F.C. GOLD MINING Co. LTD. v. COMMISSIONER OF INCOME TAX. Melbourne, and possibly by means of investment on loan at But no evidence During the same MOUNT MORGAN interest in London by payments there made. was given as to the amount of such profits. period 6.5 per cent. of the said total shipments were made in fulfilment of contracts made in Australia, but outside Queensland McCawley C.J. for shipment of gold f.o.b. Sydney, Melbourne, or Fremantle, payment in almost all cases being made in London to the Commonwealth Bank of Australia. In the case of such f.o.b. contracts, in addition to the profits directly attributable to such contracts, profits were made by means of premiums on remittances to the credit of the Association in Melbourne. But no evidence was given as to the amount of such profits. Substantially all the profits of the Association were derived from such contracts as aforesaid in the proportion of 93.5 per cent. from contracts wholly made and carried out outside Australia, and of 6.5 from contracts, f.o.b. Australia. The Association does not, and did not at any material times, carry on any business in Queensland." The net returns of the Association were distributed in accordance with its articles, and the Mount Morgan Company received £142,111 19s. Id. The Court is asked to determine whether this sum, or any and what part of it, is taxable income of the Mount Morgan Company under The Income Tax Act of 1902, as amended from time to time. The Crown contends that the whole sum is taxable income(i.) As “income derived from personal exertion" (see definition, S. 3), as (a) earnings derived from Queensland, (b) income arising or accruing from a business carried on in Queensland, (c) income under s. 12A, subsec. I, (3); or (ii.) income derived from the produce of property. The appellant company contends-(i.) That no portion of the sum is liable to taxation under any of those heads; alternatively (ii.) that, if some portion is liable, it should be apportioned in accordance with Commissioners of Taxation v. Kirk (1); (iii.) that in any event, the profits made from exchange and investment are not taxable income. The Crown's contention is that the returns by the appellant company received from the Gold Producers' Association are nothing more than an additional price received by the company for the gold produced by it and liable to taxation in exactly the same way as the sum of £4 4s. 2d. received through the sale of such gold to the Refining Company. (1) [1900] A.C. 588. F.C. GOLD MINING OF INCOME TAX. The Commonwealth Treasurer, recognising that it was a hardship while their costs of production had increased that the MOUNT MORGAN producers of gold were confined to the standard price for gold, arranged to permit the export of gold so as to obtain the world's parity, on two conditions-First, that the benefit of the concession whereby the higher price for gold would be obtained passed to the producers; secondly, that the gold exported amounted to no more than the new gold produced. It was in order to provide portion of the machinery for this arrangement that the Gold Producers' Association Limited was formed. The Gold Producers' Association is a company registered in Victoria. The share capital of the company is £2,500 (50,000 shares of one shilling each). Only gold producers are eligible (Article 6). The business of the company is "confined exclusively to agency for and on behalf of its members for the sale or disposal of gold bona fide produced by the members in the Commonwealth of Australia, and upon such terms and conditions as will, in the opinion of the Board, provide for the expenses of the company as agents, and for the outgoings necessary for carrying on the company's operations so confined, but without allowing any profit to the company itself" (Article 97). The net returns in the hands of the company for the sale or disposal of gold are to be distributed amongst the members pro rata to the amount of standard gold available for sale and disposal on account of such member-i.e., "the amount of standard gold shown on the Mint, bank, or refinery (if approved by the Board) certificates lodged by such member with the company." (Article 98). The appellant stresses the fact that the sovereigns or Mint bars included in any particular shipment are provided by the bank from its reserves of gold or coin or bullion, and are not necessarily or likely to be coined from the new gold deposited at the Mint, and represented by the duplicate Mint memoranda of out-turn and duplicate Mint receipts lodged with the Treasurer in connection with a particular shipment. The identity of the actual gold produced at Mount Morgan is, like the identity of the copper, lost during the process of refining. The following events connected with the making of the profits, the taxability whereof is in dispute, took place outside Queensland —(a) The delivery of the blister copper to the refiner; (b) the process of refining; (c) the receipt of and payment for the gold; (d) the obtaining of the receipts and memoranda of output McCawley C.J. F.C. and their delivery to the Gold Producers' Association; (e) the MOUNT MORGAN Consent of the Treasurer to the export of gold equivalent to that GOLD MINING Co. LTD. v. COMMISSIONER OF INCOME TAX. McCawley C.J. indicated in the Mint documents; (f) the whole of the operations of the Cold Producers' Association and its agents; (g) the distribution and receipt of the profits. In view of all these events beyond the State, can it be said that the profits were "earnings derived from Queensland" or "income arising or accruing from a business carried on in Queensland"? There is no doubt that the ultimate source of these profits is the gold contained in the blister copper produced in Queensland as the result of the mining operations of the appellant company in Queensland in carrying on its business. It is as a producer of this gold that the company gets its right to the Mint certificates; that it is a shareholder in the Gold Producers' Association; that it receives the right to export gold through the Association; that it receives the profits made for it by the Association by the disposal, not, it is true, of the identical gold produced by it, but of gold equivalent to the gold it produces. It seems to me that these profits, founded as they are upon the gold produced from the Queensland mine, are earnings derived, in part at all events, from Queensland. Nor is it open to serious controversy that the profits arise from the business of the appellant company. The totality of the relevant business operations which the appellant company carries on is one business. The company does not carry on two businesses one, the production of gold and copper; and another, the sale of gold and copper. The sale of gold, whether to the refining company or to purchasers through the Gold Producers' Association, is part of its business. The appellant company, in employing the Gold Producers' Association as its agent to dispose of gold, is carrying on the same business as it is carrying on in Queensland. The words of the section are, however, "income arising or accruing from a business carried on in Queensland," and, so the appellant company contends, it is not sufficient to show that the income arose or accrued from the business, but it must be shown that it arose or accrued from those operations which are carried on in Queensland. It seems to me that, having regard to the fact that the business of the company is one business, and to the nature of the operations F.C. MOUNT MORGAN carried on in Queensland, these profits from the sale of gold through the Gold Producers' Association arise or accrue from the business operations in Queensland, which result in the production of blister copper containing the equivalent gold. To hold otherwise would be to be guilty of the fallacy, to which attention is drawn by the Privy Council in Kirk's Case (1), of leaving out of McCawley C.J. sight the initial stages, and fastening attention exclusively on the final stage in the production of the income. The appellant company, however, contends that, assuming the profits arise or accrue or are derived from the business operations in Queensland, they arise indirectly, and the words as used in the Act mean directly derived or directly arising or accruing. In support of this contention reference is made to Lovell & Christmas Ltd. v. Commissioner of Taxes (2), where Sir Arthur Wilson, in delivering the decision of the Privy Council, after referring to Grainger v. Gough (3) and Erichsen v. Last (4), says: "But the decisions do not seem to furnish authority for going further back, for the purpose of taxation, than the business from which profits are directly derived, and the contracts which form the essence of that business." The appellant company contends that the business from which these profits are directly derived is the business of the Gold Producers' Association, and the contracts which form the essence of that business are wholly made outside the State. But it must be observed, in the first place, that here it is not sought to tax the profits of the Gold Producers' Association, but the profits made by the appellant through the Association as the appellant's agent; these profits are profits of the appellant company's business; they are also profits which come to the appellant company as a producer of gold-gold produced in the course of the operations carried on in Queensland. Secondly, while Lovell & Christmas v. Commissioner of Taxes (2) and the cases on which it rests indicate the test to be applied in determining whether a foreigner is carrying on business within the meaning of the Income Tax Acts in the country seeking to tax him, they do not-applying the words of the Privy Council decision in Commissioners of Taxation v. Kirk (1)-appear to have much to do with a case such as the one before us, where a business is admittedly carried on in this country. (See also Liverpool and London and Globe Insurance Co. v. Bennett (5). (1) [1900] A.C. 588. (2) [1908] A.C. 46 at p. 52. (3) [1896] A.C. 325. (4) 1881, 8 Q.B.D. 414. (5) 1911, 6 Tax Cases 327, at p. 357. OF INCOME TAX. 248 F.C. MOUNT MORGAN McCawley C.J. I think that the income in this case -in part, at least-“ arises" 66 or accrues" within the meaning of the section from the business operations carried on in Queensland, whether it is derived therefrom directly or indirectly, or, as Kirk's Case (1) puts it, mediately or immediately. Since the business of the company is carried on within the State. and certain business operations take place without the State, is portion only of the income under consideration referable to the Queensland operations, or can the whole of it be said to accrue from the "business carried on in Queensland"? In Kirk's Case (9), the company sought to be taxed had its head office outside the taxing colony (New South Wales), the sale of the product and the receipt of the moneys took place outside the colony, while the ore was produced and converted into a merchantable product in the taxing country, New South Wales. The Privy Council decided that some taxable income was derived from the business operations carried on in New South Wales, and though this was the only question their Lordships had to determine, language is used in the judgment which might be taken to indicate that the income should be apportioned. Section 27, subsec. 3, of the New South Wales Act provided that "No tax shall be payable in respect of income earned outside the colony." No suggestion was made by their Lordships as to the principles to be applied in such apportionment, but counsel for the Commissioners contended that the proceeds received by the company, after making proper deductions and allowances, was income earned in the colony; alternatively, that so much of the proceeds as was attributable to the value of the substance and products exported was income earned in the colony. While the appeal in Commissioners of Taxation v. Kirk (1) was pending, the Legislature of New South Wales enacted that "the value of the commodity, when exported, shall be deemed to be the amount on which income tax shall be payable," and regulations under the Act prescribed the mode of ascertaining the value substantially in accordance with the abovementioned contention of counsel. See D'Arcy Irvine on Income Tax, p. 310. In Commissioner of Taxes v. Kauri Timber Company (2), the facts were that a company had its head office in Melbourne and a branch office in New Zealand, and carried on in New Zealand p. 594. (1) [1900] A. C. 588 at (2) 1904, 24 N.Z. L.R. 18. |