LAW REPORTS.

Dominion, Volume 4, Issue 1174, 8 July 1911, Page 13

LAW REPORTS.

COURT OF APPEAL.

LAND DEALINGS AND INCOME TAX,

" LLOYD-GEORGIAN DOCTRINE."

SOME EASTBOURNE SECTIONS.

Two cases of great interest to investors in suburban land and others were argued in the Court of Appeal yesterday before the Chief Justice (Sir Robert Stout) and their Honours Sir Joshua Williams, Mr. Justice Denniston, Mr. Justice Edwards, and Mr. Justice Sim. Both cases were taken together, the same question being involved, namely, whether "syndicates" are liable to pay income tax on the profits made by them on the purchase, subdivision, and sale of land. The plaintiff in each case was the Commissioner of Taxes. The defendants in the first case were: F- G. Bolton, solicitor; Margaret Isabel Bolton; H. Van Stavcren, Jewish minister; R. J. Thompson, auctioneer; and C. R. Stuart, accountant. The defendants in the second case were: F. G. Bolton, R, J. Thompson, T. B. Dwan, hotelbroker; L. Dwan, hotelbroker; Henry Savage, commission agent. Counsel in both cases were Mr. H. D. Bell, K.C., for the plaintiff; Mr. A. Gray and Mr. P. G. Bolton for the defendants. In the Van Staveren case, by deed of conveyance dated May 3, 1899, made between John Cameron, Charles Cameron, and Hugh Cameron, of the first part, H e nry Savago of the second part, and -F. fa. Bolton, M. G. Bolton, Hermann Van Staveren, Walter Fell, Herbert Leicester, and R. G. Thompson, of tho third part, 21 acres 3 roods and 26 perches at MuriIt 1 - ? ere f onv<! J" cd the parties of the third part to hold as tenants in common, lhe purchasers valued tho land for tho purposes of the Land Transfer Act at £2000. A littlo later they bought an adjoining piece of land, which they valued f°r Land Transfer purposes at ,£4OO. They also bought another piece of land tor the purpose of facilitating the water supply to the block. The land was afterwards subdivided and sold, some for cash and some..on terms. The Commissioner claimed that defendants wero liable to pay mcoine tax on the profit niado by them upon the resale of the block, less such deductions as might be allowed by him in terms of tho Land and Income lax Amendment Act, regulating deductions to, bo made from assessments of income tax. In tho Dwan case, by memorandum of transfer, dated January 8, 1902, from Dr. I'. H. Mackenzie, by direction of Sarah Augusta Savage, wife of Henrv Savage, to defendants, 4 acres and 2 7-10 th perches at Okiwi Ui, Day's Bay, was transferred to defendant?, each of whom held a onesixth share. Thcso defendants also-sub-divided the land, and sold it at a profit, and tho Commissioner claimed income tax as in the. former case. The question for the Court was whether the defendants in either case were liable to pay income tax on the profits derived from sale.of tho lands. The Governing Clause. _Mr. Bell's argument was mainly directed to showing that tho defendants came within the wording of Section 79, Subsection (o) of tho Land and Income Tax Assessment Act, which states that "income derived from business" includes profits from "tho purchase, sale, or other disposition of • real property, if tho taxpayer's ordinary business comprises dealing in such property, but not otherwise." Mr. Gray contended, inter alia; that the word "dealing," in the clause quoted, did not mean a singlo transaction or set of transactions. He produced Johnson's Dictionary and read the definition of "deal"—"to traffic, to do business," etc. Some of their Honours smiled on seeing tho classic English Dictionary in Court, and Mr. Justice Denniston remarked, "Tboy didn't cut up and sell land in Johnson's day, you know." Tho Chief Justice, however, repeated with emphasis tho words "to do business." ■ Ho pointed out that in the Van Stavcren case there had been more than one purchase. Mr. Justice Denniston asked whether the agreement between tho parties in the Van Staveren case did not show that they proposed to use a piece of land as the stock-in-trade of their business. Mr. Gray said if that view wore upheld, it would follow whenever two people who owned a piece of land cut it up and sold it, they would he deemed to be dealers in laud. His Honour replied that if they were Co-Owners before they thought of cutting .up the land, then the cutting-up would 'bo merely an incident of the co-ownership, but if they bought it for the purpose of cutting up and selling it, the position might be different. "Court Will Use Its Common Sense," Mr. Gray: But the Court will not as-sume-the .purpose for which the land was bought. . Mr. Justice Denniston: The Court will use its common sense. Sir Joshua Williams: The purpose, is shown on. the face of the agreement. Mr. Justice Denuiston: Would they swear an affidavit that they did not buy it with the intention of cutting it up? I know I would not, if I- wero ono of them. As a further illustration of a partnership for the purpose of dealing in land, Mr.'Justico Edwards mentioned an area at Kelburno "out of which an eminent member of the Bar is said to have mado a lot of money." • The Chief Justice said the Van Staveren case seemed to bo concluded by tho actual fact that the defendants had placed themselves within their counsel's own interpretation of the word "deal." The defendants had agreed together to purchase land and sell it again, and they had done- so. After the first purchase they had made another purchase of land for the purpose of dealing in or selling it There were three separate purchases, although tho land became one block. As to the Dwan case, that might be different. "Not the Lloyd-Georgian Doctrine." ' Mr. Gray quoted from the judgment of Lord Justice Fnrwell in Stevens v. Hudson's Bay Company: "Landowning is not a trade, and it would be an enormous deterrent to that free dealing with, land that the common law has for centuries regarded as of the greatest importance for the public weal if the vendor wcro to be charged with income tax on all or any part of the purchase money of tho land sold by him." . ... Mr. Justice Denniston: That is not what I mav call the Lloyd-Georgian doctrine. Mr." Gray said the judgment ho had quoted was delivered in 1909. Mr. Justico Denniston: Tho doctrine has not yet permeated the Courts. Mr. Justice Edwards (alluding to the case cited): It was not in New Zealand. Counsel went on to put a supposititious case of a business or professional man named Jones buying and selling a section on Lambton Quay. The Commissioner of Taxes could not touch him, but if Smith and Jones together bought tho sicction and sold it, the Commissioner would catch them, because, in the view suggested from the Bench, they would bo dealers. Mr. Justico Denniston: That is not the present case. Mr. Bolton also addressed the Court; Judgment; The Court Unanimous. Tho Chief Justice, after intimating that their Honours did not require to hear Mr. Bell in reply, delivered judgment. He said that in his opinion both cases wero determined by the judgment of tho Court of Appeal in the case of the Commissioner of Taxes v. tho Miramar Land Co. So far as tho Van Stavcren case was concerned, it was plain on tho face of the statement of tho case that the association was formed for the purpose of purchasing a block of land, cutting it up and selling it. In fact, nfter the main block was bought, the association brought two other pieces of land that wcro useful in the cutting up and selling of the first. It was clear that the object was to dispose, of the land by sale. In the Miramar case the land was purchased and sold without even being cut up by tho company, but because the object of tho company was to buy and sell land, the Court hold that that was a carrying on of business by the company. In this case (the Van Staveren case) there were three purchases, and apparently numerous sales. Ho could not see how the mere fact that tho defendants wero an association and not a company .could affect

' tho matter. They came expressly within tho wording of Section 70 of tho Land and Income Assessment Act. In the Dwan case there was only one purchase and there was no memorandum of agreement between tho defendants showing the ohj eel's of the association, but it was clear from-the statement jn the special case that a piece of land was purchased, and within a few months, sub-divided, and there v.-cn several sales. That being so, it could not bo said that, because there was only one purchase, it was not the business of the association. According to the Miramar decision, that, was no defence undsr the statute. The memorandum of association in the Miramar case showed what was the object of the company, but that was shown in the present case by what was actually done. His answer to tho question put to tho Court was "Yes," in each case. Sir Joshua Williams was of the same opinion. Ho said that in view of the Miramar decision it seemed to him there was only one question open to tho Court, and that was whether a body of persons who were associated, but not incorporated as a company, and who wero associated for tho purpose of carrying on the samo business as a company, and actually did carry it on, wcro in the samo position as a company. It seemed to him that they were. There was no possible reason why their profits should not be taxable under Section 88. Tho other Judges concurred, and gave their reasons. Judgment was entered for plaintiff with costs on tho lowest scale. Tho Court adjourned until 10.30 a.m. on Monday.