of zoning considerations by reason of the wide publicity given to them.

Secondly, it is somewhat remarkable that Mr. Steinberg who had no previous experience or knowledge of grazing should have bought the land for that purpose, at the suggestion of Mr. C. Heppingstone. Mr. Steinberg had not been looking for a grazing property. Nor was it suggested that he had informed Mr. Heppingstone that he was looking for such a property. He made no inquiry of those expert or experienced in the field with a view to ascertaining whether the property was suitable for grazing or whether a grazing operation could be profitably undertaken there. It seems remarkable that he inspected no other property if his real intention was to own and run a grazing property.

Thirdly, at no time after the option was acquired on 1st August 1960 did Mr. Steinberg or Malgor Pty. Ltd. put the land to any grazing use, apart from the experimental sowing of strawberry clover and the spreading of superphosphate over some acres. Nor did he formulate any plans for its future development for that purpose. It is significant that the land was not used by its owner for the purpose for which it is claimed to have been purchased. Yet no satisfactory explanation was given for the failure to use the land for grazing purposes. It could not be suggested that the property yielded an economic income from the use to which it was in fact put after acquisition. The only income which it produced was the princely annual sum of $100 paid by Mr. Sloan and the $300 paid by Bell Bros. for the privilege of removing marl.

It is true that the Steinberg family at the time of the purchase of the Rockingham land was short of ready money, but this circumstance suggests that the Steinbergs may not have had the financial resources at the time of purchase to develop the property as a grazing property and stock it. The land at Innaloo had been acquired earlier in the year. If, as Mr. Steinberg claims, it was intended to develop that land as a site for a hotel and shopping centre, a considerable financial outlay would have been required. If Mr. Steinberg is not correct in that claim, and as I have said, I do not accept it, there was still a shortage of available money. In August 1961 Mr. Steinberg sought from Mr. McLarty and was granted a deferment of the payment of the balance of the purchase money for the Rockingham land.

Finally, the statement made by Mr. Steinberg at the statutory meeting of the company on 27th January 1961 that the company "had not embarked upon any definite land developments, but was considering a number of propositions", suggests that he then had under consideration a development of the land other than grazing. Mr. Steinberg sought to explain this statement by saying that it referred to grazing activities, but he gave no indication of what the propositions referred to were. The report to the inspectors of the National Bank on 1st March 1962 also points to the possibility of development by way of subdivision and does so in the context of a statement of the reasons why the company bought the land.

Attention was drawn to the first object in the memorandum of association of the company which accords, so it is said, with the notion that the primary purpose of the acquisition was for grazing and pastoral purposes. No doubt it does, but in my opinion its significance is limited when regard is had to the other material to which I have referred.

Mr. Toohey for the respondent submitted that once Mr. Steinberg's evidence of intention is discarded, the case is simply one of a profit-making scheme within s. 26(a). The land was acquired with the intention that a profit should be made from its sale; there followed a succession of steps and events which culminated in the sale of the land at a profit. That is enough, according to the argument, to constitute a profit-making scheme within the meaning of s. 26(a).

The absence of other evidence as to Mr. Steinberg's intentions before and when the land was acquired is disadvantageous to the appellants for they bear the onus of showing that the assessments are excessive. It is for them to satisfy me on the probabilities that the profits in question do not fall within either part of s. 26(a), in particular that the profits were not made pursuant to a profit-making undertaking or scheme. The appellants' cause is not advanced to any significant extent by the evidence of Malcolm Steinberg and Mr. Rhine.

Malcolm Steinberg did not impress me as a witness. The effect of his evidence was that his father did not discuss in detail with him the affairs of Malgor Pty. Ltd. or the transactions which took place concerning that company and the Rockingham land, and that his participation in these matters was limited to acting in accordance with requests made or directions given by his father. I do not accept that this was so. In my opinion Malcolm Steinberg was at all times aware of his father's intentions relating to the company and the land. It is of special significance that Malcolm Steinberg gave no evidence of what his father had said to him concerning the reasons why the Rockingham land had been purchased and the intentions he had with respect to it. Nor did he give evidence of why his father wanted him to have shares in the company. Indeed he had nothing to say as to what he proposed to do with the shares which he acquired in his own name, the 500 C class shares. No doubt he was prepared to deal with them in accordance with his father's wishes. His evidence does not establish that the profits made fall outside s. 26(a).

As a witness Mr. Rhine stands in a different category. His oral evidence and some documentary evidence show that the transactions of June-July 1963, the sale of shares (in lieu of land) to Mr. Markham in 1965, the winding up of the company with the consequential transfer of the land in specie to the shareholders and the termination of the eighteen trusts took place on his advice. But Mr. Rhine did not tell us of discussions with Mr. Steinberg relating to the use to which the land would be put, other than a reference to an instruction that the main objects clause of the company should include husbandry and ancillary projects. Mr. Rhine acted for Mr. Steinberg in connexion with the incorporation of the company. He was therefore in a position of advantage to speak of Mr. Steinberg's plans for the future of the company and of the Rockingham land. Nor did he give evidence as to the intention with which he as the trustee of the eighteen trusts participated in the purchase of the shares in Malgor Pty. Ltd., held by Mr. and Mrs. Steinberg, apart from stating that the transactions took place on his advice for estate planning purposes. Again, having regard to these considerations, Mr. Rhine's evidence does little to assist the appellants in discharging the onus which lies upon them.

On the probabilities I am satisfied that before the Rockingham land was acquired, Mr. Steinberg believed it would appreciate substantially in value and that this was the reason why he caused it to be purchased. I do not accept that he was ignorant until October 1963 of the possibility that some part of the land would be zoned "deferred urban" or "urban". Moreover, I am satisfied that he caused the company to be incorporated and to purchase the land with a view to realizing the profit which was to be made out of the anticipated appreciation in value and ensuring that he and the members of his family participated in that profit. The acquisition of the Rockingham land, viewed in the light of Mr. Steinberg's membership of the Markham land dealing syndicates, was not an isolated transaction, but a business venture in which Mr. Steinberg decided to use a company as a vehicle for participation by the members of his family, perhaps because it offered a variety of ways of realizing a profit.

I consider that the land was acquired pursuant to a plan or scheme which had the making of a profit as the end in view. At this point it becomes a matter of difficulty to define the elements of Mr. Steinberg's scheme. The cause of that difficulty is the paucity of evidence upon the point: although it is possible that a contributing cause was the circumstance that the precise mechanism by which the profit was to be made had not then been determined and was left for later decision.

When property is acquired in the expectation that it will increase in value with the intention that a profit is to be made out of that increased value and a company is incorporated to acquire the property, the profit may be realized in a variety of ways. First, the company may sell at a profit which is then distributed by way of dividend to the shareholders. Secondly, the increased value of the property will reflect an increased value of the shares which may be sold at a profit by the shareholders. Thirdly, the company may be placed in voluntary liquidation in the course of which the liquidator may distribute the property in specie. Other methods of realizing and distributing a profit arising from the increased value of the property, or a combination of methods, may be selected.

The first method is the most common, but it may be pursued in combination with the second method, although it may appear that when a company has been incorporated with a view to acquiring property and selling it at a profit, the shareholders have taken up shares not with a view to selling them at a profit, but to participate by way of dividend in the profit to be made by the company on resale.

The evidence does not point to a plan or scheme which envisaged profit-making in the form of a sale by the company to the exclusion of any method of making a profit. Mr. Steinberg was concerned to deny that profit-making by sale was a purpose of the acquisition at all. The evidence does not displace the hypothesis that the company was incorporated and the land acquired with the intention that a profit should be made out of its appreciation in value and that the details of the method by which the profit was to be realized and channelled into the hands of Mr. Steinberg and his family were left for later decision. Nor does the evidence displace the possibility that before the time of acquisition Mr. Steinberg contemplated the sale of the shares in the company, its liquidation and the distribution in specie of its assets as steps which might be taken as a means to the end which he had in view.

The need for additional finance in 1964, the intended sale of an interest in the land to Mr. Markham, followed by Mr. Rhine's advice that shares should be sold and the company wound up, do perhaps suggest that neither the sale of shares nor the distribution in specie was contemplated earlier. The onus is on the appellants to establish that this was so, but their evidence does not persuade me of it. The evidence was of course directed to a different end, seeking to establish that the land was purchased as a grazing property.

Although the occasion for the sale of shares was the Steinbergs' need for finance, I am not satisfied that this was the only reason for allowing Mr. Markham to participate in the venture. He had been closely associated with Mr. Steinberg in other land sale ventures and he had great experience in the sale and development of land. I do not discount the possibility that from the beginning Mr. Steinberg had foreseen that Mr. Markham should have an interest in the venture. And the articles of association of Malgor Pty. Ltd. from the beginning conferred a power on the liquidator to distribute assets in specie.

The word "scheme" in s. 26(a) connotes some "programme or plan of action" (Clowes v. Federal Commissioner of Taxation [6] , per Kitto J.; XCO Pty. Ltd. v. Federal Commissioner of Taxation [7] , per Gibbs J.). In Investment and Merchant Finance Corporation Ltd. v. Federal Commissioner of Taxation [8] , reversed on appeal [9] , speaking of the expression "undertaking or scheme" where used in s. 26(a), Windeyer J. said:

A scheme presupposes some programme of action, a series of steps all directed to an end result. Similarly, an undertaking is an enterprise directed to an end result. Each word connotes activities that are co-ordinated by plan and purpose - that whatever is done under the scheme or pursuant to the undertaking is done as a means to an end. There may, in one sense, be several transactions, but they are related because all directed to the attainment of the one end, profit. 1. (1954) 91 C.L.R. 209, at p. 225. 2. (1971) 124 C.L.R. 343, at p. 349. 3. (1970) 120 C.L.R. 177, at pp. 188-189. 4. (1971) 125 C.L.R. 249.

But in my view it is not an essential element of a profit-making scheme in s. 26(a) that every step which culminates in the making of a profit should be planned or foreseen before the scheme is put into operation. In a business transaction of this kind where property is acquired with the intention that a profit should be made out of its anticipated appreciation in value by whichever means prove most suitable, it matters not that the particular means by which the profit is to be made are left for subsequent decision.

Once Mr. Steinberg's evidence is rejected the acquisition of the land, the incorporation of the company and the issue of shares to members of his family are seen as a business transaction having as its objective the making of a profit by the members of the family from the anticipated increase in value of the land. The means by which it was achieved was a means to an end and was not an essential element of the scheme.

To bring the profit made within the second part of s. 26(a) it is necessary that the profit-making undertaking or scheme should have been carried on or carried out by the taxpayer or on his behalf (Clowes v. Federal Commissioner of Taxation [11] ; XCO Pty. Ltd. v. Federal Commissioner of Taxation [12] ). Here there is no question that the scheme was acted upon by the taxpayers. The scheme of which Mr. Steinberg was the author was a scheme designed to benefit himself and the members of his family. Mr. Steinberg and his wife were subscribers to the memorandum of association of the company and shares were issued to them. There was evidence from Mr. Steinberg that he intended that his sons should have an interest in the company. Malcolm acquired shares in 1963 and Mr. Rhine as trustee of the eighteen trusts agreed to the purchase by M.J.S. Investments of Mr. and Mrs. Steinberg's shares in July 1963. By so doing Malcolm Steinberg and the trusts became parties to the scheme. I have already said that I infer that Malcolm Steinberg was at all times aware of his father's intentions with respect to the land and I do not doubt that Mr. Rhine was aware of those intentions. Subsequently they participated in the events which occurred culminating in the sale of the land, to the extent which was necessary. Mr. Rhine's participation was limited to agreeing to a sale of one-half of the shares to Mr. Markham, terminating the trusts and distributing the assets of the trusts, namely the units in the M.J.S. Investments partnership. The scheme was therefore executed by Mr. Steinberg, Malcolm and Mr. Rhine as trustee of the Judith Steinberg No. 2 Trust so far as it was necessary for them to do so.

1. (1954) 91 C.L.R. 209. 2. (1971) 124 C.L.R. 343.

I accept that the creation of the trusts, the formation of the M.J.S. Investments partnership, its acquisition of Mr. and Mrs. Steinberg's shares in Malgor Pty. Ltd. and the termination of the trusts were transactions entered into with the intention of diminishing Mr. and Mrs. Steinberg's liability to income tax and for estate planning purposes, but I do not regard this finding as affecting the conclusion which I have otherwise reached. The circumstance that the shares in Malgor Pty. Ltd. were so acquired by Mr. Rhine as trustee of the trusts was not necessarily inconsistent with an intention that the shares should be held and dealt with in accordance with the profit-making scheme formulated by Mr. Steinberg.

I am therefore of the opinion that the appellants have failed to show that the sale of the shares to Mr. Markham, the winding up of the company, the transfer of the land in specie to the shareholders and the subsequent sale of the land were not steps taken pursuant to a profit-making scheme under which the land and the shares were initially acquired. Difficult questions would have arisen had I concluded that the profit-making scheme as initially formulated was confined to a sale of land by the company and that it was altered or amended in 1964 and 1965 so as to provide for the steps which were thereafter taken, but those questions do not call for decision.

The appellants relied on the decision in McClelland v. Federal Commissioner of Taxation [13] which establishes that the second part of s. 26(a) has no application to the mere realization of a capital asset, albeit in an enterprising way. Here, however, more was involved than the mere realization of a capital asset. The company was formed and the land acquired with the purpose of making a profit from the anticipated appreciation in value of the land by means of the sale of the land or some other suitable means. The entire transaction had the characteristics of a "business deal", to use their Lordships' expression.

The remarks of Windeyer J. at first instance and Barwick C.J. on appeal to the Full Court in the same case [14] were relied on to support the submission that s. 26(a) has no application to part of the profits made by Malcolm Steinberg because part of the profits which he made were attributable to the ownership of 500 C class shares in the company which he acquired by way of gift from his father. The short answer to this submission is that, although Mr. Steinberg may have intended to make a gift of some of his shares to his son, the transaction took a different form. Malcolm was allotted shares by the company. As it turned out the gift was of money, not of shares.

Accordingly, as no argument was addressed to me on the quantification of the profits made, I am of opinion that the appeals relating to the profits made on the sale of shares in Malgor Pty. Ltd. and the sale of the interests in the Rockingham land should be dismissed. In the light of this conclusion I need not deal with an alternative argument advanced by the respondent to the effect that there was a profit-making scheme culminating in the sale of the interests in the land, which began with the resolution to wind up the company when, by agreement of the parties, the land had a value of $400,000.

The sale of land at Wanneroo - Appeal No. 1 of 1972 by Morris Steinberg.

In respect of the year ended 30th June 1966 Mr. Steinberg was assessed to income tax on the footing that there was included in his assessable income a sum of $7,752, being his share of the profit made on the sale in that year of certain land at Wanneroo. The respondent supports the assessment by reference to ss. 25 and 26(a) of the Act and the appellant has argued that the profit does not fall within these provisions.

In this instance the land was acquired by Mr. and Mrs. Steinberg, Mr. Steinberg's two brothers and their wives. The land was owned by a company, Golden West Land Development Co. Pty. Ltd., in which the Steinberg family acquired shares. The company was subsequently wound up and the land distributed by the liquidator in specie to the shareholders who, having acquired the land, sold it to the Overseas Telecommunications Commission which indicated that, if the Steinbergs would not agree to sell, it would exercise its power to acquire the land compulsorily under s. 55 of the Overseas Telecommunications Commission Act 1946 Cth, as amended.

The history of the acquisition of the land commences in August 1964 when Mr. Rawle, the local secretary of the Golden West company, offered Mr. Steinberg 720 acres of land at Wanneroo, some twelve miles to the north of the city of Perth, between Kingsway and Gnangara Roads. Mr. Rawle informed Mr. Steinberg that approval had been granted for subdivision of the land into ten-acre lots. Mr. Steinberg inspected the land and ascertained that there were a few farmlets in the vicinity in Kingsway and Gnangara Roads. There was some vegetable and flower growing on the farmlets. Apart from several cottages, there was no housing in the area. The offer took the form of an offer of the shares in the company.

Mr. Steinberg said that, having inspected the land, he thought it was well suited to development by way of subdivision into ten-acre lots for leasing. His evidence on the prospective use to which the land would be put is best set out in his own words:

When I looked at it, I thought: "There's a possibility here. There is the right of 10-acre lots and we might build two or three bedroom cottages, put a wire fence round them, put a bore down" - because water was there in abundance and the water level was very high there. Our thoughts were that we would let these out at, say, a five-year lease with the first year at $25 a week and the subsequent four years at $35 a week. In the first year we thought we would give the tenant a chance to build up whatever it was - flowers or vegetables, or whatever occupation he proposed to do - and we looked at it from this point of view. The land was costing us roughly $146,000 (I have to rely on my memory). We reckoned $2,000 it would cost for transfers etc.; we thought the roads would cost about $35,000 - which was more than they actually cost; and about $5,000 for survey. I estimated that we would get sixty-eight lots out of it, so roughly I thought it was going to cost $2,800 per lot. Therefore I took a round figure of $3,000, allowing for the incidentals.

We thought the cost of building a little cottage on it would be around $6,000. We also said to ourselves that $1,000 would cover the cost of fencing. After all, they are against each other, so it's almost half the fencing of one block. All in all, we said that the whole lot would cost us approximately $10,000. We anticipated or we thought we'd raise $6,000 on them as a mortgage. I don't think we would have had any trouble to borrow that.

He denied that it was bought with a view to resale at a profit, although he acknowledged that in the distant future the land had potential for subdivision. He claimed that he considered that it would not be profitable to subdivide and sell and that it was "the last thing in my mind".

However, it seems that when Mr. Rawle offered the land to him it was offered as land having potential for profitable resale in subdivision. Mr. Steinberg obtained from Mr. Rawle a document setting out short details of the company and the land. According to the document the primary object of the company was: "To carry on the businesses of real property dealing and development and building promotion and for such purposes to develop, subdivide, lay out, prepare and turn to account any real property or any estate or interest therein."

The Southern boundary of this land is situated approximately twelve mile from Perth by Road and approximately nine mile in a direct line. The northern boundary of the State Housing Commissions land would be in the vicinity of ¾ of a mile from the Southern boundary of the Golden West land.

Land as shown on the plan is selling on the opposite of Kingsway Road in five acre lots at an average price of £870 per block on the following terms: £10 deposit and the balance at £10 per month at six per cent interest computed and adjusted quarterly on the unpaid balance. From the 1st July, 1961, twenty of these lots have been sold, without any advertising and for taxation reasons this is the quota for the year.

On 7th September 1964 for the sum of £200 Mr. Steinberg obtained an option expressed to be granted on behalf of the Golden West company in favour of Malgor Pty. Ltd. to purchase the 27,210 issued shares in the Golden West company for £2 18s. 3d. per share. On 27th November 1964 the option was extended to 15th February 1965 in consideration of the payment of an additional $400. On 15th February 1965 Malgor Pty. Ltd. offered £2 14s. 3d. per share for the issued capital of the Golden West company. Ultimately, by a deed which was undated but which was stamped on 27th July 1965 Mr. Steinberg, his two brothers, the three wives and Malcolm David Steinberg purchased the 27,210 issued shares of the Golden West company from the shareholders for £2 14s. 3d. per share, a total of $147,614. How the individuals came to purchase the shares in lieu of Malgor Pty. Ltd. is not entirely clear; the deed recites that Malgor Pty. Ltd. nominated the purchasers, and that it at no time had any beneficial interest in the shares.

By the deed the individual purchasers agreed to acquire the shares in Golden West in the following: Morris Steinberg twenty-five per cent; Judith Steinberg twenty-five per cent; Reuben Steinberg eleven and a quarter per cent; Joy Steinberg eleven and a quarter per cent; Matthew Steinberg eleven and a quarter per cent; Lilian Steinberg eleven and a quarter per cent. However, it seems that Malcolm David Steinberg did not become a shareholder in the company and his five per cent was distributed equally between the six remaining purchasers. The reason for the changes in the identity of the purchasers is, as I have said, not clear, but it seems that it was connected with the termination of the eighteen trusts which took place several days before the deed was stamped on 27th July 1965.

Shortly after the shares had been acquired, the company went into voluntary liquidation pursuant to a special resolution passed by the members on 8th October 1965. Mr. Rhine who was appointed liquidator then transferred the land in specie to the shareholders, an amendment to the articles having been made to enable that to be done. Mr. Steinberg made it clear in his evidence that the shares had been purchased as a means of enabling the purchasers to acquire the land so that the liquidation took place as a preliminary transfer in specie by the liquidator.

In consequence of those transfers the land was held as follows: Morris Steinberg as to a 6803/27,210 interest; Judith Steinberg as to a 6802/27,210 interest; Reuben Steinberg as to a 3401/27,210 interest; Joy Steinberg as to a 3401/27,210 interest; Matthew Steinberg as to a 3401/27,210 interest; Lilian Steinberg as to a 3402/27,210 interest.

As evidence confirming Mr. Steinberg's account of the motives which inspired the purchase, reliance was placed on the evidence of Mr. D. G. Ferris, shire clerk at Wanneroo, who said that at the end of 1965 or early in 1966 he had a conversation with Mr. Steinberg who made an inquiry concerning the subdivision of the land stating that he proposed to subdivide it into ten acre allotments and lease them. I see no reason why I should not accept the evidence of Mr. Ferris, but I am not convinced that the statement then made by Mr. Steinberg reflected the intentions that he and his associates then held with respect to the land.

Mr. Steinberg made arrangements with a surveyor for the design of an amended subdivision of the land and with the Council for road construction, at a cost of $1,413 and $15,440 respectively. Subsequently the Overseas Telecommunications Commission approached Mr. Steinberg and made it clear that it wished to acquire one-half of the land as a site for a radio transmitting station. In those discussions Mr. Steinberg indicated that he and his co-owners were not anxious to sell. Mr. J. M. Long of the Commission indicated that if agreement could not be reached on price the Commission would exercise its powers to acquire the land compulsorily. By an agreement dated 21st June 1966 Mr. Steinberg and his wife, his two brothers and their wives sold one-half of the land approximately to the Commission at the price of $450 per acre for the sum of $172,957, payable as to the sum of $57,657 on execution of the agreement and as to the balance by two equal instalments on 1st December 1966 and 1st December 1967, the balance owing from time to time to carry interest at the rate of two and a half per cent. According to Mr. Long, the agreement recited that the vendors "although desirous of retaining" the land "for development have reluctantly acceded to the purchaser's offer for the reason that the land is urgently required". Mr. Steinberg had sought to receive the purchase price in instalments spread over a longer period of time, whereas the Commission had been willing to pay cash and was not ready to defer payment to an extent greater than that provided for by the agreement.

Expert evidence was tendered by the respondent with a view to showing that the land at Wanneroo was not suitable for grazing purposes and not particularly suitable for growing crops and vegetables, although it was conceded that some land in the vicinity was used for vegetable and flower growing and for poultry farming. I am disposed to accept the evidence to this effect by Mr. Langdon, an adviser in the pastoral agronomy section of the Department of Agriculture, and Mr. Hardie, a vegetable instructor in the Department.

However, it seems to me that what tells against Mr. Steinberg's evidence of intention is not so much the effect of the expert evidence as his omission to make comprehensive inquiries concerning the suitability of the land for agricultural purposes before buying the land. The plan which he outlined in evidence was, to say the least of it, a novel one. In essence it was to establish a colony of tenant farmers or market gardeners in an area of land twelve miles from Perth for which market gardeners had shown no particular predilection in the past. It is remarkable that Mr. Steinberg should purchase the land for such a purpose without making detailed inquiry as to its suitability for development of that kind. It is significant also that the plan was formulated on his own initiative after the property was brought to his notice. It is not suggested that Mr. Steinberg had earlier formed an intention to establish a colony of tenant market gardeners and was looking for a property suitable for that purpose.

There is as well the absence of any attempt to formulate a detailed plan and to estimate costs of development and building with some precision before, and for that matter after, purchase. In evidence Mr. Steinberg gave some evidence as to estimates but it was of a very general nature and was not supported by calculations of any kind. Nor did he engage any expert other than the surveyor who prepared a subdivision plan. Subdivision of the land was equally consistent with the existence of an intention to sell the land in lots.

Finally there is the absence of evidence which shows that the development of which Mr. Steinberg spoke was one which was within the financial capacity of the group who became owners of the land. Mr. Steinberg says that the land at Innaloo was sold so that the proceeds could be devoted to the development at Wanneroo but it seems that the money was not so employed. Subsequently it was claimed that little could be done with the land because the family had got into some difficulty with land which it had acquired at Kelmscott.

However that may be, as in the two other cases I am not satisfied that the shares, and later the land, was acquired for the purpose of development and leasing as Mr. Steinberg has claimed. In coming to that conclusion I am mindful that there should not be imputed to Mr. Steinberg before he purchased the land the expert knowledge which is now available as to the suitability of the land for farming and agricultural purposes. Nevertheless the proposed use to which the land was to be put was so unusual that it is of significance that he made no inquiries with respect to its suitability for the purpose and as to the likelihood of attracting tenants. The absence of evidence as to the financial capacity of the vendors to carry out such a scheme, the failure to design such a scheme after the land had been acquired, taken in conjunction with Mr. Steinberg's refusal to admit that he considered the possibility of profitable resale, although the document handed to him by Mr. Rawle made it clear that the Golden West company had been incorporated to deal in land and that the land had potential for subdivision and sale, combine to create such doubt in my mind that I am unable to accept what Mr. Steinberg said on the matter.

Once Mr. Steinberg's evidence is rejected the inference is inescapable that the shares in the company were purchased thereby enabling the purchasers to acquire the land for the exclusive or dominant purpose of profit-making by sale. The profit made on sale accordingly falls within the first part of s. 26(a).

For the appellants it was argued that there was no identity between the property acquired and the property sold. This submission was based, not on the circumstance that one-half of the land only was sold, but on the fact that what was initially acquired was shares. The submission overlooks the subsequent acquisition by the shareholders of interests in the land by virtue of their shares, those interests being the subject of the sale to the Overseas Telecommunications Commission. As I have remarked, Mr. Steinberg said that the shares were purchased to enable the purchasers to acquire the land. The land was none the less acquired, albeit in an uncommon way, by means of a distribution in specie by a liquidator.

It was also submitted that it was not possible to arrive at a profit figure because the land was acquired at a date subsequent to the purchase of the shares when it might reasonably be thought to have had a different and enhanced value. But in this instance the relevant figure is what it cost the individual to acquire his interest in the land. The cost to the individual was the amount which he expended in the purchase of the shares together with any other expenses incurred in obtaining a title to the land. It is not disputed that if this be the proper basis of arriving at the individual's profit, the amount of profit on which Mr. Steinberg was assessed to tax was correctly ascertained.

In my opinion this appeal should also be dismissed.

In three appeals (No. 1 of 1972 by Morris Steinberg, No. 3 of 1972 by the trustee of the Judith Steinberg No. 2 Trust and No. 4 of 1972 by Malcolm David Steinberg) there was a challenge to the imposition by the respondent of penalties by way of additional tax. The penalties amounted to $1,504, $119 and $1,025, respectively. The basis on which they were imposed was not explored as during the course of argument the respondent undertook to remit them, that undertaking being accepted by the appellants.

The facts out of which this appeal arises are to be found fully set out in the reasons for judgment of my brother Mason, who found for the Commissioner in the proceedings before him [23] . The appeals concern various transactions but can conveniently be said to directly or indirectly involve three parcels of land respectively at Innaloo, Wanneroo and Rockingham in the vicinity of Perth in Western Australia. My brother Mason found the first two parcels to have been purchased for the purpose of resale at a profit within the scope of the first limb of s. 26(a) of the Income Tax Assessment Act 1936, as amended ("the Act"), and the last mentioned parcel to have been the subject of a scheme within the second limb of that section.

The appellants are Morris Steinberg in respect of the Wanneroo land and also in respect of the Rockingham land; the Trustee of Judith Steinberg No. 2 Trust in respect of the transactions with the Innaloo land and in respect of the Rockingham land; and Malcolm David Steinberg in respect of the Rockingham land.

The Innaloo land was acquired in 1960 by a partnership, Murray's Furnishing Stores, of which Morris Steinberg was throughout a member. It was sold in March 1965 at a considerable profit upon its purchase price. Because of the limited terms of the taxpayer's objection, no point arises in the appeal upon the changes in the membership of the partnership which took place between 1960 and 1965.

There was ample material established in the course of the hearing of the appeal to justify the inference that the land was purchased for the purpose of reselling it at a profit. Mr. Steinberg gave evidence that the purpose for which the land was purchased was otherwise: but he was not believed.

Having fully examined the transcript of the evidence given before my brother Mason, I would not be prepared to disturb any findings of fact made by his Honour which depend to any extent on the credibility of Mr. Morris Steinberg. Notwithstanding the analysis of the evidence made by counsel for the appellant, I cannot take the view that it was erroneous not to accept the evidence of Mr. Morris Steinberg or to find any fact consequential on disbelief of that evidence. Unless the evidence of Mr. Morris Steinberg as to the purpose for which the Innaloo land was purchased were believed, there is no reason, in my opinion, to differ from his Honour's conclusion that the land was bought by the partnership for the purpose of resale at a profit. Accordingly, in my opinion, the appeal of the Trustee of Judith Steinberg No. 2 Trust, which is in respect of its share of that profit, was properly dismissed. I would dismiss his appeal to this Court.

In June 1965 Mr. and Mrs. Morris Steinberg acquired by purchase one half of the issued capital of Golden West Land Development Co. Pty. Ltd. ("the company"). The company's only substantial asset was an area of land (720 acres) for which subdivisional approval had been given by the appropriate local governmental authority. The approved lots were each of ten acres. This was the Wanneroo land. The remainder of the share capital of the company was acquired by brothers of Morris Steinberg and their wives. It may be accepted that the reason the shares were acquired was the desire of the Steinberg brothers and their wives to control the disposition of the land which the company owned. It may also be accepted that their intention at the time of the acquisition of the shares was, in due course, to place the company in liquidation and to procure a distribution in specie of its assets. Mr. Morris Steinberg, in the only relevant evidence given, said that the intention of the shareholders when they had possession of the land was to lease the ten acre lots to tenant farmers for agricultural purposes. But his evidence was not accepted in this respect. I accept his Honour's disbelief of this evidence and approach the case on that footing.

In October 1965, the company went into voluntary liquidation whereupon the assets of the company, principally the Wanneroo land, were distributed in specie to the shareholders as was permitted by the amended articles of the company.

In the early part of 1966 the Overseas Telecommunications Commission informed Mr. Morris Steinberg that the Commission desired to purchase one half of the Wanneroo land for the purpose of the erection of a radio transmitting station and that, if necessary, the Commission would compulsorily acquire the land in pursuance of powers in that behalf at its disposal. Subsequently, the six Steinbergs, under the persuasion of the likelihood of compulsory acquisition, sold one half of the Wanneroo land to the Overseas Telecommunications Commission for a total sum of $172,957, which was $25,343 in excess of the purchase price paid for the shares in the company.

At the time of the hearing of the appeal by my brother Mason, the remaining half of the Wanneroo land was unsold and in the ownership of the six Steinbergs. His Honour found that the share of Mr. Morris Steinberg in the excess of $25,343 of the sale price to the Overseas Telecommunications Commission over the price paid for his shares in the company was liable to tax as profit made on the resale of property acquired for that purpose within the scope of the first limb of s. 26(a) of the Act.

There are some aspects of this part of s. 26(a) which are now settled. In the first place, there must be an identity between that which is acquired and that which is sold; secondly, the purpose of resale to gain a profit, i.e. an excess sale price over cost of acquisition, must be present at the time of the acquisition: it must be the taxpayer who acquires with the stated purpose and who, in pursuance of it, subsequently sells.

It must be remembered that the Act is an Act with respect to taxation upon income. It is not in its general provisions an Act to tax capital gains. It respects and maintains the radical distinction between income and capital gain. However, s. 26(a) departs to a limited extent from the general pattern of the Act. It treats the product of a transaction falling within its terms as income of the taxpayer. It does so because of the particular purpose for which property is acquired. It is thus appropriate that a transaction to come within the ambit of the section should be of a commercial character: to wear an aspect of dealing. The outturn of a transaction of that sort is readily treated as income and not as capital gain because of the purpose of the acquisition.

Further, there are certain principles to be borne in mind which are quite basic in the application of a law of taxation. First, the legal effect of transactions which are not pretended or illusory must be regarded and allowed to be effective: secondly, the separate identity of an incorporated company from that of its shareholders must be respected. I mention these matters specifically because of their importance in the resolution of the present appeals, both those with respect to the Wanneroo land with which I am presently dealing, and those with respect to the Rockingham land with which I have yet to deal.

It is to my mind apparent that the appellant, Morris Steinberg, did not acquire by purchase any part of the Wanneroo land. It cannot properly be said, in my opinion, as a matter of law that the purchase of shares in an incorporated company in order to gain control of its assets is an acquisition of those assets: or that the money expended on the purchase of the shares is a price paid for the assets of the company. These propositions are true whether or not the shareholding acquired is the total number, or a majority of the number, or only some of the shares of the company. There is, in my opinion, no doctrine of economic equivalence to be used in the administration of the Act. In relation to the first limb of s. 26(a), there is no identity between the shares acquired and the assets of the company subsequently sold. Nor, in my opinion, is it right to conclude that the taxpayer acquired the land at the time he acquired the shares because he shared with others an intention to place the company in liquidation so as to secure, by a distribution in specie of the company's assets, a part of such lands. But to say that the taxpayer had these motives and intentions is to deny that he had any purpose of reselling the shares which he did acquire by purchase.

For these reasons alone, I am unable to share my brother Mason's opinion that Mr. Morris Steinberg's share of the gains from the disposition of one half of the Wanneroo land falls within the scope of the first limb of s. 26(a).

But it was argued for the respondent that the distribution by the liquidator of the assets of the company could be regarded as an acquisition by the taxpayer of an interest in the land. Whilst the receipt of the interest in the land may be regarded as an acquisition of that interest, it is not, in my opinion, a purchase nor is there a price paid for the acquisition. Nothing said or decided in Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [24] is, in my opinion, to the contrary. There, what was received in distribution upon a reduction of capital was held to have been received for a bona fide consideration in money or money's worth, which is a different case to the present.

But in case it may be thought, contrary to my own opinion, that the taxpayer should be regarded as having acquired by purchase such part of the Wanneroo land as he received on the distribution by the liquidator of the company's assets, there are some observations I would wish to make.

Firstly, it is incorrect, in my opinion, to treat the price paid for the shares as the price paid for that part of or interest in the land which ultimately came to the taxpayer, as a basis for determining a profit made upon the disposal of that land. Further, if the value of the land at the time of the liquidator's distribution is regarded as relevantly the cost of the land to the taxpayer - which, in my opinion, it should not - not only is there no evidence of it in the case but also that value is unlikely to be substantially different from the price paid by the Overseas Telecommunications Commission soon after the distribution by the liquidator, that price being more likely than not to be below than above the market.

In the second place, there was, in my opinion, no evidence that the purpose of acquiring the land, if its receipt in distribution were a relevant acquisition, was its resale thereby to gain a profit. I accept my brother Mason's refusal to accept Mr. Morris Steinberg's evidence of what was his purpose in relation to the land and of his denial that that purpose was resale at a profit. But disbelief does not afford evidence of the contrary of what is disbelieved, leaving on one side a doubtful case of a situation of two mutually exclusive possibilities, which the facts of this case certainly do not raise. See Jack v. Smail [25] ; Scott Fell v. Lloyd [26] ; Lee v. Russell [27] . The appellant, Morris Steinberg, made no relevant admissions.

1. (1905) 2 C.L.R. 684, at p. 698. 2. (1911) 13 C.L.R. 230, at p. 241. 3. [1961] W.A.L.R. 103, at p. 109.

Now, whilst it rests on the taxpayer to show that the assessment is excessive, if the facts established before the court cannot support an inference of acquisition with the required purpose, the assessment cannot be supported under the first limb of s. 26(a). In the case of the Innaloo land, its sale was sufficiently proximate to its acquisition, plus the undoubted activities of the taxpayer with respect to it meantime, to support such an inference and warranted his Honour's conclusions. But in the case of the Wanneroo land, all that can be pointed to on the established facts is that one half of the land was sold, in the circumstances in which it was sold, to the Overseas Telecommunications Commission. Of course, if the purpose to purchase for resale at a profit is otherwise made out, a sale under threat of compulsory acquisition will be a relevant sale and the gain made thereby properly brought to tax. But where there is no evidence of the relevant purpose, no inference of its existence at the time of acquisition should, in my opinion, be drawn from the fact of a compulsory sale. No doubt the sale of the thing acquired reasonably soon after its acquisition would afford evidence that the thing was acquired for the purpose of resale in order to make a gain. That inference is made because of evidentiary value of the voluntary act of sale. But the sale to the Overseas Telecommunications Commission was not of such a voluntary kind as to warrant the inference that if land was the thing acquired it was acquired for the purpose of resale. Consequently, in my opinion, there was no material in the proved and accepted facts which would support the inference that the appellant taxpayer acquired his interest in the land, if that is what he did, with the purpose of its resale to gain a profit. Section 190 places upon the taxpayer the obligation in an appeal against an assessment to show that the assessment is excessive. This is not limited simply to the amount of the assessment but extends to its propriety. Assessment does not consist merely in the nomination of a sum of tax to be paid, as contained in the notice of assessment. It is the process of the application by the Commissioner of the appropriate provisions of the Act to the taxpayer's return or to such further or different facts as the Commissioner has ascertained. The Commissioner is provided with officers highly skilled and experienced in the administration of the Act and in the discovery and elucidation of facts. Further, they are able to express and record both the facts upon which the assessment is made and the particular application of the Act to them which yields the amount of tax expressed in the notice of assessment. The Commissioner is, of course, entitled to place his ultimate assessment, i.e. ultimate at the time of the issue of the notice of assessment, upon alternative applications of the Act. But if he does so, that or those alternatives may be expected to be recorded in the files of the Commissioner. Thus, if those files are before the court on appeal, as they should be, the basis of the Commissioner's assessment will appear. It is that assessment which is under attack on the taxpayer's appeal and which the Act says the taxpayer must show to be excessive.

It should also be said that, if asked by the taxpayer, the Commissioner should inform him of the basis of the assessment in cases in which the adjustment sheet served with the notice of assessment does not do so. Just as in other litigation, there must be issues in an appeal against assessment under the Act to which both parties are confined. As matters presently stand, the relevant file of the Commissioner and the objection of the taxpayer should be the source of those issues. It should not be the case that by reason of s. 190 the appellant taxpayer must negative all possible bases upon which, having regard to the material adduced before the appellate tribunal, the statement of liability to tax in the notice of assessment might be based. So to use that section is, as I have said before, to make that section a scourge for the citizen rather than a reasonable protection for the revenue. It is high time that rules of court provided for the determination of the issues in income tax appeals and expressly confining both Commissioner and taxpayer to them in an appeal which is to be resolved by an adversary process and in which the contest should not be unequal.

Applying these considerations, however looked at, in my opinion, it ought not to be held that the appellant taxpayer acquired any part of the Wanneroo land for resale at a profit.

But, though my brother Mason did not so find, the respondent seeks to maintain the assessment upon the second limb of the section.

Because the Act by s. 190 places the onus upon the appellant taxpayer of showing that the Commissioner's assessment is excessive, there are expressions to be found in cases decided upon the first limb of s. 26(a) to the effect that there is a presumption which the taxpayer must overcome by the evidence accepted by the Court on this appeal. But, in my opinion, there is no presumption that property is acquired for profit-making by resale. The presence of s. 26(a) in the Act does not mean that property cannot be acquired as an investment, as a hedge against the loss of value in the currency; or that the only investment advantage of the acquired property which is outside the reach of s. 26(a) is the income it will produce. The retention of property in the hope or expectation that its value will increase is a justifiable form of investment. That the increased value may only be realized by sale does not deny that the purpose of its acquisition was investment or establish that the purpose of its acquisition was to use it as a subject of trade by reselling it at a profit. No doubt in borderline cases, the distinction may tend to become blurred but it is none the less a valid distinction and capable of resolution by the court.

When the facts relating to the acquisition of the property are evidenced before the court, the question is whether on those facts the necessary inference of purpose can be drawn. The evidencing of the facts and the inability to draw that inference from them, in my opinion, satisfies in this case the onus existing on the taxpayer. If, as I have said, those facts, including those the Commissioner establishes, do not warrant the inference of the requisite purpose, assessment based on the first limb of s. 26(a) cannot be supported. The taxpayer will have discharged the onus on him whether or not the court accepts his evidence of some purpose of acquisition outside the scope of s. 26(a). Reference is made in argument to such cases as Pascoe v. Commissioner of Taxation [28] and Jacob v. Commissioner of Taxation [29] , where expressions as to onus of proof are to be found. But in those cases the acquired property had been sold after a brief interval of time from the date of its acquisition. That fact clearly warranted a prima facie inference of the requisite purpose and did call for the displacement of that inference by the appellant taxpayer. These cases do not really proceed upon the footing that there is a presumption that property is acquired for the purpose of resale at a profit, so as to satisfy the first limb of s. 26(a).

1. (1956) 30 A.L.J. 402; 11 A.T.D. 108. 2. (1971) 45 A.L.J.R. 568; 2 A.T.R. 608; [1971] A. T.C. 4192.

I turn then to consider whether the assessment could be supported on the second limb of s. 26(a). It is quite clear to my mind that this limb of s. 26(a) is closely related to the first limb of the section. Indeed, the Privy Council in McClelland v. Federal Commissioner of Taxation [30] thought that in relation to the facts of that case the second limb was but another way of expressing the same ideas as the first. The concept underlying the sub-section is that in an Act confined to the taxation of income there are some circumstances in which what are isolated and not repetitive transactions, which in other circumstances would yield a capital gain, can properly be regarded as producing income. One such circumstance is the acquisition of property by the taxpayer with the purpose of its resale at a profit in what is in truth a commercial dealing: that is the first limb of the section. The second limb, in my opinion, is founded upon the same notion but provides for the case where the property acquired is not itself the subject of resale but is intended at the time it is acquired to be the vehicle for making a capital gain, again in the course of an isolated or single though perhaps complex transaction in the nature of a commercial dealing. For there to be a scheme there must be a plan: it must be the taxpayer's plan and it must exist, in my opinion, at the time of the acquisition of the property: indeed, that acquisition, in my opinion, must be itself part of the scheme and the property acquired the intended vehicle for carrying the scheme into execution. Whilst it need not be fully conceived in all its details at the time of acquisition it must exist as a scheme which in principle embraces all the details yet to be worked out. It must, of course, be a profit-making scheme, that is to say, a scheme to make a capital profit, one which would not fall within s. 25. If it were merely a scheme to make an income profit, then it will fall within s. 25. Section 26(a), it seems to me, is aimed at transactions which will not fall within s. 25 and which apart from s. 26(a) would escape s. 25 because the gain would not be an income gain.

It will not be sufficient, it seems to me, that the scheme is a scheme to resell that which was purchased at a profit. That, it seems to me, is simply another statement of the first limb of s. 26(a). As I have already indicated, it seems to me that the scheme must be a scheme to use that which was acquired as a means of producing a capital gain, not by resale at a profit of that which was acquired. It is because such a scheme does exist at the time of acquisition that the subsequent gain, though by realization of a capital asset, can properly be regarded as income. If no scheme for the use of the property has been formulated at least in definitive principle at the time of the acquisition, the acquired property becomes a capital asset of the taxpayer. Subsequent realization to the best advantage ought not to bring any increase in its worth to tax. Indeed, that position is well authenticated in the decided cases. The realization of an asset in an enterprising way and in order to obtain the maximum advantage therefrom does not make the proceeds liable to income tax. It follows, in my opinion, that a scheme of realization of an asset not contemplated at the time of its acquisition but subsequently conceived and formulated, is not a scheme within the scope of the second limb of the section. Anything in the decided cases which would suggest that it may be such a scheme ought not, in my opinion, to be followed. I am unable, with great respect, to accept the views expressed by Sir Victor Windeyer in Buckland v. Commissioner of Taxation [31] . The scheme, if there be one, must be more specific than an intention to turn to profitable account what is acquired. Of course, a scheme, entertained at the point of acquisition, may contemplate alternatives in its execution and, having determined the principles of the scheme, leave details for later decision. But, with due respect to what Sir Owen Dixon said in Premier Automatic Ticket Issuers Ltd. v. Federal Commissioner of Taxation [32] , there must be an identifiable specific scheme existing at the date of the acquisition of the property which is to be used to execute the scheme to make a profit. That case, it seems to me, was really a case of income derived in carrying on a business by use of the patent rights which had been acquired rather than a case falling within s. 26(a).

1. (1960) 34 A.L.J.R., esp. at p. 62; [1960] A.L.R., at pp. 603-604; 12 A.T.D., at p. 169. 2. (1933) 50 C.L.R. 268.

Now, to apply these principles to the present case, it is necessary to observe the facts which remain as proved facts after Mr. Morris Steinberg's evidence has been rejected. He made no relevant admissions, that is to say, relevant to the use of the Wanneroo land entertained when the shares were acquired: nor, on the alternative view, when the interest in the land was acquired. There are many uses to which land or an interest in land may be put in order to profit by its possession. The mere fact of its acquisition does not itself dominate any particular purpose to which the land is to be put: nor itself raise an inference that it is to be resold at a profit. It seems to me, so far as the Wanneroo land is concerned, that all that is relevantly known is that the shares in the company were acquired with a view to gaining possession of that land by means of a liquidation and a distribution in specie of its assets. I have already indicated that I do not think that any relevant inference can be drawn from what was in truth a compulsory sale of part of the land to the Overseas Telecommunications Commission. Granted that there was a plan which would qualify as relevantly a scheme at the time the shares were acquired, a scheme which involved taking the various steps to obtain possession of the Wanneroo lands or of an interest in them, there is, in my opinion, no basis on which an inference can be drawn as to the particular use to which it was part of that scheme to put the Wanneroo lands. Of course, if it were possible to draw an inference that a part of the scheme was their realization by sale at a profit, I would be able to conclude that there was, at the time of the acquisition of the shares, a scheme to use those shares as a means of making a capital gain by the sale of the Wanneroo lands. However, as I am unable to infer any particular purpose or end to which the Wanneroo lands were to be put when in the possession of the taxpayer, I am unable to conclude that there was a scheme within the meaning of the second limb of s. 26(a). In my opinion, the appeal as to the Wanneroo land ought to be allowed and the assessment set aside: the case does not fall within either limb of s. 26(a).

Mr. and Mrs. Morris Steinberg took up the whole of the issued capital in a company known as Malgor Pty. Ltd. ("Malgor"), which I am prepared to accept was formed at the instance of Mr. Morris Steinberg to acquire the Rockingham land. Again, I accept the finding of my brother Mason that the evidence of Mr. Morris Steinberg as to what it was then intended to do with the Rockingham land is not acceptable. We are thus left with no material as to the purpose for which the company acquired this land: for I do not see that any relevant inference can be drawn from the other evidence in the case. Subsequently, Mr. Morris Steinberg intended to give five hundred shares in this company to his son, Malcolm. The accountant's method of implementing his instructions from Mr. Morris Steinberg would make it appear that the gift was of money and the money was applied by Mr. Malcolm Steinberg in taking up the shares. But, whichever view is taken of the matter, that is to say, whether the gift to Mr. Malcolm Steinberg be regarded as a gift of shares or a gift of money so that Mr. Malcolm Steinberg acquired the shares by a cash subscription, there is no evidence, in my opinion, that the purposes which Morris Steinberg may have had in forming Malgor were communicated to, adopted and acted upon by Malcolm Steinberg as purposes of his own. I think it quite insufficient in matters of this kind that one should act upon suspicion. No doubt one may readily suspect that in family matters there may be free communication between the members of the family on matters of business. On the other hand, many men play their cards very close to their chest and do not even discuss their affairs with their wives, let alone their sons, notwithstanding the involvement of those members of the family in those affairs. Each of these appellants is to be treated, in my opinion, as an individual and not treated as if wholly involved in all the planning and purposes of Mr. Morris Steinberg. There is no suggestion that the gift, whether it be of money or of shares, by Mr. Morris Steinberg to Mr. Malcolm Steinberg was other than an outright gift and that he did not hold the shares beneficially.

After the acquisition by the company of the Rockingham land, a partnership was formed by Mr. Morris Steinberg and his wife and a trustee of eighteen discretionary trusts. The Malgor shares of Mr. and Mrs. Steinberg, but not those of Mr. Malcolm Steinberg, were transferred to this partnership known as "M.J.S. Investments". This transaction was part of an arrangement advised by an accountant to minimize income tax and estate duty.

Later, in July 1964, sufficient shares were sold to a Mr. Markham to constitute him a moiety shareholder in the issued capital of Malgor. This transaction was not in contemplation at any time prior to its actual occurrence. The reasons for it were unconnected with the formation of Malgor or the purchase of the Rockingham land, or with the subscription by Mr. and Mrs. Morris Steinberg for shares in Malgor. Because of changes in the law, the advantage sought to be obtained by the creation of the eighteen discretionary trusts disappeared: in consequence, the trusts were terminated. But, clearly, neither the formation nor termination of these trusts was in contemplation at the time of the subscription for the shares or in connexion with the acquisition by Malgor of the Rockingham land. In the result, so far as presently relevant, the issued capital of Malgor came to be held as to one moiety by M.J.S. Investments and Malcolm Steinberg and as to the balance by Mr. Markham.

Some two years after this situation had arisen, Malgor went into voluntary liquidation and its assets, principally the Rockingham land, were distributed in specie amongst the shareholders. Thereafter Mr. Markham endeavoured on his own account to sell his interest in the Rockingham land but succeeded only on the basis that his purchaser could acquire the interests of M.J.S. Investments and Malcolm Steinberg in that land. Accordingly, both sales eventuated. My brother Mason decided that the amount paid by Mr. Markham for the shares in Malgor less the amount subscribed for them and the amount received on the sale of the Rockingham land less the purchase price therefor were assessable under the second limb of s. 26(a), the relevant scheme having in his Honour's view been made in 1960.

It is, in my opinion, plain that the shares in Malgor were not acquired by subscription for the purpose of their resale. To my mind, it is undeniable on the evidence that the transaction with Mr. Markham was not in contemplation at the time the shares were taken up: nor was any sale of them then in mind. Rather, they were to be used as part of the control of the Rockingham land.

Further, assuming that there was material to establish the purpose of Malgor in acquiring that land, there was no sale of it by Malgor. Thus, in my opinion, no case under the first limb of s. 26(a) could be supported.

It was submitted that the distribution in specie of the assets of Malgor was an acquisition of the Rockingham land or of an interest therein of the partnership M.J.S. Investments. But, as I have already indicated in connexion with the Wanneroo land, this receipt of the interest in the Rockingham land should not be regarded as a relevant acquisition, i.e. an acquisition at a price or cost. In any case, the value of that interest at the date of the distribution in specie is not evidenced and may not have been significantly different from the price obtained when the land as a whole was sold by the two contracts of sale, one in which Mr. Markham was vendor and that in which M.J.S. Investments and Malcolm Steinberg were vendors. There is, in my opinion, no basis in the evidence for concluding that the land was received by the taxpayers from the liquidator of Malgor with a view to its resale at a profit. The sales to which I have referred were some three years after the liquidator's distribution in specie and were the result of the initiative and efforts of Mr. Markham rather than of Mr. and Mrs. Morris Steinberg and Mr. Malcolm Steinberg. I do not think the necessary inference of the purpose attending the receipt of the interest in the land from the liquidator can be drawn.

I turn then to the submission that there was a scheme within the second limb of s. 26(a). I have already indicated my views as to the essentials of such a scheme. In relation to the facts relating to the Rockingham land, the relevant date at which, consistently with the views I have expressed, the scheme should exist is the date of the subscription for the shares in Malgor. But I cannot find any evidence in the transcript that any definite scheme then existed for the use of those shares in order to produce a capital profit. Doubtless, whilst no credence is given to Mr. Morris Steinberg's evidence as to his proposals for the use of the Rockingham land, it might be concluded that there was an intention in some fashion to obtain and to turn to profit the ownership and possession of that land. But that must be true of every acquisition of an asset which is not intended for consumption in one form or another. Such an intention is insufficient, in my opinion, in connexion with either limb of s. 26(a).

Thus, in this case, as in the case of the Wanneroo lands, even if there were a scheme at the time of the subscription of the shares to employ them to obtain possession of the Rockingham lands or of an interest therein, it is not possible, in my opinion, to conclude that as part of that scheme, the Rockingham lands were to be sold at a profit in a commercial transaction. That they were to be employed in some fashion may be accepted. But some of the ways in which the land might have been used would not result in a capital gain by its sale in a commercial transaction, but perhaps only an income gain, by its use, of a different and, presumably, of a lesser amount.

In addition, there were in connexion with the events following the subscription for the shares, several fortuitous events, such as the creation and termination of the discretionary trusts and the sale of the shares to Markham, which could not properly be referable to any plan existing at the time of the subscription for the shares but which played their part in the subsequent outturn of the transaction. As I have earlier indicated, if there were not a relevant scheme on foot at the time of the subscription for the shares, they become capital assets and available for realisation to the best advantage. That a plan or scheme of realization or of employment was subsequently devised would not, in my opinion, bring the proceeds of the realization to tax within s. 26(a).

For these reasons, I would dismiss the appeal in connexion with the Innaloo lands and allow the appeals which concern the Wanneroo and Rockingham lands.

The facts of these five appeals are fully set out in the judgment of Mason J. I shall restate some of them, for ease of narration, but only in outline.

The appeal by the trustee of Judith Steinberg No. 2 Trust must clearly fail so far as it relates to the assessment to income tax on the share of the profit derived from the sale of the land at Innaloo. On this aspect of the case I need add nothing to what is said in the judgments of the other members of the Court.

However, the other appeals raise more difficult questions. I shall turn first to the appeal by Morris Steinberg against the order dismissing his appeal against the inclusion in his assessment to tax for the year ended 30th June 1966 of $7,752 which was said to be his share of the profit emerging from the sale of about 384 acres of land at Wanneroo, about twelve miles from Perth. That land formed part of a larger tract of about 720 acres that had been owned by a company, Golden West Land Development Co. Pty. Ltd. ("Golden West"). In July 1965 all the issued shares in that company were acquired by a syndicate consisting of Morris Steinberg, his wife Judith, and his two brothers and their respective wives. Morris Steinberg acquired 6,803 shares and his wife 6,802 - between them they held one-half of the issued shares. The company was put into liquidation in October 1965 and the land was thereafter distributed in specie, so that Morris Steinberg became entitled to an interest of 6,803/27,210 in it. On 21st June 1966 the area of about 384 acres was sold to the Overseas Telecommunications Commission, which had, earlier in that year, told Morris Steinberg that it wished to acquire that area and would, if necessary, do so compulsorily. The acquisition of the land by the Commission was not contemplated when the shares were bought or the distribution in specie was made.

It was admitted that the purchasers bought the shares in Golden West as a means of acquiring the land at Wanneroo which was its principal asset. Morris Steinberg gave evidence that the land was acquired for the purpose of building cottages on ten-acre lots and letting the land to tenants who, it was said, might wish to engage in market gardening. The reasons given by Mason J. for rejecting this evidence were completely convincing.

The question that then arises, however, is whether it was right to conclude, as his Honour did, that the shares in the company were bought to enable the purchasers to acquire the land for the main or dominant purpose of profit-making by sale. The fact that a witness is disbelieved does not prove the opposite of what he asserted: Scott Fell v. Lloyd [33] ; Hobbs v. Tinling (C.T.) & Co. Ltd. [34] . It has sometimes been said that where the story of a witness is disbelieved, the result is simply that there is no evidence on the subject (Jack v. Smail [35] ; Malzy v. Eichholz [36] ; Ex parte Bear; Re Jones [37] ), but although this is no doubt true in many cases it is not correct as a universal proposition. There may be circumstances in which an inference can be drawn from the fact that the witness has told a false story, for example, that the truth would be harmful to him; and it is no doubt for this reason that false statements by an accused person may sometimes be regarded as corroboration of other evidence given in a criminal case: Eade v. The King [38] ; Tripodi v. The Queen [39] . Moreover, if the truth must lie between two alternative states of fact, disbelief in evidence that one of the state of facts exists may support the existence of the alternative state of facts: Lee v. Russell [40] . In the present case, Morris Steinberg had, between 1956 and 1969, been a member of no less than thirteen syndicates which had been formed for the purpose of acquiring land and reselling it at a profit. The Wanneroo land, when purchased, was not put to any use; it is true that the owners were virtually compelled to sell some of it quite soon after it was acquired, but over 300 acres were, at the date of the trial, still retained, and no suggestion was made of any intention to use them for any purpose except letting as ten-acre lots. In these circumstances, the fact that Morris Steinberg told a false story as to the purpose for which the land was intended to be used assisted the conclusion, to which the other evidence pointed, that the true purpose of acquiring it - a purpose which Morris Steinberg did not wish to reveal because it would harm his case - was to resell it at a profit. The conclusion which Mason J. reached on this issue was, in my opinion, correct.

1. (1911) 13 C.L.R. 230, at p. 241. 2. [1929] 2 K.B. 1, at p. 21. 3. (1906) 2 C.L.R. 684, at p. 698. 4. [1916] 2 K.B. 308, at p. 321. 5. (1945) 46 S.R. (N.S.W.) 126, at p. 128. 6. (1924) 34 C.L.R. 154, at p. 158. 7. (1961) 104 C.L.R. 1. 8. [1961] W.A.R. 103, at p. 109.

It then becomes necessary to consider whether the profit that arose on the sale of the land was profit arising from the sale by the taxpayer of property acquired by him for the purpose of profit-making by sale, within the first limb of s. 26(a) of the Income Tax Assessment Act Cth, as amended ("the Act"). To satisfy this provision, it is necessary that the property, whose sale yielded a profit, should be the same property as that which was acquired for the purpose of profit-making by sale and that the taxpayer must have been the person who both acquired and sold the property. The section does not require that the acquisition should have been effected by any particular method - it is not limited - for example, for acquisition by purchase. It is the purpose, not the mode, of the acquisition that is specified in s. 26(a). Because the acquisition must have been for the purpose stated, it follows that if the taxpayer was a passive recipient of the property - for example, if he acquired it as the result of a bequest (McClelland v. Federal Commissioner of Taxation [41] ) or as an unsolicited gift (Federal Commissioner of Taxation v. Williams [42] ) - it will, generally speaking, be impossible to say that it was acquired for the purpose of profit-making by sale. In the present case, Morris Steinberg gained a profit from the sale of an interest in land, and although he first acquired shares, there can in my opinion be no doubt that later, when the company transferred the land in specie to the shareholders, he acquired the interest in the land whose sale yielded the profit. Since the shares were bought to enable the purchasers to obtain their interests in the land, with the main or dominant purpose of selling the land at a profit, it is right to hold that the acquisition of the land was for the purpose of profit-making by sale.

1. (1970) 120 C.L.R. 487, at p. 493. 2. (1972) 127 C.L.R. 226.

There was no evidence as to the value of the land when the distribution was made to the shareholders. It is apparent either that the purchasers of the shares in Golden West obtained a considerable bargain, or that there was a steep rise in the value of the land between July 1965 and June 1966; whether there was such a rise and, if so, whether it occurred before or after the distribution, does not appear. The Commissioner, in assessing the profit, calculated the difference between the amount obtained on the sale of the land and the amount paid to acquire the shares. The submission that is was erroneous, because the land was acquired at a date subsequent to the purchase of the shares when it might reasonably be thought to have had a different and enhanced value, was rejected by Mason J. I am doubtful whether this submission was open to the taxpayer, since the grounds stated in his objection do not appear to cover it. I respectfully agree that it would be most desirable that rules should be made requiring the Commissioner and the taxpayer to define the issues to be litigated on taxation appeals, but no such rules have been made, and we are bound to apply s. 190(a) of the Act which limits the taxpayer to the grounds stated in his objection. However, I need not take up time with a discussion of the meaning and effect of the grounds stated in the notice of objection lodged on behalf of Morris Steinberg, because I have in any case reached the conclusion that Mason J. was correct in the view that he formed. His Honour said:

In this instance the relevant figure is what it cost the individual to acquire his interest in the land. The cost to the individual was the amount which he expended in the purchase of the shares together with any other expense incurred in obtaining a title to the land. It is true that the price paid for the shares could not accurately be described as the price of the land, for it is clear that the purchasers did not, simply by acquiring their shares in Golden West, acquire the land which was an asset of that company. It is true also that since the distribution in specie was made in satisfaction of the rights of the shareholders, the "consideration" for the acquisition by the shareholders of the land from the company would be the full value of the land at the time of distribution: Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [43] ; Davis Investments Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [44] . In applying the provisions of s. 26(a), it is not permissible to ignore or gloss over the legal effect of the transactions actually carried out: Hobart Bridge Co. Ltd. v. Federal Commissioner of Taxation [45] . However, s. 26(a) speaks of the "profit arising from the sale" - it does not refer to the price of the property, or the consideration paid for it. The profit arising from the sale will be the net pecuniary gain resulting from the acquisition and resale of the property, and will be represented by the excess of the amount received on the sale over the amount outlayed in acquiring the asset plus the expenses incurred in getting it ready for sale and selling it. It is not uncommon for the cost of the acquisition of property to be incurred before the property is acquired. For example, on a sale the price may be paid before the property passes. In the circumstances of the present case, where the shares were bought to enable the land to be acquired, the cost of the shares and of the winding up of the company and distribution of the assets can rightly be regarded as the amount actually outlayed for the purpose of, and in the process of, acquiring the land, although the acquisition was effected not directly, but by a number of steps. In my opinion, therefore, Mason J. was right for the reasons which he gave. It should be added that if he had been wrong, and if it had been necessary to ascertain the price by comparing the amount obtained for the land with its value at the date of distribution (plus of course expenses of sale), the taxpayer has produced no evidence to show that the price paid for the shares in July did not represent the value of the land in or about the following October when the land was distributed, and has not discharged the burden cast on him by s. 190(b) of the Act in proving that the assessment is excessive. This would not have precluded the Court from remitting the matter to the Commissioner if it had appeared that he had assessed on an erroneous principle but, as I have said, that is not the case. 1. (1948) 77 C.L.R. 143. 2. (1958) 100 C.L.R. 392, at pp. 407-408. 3. (1951) 82 C.L.R. 372, at pp. 385-386.

For these reasons, in my opinion the appeal by Morris Steinberg relating to the Wanneroo land should fail. It is of course unnecessary, on the view that I take, to consider the alternative argument that the second limb of s. 26(a) supports the assessment.

The remaining appeals concern the sale of shares in Malgor Pty. Ltd. ("Malgor") and the sale of land at Rockingham. Malgor was formed on 7th November 1960 to purchase the Rockingham land; its initial shareholders were Morris Steinberg and Judith Steinberg. Mason J. rejected the evidence of Morris Steinberg that the land was bought as a grazing property and held that it was acquired pursuant to a plan or scheme which had the making of a profit as the end in view. This finding was in my opinion correct - I would add nothing to what Stephen J. has said as to the facts relevant to this question, although I shall add a few observations as to the nature of a scheme within the meaning of s. 26(a) of the Act. On 25th March 1963 new shares in Malgor were issued - some to Morris Steinberg and to Judith Steinberg, but in addition 500 "C" class shares to their son Malcolm. The shares were issued to Malcolm because his father wished to make a gift to him of some of his shares, but because of the manner in which the instructions given by Morris Steinberg were put into effect, the gift technically was not of the shares but of the moneys paid in respect of them. On 1st July 1963, Morris Steinberg and Judith Steinberg sold their shares to M.J.S. Investments, a partnership which had been formed on 1st June 1963 between Morris Steinberg, Judith Steinberg and Mr. Rhine as the trustee of eighteen trusts (including Judith Steinberg No. 2 Trust). This action was taken on the advice of Mr. Rhine for the purpose of reducing Morris Steinberg's liability to income tax and estate duty. According to the agreement setting up M.J.S. Investments, Morris Steinberg and Judith Steinberg both held "A" units in the partnership which conferred on them controlling voting powers but only limited rights to share in the profits and in the distribution of assets on a winding up. Early in 1964, Morris Steinberg was short of funds and to raise money he eventually arranged with one Markham that the latter would buy half of the share capital in Malgor. Pursuant to this arrangement, on 31st July 1964 each shareholder in Malgor transferred to Mr. Markham one-half of his or her holding in that company. The Commissioner has assessed to tax for the year ended 30th June 1965 the share of the trustee of Judith Steinberg No. 2 Trust in the profit derived by M.J.S. Investments on the sale of the shares in Malgor beneficially owned by M.J.S. Investments and the profit made by Malcolm Steinberg on the sale of his shares in Malgor and these assessments are the subject of two of the appeals. In July 1965, because of changes in the income tax law, the eighteen trusts were terminated and their assets, namely the units in the partnership, were distributed under the powers contained in the trust instruments to various of the beneficiaries named therein, including Morris Steinberg and Malcolm Steinberg. Subsequently, Malgor was wound up and it was resolved that the liquidator should divide among the members shares in the land in accordance with their respective shareholdings. In consequence of this resolution undivided interests were, on 3rd March 1967, transferred to Morris Steinberg, Judith Steinberg and Malcolm Steinberg - Malcolm's interest was 250/2,200. The interests acquired by Morris Steinberg and Judith Steinberg belonged beneficially to M.J.S. Investments (to which their shares had, as I have said, been sold) and those interests were divided amongst the various beneficiaries so that a further interest of 68/792 was transferred to Malcolm and an interest of 85/792 to Morris Steinberg. Finally the interests of the members of the Steinberg family in the Rockingham land was sold on 3rd November 1969. The inclusion in the assessments of Morris Steinberg and Malcolm Steinberg for the year ended 30th June 1970 of the profit said to result from the sale of these interests forms the subject of the other appeals.

The principal submission made on behalf of the Commissioner, and accepted by Mason J., was that the four assessments under appeal were rightly made under the second limb of s. 26(a). I adhere to the views that I have previously expressed as to the effect of that provision: see XCO Pty. Ltd. v. Federal Commissioner of Taxation [46] ; Federal Commissioner of Taxation v. Williams [47] , where earlier authorities are cited. A profit-making scheme within s. 26(a) is a plan, design or programme of action devised and put into effect for the purpose of making a profit. It must be a scheme carried out by the taxpayer himself or on his behalf. It appears that it should - at least where the transaction is one of acquisition and resale - exhibit features which give it the character of a business deal. The mere realization of a capital asset, albeit in an enterprising way, would not amount to the carrying out of a profit-making scheme.

1. (1971) 124 C.L.R. 343, at pp. 349-350. 2. (1972) 127 C.L.R., at pp. 250-251.

In the present case, Morris Steinberg devised and carried into effect a profit-making scheme when in 1960 he arranged for Malgor to be incorporated and to purchase the Rockingham land. These things were done in accordance with a plan devised for the purpose of making a profit, and what was done had the character of a business deal. It cannot be said with certainty whether the purpose of the scheme was to make a profit from the sale of the shares or from the sale of the land, but that is immaterial: if the scheme had the requisite purpose it was a profit-making scheme notwithstanding that the exact manner in which the profit was to be made had not been finally decided. On the findings of Mason J. it must be concluded that it was part of Morris Steinberg's plan that the Rockingham land should appreciate in value yielding a profit for himself or his family, although how or when he may not have foreseen. I am in agreement with the view expressed by Mason J. that "it is not an essential element of a profit-making scheme in s. 26(a) that every step which culminates in the making of a profit should be planned or foreseen before the scheme is put into operation". Schemes may be precise or vague; every detail may be arranged in advance, or the working out of the plan may be left for decision in the light of circumstances as they arise. It is no objection to a plan that it allows room for manoeuvre. When property is bought with the purpose of making a profit in the easiest or most advantageous way that may present itself, and the taxpayer adopts "one of the many alternatives" that his plan leaves open, thereby returning himself a profit, he will rightly be said to be carrying out a profit-making scheme: cf. Premier Automatic Ticket Issuers Ltd. v. Federal Commissioner of Taxation [48] ; Buckland v. Commissioner of Taxation [49] .

1. (1933) 50 C.L.R. 268, at p. 300. 2. (1960) 34 A.L.J.R., at p. 62; [1960] A.L.R., at pp. 602-603; 12 A.T.D., at p. 169.

A question of some difficulty is whether the scheme was abandoned when in 1963 Morris Steinberg sold his shares in Malgor to M.J.S. Investments. The partnership was formed and the trusts were created with the intention of diminishing Morris Steinberg's liability to income tax and for estate planning purposes, and not for the purposes of the profit-making scheme. However, that does not mean that the scheme ceased to be carried out - it was still intended to make the profit for which the scheme had been brought into being, although after the events of 1963 Morris Steinberg personally stood to benefit less, and his family more, from any profit that might be made. The profit-making scheme was not abandoned in 1963; the arrangements made in 1963, and varied in 1965, affected the possible destination of the profits made by carrying out the scheme but did not bring the scheme to an end. Morris Steinberg controlled all the relevant events that occurred; his original plan was to make a profit in the way that might appear most advantageous and he put this plan into execution in such a way that in the end he did gain a profit from the sale of his own interest in the land. In my opinion, Mason J. was right in concluding that the eventual sale in 1969 by Morris Steinberg of his interest in the land was something done in carrying out the scheme made in 1960, notwithstanding the intervening events. The assessment of Morris Steinberg to tax was rightly made.

However, the position of the other appellants is materially different. In 1960 Malcolm Steinberg had no shares in Malgor and Judith Steinberg No. 2 Trust was not then in existence - it is clear that at that time neither Malcolm Steinberg nor Mr. Rhine, who subsequently became the trustee, was a party to the scheme. Mason J. found that Malcolm Steinberg was at all times aware of his father's intentions with respect to the land and that Mr. Rhine also was aware of those intentions. He further found that subsequently they participated in the events which occurred, culminating in the sale of the land, and concluded that they became parties to the scheme and executed it so far as it was necessary for them to do so. Although I accept as correct the findings of ultimate fact made by Mason J., I am, with respect, unable to accept his conclusion that Malcolm Steinberg and the trustee of Judith Steinberg No. 2 Trust derived a profit from the carrying out of a profit-making scheme. I have already pointed out that the scheme to which s. 26(a) refers must be the scheme of the taxpayer. The income of a taxpayer is not assessable within s. 26(a) simply because he has profited from another's scheme. The question then is whether Malcolm Steinberg and the trustee of Judith Steinberg No. 2 Trust at some time in or after 1963 became parties to the scheme originated by Morris Steinberg so that thereafter the scheme was executed on their behalf as well as on behalf of Morris Steinberg. Before attempting to decide that question, it is convenient to point out that the profit made by these taxpayers is not assessable within the first limb of s. 26(a). Malcolm Steinberg acquired his shares through the bounty of his father, even if, technically, the gift was of money rather than of shares. There is nothing to suggest that the gift was solicited or conditional. McClelland v. Federal Commissioner of Taxation [50] and Federal Commissioner of Taxation v. Williams [51] provide sufficient authority for the view that the shares were not acquired by Malcolm Steinberg for the purpose of profit-making by sale. The same of course is true of the acquisition of the interest in land which was transferred to Malcolm Steinberg because he was a shareholder in Malgor. The other property now in question comprises the shares which came to belong beneficially to M.J.S. Investments (from the sale of which the trustee of Judith Steinberg No. 2 Trust derived a benefit), and the interests in land (one of which was transferred to Malcolm Steinberg) which can be regarded as the fruit of those shares. M.J.S. Investments acquired its shares in Malgor because it was thought convenient for income tax planning and estate duty purposes that the property of Morris Steinberg and Judith Steinberg should be sold to the partnership and that trusts should be created. The transfers of the land made to the beneficiaries (including Malcolm Steinberg) when the trusts were terminated were made because changes in the law made it no longer convenient to preserve the trusts for the purposes of income tax and estate duty planning. It is clear that the reasons for the issue of shares to Malcolm Steinberg and the sale of the shares to M.J.S. Investments and the transfer of the interests in the Rockingham land to the beneficiaries were unconnected with the purpose of making a profit from the Malgor shares or the Rockingham land. The shares acquired by Malcolm Steinberg and by M.J.S. Investments and the land acquired by Malcolm Steinberg were not acquired for the purpose of profit-making by sale, even if it was envisaged or intended that sooner or later the shares or land might be sold at a profit. These circumstances not only render the first limb of s. 26(a) inapplicable but are of importance in deciding whether the second limb applies. I agree with the observation of Menzies J. in Federal Commissioner of Taxation v. Williams [52] , that there may be "cases where a person ventures what has been received by gift in the carrying on or carrying out of a profit-making undertaking or scheme". The present is however not such a case. All that was done by Malcolm Steinberg and by the trustee was to realize assets that they had acquired for purposes other than profit-making. To do that is not to carry out a profit-making scheme within s. 26(a): McClelland v. Federal Commissioner of Taxation [53] . Their actions accorded with the intentions of Morris Steinberg, as they knew, but this was not enough to make them parties to his scheme. It is of crucial importance that they did not acquire the property in question for the purpose of profit-making, or to effectuate the scheme originated by Morris Steinberg; having acquired their property for reasons unconnected with the scheme, they did no more than take advantage of the opportunities that offered to realize it to the best advantage. (No doubt Morris Steinberg also acquired the interest in the land, which he ultimately sold, when the trustee divided the land among the beneficiaries, but from the beginning his purpose had been to profit, in one way or another, from the increase in value of the land.)

1. (1970) 120 C.L.R. 487. 2. (1972) 127 C.L.R. 226. 3. (1972) 127 C.L.R., at p. 245. 4. (1970) 120 C.L.R. 487.

For these reasons, I hold that the profit that arose on the sale by Malcolm Steinberg of his shares in Malgor, the profit derived by the trustee of Judith Steinberg No. 2 Trust from the sale of the shares in Malgor and the profit that arose on the sale by Malcolm Steinberg of his interest in the land were not assessable within s. 26(a).

It was contended on behalf of the Commissioner that the profit which arose to Malcolm Steinberg and the trustee of Judith Steinberg No. 2 Trust was income according to ordinary concepts. In the circumstances that I have mentioned, and having regard to the decision in McClelland v. Federal Commissioner of Taxation [53a] , this argument cannot succeed.

For these reasons, I would dismiss the two appeals by Morris Steinberg and would dismiss the appeal by the trustee of Judith Steinberg No. 2 Trust in so far as that appeal relates to the appellant's share of profit derived from the sale of the land at Innaloo. However, I would allow the two appeals by Malcolm Steinberg, and would allow the appeal by the trustee of Judith Steinberg No. 2 Trust in so far as it relates to the appellant's share of the profit derived from the sale of the shares in Malgor.

These five appeals are from the dismissal by Mason J. of taxpayers' appeals against the Commissioner's disallowance of objections to their assessments to income tax.

A full examination of the complex facts involved in these five appeals had necessarily to be undertaken both at first instance and again by this Court on appeal; the narration of those facts in succinct form appears in the reasons for judgment of the learned trial judge, which have already been reported [54] . Three distinct transactions are involved in these five appeals, which were heard together, and for appellate purposes it will suffice if the facts critical to each are shortly stated as each transaction is dealt with.

The first transaction concerns a dealing with some seven and three-quarter acres of land at Innaloo near Perth, in Western Australia. Mr. Morris Steinberg first displayed interest in the purchase of this land in December 1959, which he said he hoped to use as the site for a hotel and shopping centre. As a result of transactions the details of which remain obscure Mr. Steinberg and his two brothers, as members of a partnership styled Murray's Furnishing Stores, had, by February 1960, acquired portion of this land together with what may be described as a right of first refusal, for a term of three years, in respect of the balance. Some six weeks later the Steinbergs, in March 1960, were requested to and did grant to a third party, Waikiki Motel Ltd., which was seeking a site for a hotel in the locality, an option to purchase the greater part of the land which they had bought; this option was not exercised and six months later, in September 1960, the partners granted to that company a further option to purchase and to take an assignment of their right of first refusal. This option expired unexercised in October 1961 and in November 1961 the Steinbergs caused an application to be made for rezoning of the land so that it might be used as the site of a hotel, shopping centre and service station. Approval in principle to rezoning as a hotel-motel site, subject to certain conditions, was received in December 1961 but further details were called for by the local authority before it would consider the application for additional re-zoning necessary for the two other proposed commercial uses. On 12th January 1962 the authority's conditions were accepted subject to certain qualifications including its willingness to consider an application for a service station; no further mention was made of the proposed shopping centre. Then three days later, on 15th January 1962, the entire site, less half an acre for a service station, was offered for sale to a brewery, which was informed of the authority's approval in principle and of the Steinbergs' qualified acceptance of the associated conditions. However the brewery rejected this offer and nothing further occurred relevant to the land until mid 1963 when steps, ultimately unsuccessful, were taken to promote the land as a site for a shopping centre. Finally, in March 1965, the whole site was sold for $100,400.

By that time the partnership of Murray's Furnishing Stores no longer consisted of the three Steinberg brothers; in 1963 Mr. Morris Steinberg had reorganized his assets and business interests upon the advice of his accountant with a view to tax consequences and estate planning, so that when the Innaloo land was finally sold in 1965 a share of the proceeds of sale came to the hands of the trustee of a trust established by Mr. Steinberg's wife; it was to the inclusion in the assessable income of that trust of part of that share of proceeds that the objection was taken which forms the subject of this appeal.

The Commissioner justifies his assessment by reference to both limbs of s. 26(a) of the Income Tax Assessment Act. In view of the restricted terms of the taxpayer's notice of objection no point arises concerning the consequences, if any, of changes in partnership membership between the dates of acquisition and final sale of this land. The only question is whether, when the land was first acquired in 1960, it was acquired for the purpose of profit-making by sale.

Before his Honour the taxpayer relied very largely upon the evidence of Mr. Morris Steinberg to show that resale at a profit was not the sole or dominant purpose in acquiring the Innaloo land; however Mason J. found his evidence to be open to such serious doubt that he was not prepared to accept it on this aspect. His Honour gave quite detailed reasons for this conclusion and nothing that was said by appellant's counsel on this appeal led me to doubt its correctness in any way. My own subsequent reading of the transcript of evidence and exhibits has but confirmed me in this view. His Honour having formed this view of the evidence which he heard from Mr. Steinberg, a view which was clearly open to him, it necessarily followed that he should dismiss the taxpayer's appeal and in my view the appellant cannot now succeed in this present appeal.

The purpose of acquisition of the land advanced on behalf of the appellant was its retention and use as a site for a hotel-motel, shopping centre and service station and not its resale at a profit. Yet the light cast upon intention by the steps taken in relation to the land after its acquisition, to some of which I have briefly referred, suggests the contrary; some of those steps were, at best, equivocal and others of them strongly suggest the possession at the time of acquisition of a positive intention to turn the land to account by its profitable resale. In such a situation an appellate court, being in any event slow to form an impression different from that gained by the trial judge when based upon oral testimony which he alone has heard and the effect of which it can only gain from the written word, will be all the less disposed to interfere with the decision at first instance. Here I find no ground for doing so. I would accordingly dismiss this appeal relating to the Innaloo land.

A second appeal, relating to land at Wanneroo, involves a different taxpayer, in this instance Mr. Morris Steinberg himself. Wanneroo lies a few miles to the north of Perth and there, in 1964, Golden West Land Development Co. Pty. Ltd. owned some 720 acres which had been approved for subdivision into ten-acre lots and which it offered to sell to Mr. Steinberg. He did not accept this offer but did, in September 1964, take on behalf of Malgor Pty. Ltd., a company which he had caused to be incorporated some years earlier, an option to purchase not the Wanneroo land but instead the issued capital of the Golden West company. This option, although later extended in term, was never exercised by Malgor Pty. Ltd. It was the three Steinberg brothers, their wives and a son of Morris Steinberg who, in July 1965, became the purchasers of the issued capital of Golden West for a total purchase price of $147,614. It is conceded that they did this as a means of acquiring the Wanneroo land which was then, it seems, the only substantial asset of that company. Morris Steinberg and his wife together acquired half the issued capital; their son did not in fact continue as a purchaser, instead his small entitlement was added to the shares bought by the other four Steinberg shareholders. Then, in October 1965, Golden West went into voluntary liquidation, and the liquidator later distributed in specie to its six members its interest in the Wanneroo land, its articles of association having been amended so as to permit of the adoption of such a course. Soon afterwards, in the first half of 1966, the Overseas Telecommunications Commission told Mr. Steinberg that it wished to acquire half the Wanneroo land for a radio transmitting station and that it would, if necessary, have recourse to compulsory acquisition. Accordingly, in June 1966, the six Steinbergs sold that half of the land to the Commission for $172,957. It is on his share of the profit disclosed by that sale price when compared with the initial cost of the shares in Golden West that Mr. Morris Steinberg has been assessed to tax, the Commissioner relying upon ss. 25 and 26(a) of the Act. The taxpayer's present appeal is against the dismissal by Mason J. of the taxpayer's original appeal against the Commissioner's disallowance of his objection to that assessment.

Two distinct arguments were put on behalf of the taxpayer; first, it was said that the intention with which the shares in Golden West were acquired was, through them, to acquire the Wanneroo land but not so as to profit by its sale; rather it was intended to subdivide that land into ten acre residential farmlets, erect improvements on them and lease them to tenant farmers. Secondly, it was said that in any event neither limb of s. 26(a) can have any application; the first limb was inapplicable because, although the taxpayer did sell his interest in the Wanneroo land in 1966, he was never a purchaser of that land, which only came to him on a distribution of assets in specie in a liquidation; moreover there was no assessable profit which arose from the sale of any property acquired by him for the purpose of profit-making by sale. The second limb of s. 26(a), it is said, was also inapplicable because, even if it be thought, contrary to the taxpayer's primary submission, that the transaction was intended to conclude in sales of the land in subdivision, this constituting a profit-making undertaking or scheme, nevertheless that scheme was interrupted by the forced sale to the Commission; there was thus no profit which arose from the carrying on or carrying out of the scheme. In the course of the hearing of this appeal the taxpayer's second argument came to be somewhat further developed, as will appear when I come to consider it in more detail.

In considering the first argument it is to be noted that it was again Mr. Morris Steinberg whose evidence was largely relied upon as establishing what was the purpose with which the shares, and through them the lands, were acquired. Once again Mason J., after criticizing aspects of this witness's evidence, concluded that he was not satisfied that the purpose of acquisition was that of development and letting out on lease to tenant farmers, as Mr. Steinberg had testified. His Honour pointed to a considerable number of aspects which made such a purpose improbable and in consequence specifically rejected Mr. Steinberg's evidence of intention.

Fundamental to the question of intention was acceptance of the view that the land was acquired for the purpose of subdividing it into about sixty-eight ten-acre lots, each to have a small cottage built on it and then to be let to a working tenant farmer. According to the taxpayer this concept did not occur to him until after he had obtained an option over the land in favour of Malgor Pty. Ltd., a company in which he and his family then held only a one half interest, the remainder of its shares being held by interests associated with a Mr. Markham who was a very experienced dealer in real estate and the organizer of numerous syndicates for the purchase and resale of land in and near Perth. There is nothing in the evidence to negate, and much which supports, the view that at this stage the contemplated purpose was to resell the land either before or after its subdivision.

Mr. Steinberg asserted that later, before actually buying the shares in Golden West, this novel idea of leasing to tenant farmers first occurred to him; he made no inquiries whatever concerning its feasibility, although he had not previously heard of it being attempted, nor did he take any steps to have the land's suitability for farming assessed. There was no investigation to determine whether there was any demand for tenancies of this nature or whether it would be possible to find over sixty tenant farmers prepared to undertake market gardening as tenants on ten acre lots on which they would reside. The capital cost of such a venture, according to his own generalized and somewhat tentative estimates, was considerably in excess of half a million dollars and his financial resources and those of his relatives, even with the aid of substantial loan moneys, appeared to be quite inadequate for the purpose.

With these considerations in mind and having formed the view that Mr. Steinberg was an astute and able businessman already experienced in land purchase and development it is perhaps not surprising that his Honour was not satisfied that Mr. Steinberg in fact acquired the Golden West shares with a view to developing the Wanneroo land in the manner stated by him but rather concluded that the shares were purchased so as to enable the purchaser to acquire that land for the purpose of profit-making by sale.

I turn now to the taxpayer's second argument, that s. 26(a) has in any event no application even if Mr. Steinberg's evidence of purpose be rejected.

In my view the Commissioner cannot rely upon the first limb of s. 26(a) to support his present assessment. The profit included in the taxpayer's assessable income is, broadly speaking, the difference between the price paid for half the Golden West shares and the price later realized on the sale of half the Wanneroo land. Implicit in this is the view that the cost of the land to the taxpayer was the cost to him of the shares, yet this is not the case; the taxpayer got no land when he bought the shares but only those rights to which a shareholder is entitled. Those rights include a right, on a winding up, to an aliquot share of the surplus of assets over liabilities, which might in this instance be satisfied by a distribution of assets in specie; but only in that loose sense had he any interest in the company's land. As was pointed out by Gibbs J. in Ord Forrest Pty. Ltd. v. Federal Commissioner of Taxation [55] , a shareholder obtains no rights of property in the assets of the company in which he holds shares. The fact that the taxpayer bought the shares so as to acquire the land does not, in my view, in any way affect this position; it does not entitle the Commissioner to apply to the land the price paid for the shares.

What then was the price, if any, paid for the land from which a "profit" may properly be calculated? In Archibald Howie Pty. Ltd. v. Commissioner of Stamp Duties (N.S.W.) [56] Dixon J. described a distribution in specie to shareholders as properly to be regarded as "the acquisition of assets for a consideration." It is that consideration which may, for the purposes of the first limb of s. 26(a), be regarded as the cost of the land so as to form the starting point in any calculation of profit; it alone represents the cost to the taxpayer of the property which he subsequently sold. Unfortunately there is no evidence of the money value of that consideration, being the value of Mr. Steinberg's entitlement as a contributory in the winding up of Golden West and which was satisfied by the distribution to him of an interest as tenant in common in the Wanneroo land. Indeed the date of the distribution in specie, which I regard as the relevant date, does not clearly appear; the liquidation occurred in November 1965, the shares having been bought for $147,614 only some four months earlier. If that price, in what was a transaction at arm's length, in any way accurately reflected the then value of the Wanneroo land it increased very much in the ensuing months since on 13th May of the following year a price of $172,957 for only half the land was agreed to between Mr. Steinberg and the Overseas Telecommunications Commission.

Were it necessary for the Commissioner to rely upon the first limb of s. 26(a) the appropriate course would be to remit the matter to him for reassessment, since apart from this question of the basis of calculation of profit I would otherwise regard the first limb of s. 26(a) as applicable; there was here a relevant acquisition by the taxpayer of the interest in land which he later sold, it occurred when the distribution in specie was made. The taxpayer was no mere passive recipient of the land; the entire transaction, beginning with the Golden West shares, was, on the contrary, initiated by him so that he and others might each acquire an interest in the Wanneroo land with the purpose of its resale at a profit.

The same objection to the Commissioner's basis of calculation of profit does not, I think, apply to the second limb of s. 26(a), which I regard as applicable in the circumstances of this case. There was here a profit-making scheme and it commenced with the purchase of the shares in July 1965 for a price of $147,614; the profit from the scheme may then properly be calculated using that price as the starting point.

The profit-making scheme was to purchase the issued capital of Golden West, to alter its articles, to secure its voluntary liquidation followed by the distribution in specie to shareholders of its valuable asset, the Wanneroo land and, last of all, to sell that asset in subdivision. There was here no question of a mere realization of an asset in an enterprising way, as is referred to in Federal Commissioner of Taxation v. Becker [57] , per Fullagar J. and subsequent cases. The scheme began with the acquisition of one asset, continued with its translation into a different asset and was to have concluded with the profitable disposal of that latter asset. There was the "carrying into execution of a plan or venture which does not involve repetition or system" (per Dixon J. in Premier Automatic Ticket Issuers Ltd. v. Federal Commissioner of Taxation [58] ) and that plan or venture had all the aspects of a "business deal" (McClelland v. Federal Commissioner of Taxation [59] ).

1. (1952) 87 C.L.R. 456, at p. 460. 2. (1933) 50 C.L.R. 268, at p. 298. 3. (1970) 120 C.L.R. 487.

If this be so it is, I think, nothing to the point that the intervention of the Overseas Telecommunications Commission resulted in a premature conclusion to the scheme so far as half the land was concerned; this only meant that sooner rather than later a purchaser appeared on the scene prepared to buy at a handsome profit and without any need to incur full costs of subdivision - cf. Hobart Bridge Co. Ltd. v. Federal Commissioner of Taxation [60] .

It is, therefore, the second limb of s. 26(a) which I regard as justifying the Commissioner's assessment both in respect of the liability of the taxpayer's profit to assessment in his hands and in respect of the quantum of that profit.

In the circumstances it is unnecessary to consider the Commissioner's stated reliance upon s. 25 of the Act.

The third transaction is relevant to the three remaining appeals, one by Mr. Morris Steinberg, and two by his son Malcolm David Steinberg and also affects the appeal by the trustee of the Judith Steinberg No. 2 Trust, whose assessment to tax in respect of profits on the sale of the Innaloo land I have already dealt with. It relates to the assessability of profits upon sales of shares in Malgor Pty. Ltd. to Mr. Markham and upon the sale of land at Rockingham, a few miles to the south of Perth, to Rockingham Park Pty. Ltd.

As previously, there is first a question whether or not this Rockingham land, bought by Malgor Pty. Ltd., was bought for the purpose of resale at a profit. It was Mr. Morris Steinberg who procured Malgor's incorporation in November 1960; he and his wife were its only two original shareholders and he was its chairman of directors. Shortly before its incorporation he had obtained, and had exercised, an option to purchase the Rockingham land, consisting of 1,267 acres of rather poor grazing land, at a price of $15 per acre and after its incorporation it became the buyer of the land. In 1963 four hundred shares in its capital were issued to his son Malcolm David Steinberg, paid for by his father; later, in July 1963, Morris Steinberg and his wife sold to a partnership, M.J.S. Investments, all their shares in Malgor Pty. Ltd. as part of the tax and estate planning proposals to which I have earlier referred. The members of this partnership were Mr. and Mrs. Steinberg and the trustee of each of eighteen family deeds of trust. Then, in July 1964, shares in that company were sold to Mr. Markham so that he came to hold one half of its issued capital, the remainder being retained by M.J.S. Investments and Malcolm David Steinberg. This was the transaction which has given rise to two of the four appeals presently in issue.

Then in August 1966 Malgor Pty. Ltd. went into voluntary liquidation and in a resultant distribution in specie Morris and Malcolm David Steinberg in March 1967 each acquired an interest as tenant in common in the Rockingham land, apparently the company's only substantial asset. I ignore for the present, but will later have to return briefly to a consideration of, possible consequences of Morris Steinberg's disposal of his shares in Malgor Pty. Ltd., which resulted in his former shareholding being held by him on behalf of the M.J.S. Investments partnership; suffice it to say that thereafter efforts were made by Mr. Markham to sell the Rockingham land which was ultimately sold in two separate contracts the first being a sale of the Markham group's interest in the land, the second a sale of the Steinberg group's interest, only sold in November 1969. It is with the proceeds of this sale that the two other appeals, by Morris Steinberg and his son, are concerned.

Mason J. held that the profits made on the sale of the shares in Malgor Pty. Ltd. and on the subsequent sale of interests in the Rockingham land were profits arising from the carrying out of a profit-making scheme initiated in early 1960 and were assessable accordingly under the second limb of s. 26(a).

Counsel for the Commissioner supported his Honour's conclusion and, by way of alternative submission, also contended that the circumstance could be viewed as involving a scheme beginning only when it was decided to sell half of the issued capital in Malgor Pty. Ltd. to the Markham interests or, as a further alternative, beginning later still when it was decided that Malgor Pty. Ltd. should be placed in liquidation.

For the taxpayers it was contended that no relevant scheme existed but that the purchase of the Rockingham land was undertaken as an investment in a grazing property. Alternatively it is said that in any event the shares in Malgor Pty. Ltd. were not sold to Mr. Markham by the persons to whom they were originally issued but by the M.J.S. Investments partnership, something which no scheme ever contemplated but which was brought about by the adoption of tax and estate planning advice given to Morris Steinberg which resulted in the substitution of that partnership as shareholder in Malgor Pty. Ltd. in place of Morris Steinberg and his wife. In essence the taxpayers rely upon the fact that the profits which were derived arose in an unforeseen way and hence not pursuant to any scheme.

Before considering the taxpayer's alternative submission I should say that I agree with the conclusion of Mason J. concerning Mr. Morris Steinberg's purpose in buying the Rockingham land and should state briefly my reasons for doing so.

Mr. Steinberg said that he bought the land, having Malgor Pty. Ltd. incorporated so that it might become the purchaser, as a farming proposition with a view to his retirement, having in mind making it "quite a show place". This evidence Mason J. rejected, pointing to a number of considerations which led him to that view. Those considerations are indeed powerful and his Honour was not only entitled to take the view he did but could, in my view, scarcely take any other. It is enough to refer to the improbable version given by Mr. Steinberg of what was, according to him, his sudden and wholly unpremeditated entry into grazing activities on a somewhat unpromising property without any prior advice and having neither inspected nor, indeed, made any inquiries at all concerning any other grazing properties available for purchase. When this is combined with the failure, after its purchase, to use the land for grazing, with Mr. Steinberg's considerable past experience in the purchase of land for profit-making by resale, and with his statement at the statutory meeting of Malgor Pty. Ltd. that no definite land development had yet been embarked upon but that a number of propositions were being considered, the conclusion may readily be reached that Mr. Steinberg's purpose in acquiring the land was other than what he said it was.

I turn now to the question of whether in these circumstances s. 26(a) is applicable to the four receipts of profits involved in this transaction and which the Commissioner has assessed to tax.

The applicability of the first limb of s. 26(a) may be dealt with quite shortly; there was no evidence to suggest that the shares in Malgor Pty. Ltd. were acquired with any view to their resale, indeed the evidence is, rather, to the contrary. It was only the need for funds and the lack of success experienced in securing those funds from other sources that led to their sale. Profits on their sale by Malcolm David Steinberg and by the trustee of the Judith Steinberg No. 2 Trust cannot in my view be assessed to tax in reliance on the first limb of s. 26(a). Profits made by Morris Steinberg and his son on the sale of their interests as tenants in common in the Rockingham land are, on the other hand, in my view assessable under the first limb for reasons similar to those I have discussed in the case of the Wanneroo land; the receipt of the interests in the Rockingham land on the making of the distribution in specie was an acquisition within s. 26(a) and there has been no evidence to displace the inference that it was accompanied by an intention to make a profit by the sale of what was distributed. Mason J. inferred that this had been Mr. Morris Steinberg's intention in relation to the Rockingham land from the outset and I agree, with respect, in his conclusion regarding Malcolm's role from the time he became a party to the transaction; the son's evidence is in no way inconsistent with his being an informed and ready associate of his father in relation to all that was thereafter done and intended concerning the Rockingham land.

However, in my view, as was the case in relation to the Wanneroo land, any reliance upon s. 26(a) must involve a remission to the Commissioner for re-assessment because there is no material before this Court concerning the value of the respective interests in the land as at the date of their distribution in specie and it is at that date and not earlier that, for profit calculation purposes, the cost of the land is to be ascertained.

I turn therefore to the second limb of s. 26(a); the critical question here is whether there existed any scheme and, if so, whether the profits in question arose from its carrying on or carrying out.

That there was initially a profit-making scheme is, I think, clear and his Honour has so found. It consisted in part of the purchase of the Rockingham land and the incorporation of Malgor Pty. Ltd. so that it might become the purchaser of that land. Whether or not the scheme included any precise plan of the manner in which the land and its subdivisional potential should ultimately be turned to profit does not emerge from the evidence. Nor was it likely to when the taxpayers' case involved a denial that the initial acquisition was with a view to resale at a profit. Once this evidence is rejected there may then remain circumstances from which valid inferences may be drawn concerning the purpose with which acts were done but it is unlikely that they will permit of inferences concerning those details of a scheme which have never been given effect to because the march of events has caused the scheme to be prematurely abandoned or substantially altered.

Before considering what is the consequence of this absence of evidence about any details of the scheme I should state my understanding of certain characteristics of the concept of a scheme for the purposes of s. 26(a).

Once it is determined that a scheme exists the effect of supervening events which cause a departure from the original scheme will vary depending upon the view taken of those events. If they be seen as involving an abandonment of the scheme as a whole, as in Kratzmann v. Federal Commissioner of Taxation [61] , without the substitution of some new scheme, Eisner v. Federal Commissioner of Taxation [62] , profits made subsequent to its abandonment will not be assessable under s. 26(a). If, instead, a scheme in an amended form is thereafter carried out which can be seen to be a different scheme from the original scheme the date of inception of the new scheme will be the starting point for the calculation of profit, so that if the acquisition and resale of land is in question the value of the land at the date of inception of the new scheme will be the relevant starting figure. Again not every change in the planned details will involve the adoption of a new scheme, this will always be a question of fact and will be much affected by the degree to which the original scheme was precise in its details. An imprecise scheme, the details of which have not been worked out in advance, will more readily take in its stride unexpected events without becoming a different scheme.

1. (1970) 44 A.L.J.R. 293, at p. 294; 1 A.T.R., at p. 830; [1970] A.T.C., at p. 4045. 2. (1971) 45 A.L.J.R. 110; 2 A.T.R. 3; [1971] A. T.C. 4022.

It is true that an undertaking or scheme must involve a "programme or plan of action" (Clowes v. Federal Commissioner of Taxation, per Kitto J. [63] , andXCO Pty. Ltd. v. Federal Commissioner of Taxation, per Gibbs J. [64] ); it presupposes, as Windeyer J. has said, activities which are "co-ordinated by plan and purpose" (Investment and Merchant Finance Corporation Ltd. v. Federal Commissioner of Taxation [65] ). However, as emerges from the judgment of Windeyer J. in Buckland v. Federal Commissioner of Taxation [66] , it may involve no more than a settled purpose on the part of those concerned "to turn their purchase to profitable account as best they could when they got possession, depending on how the undertaking then developed", although it must necessarily have as its object the making of a profit (XCO Case [67] ). It may involve alternative plans, different routes to the desired profitable end, the selection of one route rather than another being left for determination by future events (Elsey v. Federal Commissioner of Taxation [68] ). It is clear from what was said by Dixon J. in the Premier Automatic Ticket Issuers Case [69] , that a venture involving an acquisition of property with a view to "any profitable dealing with the property", it being proposed that advantage be taken of whichever of a large number of possible modes of future profitable disposal happens to prove most expedient, may constitute a scheme, despite the absence of any particular planned mode of dealing.

1. (1954) 91 C.L.R. 209, at p. 225. 2. (1971) 124 C.L.R. 343, at p. 349. 3. (1970) 120 C.L.R. 177, at p. 189. 4. (1960) 34 A.L.J.R., at p. 62; [1960] A.L.R., at pp. 602-603; 12 A.T.D., at p. 169. 5. (1971) 124 C.L.R., at p. 350. 6. (1969) 121 C.L.R. 99, at p. 114. 7. (1933) 50 C.L.R., at p. 300.

It may be that the original scheme in this instance was quite precise in its terms; if so, the sale of half the shares in Malgor Pty. Ltd. to the Markham interests could hardly have been anticipated by it, it also probably did not contemplate any winding up and distribution in specie. However the scheme may equally well have been entirely imprecise in character, no particular steps being worked out by which profit was to be gained from an increase in the value of the Rockingham land; it may have consisted of no more than a scheme whereby a company to be formed, with the Steinbergs as shareholders, would acquire the land and retain it while it appreciated in value, that being followed by a realization of the land by whatever means and with whatever intermediate steps might then appear expedient.

Even were there evidence that the scheme was fully pre-determined from the beginning this would not, I think, mean that what in fact happened involved an abandonment of the scheme so that, as in Kratzmann's Case [70] , profits which subsequently arose did not arise from the carrying on or carrying out of a profit-making scheme. Only rarely, I think, can it be said of a scheme for the acquisition of assets for profit-making simply by their resale (of which Kratzmann's Case was not an instance) that a frustration of the planned mode of disposal, followed nevertheless by a profitable disposal, results in there being no scheme capable of attracting s. 26(a) but only in a realization of a capital asset. Here the original object, a profitable sale of the land, was pursued and attained, although the mode of doing so may have been changed so as to accommodate to changing circumstances. Were the scheme thus shown to have been fully predetermined from the beginning, the most that could be said is that changes made to the scheme resulted in the substitution of a new scheme for the original one, the starting point for calculation of profit therefore being the value of the land at the date of initiation of the new scheme. In fact there is no evidence that the scheme was other than of the simplest sort, devoid of any details of how, precisely, the profit would be realized. It follows that the fact that the profit was in fact realized in part from the unanticipated sale of half the issue capital of Malgor Pty. Ltd. and in part from the sale of land which came to the shareholders by way of a distribution in specie not perhaps originally contemplated does not of itself show the Commissioner's assessment to have been in error.

1. (1970) 44 A.L.J.R. 293; 1 A.T.R. 827; [1970] A. T.C. 4043.

In the case of the two appeals by Malcolm David Steinberg and of the appeal by the trustee of Judith Steinberg No. 2 Trust, the respective taxpayers clearly enough did not become participants in the scheme until 1963, long after its inception. Mason J. held that both these taxpayers were at all times aware of the intentions of Mr. Morris Steinberg, the originator of the scheme; by their entry, albeit belated, into the scheme as participants with full knowledge of it, what had previously been done by the original participants was adopted by them and they took the benefit of the scheme which they found already on foot. No doubt, as Dixon C.J. observed in Clowes' Case [71] , s. 26(a) must be understood as speaking of a scheme carried on or carried out "by the taxpayer or on his behalf" and it will not apply to the case of a taxpayer, who, as in Clowes' Case [72] , derives a receipt from another who has in turn obtained it by the carrying out of such a scheme (per Gibbs J., XCO Case [73] ). However neither Malcolm David Steinberg nor the trustee can, in my view, call this principle in aid, even for the purpose of having their profits calculated from a starting point in 1963 rather than from the earlier inception of the scheme. They stand in the same position as do the original participants in the scheme in relation to the calculation of quantum of profit.

1. (1954) 91 C.L.R., at p. 217. 2. (1954) 91 C.L.R. 209. 3. (1971) 124 C.L.R., at p. 349.

The position of the fourth appellant, Mr. Morris Steinberg, is in one sense unique. Until the formation of the M.J.S. Investments partnership he was a major shareholder in Malgor Pty. Ltd.; when, on its formation, that partnership acquired nearly all the issued capital of that company, he retained, as a member of the partnership, only a quite small beneficial interest in its capital. Then, when it was found that amendments to tax legislation made it no longer attractive to retain in existence the eighteen trusts which, through their preponderating interest in the partnership, were entitled to most of the half of the capital of Malgor Pty. Ltd. which had not been sold to Markham interests, the "liquidation" of the trusts restored to Mr. Steinberg a substantial interest in Malgor Pty. Ltd. It was by means of this interest that, on the distribution in specie, he acquired his interest as tenant in common in the Rockingham land, on the profit from the sale of which he has been assessed. Thus through his own actions his interest in Malgor Pty. Ltd. and in the land which he caused it to buy had waned and waxed again during the currency of the scheme. I do not regard this as in any way affecting the application of s. 26(a); all that happened was brought about by the taxpayer and the ultimate profit he received was in every sense a profit from the carrying out of the profit-making scheme, a scheme of whose inherent flexibility he took advantage from time to time so that he could ultimately derive his profit without ever having to abandon the scheme of which he was the author.

It follows that it has not, in my view, been shown that the Commissioner was in error in assessing to tax as profits from the carrying out of a profit-making scheme both the profits from sale of interests in the land and also the profits from sale of shares in Malgor Pty. Ltd. I would accordingly dismiss each of the four appeals concerned with this Rockingham land.

[The Right Honourable Mr. Justice Menzies died before judgment was delivered in this case.]