case_outcome: applied

case_text: The applicant lodged notices of objection against the ATO assessments and the penalty imposed. As indicated earlier in this judgment, on 27 September 2002 the respondent disallowed the applicant's objections. TRIBUNAL DECISION 5 In the Tribunal, the submissions of the applicant and the subsequent findings were as follows: 1. The applicant contended that the activities of the applicant in relation to the land were in the nature of a profit-making venture. However the learned Senior Member was not persuaded by that characterisation of the applicant's business activity (Reasons for Decision para 34), and was of the view that the land was a capital asset, with the result that the loss on its sale was a capital loss (para 35). 2. The applicant contended that company losses could be carried forward, on the basis that the "continuity of ownership" test in s 80A ITAA 1936 had been satisfied, and during the relevant period the beneficial ownership of shares in the applicant remained with Mr Paul Doumany; or that the "same business" test in s 80E ITAA 1936 had been satisfied. The Senior Member observed that, given his findings concerning the characterisation of the applicant's business activity and the resultant loss, it was strictly unnecessary for him to reach a decision on either of these issues. In any event however, the Senior Member was satisfied that: • while the legal ownership of the shares in the applicant may have remained with Mr Doumany, at the time the loss on the sale of the land was incurred the beneficial ownership of shares in the applicant rested in Mr Iwasaki, having been transferred to Mr Iwasaki on or before 20 December 1991. Accordingly the applicant failed on the "continuity of ownership" test in s 80A (para 40 ); and • there had been a significant break in the business activities of the applicant between November 1992 and 1996, and the applicant therefore failed on the "same business" test in s 80E (para 45 ). 3 . The Tribunal noted that the applicant bore the onus of proving the objection decisions should have been made differently: s 14ZZK(b) Taxation Administration Act 1953 (Cth) ("TA Act") (para 27). Although the Senior Member was not prepared to draw an adverse inference from the failure of Mr Doumany to give evidence in accordance with the rule in Jones v Dunkel [1959] HCA 8 ; (1959) 101 CLR 298 (para 28), he noted that the failure of Mr Doumany to give evidence meant that it was more difficult for the applicant to show that the Commissioner's decision was wrong (para 29). 4. The applicant contended that a penalty of 75% was inappropriate because it acted with the advice of senior counsel. However the Senior Member was satisfied that the penalty of 75% under s 226J ITAA 1936 was appropriate (para 50). QUESTIONS OF LAW RAISED ON APPEAL 6 The questions of law raised on appeal in this case were as follows: a. are the losses incurred by the applicant allowable as deductions under s 51(1) ITAA 1936? b. if yes to a., in the relevant years of income: i did s 80A ITAA 1936 apply to deny the applicant deductions?; or ii did s 80E ITAA 1936 apply to allow the applicant deductions? c. if the applicant was wrong in claiming deductions, were penalties correctly imposed under s 226J ITAA 1936? d. did the Tribunal err in instructing itself as to the applicant's onus of proof and as to its role in reviewing the objection decision? e. did the Tribunal err in not providing reasons for its rejection of the preponderance of the evidence as to the beneficial ownership of the shares? f. did the Tribunal err in finding that the applicant was not carrying on the same business in the relevant years within s 80E? g. could a reasonable tribunal have made, on the material before it, the findings made? h. does the Tribunal's apparent error of fact namely that Mr Doumany was prosecuted in the criminal courts for causing the applicant to claim the deductions show that the Tribunal failed to give due consideration to the material before it, or give rise to a reasonable apprehension of wrongful bias against the applicant? 7 I shall address each of these questions in turn. a. ARE THE LOSSES INCURRED BY THE APPLICANT ALLOWABLE AS DEDUCTIONS UNDER SECTION 51(1) ITAA 1936? 8 As the relevant loss occurred in the 1993 year of income both applicant and respondent accepted that the relevant statutory provision was s 51(1) ITAA 1936. 9 The applicant submitted that: • the Tribunal applied the wrong test of deductibility to the facts as found • the Tribunal did not refer to the relevant test of when a profit from sale of a capital asset as opposed to the proceeds of sale of a revenue asset was on revenue account, which it submitted was whether the asset was acquired with a purpose or intention of profit-making by sale . This, the applicant submitted, was the relevant inquiry, not whether the land was trading stock or whether the gross proceeds were on revenue account • the Tribunal failed to direct itself as to the proper test of whether land is acquired as part of a profit-making undertaking, being whether one of the purposes of its acquisition, rather than the purpose, was profit-making by sale. • the test was not whether the applicant was in the business of property development, with the land being trading stock: Moana Sand Pty Ltd v Federal Commissioner of Taxation (1988) 88 ATC 4897. In particular, the applicant submitted that in Moana Sand 88 ATC 4897, the profit made by the taxpayer was held to be income because one of the taypayer's purposes was profit-making by subdivision and sale, even though the subdivision was not in fact carried out and the taxpayer had to sell the land en globo due to a compulsory acquisition. The applicant also cited in support of its case Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42 and Westfield Ltd v Federal Commissioner of Taxation (1991) 28 FCR 333. 10 In response, the Commissioner submitted that: • the necessary requirement of deductibility under s 51(1) is that the loss is "incidental and relevant" to the income-earning operations of the taxpayer • the ultimate question must remain whether the loss incurred had the necessary connection with the applicant's gaining or producing assessable income, or the carrying on of its business • the question of whether the taxpayer carries on a business is a question of fact • citing Gibbs J in Commissioner of Taxation v Williams [1972] HCA 31 ; (1972) 127 CLR 226 at 249, proceeds resulting from the mere realisation of a capital asset are not income, even though the realisation is carried out in an enterprising way so as to secure the best price. However, a distinction needs to be drawn between mere realisation of an asset, and development and improvement of land to such a marked degree that it is impossible to say that it is mere realisation of an asset, as was the case in Federal Commissioner of Taxation v Whitford's Beach Pty Ltd [1982] HCA 8 ; (1982) 150 CLR 355 • the test propounded by the applicant was referable to the former s 26(a) ITAA 1936 and was of no application in this case. The land in question was purchased subsequent to the introduction of the capital gains tax provisions in September 1985 and s 26(a), the more recent s 25A and s 52 have no application to the transaction • profits brought to tax under statutory income provisions are not to be equated with net gains which may well fall within the ordinary concept of income • in this case the Tribunal found that the applicant did not acquire the land for the purpose of subdivision, development and sale, and the steps taken towards further development of the property were so limited that the whole undertaking could not be said to be comparable to the situation in Whitford's Beach [1982] HCA 8 ; 150 CLR 355 (Reasons for Decision para 32). Section 51(1) ITAA 1936 11 This section has been interpreted many times, and at the highest judicial level in Australia. At the relevant time it read as follows: All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income. 12 In the context of the section it is clear that: • the expression "incurred in gaining or producing the assessable income" requires that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if none be produced, would be expected to produce assessable income: Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15 ; (1949) 78 CLR 47 at 57 • the reference to losses and outgoings "necessarily incurred in carrying on a business for the purpose of gaining or producing such income" adds little to the operation of the leading words "losses or outgoings to the extent to which they are incurred in gaining or producing assessable income": Ronpibon Tin 78 CLR at 56 • losses and outgoings of capital are clearly excluded from the operation of the section even if they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income. 13 In the case before the Senior Member, a key issue in dispute was whether the loss in this case should be characterised as capital or income. If the loss was a capital loss, it would not be an allowable deduction within the meaning of s 51(1). Capital vs income 14 In a regulatory environment where taxation legislation is as extensive as it is complex, the issue in question before the Senior Member was one of deceptive simplicity. Were the losses claimed by the applicant to be characterised as capital or revenue/income? Despite the plethora of cases over the years considering the distinction between income and capital (to paraphrase Wilson J in Whitford's Beach 150 CLR at 393 the battle lines drawn by the parties in this case have a familiar ring) the outcome of each case will invariably depend on the facts of that case. Before turning to the decision of Senior Member McCabe, it is useful to summarise general legal principles relevant to this question. Definitions 15 Despite extensive legislative intervention over the years to identify forms of "income" and "capital" for the purposes of Commonwealth taxation legislation, neither term is legislatively defined. It is clear that, because of the traditional characterisation of receipts and expenditure as either income or capital, the term "income" has not extended to all forms of gain; nor has loss in revenue terms included all forms of loss (for an interesting discussion of this issue see the article by Professor Jeff Waincymer "If at first you don't succeed... reconceptualising the income concept in the tax arena" (1994) 19 MULR 977). However as observed by Jordan CJ in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 at 219 in relation to "income": The word "income" is not a term of art, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income, must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of such receipts... 16 A consequence of taxation reform has been that the traditional distinction between gains characterised as either income or capital has blurred over time, with obvious examples being the introduction of concepts of "statutory income" in the ITAA 1936 and Income Tax Assessment Act 1997 (Cth), and the treatment of profits made in respect of disposal of assets acquired after 19 September 1985 following the introduction of the capital gains tax regime in Australia. However, notwithstanding what has been termed the almost arbitrary nature of the distinction (note for example comments of Greene MR in Inland Revenue Commissioners v British Salmson Aero Engines Ltd [1938] 2 KB 482 at 498) the continued existence of that distinction means that the task of identifying transactions as related to either income or capital becomes a live issue in many cases. 17 This matter is one such case. As I have already noted, the applicant originally characterised the loss from the sale of the relevant land as capital, but subsequently, and now before the Court, claims that the loss was revenue according to ordinary principles. There was no issue in contention that the loss was deductible according to statutory concepts of revenue. 18 The traditional delineation between income and capital, so far as referable to outgoings, was described by Dixon J in Sun Newspapers Ltd v Federal Commissioner of Taxation [1938] HCA 72 ; (1939) 61 CLR 337 at 359, 363 as follows: The distinction between expenditure and outgoings on revenue account and on capital account corresponds with the distinction between the business entity, structure or organization set up or established for the earning of profit and the process by which such an organisation operates to obtain regular returns by means of regular outlay, the difference between the outlay and returns representing profit or loss...There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment. (These principles have been considered and applied many times by Australian courts: see for example Hallstroms Pty Ltd v Federal Commissioner of Taxation [1946] HCA 34 ; (1946) 72 CLR 634 at 645-646; Williams [1972] HCA 31 ; 127 CLR 226, Whitford's Beach [1982] HCA 8 ; 150 CLR 355, United Energy Ltd v Commissioner of Taxation (1997) 78 FCR 169 per Sundberg and Merkel JJ at 191-192; Lamont v Commissioner of Taxation [2005] FCA 513 ; Macquarie Finance Limited v Commissioner of Taxation [2005] FCAFC 205 at [105-106] , and Commissioner of Taxation v Citylink Melbourne Ltd [2006] HCA 35 per Crennan J (Gleeson CJ and Gummow, Callinan and Heydon JJ agreeing) at [147-154] and per Kirby J at [20-25].) 19 I shall return to this principle later in this judgment. Capital or revenue and real property 20 Real property is commonly regarded as a capital asset. Generally speaking, unless a sale of real property is made in the operation of a business the resulting profit will not be income according to the ordinary concepts and usages of mankind. The courts have historically addressed the issue of whether a gain made by a taxpayer, in relation to the sale of what would otherwise be a capital asset, was capital or income, in terms of whether the taxpayer was merely realising the asset (in which case the gain is characterised as a capital gain), or whether the gain was made in the operation of business in carrying out a scheme of profit-making (in which case the gain is characterised as income or revenue): see for example California Copper Syndicate v Harris (1904) 5 TC 159 at 165-166, Commissioner of Taxes v Melbourne Trust Limited [1914] AC 1001 at 1009, Ruhamah Property Co Ltd v Federal Commissioner of Taxation [1928] HCA 22 ; (1928) 41 CLR 148 at 151, and Whitford's Beach 150 CLR per Gibbs CJ at 367-368, Mason J at 372, Wilson J at 400. 34 In my view the submissions of the applicant that the Tribunal erred in law in its findings respect of this issue cannot be supported. I form this view for the following reasons: 1. Senior Member McCabe stated the law correctly when he referred to "the well-established rule that the proceeds from the 'mere realisation' of a capital asset will not give rise to income according to ordinary concepts and any loss incurred on the disposal of the asset will not lead to a loss that can be offset against other income of the taxpayer". This is clearly supported by the body of case law to which I referred earlier in this judgment, beginning with California Copper (1904) 5 TC 159. 2. The applicant in its submissions contended that the Senior Member erred in making the inquiry as to whether the land was trading stock or whether the gross proceeds were on revenue account. However: • I note from the Statement of Facts, Issues and Contentions filed by the applicant in the Tribunal that the applicant had contended that the loss incurred by the applicant on the sale of the land in the year ended 30 June 1993 was a revenue loss by reason either of the trading stock provisions or as a loss on a profit-making undertaking or scheme. Further, the evidence showed that LGHH, in its letter of 14 July 1994 to the ATO on behalf of the applicant, described the land as "trading stock". In light of this it is to be expected that the Senior Member would address the issue whether the land was trading stock or the gross proceeds were on revenue account (paras 30-31). • In any event, in my view it is clear from reading para 30 of the Reasons for Decision that the Senior Member, in referring to the situation "if the asset was more like trading stock", was giving an example of a scenario where the proceeds of sale of capital assets such as real property can properly be characterised as income rather than capital. The Senior Member did not base his decision that the loss in this case was not in the nature of revenue, solely on this principle. 3. The applicant submitted that the Tribunal erred in that it did not refer to what the applicant defined as the relevant inquiry in the circumstances, namely whether the asset was acquired with a purpose or intention of profit-making by sale. The applicant submitted further that, in failing to direct itself as to the proper test of whether land was acquired as part of a profit-making undertaking, the Tribunal also failed to direct itself as to whether one of the purposes of its acquisition, rather than the purpose, was profit-making by sale. However, in my view the Senior Member made it clear that he had applied the test of whether the applicant had acquired the land with a profit-making purpose, but that in doing so as a finding of fact he was not satisfied that the applicant had had that purpose at all , ie as either "the" purpose or one of a number of purposes be they significant or otherwise. Rather, the Tribunal considered the range of purposes of acquisition of the land and the characterisation of the applicant's business activity as submitted by the applicant, and on the facts found against the applicant. This is apparent from the Reasons for Decision, including: • At para 31, where the Senior Member specifically acknowledged: "The applicant says this was a profit-making venture... The company acquired the land with a view to developing it or on-selling the property to another entity. The company investigated various development options before completing a sale and then distributed a portion of the proceeds to the foreign businessman". • At para 32, where the Senior Member specifically stated: "I am not persuaded by that characterisation of the company's business activity. The taxpayer was a shelf company until it contracted to purchase a parcel of land from a foreign businessman who was a client of one of the company's directors. The correspondence between the businessman's solicitors and the FIRB make it clear the property was acquired by the businessman to construct accommodation. As it happened, that was the only use to which the property was ever put... The taxpayer did investigate whether the property could be sub-divided or on-sold for the purposes of development, but I do not think the evidence establishes that was the purpose for which the land was acquired." 4. Although the applicant submitted that the findings of the Tribunal in para 32 of its Reasons for Decisions namely that the applicant had considered sub-division or on-sale for the purposes of development as one option and that steps were taken to achieve that purpose required the Tribunal to conclude that the loss on sale of the applicant's land was deductible under s 51(1), I do not so find. Rather, in my view: • The finding of the Tribunal in the circumstances of this case that the proceeds from the sale of the land were on capital account rather than income is consistent with the legal principles as articulated by Dixon J in Sun Newspapers [1938] HCA 72 ; 61 CLR 337. The land was purchased by Mr Iwasaki, transferred to the applicant, and used for the purposes of constructing student accommodation which in turn generated income. It bore all the hallmarks of a capital asset. The fact that the applicant was a corporate entity does not mean that any disposal of asset is on revenue account ( Myer Emporium [1987] HCA 18 ; 163 CLR 199). • In any event, as found by the Tribunal, Mr Iwasaki was the directing mind and will of the applicant between 1991 when the land was transferred to the applicant, and 1993 when Mr Iwasaki relinquished any claim he may have had as to the beneficial ownership of shares in the applicant following the sale of the land. Accordingly, during that period, the purpose of Mr Iwasaki with respect to the land was the relevant purpose (cf Whitfords Beach [1961] HCA 25 ; 105 CLR 355; Austin RP and Ramsay IM, Ford's Principles of Corporations Law (13th ed, Butterworths, 2007) Ch 16; Lipton P and Herzberg A, Understanding Company Law (13th ed, Law Book Co, 2006) at pp 103-108). That purpose as found by the Tribunal was bi-fold, namely that the land was a capital asset to be used for constructing student accommodation, and the applicant was to hold the land on Mr Iwasaki's behalf as part of the re-ordering of Mr Iwasaki's affairs. As found by the Tribunal, other than consideration of the option of development of the land, neither Mr Iwasaki nor the applicant at the relevant time held the land for the purpose of resale consistent with a profit-making scheme (cf Hill J in Westfield 28 FCR at 344-345). Further, as found by the Tribunal at para 32, there was no change of purpose of the applicant with respect to the land, as evinced, for example, by steps towards further development of the property, so as to result in the applicant acquiring a profit-making purpose akin to the situation in Whitford's Beach [1982] HCA 8 ; 150 CLR 355. • Notwithstanding the submissions of the applicant, in my view the law is not that, in the absence of a clear intention of a taxpayer in acquiring the property that it be used for a profit-making purpose, any subsequent consideration by the taxpayer of exploitation of a capital asset (for example by the possible options of either subdivision or on-selling) results in the immediate creation of a profit-making scheme and the resultant characterisation of profits or losses made in respect of subsequent dealings with that asset as revenue. A bare claim that this was the intention of the taxpayer is insufficient to manifest that intention in the absence of evidence of that intention, for example, by steps to progress those options. The surrounding circumstances must be taken into account in ascertaining the true intention of the taxpayer, and also characterising the receipts in the hands of the taxpayer. To find otherwise would potentially sanction any manifestation of intention of the taxpayer to convert a capital asset to the revenue account (or vice versa), however meagre or fleeting such manifestation of intention. By analogy I note comments of the High Court in GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation [1990] HCA 25 ; (1990) 170 CLR 124 at 142 where their Honours said: ... it cannot be accepted that an intention on the part of a payer and a payee or either of them that a receipt be applied to recoup capital expenditure by the payee determines the character of a receipt when the circumstances show that the payment is received in consideration of the performance of a contract, the performance of which is the business of the recipient or which is performed in the ordinary course of the business of the recipient.


case_outcome: cited

case_text: The authorities are clear that: • On administrative review under the AAT Act the Tribunal is the arbiter of the facts: Repatriation Commission v Thompson (1988) 82 ALR 352 at 357. Accordingly, in exercising its jurisdiction under s 44(1) AAT Act the task of the Court is to leave to the Tribunal decisions of fact, and to interfere only when the identified error is one of law ( Thompson , Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 115 ALR 1, Phillips v Commissioner for Superannuation [2005] FCAFC 2 , Federal Commissioner of Taxation v Swift (1989) 89 ATC 5101). There is no error in law simply in making a wrong finding of fact (Brennan J in Waterford v Commonwealth [1987] HCA 25 ; (1987) 163 CLR 54 at 77, Thompson at 357). This point has been reiterated many times (see for example Pozzolanic at 9 and Phillips at [41]). • Simply disputing factual findings of the Tribunal on the weight of evidence does not raise errors of law in the absence of other circumstances. As pointed out by the Full Court in Collins v Minister for Immigration and Ethnic Affairs (1981) 36 ALR 598 at 601: A number of authorities were cited by counsel for the appellant in support of the propositions that the making of a decision against the evidence or the weight of the evidence and the making of an unreasonable decision are errors of law. We find it unnecessary to examine these authorities for the reason that, in our opinion, there is no factual basis to found these propositions. We would, however, comment that the concepts of a decision being against the evidence and of being against the weight of the evidence belong to appeals from courts of law and have particular application to jury verdicts. Even in that context, they do not involve questions of law. They certainly have no place when the appeal, or review, is of proceedings of an administrative tribunal which is not bound by the rules of evidence and which, subject to the obligation to observe the requirements of natural justice, can inform itself as it chooses: see s 33(1)(c) of the Administrative Appeals Tribunal Act 1975 . An appellant who attacks a conclusion of the Tribunal because of deficiency of proof said to amount to error of law must show, if he is to succeed, that there was no material before the Tribunal upon which the conclusion could properly be based. (see also, Blackwood Hodge (Aust) Pty Ltd v Collector of Customs (NSW) (1980) 47 FLR 131 at 144 5, Deniz v Minister for Immigration and Ethnic Affairs (1983) 51 ALR 645 at 650, Repatriation Commission v Thompson 82 ALR at 358, Swift at 5,113, McAuliffe v Comcare [2002] FCA 769 at [51] , Commissioner of Taxation v Word Investments Ltd [2006] FCA 1414 at [32] )


case_text: The applicant lodged notices of objection against the ATO assessments and the penalty imposed. As indicated earlier in this judgment, on 27 September 2002 the respondent disallowed the applicant's objections. TRIBUNAL DECISION 5 In the Tribunal, the submissions of the applicant and the subsequent findings were as follows: 1. The applicant contended that the activities of the applicant in relation to the land were in the nature of a profit-making venture. However the learned Senior Member was not persuaded by that characterisation of the applicant's business activity (Reasons for Decision para 34), and was of the view that the land was a capital asset, with the result that the loss on its sale was a capital loss (para 35). 2. The applicant contended that company losses could be carried forward, on the basis that the "continuity of ownership" test in s 80A ITAA 1936 had been satisfied, and during the relevant period the beneficial ownership of shares in the applicant remained with Mr Paul Doumany; or that the "same business" test in s 80E ITAA 1936 had been satisfied. The Senior Member observed that, given his findings concerning the characterisation of the applicant's business activity and the resultant loss, it was strictly unnecessary for him to reach a decision on either of these issues. In any event however, the Senior Member was satisfied that: • while the legal ownership of the shares in the applicant may have remained with Mr Doumany, at the time the loss on the sale of the land was incurred the beneficial ownership of shares in the applicant rested in Mr Iwasaki, having been transferred to Mr Iwasaki on or before 20 December 1991. Accordingly the applicant failed on the "continuity of ownership" test in s 80A (para 40 ); and • there had been a significant break in the business activities of the applicant between November 1992 and 1996, and the applicant therefore failed on the "same business" test in s 80E (para 45 ). 3 . The Tribunal noted that the applicant bore the onus of proving the objection decisions should have been made differently: s 14ZZK(b) Taxation Administration Act 1953 (Cth) ("TA Act") (para 27). Although the Senior Member was not prepared to draw an adverse inference from the failure of Mr Doumany to give evidence in accordance with the rule in Jones v Dunkel [1959] HCA 8 ; (1959) 101 CLR 298 (para 28), he noted that the failure of Mr Doumany to give evidence meant that it was more difficult for the applicant to show that the Commissioner's decision was wrong (para 29). 4. The applicant contended that a penalty of 75% was inappropriate because it acted with the advice of senior counsel. However the Senior Member was satisfied that the penalty of 75% under s 226J ITAA 1936 was appropriate (para 50). QUESTIONS OF LAW RAISED ON APPEAL 6 The questions of law raised on appeal in this case were as follows: a. are the losses incurred by the applicant allowable as deductions under s 51(1) ITAA 1936? b. if yes to a., in the relevant years of income: i did s 80A ITAA 1936 apply to deny the applicant deductions?; or ii did s 80E ITAA 1936 apply to allow the applicant deductions? c. if the applicant was wrong in claiming deductions, were penalties correctly imposed under s 226J ITAA 1936? d. did the Tribunal err in instructing itself as to the applicant's onus of proof and as to its role in reviewing the objection decision? e. did the Tribunal err in not providing reasons for its rejection of the preponderance of the evidence as to the beneficial ownership of the shares? f. did the Tribunal err in finding that the applicant was not carrying on the same business in the relevant years within s 80E? g. could a reasonable tribunal have made, on the material before it, the findings made? h. does the Tribunal's apparent error of fact namely that Mr Doumany was prosecuted in the criminal courts for causing the applicant to claim the deductions show that the Tribunal failed to give due consideration to the material before it, or give rise to a reasonable apprehension of wrongful bias against the applicant? 7 I shall address each of these questions in turn. a. ARE THE LOSSES INCURRED BY THE APPLICANT ALLOWABLE AS DEDUCTIONS UNDER SECTION 51(1) ITAA 1936? 8 As the relevant loss occurred in the 1993 year of income both applicant and respondent accepted that the relevant statutory provision was s 51(1) ITAA 1936. 9 The applicant submitted that: • the Tribunal applied the wrong test of deductibility to the facts as found • the Tribunal did not refer to the relevant test of when a profit from sale of a capital asset as opposed to the proceeds of sale of a revenue asset was on revenue account, which it submitted was whether the asset was acquired with a purpose or intention of profit-making by sale . This, the applicant submitted, was the relevant inquiry, not whether the land was trading stock or whether the gross proceeds were on revenue account • the Tribunal failed to direct itself as to the proper test of whether land is acquired as part of a profit-making undertaking, being whether one of the purposes of its acquisition, rather than the purpose, was profit-making by sale. • the test was not whether the applicant was in the business of property development, with the land being trading stock: Moana Sand Pty Ltd v Federal Commissioner of Taxation (1988) 88 ATC 4897. In particular, the applicant submitted that in Moana Sand 88 ATC 4897, the profit made by the taxpayer was held to be income because one of the taypayer's purposes was profit-making by subdivision and sale, even though the subdivision was not in fact carried out and the taxpayer had to sell the land en globo due to a compulsory acquisition. The applicant also cited in support of its case Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42 and Westfield Ltd v Federal Commissioner of Taxation (1991) 28 FCR 333. 10 In response, the Commissioner submitted that: • the necessary requirement of deductibility under s 51(1) is that the loss is "incidental and relevant" to the income-earning operations of the taxpayer • the ultimate question must remain whether the loss incurred had the necessary connection with the applicant's gaining or producing assessable income, or the carrying on of its business • the question of whether the taxpayer carries on a business is a question of fact • citing Gibbs J in Commissioner of Taxation v Williams [1972] HCA 31 ; (1972) 127 CLR 226 at 249, proceeds resulting from the mere realisation of a capital asset are not income, even though the realisation is carried out in an enterprising way so as to secure the best price. However, a distinction needs to be drawn between mere realisation of an asset, and development and improvement of land to such a marked degree that it is impossible to say that it is mere realisation of an asset, as was the case in Federal Commissioner of Taxation v Whitford's Beach Pty Ltd [1982] HCA 8 ; (1982) 150 CLR 355 • the test propounded by the applicant was referable to the former s 26(a) ITAA 1936 and was of no application in this case. The land in question was purchased subsequent to the introduction of the capital gains tax provisions in September 1985 and s 26(a), the more recent s 25A and s 52 have no application to the transaction • profits brought to tax under statutory income provisions are not to be equated with net gains which may well fall within the ordinary concept of income • in this case the Tribunal found that the applicant did not acquire the land for the purpose of subdivision, development and sale, and the steps taken towards further development of the property were so limited that the whole undertaking could not be said to be comparable to the situation in Whitford's Beach [1982] HCA 8 ; 150 CLR 355 (Reasons for Decision para 32). Section 51(1) ITAA 1936 11 This section has been interpreted many times, and at the highest judicial level in Australia. At the relevant time it read as follows: All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income. 12 In the context of the section it is clear that: • the expression "incurred in gaining or producing the assessable income" requires that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if none be produced, would be expected to produce assessable income: Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15 ; (1949) 78 CLR 47 at 57 • the reference to losses and outgoings "necessarily incurred in carrying on a business for the purpose of gaining or producing such income" adds little to the operation of the leading words "losses or outgoings to the extent to which they are incurred in gaining or producing assessable income": Ronpibon Tin 78 CLR at 56 • losses and outgoings of capital are clearly excluded from the operation of the section even if they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income. 13 In the case before the Senior Member, a key issue in dispute was whether the loss in this case should be characterised as capital or income. If the loss was a capital loss, it would not be an allowable deduction within the meaning of s 51(1). Capital vs income 14 In a regulatory environment where taxation legislation is as extensive as it is complex, the issue in question before the Senior Member was one of deceptive simplicity. Were the losses claimed by the applicant to be characterised as capital or revenue/income? Despite the plethora of cases over the years considering the distinction between income and capital (to paraphrase Wilson J in Whitford's Beach 150 CLR at 393 the battle lines drawn by the parties in this case have a familiar ring) the outcome of each case will invariably depend on the facts of that case. Before turning to the decision of Senior Member McCabe, it is useful to summarise general legal principles relevant to this question. Definitions 15 Despite extensive legislative intervention over the years to identify forms of "income" and "capital" for the purposes of Commonwealth taxation legislation, neither term is legislatively defined. It is clear that, because of the traditional characterisation of receipts and expenditure as either income or capital, the term "income" has not extended to all forms of gain; nor has loss in revenue terms included all forms of loss (for an interesting discussion of this issue see the article by Professor Jeff Waincymer "If at first you don't succeed... reconceptualising the income concept in the tax arena" (1994) 19 MULR 977). However as observed by Jordan CJ in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 at 219 in relation to "income": The word "income" is not a term of art, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income, must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of such receipts... 16 A consequence of taxation reform has been that the traditional distinction between gains characterised as either income or capital has blurred over time, with obvious examples being the introduction of concepts of "statutory income" in the ITAA 1936 and Income Tax Assessment Act 1997 (Cth), and the treatment of profits made in respect of disposal of assets acquired after 19 September 1985 following the introduction of the capital gains tax regime in Australia. However, notwithstanding what has been termed the almost arbitrary nature of the distinction (note for example comments of Greene MR in Inland Revenue Commissioners v British Salmson Aero Engines Ltd [1938] 2 KB 482 at 498) the continued existence of that distinction means that the task of identifying transactions as related to either income or capital becomes a live issue in many cases. 17 This matter is one such case. As I have already noted, the applicant originally characterised the loss from the sale of the relevant land as capital, but subsequently, and now before the Court, claims that the loss was revenue according to ordinary principles. There was no issue in contention that the loss was deductible according to statutory concepts of revenue. 18 The traditional delineation between income and capital, so far as referable to outgoings, was described by Dixon J in Sun Newspapers Ltd v Federal Commissioner of Taxation [1938] HCA 72 ; (1939) 61 CLR 337 at 359, 363 as follows: The distinction between expenditure and outgoings on revenue account and on capital account corresponds with the distinction between the business entity, structure or organization set up or established for the earning of profit and the process by which such an organisation operates to obtain regular returns by means of regular outlay, the difference between the outlay and returns representing profit or loss...There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment. (These principles have been considered and applied many times by Australian courts: see for example Hallstroms Pty Ltd v Federal Commissioner of Taxation [1946] HCA 34 ; (1946) 72 CLR 634 at 645-646; Williams [1972] HCA 31 ; 127 CLR 226, Whitford's Beach [1982] HCA 8 ; 150 CLR 355, United Energy Ltd v Commissioner of Taxation (1997) 78 FCR 169 per Sundberg and Merkel JJ at 191-192; Lamont v Commissioner of Taxation [2005] FCA 513 ; Macquarie Finance Limited v Commissioner of Taxation [2005] FCAFC 205 at [105-106] , and Commissioner of Taxation v Citylink Melbourne Ltd [2006] HCA 35 per Crennan J (Gleeson CJ and Gummow, Callinan and Heydon JJ agreeing) at [147-154] and per Kirby J at [20-25].) 19 I shall return to this principle later in this judgment. Capital or revenue and real property 20 Real property is commonly regarded as a capital asset. Generally speaking, unless a sale of real property is made in the operation of a business the resulting profit will not be income according to the ordinary concepts and usages of mankind. The courts have historically addressed the issue of whether a gain made by a taxpayer, in relation to the sale of what would otherwise be a capital asset, was capital or income, in terms of whether the taxpayer was merely realising the asset (in which case the gain is characterised as a capital gain), or whether the gain was made in the operation of business in carrying out a scheme of profit-making (in which case the gain is characterised as income or revenue): see for example California Copper Syndicate v Harris (1904) 5 TC 159 at 165-166, Commissioner of Taxes v Melbourne Trust Limited [1914] AC 1001 at 1009, Ruhamah Property Co Ltd v Federal Commissioner of Taxation [1928] HCA 22 ; (1928) 41 CLR 148 at 151, and Whitford's Beach 150 CLR per Gibbs CJ at 367-368, Mason J at 372, Wilson J at 400.


case_text: Like in the case before me, the applicable legislation in Deledio was not silent on issues of proof. In relation to the first issue in this case with respect to onus of proof, it is clear in light of s 14ZZK(b)(i) TA Act that the taxpayer in this case bore the onus of proof that the amended assessment was excessive. The nature of the onus of proof in the context of this legislation has been recognised in numerous decisions, including McCormack v Commissioner of Taxation [1979] HCA 18 ; (1979) 143 CLR 284 (although McCormack was decided under predecessor legislation), Federal Commissioner of Taxation v Munro (1997) 97 ATC 5041 and Vu v Commissioner of Taxation [2006] FCA 889. Further, it is clear on the authorities that the taxpayer, in its application before the Tribunal, must prove its case affirmatively on the balance of probabilities: McCormack 143 CLR at 303 per Gibbs J, Munro 97 ATC 5041, Vu v Commissioner of Taxation [2006] FCA 889 at [8] .


case_title: Waterford v Commonwealth [1987] HCA 25 ; (1987) 163 CLR 54


case_title: Westfield Ltd v Commissioner of Taxation (1991) 28 FCR 333

case_text: The applicant lodged notices of objection against the ATO assessments and the penalty imposed. As indicated earlier in this judgment, on 27 September 2002 the respondent disallowed the applicant's objections. TRIBUNAL DECISION 5 In the Tribunal, the submissions of the applicant and the subsequent findings were as follows: 1. The applicant contended that the activities of the applicant in relation to the land were in the nature of a profit-making venture. However the learned Senior Member was not persuaded by that characterisation of the applicant's business activity (Reasons for Decision para 34), and was of the view that the land was a capital asset, with the result that the loss on its sale was a capital loss (para 35). 2. The applicant contended that company losses could be carried forward, on the basis that the "continuity of ownership" test in s 80A ITAA 1936 had been satisfied, and during the relevant period the beneficial ownership of shares in the applicant remained with Mr Paul Doumany; or that the "same business" test in s 80E ITAA 1936 had been satisfied. The Senior Member observed that, given his findings concerning the characterisation of the applicant's business activity and the resultant loss, it was strictly unnecessary for him to reach a decision on either of these issues. In any event however, the Senior Member was satisfied that: • while the legal ownership of the shares in the applicant may have remained with Mr Doumany, at the time the loss on the sale of the land was incurred the beneficial ownership of shares in the applicant rested in Mr Iwasaki, having been transferred to Mr Iwasaki on or before 20 December 1991. Accordingly the applicant failed on the "continuity of ownership" test in s 80A (para 40 ); and • there had been a significant break in the business activities of the applicant between November 1992 and 1996, and the applicant therefore failed on the "same business" test in s 80E (para 45 ). 3 . The Tribunal noted that the applicant bore the onus of proving the objection decisions should have been made differently: s 14ZZK(b) Taxation Administration Act 1953 (Cth) ("TA Act") (para 27). Although the Senior Member was not prepared to draw an adverse inference from the failure of Mr Doumany to give evidence in accordance with the rule in Jones v Dunkel [1959] HCA 8 ; (1959) 101 CLR 298 (para 28), he noted that the failure of Mr Doumany to give evidence meant that it was more difficult for the applicant to show that the Commissioner's decision was wrong (para 29). 4. The applicant contended that a penalty of 75% was inappropriate because it acted with the advice of senior counsel. However the Senior Member was satisfied that the penalty of 75% under s 226J ITAA 1936 was appropriate (para 50). QUESTIONS OF LAW RAISED ON APPEAL 6 The questions of law raised on appeal in this case were as follows: a. are the losses incurred by the applicant allowable as deductions under s 51(1) ITAA 1936? b. if yes to a., in the relevant years of income: i did s 80A ITAA 1936 apply to deny the applicant deductions?; or ii did s 80E ITAA 1936 apply to allow the applicant deductions? c. if the applicant was wrong in claiming deductions, were penalties correctly imposed under s 226J ITAA 1936? d. did the Tribunal err in instructing itself as to the applicant's onus of proof and as to its role in reviewing the objection decision? e. did the Tribunal err in not providing reasons for its rejection of the preponderance of the evidence as to the beneficial ownership of the shares? f. did the Tribunal err in finding that the applicant was not carrying on the same business in the relevant years within s 80E? g. could a reasonable tribunal have made, on the material before it, the findings made? h. does the Tribunal's apparent error of fact namely that Mr Doumany was prosecuted in the criminal courts for causing the applicant to claim the deductions show that the Tribunal failed to give due consideration to the material before it, or give rise to a reasonable apprehension of wrongful bias against the applicant? 7 I shall address each of these questions in turn. a. ARE THE LOSSES INCURRED BY THE APPLICANT ALLOWABLE AS DEDUCTIONS UNDER SECTION 51(1) ITAA 1936? 8 As the relevant loss occurred in the 1993 year of income both applicant and respondent accepted that the relevant statutory provision was s 51(1) ITAA 1936. 9 The applicant submitted that: • the Tribunal applied the wrong test of deductibility to the facts as found • the Tribunal did not refer to the relevant test of when a profit from sale of a capital asset as opposed to the proceeds of sale of a revenue asset was on revenue account, which it submitted was whether the asset was acquired with a purpose or intention of profit-making by sale . This, the applicant submitted, was the relevant inquiry, not whether the land was trading stock or whether the gross proceeds were on revenue account • the Tribunal failed to direct itself as to the proper test of whether land is acquired as part of a profit-making undertaking, being whether one of the purposes of its acquisition, rather than the purpose, was profit-making by sale. • the test was not whether the applicant was in the business of property development, with the land being trading stock: Moana Sand Pty Ltd v Federal Commissioner of Taxation (1988) 88 ATC 4897. In particular, the applicant submitted that in Moana Sand 88 ATC 4897, the profit made by the taxpayer was held to be income because one of the taypayer's purposes was profit-making by subdivision and sale, even though the subdivision was not in fact carried out and the taxpayer had to sell the land en globo due to a compulsory acquisition. The applicant also cited in support of its case Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42 and Westfield Ltd v Federal Commissioner of Taxation (1991) 28 FCR 333. 10 In response, the Commissioner submitted that: • the necessary requirement of deductibility under s 51(1) is that the loss is "incidental and relevant" to the income-earning operations of the taxpayer • the ultimate question must remain whether the loss incurred had the necessary connection with the applicant's gaining or producing assessable income, or the carrying on of its business • the question of whether the taxpayer carries on a business is a question of fact • citing Gibbs J in Commissioner of Taxation v Williams [1972] HCA 31 ; (1972) 127 CLR 226 at 249, proceeds resulting from the mere realisation of a capital asset are not income, even though the realisation is carried out in an enterprising way so as to secure the best price. However, a distinction needs to be drawn between mere realisation of an asset, and development and improvement of land to such a marked degree that it is impossible to say that it is mere realisation of an asset, as was the case in Federal Commissioner of Taxation v Whitford's Beach Pty Ltd [1982] HCA 8 ; (1982) 150 CLR 355 • the test propounded by the applicant was referable to the former s 26(a) ITAA 1936 and was of no application in this case. The land in question was purchased subsequent to the introduction of the capital gains tax provisions in September 1985 and s 26(a), the more recent s 25A and s 52 have no application to the transaction • profits brought to tax under statutory income provisions are not to be equated with net gains which may well fall within the ordinary concept of income • in this case the Tribunal found that the applicant did not acquire the land for the purpose of subdivision, development and sale, and the steps taken towards further development of the property were so limited that the whole undertaking could not be said to be comparable to the situation in Whitford's Beach [1982] HCA 8 ; 150 CLR 355 (Reasons for Decision para 32). Section 51(1) ITAA 1936 11 This section has been interpreted many times, and at the highest judicial level in Australia. At the relevant time it read as follows: All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income. 12 In the context of the section it is clear that: • the expression "incurred in gaining or producing the assessable income" requires that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if none be produced, would be expected to produce assessable income: Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15 ; (1949) 78 CLR 47 at 57 • the reference to losses and outgoings "necessarily incurred in carrying on a business for the purpose of gaining or producing such income" adds little to the operation of the leading words "losses or outgoings to the extent to which they are incurred in gaining or producing assessable income": Ronpibon Tin 78 CLR at 56 • losses and outgoings of capital are clearly excluded from the operation of the section even if they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income. 13 In the case before the Senior Member, a key issue in dispute was whether the loss in this case should be characterised as capital or income. If the loss was a capital loss, it would not be an allowable deduction within the meaning of s 51(1). Capital vs income 14 In a regulatory environment where taxation legislation is as extensive as it is complex, the issue in question before the Senior Member was one of deceptive simplicity. Were the losses claimed by the applicant to be characterised as capital or revenue/income? Despite the plethora of cases over the years considering the distinction between income and capital (to paraphrase Wilson J in Whitford's Beach 150 CLR at 393 the battle lines drawn by the parties in this case have a familiar ring) the outcome of each case will invariably depend on the facts of that case. Before turning to the decision of Senior Member McCabe, it is useful to summarise general legal principles relevant to this question. Definitions 15 Despite extensive legislative intervention over the years to identify forms of "income" and "capital" for the purposes of Commonwealth taxation legislation, neither term is legislatively defined. It is clear that, because of the traditional characterisation of receipts and expenditure as either income or capital, the term "income" has not extended to all forms of gain; nor has loss in revenue terms included all forms of loss (for an interesting discussion of this issue see the article by Professor Jeff Waincymer "If at first you don't succeed... reconceptualising the income concept in the tax arena" (1994) 19 MULR 977). However as observed by Jordan CJ in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 at 219 in relation to "income": The word "income" is not a term of art, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income, must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of such receipts... 16 A consequence of taxation reform has been that the traditional distinction between gains characterised as either income or capital has blurred over time, with obvious examples being the introduction of concepts of "statutory income" in the ITAA 1936 and Income Tax Assessment Act 1997 (Cth), and the treatment of profits made in respect of disposal of assets acquired after 19 September 1985 following the introduction of the capital gains tax regime in Australia. However, notwithstanding what has been termed the almost arbitrary nature of the distinction (note for example comments of Greene MR in Inland Revenue Commissioners v British Salmson Aero Engines Ltd [1938] 2 KB 482 at 498) the continued existence of that distinction means that the task of identifying transactions as related to either income or capital becomes a live issue in many cases. 17 This matter is one such case. As I have already noted, the applicant originally characterised the loss from the sale of the relevant land as capital, but subsequently, and now before the Court, claims that the loss was revenue according to ordinary principles. There was no issue in contention that the loss was deductible according to statutory concepts of revenue. 18 The traditional delineation between income and capital, so far as referable to outgoings, was described by Dixon J in Sun Newspapers Ltd v Federal Commissioner of Taxation [1938] HCA 72 ; (1939) 61 CLR 337 at 359, 363 as follows: The distinction between expenditure and outgoings on revenue account and on capital account corresponds with the distinction between the business entity, structure or organization set up or established for the earning of profit and the process by which such an organisation operates to obtain regular returns by means of regular outlay, the difference between the outlay and returns representing profit or loss...There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment. (These principles have been considered and applied many times by Australian courts: see for example Hallstroms Pty Ltd v Federal Commissioner of Taxation [1946] HCA 34 ; (1946) 72 CLR 634 at 645-646; Williams [1972] HCA 31 ; 127 CLR 226, Whitford's Beach [1982] HCA 8 ; 150 CLR 355, United Energy Ltd v Commissioner of Taxation (1997) 78 FCR 169 per Sundberg and Merkel JJ at 191-192; Lamont v Commissioner of Taxation [2005] FCA 513 ; Macquarie Finance Limited v Commissioner of Taxation [2005] FCAFC 205 at [105-106] , and Commissioner of Taxation v Citylink Melbourne Ltd [2006] HCA 35 per Crennan J (Gleeson CJ and Gummow, Callinan and Heydon JJ agreeing) at [147-154] and per Kirby J at [20-25].) 19 I shall return to this principle later in this judgment. Capital or revenue and real property 20 Real property is commonly regarded as a capital asset. Generally speaking, unless a sale of real property is made in the operation of a business the resulting profit will not be income according to the ordinary concepts and usages of mankind. The courts have historically addressed the issue of whether a gain made by a taxpayer, in relation to the sale of what would otherwise be a capital asset, was capital or income, in terms of whether the taxpayer was merely realising the asset (in which case the gain is characterised as a capital gain), or whether the gain was made in the operation of business in carrying out a scheme of profit-making (in which case the gain is characterised as income or revenue): see for example California Copper Syndicate v Harris (1904) 5 TC 159 at 165-166, Commissioner of Taxes v Melbourne Trust Limited [1914] AC 1001 at 1009, Ruhamah Property Co Ltd v Federal Commissioner of Taxation [1928] HCA 22 ; (1928) 41 CLR 148 at 151, and Whitford's Beach 150 CLR per Gibbs CJ at 367-368, Mason J at 372, Wilson J at 400. 26 Although the High Court in Myer Emporium [1987] HCA 18 ; 163 CLR 199 found that receipts from sale of capital assets generated as profit components of profit-making schemes were capable of constituting income, equally clearly the decision is not authority for the proposition that all gains made by business entities are assessable income. As pointed out by the Full Court of the Federal Court in Commissioner of Taxation (Cth) v Spedley Securities Ltd (1988) 19 ATR 938 at 942, such a proposition would be contrary to authority, to the Act itself, and to basic concepts concerning the distinction between capital and income (note similar comments by the Hill J in Cooling 22 FCR at 55 and again by Hill J (with whom the other members of the Court concurred) in Westfield 28 FCR at 342). Nature of purpose 27 In determining whether a sale receipt is generated as a profit component of a profit-making scheme, and therefore income in accordance with ordinary usages, it is only necessary that the intention or purpose of profit-making by sale was one aspect of a profit-making scheme in existence at the time of the acquisition of the asset (or, as was the case in Whitford's Beach [1982] HCA 8 ; 150 CLR 355, coming into existence during the course of the taxpayer's ownership of the asset and remaining in existence at the time of the sale): Westfield 28 FCR at 343-344. It is not necessary that the intention or purpose of profit-making by sale be the sole or dominant purpose of the taxpayer entering into the profit-making scheme: Cooling 22 FCR at 56-57 (cf Myer Emporium [1987] HCA 18 ; 163 CLR 199 where the motivating purpose of the transaction was for Myer to obtain working capital to enable it to diversify; and Moana Sand 88 ATC 4897 where the dominant purpose of the taxpayer in acquiring the land was not resale of the land at a profit). However the Full Court of the Federal Court in a number of cases has indicated that the purpose of profit-making must be a "not insignificant" aspect of the taxpayer's activities: Cooling 22 FCR at 57, Selleck v Commissioner of Taxation [1997] 799 FCA (20 August 1997). 28 The meaning of "profit-making scheme" is well-known. It is useful to note in the present context that: • it is not necessary that the profit-making scheme was specific in detail, or that every step which culminated in the profit was planned or foreseen ( Westfield 28 FCR at 344); and • the mode of achieving that profit must be one contemplated by the taxpayer as at least one of the alternatives by which the profit could be realised ( Westfield 28 FCR at 344). 29 As Hill J further noted in Westfield 28 FCR at 333-345: (I)t is difficult to conceive of a case where a taxpayer would be said to have made a profit from the carrying on, or carrying out, of a profit-making scheme, where, in the case of the scheme involving the acquisition and resale of land, there was, at the time of acquisition, no purpose of resale of land, but only the possibility (present, one may observe, in the case of every acquisition of land) that the land may be resold. The same may be said to be the case where s 25(1) of the Act is involved. As the court observed in Myer...the property which generates the gain must be acquired in an operation of business or commercial transaction 'for the purposes of profit-making by the means giving rise to the profit. Whose purpose 34 In my view the submissions of the applicant that the Tribunal erred in law in its findings respect of this issue cannot be supported. I form this view for the following reasons: 1. Senior Member McCabe stated the law correctly when he referred to "the well-established rule that the proceeds from the 'mere realisation' of a capital asset will not give rise to income according to ordinary concepts and any loss incurred on the disposal of the asset will not lead to a loss that can be offset against other income of the taxpayer". This is clearly supported by the body of case law to which I referred earlier in this judgment, beginning with California Copper (1904) 5 TC 159. 2. The applicant in its submissions contended that the Senior Member erred in making the inquiry as to whether the land was trading stock or whether the gross proceeds were on revenue account. However: • I note from the Statement of Facts, Issues and Contentions filed by the applicant in the Tribunal that the applicant had contended that the loss incurred by the applicant on the sale of the land in the year ended 30 June 1993 was a revenue loss by reason either of the trading stock provisions or as a loss on a profit-making undertaking or scheme. Further, the evidence showed that LGHH, in its letter of 14 July 1994 to the ATO on behalf of the applicant, described the land as "trading stock". In light of this it is to be expected that the Senior Member would address the issue whether the land was trading stock or the gross proceeds were on revenue account (paras 30-31). • In any event, in my view it is clear from reading para 30 of the Reasons for Decision that the Senior Member, in referring to the situation "if the asset was more like trading stock", was giving an example of a scenario where the proceeds of sale of capital assets such as real property can properly be characterised as income rather than capital. The Senior Member did not base his decision that the loss in this case was not in the nature of revenue, solely on this principle. 3. The applicant submitted that the Tribunal erred in that it did not refer to what the applicant defined as the relevant inquiry in the circumstances, namely whether the asset was acquired with a purpose or intention of profit-making by sale. The applicant submitted further that, in failing to direct itself as to the proper test of whether land was acquired as part of a profit-making undertaking, the Tribunal also failed to direct itself as to whether one of the purposes of its acquisition, rather than the purpose, was profit-making by sale. However, in my view the Senior Member made it clear that he had applied the test of whether the applicant had acquired the land with a profit-making purpose, but that in doing so as a finding of fact he was not satisfied that the applicant had had that purpose at all , ie as either "the" purpose or one of a number of purposes be they significant or otherwise. Rather, the Tribunal considered the range of purposes of acquisition of the land and the characterisation of the applicant's business activity as submitted by the applicant, and on the facts found against the applicant. This is apparent from the Reasons for Decision, including: • At para 31, where the Senior Member specifically acknowledged: "The applicant says this was a profit-making venture... The company acquired the land with a view to developing it or on-selling the property to another entity. The company investigated various development options before completing a sale and then distributed a portion of the proceeds to the foreign businessman". • At para 32, where the Senior Member specifically stated: "I am not persuaded by that characterisation of the company's business activity. The taxpayer was a shelf company until it contracted to purchase a parcel of land from a foreign businessman who was a client of one of the company's directors. The correspondence between the businessman's solicitors and the FIRB make it clear the property was acquired by the businessman to construct accommodation. As it happened, that was the only use to which the property was ever put... The taxpayer did investigate whether the property could be sub-divided or on-sold for the purposes of development, but I do not think the evidence establishes that was the purpose for which the land was acquired." 4. Although the applicant submitted that the findings of the Tribunal in para 32 of its Reasons for Decisions namely that the applicant had considered sub-division or on-sale for the purposes of development as one option and that steps were taken to achieve that purpose required the Tribunal to conclude that the loss on sale of the applicant's land was deductible under s 51(1), I do not so find. Rather, in my view: • The finding of the Tribunal in the circumstances of this case that the proceeds from the sale of the land were on capital account rather than income is consistent with the legal principles as articulated by Dixon J in Sun Newspapers [1938] HCA 72 ; 61 CLR 337. The land was purchased by Mr Iwasaki, transferred to the applicant, and used for the purposes of constructing student accommodation which in turn generated income. It bore all the hallmarks of a capital asset. The fact that the applicant was a corporate entity does not mean that any disposal of asset is on revenue account ( Myer Emporium [1987] HCA 18 ; 163 CLR 199). • In any event, as found by the Tribunal, Mr Iwasaki was the directing mind and will of the applicant between 1991 when the land was transferred to the applicant, and 1993 when Mr Iwasaki relinquished any claim he may have had as to the beneficial ownership of shares in the applicant following the sale of the land. Accordingly, during that period, the purpose of Mr Iwasaki with respect to the land was the relevant purpose (cf Whitfords Beach [1961] HCA 25 ; 105 CLR 355; Austin RP and Ramsay IM, Ford's Principles of Corporations Law (13th ed, Butterworths, 2007) Ch 16; Lipton P and Herzberg A, Understanding Company Law (13th ed, Law Book Co, 2006) at pp 103-108). That purpose as found by the Tribunal was bi-fold, namely that the land was a capital asset to be used for constructing student accommodation, and the applicant was to hold the land on Mr Iwasaki's behalf as part of the re-ordering of Mr Iwasaki's affairs. As found by the Tribunal, other than consideration of the option of development of the land, neither Mr Iwasaki nor the applicant at the relevant time held the land for the purpose of resale consistent with a profit-making scheme (cf Hill J in Westfield 28 FCR at 344-345). Further, as found by the Tribunal at para 32, there was no change of purpose of the applicant with respect to the land, as evinced, for example, by steps towards further development of the property, so as to result in the applicant acquiring a profit-making purpose akin to the situation in Whitford's Beach [1982] HCA 8 ; 150 CLR 355. • Notwithstanding the submissions of the applicant, in my view the law is not that, in the absence of a clear intention of a taxpayer in acquiring the property that it be used for a profit-making purpose, any subsequent consideration by the taxpayer of exploitation of a capital asset (for example by the possible options of either subdivision or on-selling) results in the immediate creation of a profit-making scheme and the resultant characterisation of profits or losses made in respect of subsequent dealings with that asset as revenue. A bare claim that this was the intention of the taxpayer is insufficient to manifest that intention in the absence of evidence of that intention, for example, by steps to progress those options. The surrounding circumstances must be taken into account in ascertaining the true intention of the taxpayer, and also characterising the receipts in the hands of the taxpayer. To find otherwise would potentially sanction any manifestation of intention of the taxpayer to convert a capital asset to the revenue account (or vice versa), however meagre or fleeting such manifestation of intention. By analogy I note comments of the High Court in GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation [1990] HCA 25 ; (1990) 170 CLR 124 at 142 where their Honours said: ... it cannot be accepted that an intention on the part of a payer and a payee or either of them that a receipt be applied to recoup capital expenditure by the payee determines the character of a receipt when the circumstances show that the payment is received in consideration of the performance of a contract, the performance of which is the business of the recipient or which is performed in the ordinary course of the business of the recipient.


case_outcome: referred to

case_text: Even if the offer made by the respondents by letter dated 27 March 2007 was commensurate with the overall financial result to flow from the orders I made on 30 July 2008, and I hasten to add that I do not think it is, the ground on which the motion is brought is misconceived. As Lockhart J said in Whitaker v Commissioner of Taxation (1998) 82 FCR 261 at 269: 'The primary purpose of an award of pre-judgment interest is to compensate a successful plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period; that is to compensate the plaintiff for having been deprived of the use of the money: Ruby v Marsh [1975] HCA 32 ; (1975) 132 CLR 642 ; Batchelor v Burke [1981] HCA 30 ; (1981) 148 CLR 448 ; and MBP (SA) Pty Limited v Gogic [1991] HCA 3 ; (1991) 171 CLR 657. See P D Finn (ed), Essays on Damages (1st ed, 1992) and in particular the essay by J L R Davis, "Interest as Compensation", pp 149-152.' The applicant has been without its money since 28 January 2004 and that remains the case. It is only appropriate that it should have interest on that money up to the date of judgment. 11 The motion for the vacation of Order 6 is dismissed. 12 The respondents' notice of motion seeks (at [2]) the vacation of Orders 7 and 8 made on 30 July 2008 and their variation based on the matters set out in the affidavit of Ms Ellis sworn 5 August 2005. It does not say how they should be varied. Nor do their written submissions. What the respondents' notice of motion does seek (at [3]) is an order that the applicant pay the respondents' costs (on an indemnity or, alternatively, party-party basis) from 21 April 2007 or such other time as the Court thinks fit. On the hearing of the motion, the further alternative was introduced, namely, that each party pay its own costs from that date. Presumably, implicit in all this is that the first, second and third respondents should pay the applicant's costs of the application as ordered by Order 7, but only up to 21 April 2007. On the hearing of the motion, nothing was said about the second limb of Order 7, namely, that the first, second and third respondents pay the fourth, fifth and sixth respondents' costs of defending the application. Nor was anything said about Order 8 that the cross-claimant pay the first and second cross-respondents' costs of defending the cross-claim.


case_outcome: followed

case_title: Anheuser-Busch Inc v Budejovick[yacute] Budvar [2002] FCA 390 , 56 IPR 182

case_text: Whether a mark is " deceptively similar " is not to be determined by a side by side comparison, but rather by reference to whether there is a likelihood of deception or confusion from a recollection or impression of the registered mark: Anheuser-Busch Inc v Budejovick[yacute] Budvar [2002] FCA 390 at [143] , [2002] FCA 390 ; 56 IPR 182 at 216. Allsop J there observed: [143] The question of deceptive similarity must be judged by a comparison different from the side by side comparison undertaken to assess substantial identity; the question being the likelihood of deception or confusion from a recollection or impression of the registered mark. Thus, a side by side comparison is inadequate, and too narrow a test. The comparison is between, on the one hand, the impression based on recollection of the registered mark used in a normal or fair manner that persons of ordinary intelligence and memory would have, and, on the other hand, the impressions that such persons would get from the impugned mark as it appears in the use complained of... 101 Section 92(1) and (4)(b) of the 1995 Act provide as follows: Application for removal of trade mark from Register etc. (1) Subject to subsection (3), a person may apply to the Registrar to have a trade mark that is or may be registered removed from the Register. ... (4) An application under subsection (1) or (3) (non-use application) may be made on either or both of the following grounds, and on no other grounds: ... (b) that the trade mark has remained registered for a continuous period of 3 years ending one month before the day on which the non use application is filed, and, at no time during that period, the person who was then the registered owner: (i) used the trade mark in Australia; or (ii) used the trade mark in good faith in Australia; in relation to the goods and/or services to which the application relates. Section 7 further defines that which constitutes the " use " of a trade mark. An " authorised use " of a trade mark is taken to be a use of the trade mark by the owner: s 7(3). Section 8 defines that which constitutes an " authorised use ". See: Yau's Entertainment Pty Ltd v Asia Television Ltd [2002] FCA 338 at [75] [81], [2002] FCAFC 78 ; 54 IPR 1 at 16 per Hely J (Sundberg and Finkelstein JJ agreeing). The term " during " does not mean " throughout " so as to require a regular and continuous course of conduct for the whole period: NSW Dairy Corporation v Murray Goulburn Co-operative Co Ltd (No 1) (1989) 14 IPR 26 at 44 per Gummow J. See: Luck J, Case Note (1990) 1 IPJ 63. 132 The first contention advanced on behalf of Gallo Winery was that the prior registered owner of the trade mark, Mr Houlihan, licensed it to Barefoot Cellars and exercised quality control over the BAREFOOT wine to which the mark was applied. The fact that such wines were sold and offered for sale by Beach Avenue Wholesalers during the relevant period -- it was submitted -- was sufficient to constitute a use of the mark by Barefoot Cellars and, in turn, Mr Houlihan. That was a " use ", so it was contended, by the then registered proprietor during the non-use period. 133 Neither Mr Houlihan nor any officer of Barefoot Cellars knew that the BAREFOOT wine exported to Germany in 2001 may ultimately find its way to Australia. But knowledge on the part of Mr Houlihan or Barefoot Cellars that its wine would or may find its way to Australia and be offered for sale, is said by Gallo Winery to be irrelevant. 137 Notwithstanding the views expressed by those authors, it is not considered that there could have been a " use " of the BAREFOOT trade mark during the 2004 2007 period by the registered owner simply by reason of the fact that BAREFOOT wine happened to be offered for sale or was in fact sold in Australia during that period. 138 There was certainly no agreement or other arrangement as between either Mr Houlihan or Barefoot Cellars and Beach Avenue Wholesalers whereby the BAREFOOT wine was to be imported, whether from Germany or elsewhere, and later sold or offered for sale in Australia. 139 In the circumstances of the present proceedings, it is not considered that there was any " use " of the BAREFOOT trade mark by the registered proprietor in Australia arising merely by reason of the fact that the BAREFOOT wine, or some of the wine exported originally to Germany, by some unexplained circuitous route ultimately arrived on Australian shores and was thereafter available for sale in Australia.


case_title: Asia Television Ltd v Yau's Entertainment Pty Ltd (No 2) [2000] FCA 838 , 49 IPR 264

case_text: In Estex Clothing the goods exported were being forwarded from England to Australia, and it is not considered that the language employed by their Honours should be construed as contemplating anything beyond what they literally said. By exporting the goods from England into Australia the " overseas manufacturer projects into the course of trade in this country ... goods bearing his mark ". Such other authorities also seem to contemplate that there has to be an export of goods from overseas into Australia. Thus, in Brother Industries Ltd v Dynamic Supplies Pty Ltd [2007] FCA 1490 , 163 FCR 530 , Tamberlin J referred to Estex Clothing and summarised its effect as follows: [42] ... Put another way, where an overseas company has registered a trade mark in Australia for products it exports to the Australian market, then it is that company, when and if it distributes the goods into Australia, which can be said to have "used" its trade mark. See also: Asia Television Ltd v Yau's Entertainment Pty Ltd (No 2) [2000] FCA 838 at [9] , [2000] FCA 838 ; 49 IPR 264 at 268 per Gyles J.


case_text: It is necessary to make an attempt to estimate the effect or impression produced on the mind of persons of ordinary intelligence and memory. It is the impression or recollection which is carried away and retained that is necessarily the basis of any mistaken belief that the challenged mark is the same: Australian Woollen Mills Ltd v F S Walton & Co Ltd [1937] HCA 51 ; (1937) 58 CLR 641 at 658 per Dixon and McTiernan JJ. See also: Global Brand Marketing Inc v YD Pty Ltd [2008] FCA 605 at [84] [89] per Sundberg J. The " recollection " may be imperfect: Crazy Ron's Communications Pty Ltd v Mobileworld Communications Pty Ltd [2004] FCAFC 196 at [87] , [2004] FCAFC 196 ; 209 ALR 1 at 21 per Moore, Sackville and Emmett JJ.


case_text: The function of pleadings is to state with sufficient clarity the case to be met: Banque Commerciale SA en liquidation v Akhil Holdings Ltd [1990] HCA 11 ; (1990) 169 CLR 279 at 286 7 per Mason CJ and Gaudron J. And written submissions can be no substitute for a properly pleaded case. 35 It is thus considered that Lion Nathan is confined by its pleadings to placing reliance upon the combination of words alone. Its Amended Defence , it is considered, does not state with sufficient clarity the defence that it was raising in respect to the claims of Gallo Winery ; indeed, as pleaded, it was only likely to have misled Gallo Winery . No application was made by Lion Nathan to amend its pleadings. Had such an application been made, it most probably would have been granted. Such limited cross-examination as there had been by Senior Counsel for Gallo Winery was not such as to have given rise to any irremediable prejudice that could not have been accommodated by recalling witnesses.


case_title: Brother Industries Ltd v Dynamic Supplies Pty Ltd [2007] FCA 1490 , 163 FCR 530


case_outcome: distinguished

case_text: These negotiations, contends Gallo Winery , constituted a use of the BAREFOOT trade mark in Australia. Such negotiations, contends Gallo Winery , provide evidence which is at least as strong, if not stronger, than that which constituted a use in Buying Systems (Australia) Pty Ltd v Studio Srl [1995] FCA 1063 ; (1995) 30 IPR 517. 164 In Buying Systems there was activity aimed at setting up a new fashion magazine. That activity included obtaining business cards, printing letterheads, and obtaining advertising space. Gummow J concluded (at 520): These steps amount to sufficient activity by the opponent to produce the result that the applicant for registration at the date of its application on 8 December 1983 could not accurately put itself forward as claiming to be proprietor of the relevant mark. The activities of the opponent were sufficient to constitute a relevant use of the mark in Australia for the purpose of indicating or so as to indicate a connection in the course of trade between it and the new magazine. This is not a case where those activities occurred without any existing intention to offer or supply the magazine in trade. The case is quite different from activities of the nature discussed in Moorgate. As I have already indicated, the material before this court is far more extensive than that which was before the registrar. 166 Buying Systems , it is considered, provides no support to the case now sought to be advanced by Gallo Winery. Reference may also be made to NSW Dairy Corporation v Murray Goulburn Co-operative Co Ltd (No 1) (1989) 14 IPR 26. Gummow J there concluded that there had been a use of the mark in issue by reason of such facts during the statutory period as the provision of art work to enable the manufacture of packaging and the production of promotional videos. 167 In the present proceedings there were undoubtedly discussions between Gallo Winery and McWilliams Wines as to the launch in Australia of BAREFOOT wine. But by May 2007 the negotiations had not proceeded beyond just that, negotiations. Compare: Woolly Bull Enterprises Pty Ltd v Reynolds [2001] FCA 261 at [40] , [2001] FCA 261 ; 107 FCR 166 at 179. There was unquestionably an intention to launch BAREFOOT wine in Australia " in around September 2007 ". But, and unlike the position in Buying Systems , there had been no step taken during the non-use period comparable to the placing of advertisements or the printing of letterheads or business cards. The only step which had been taken was the unilateral step taken by McWilliams Wines to allocate some of its wine. Gallo Winery was pleased that such a step had been taken as it preserved the possibility of a launch in September 2007. That was a step taken, however, by McWilliams Wines and not by Gallo Winery.


case_text: The comparison, it should be noted, is different to that undertaken in a passing off action where the plaintiff points to the goodwill built up around a mark by reason of prior use and then points to the conduct of the defendant as leading to deception, or perhaps merely confusion, and the consequent damage to that goodwill of the plaintiff: Wingate Marketing Pty Ltd v Levi Strauss & Co (1994) 49 FCR 89 at 128 9 per Gummow J. Essentially what is required when considering whether a mark is deceptively similar to another is a comparison between the mark of the registered owner and that of the alleged infringer: C A Henschke & Co v Rosemount Estates Pty Ltd [2000] FCA 1539 at [44] , [2000] FCA 1539 ; 52 IPR 42 at 62. Ryan, Branson and Lehane JJ there considered that it was not appropriate to undertake a wider inquiry of the kind undertaken in a passing off action or in a proceeding in which a contravention of Part V of the Trade Practices Act 1974 (Cth) is alleged. 198 The discretion presently conferred by s 101(3) of the 1995 Act, it has been said, confers a " broad discretion ": C A Henschke & Co v Rosemount Estates Pty Ltd [2000] FCA 1539 at [72] , [2000] FCA 1539 ; 52 IPR 42 at 73. And it is a discretion, it is considered, no longer constrained by any requirement to establish " exceptional circumstances "; it is a discretion which may be exercised " when it is reasonable to do so ": Kowa Co Ltd v Organon [2005] FCA 1282 , 223 ALR 27. Lander J there indicated that he was of the view that it was not reasonable not to remove the mark in issue. Of the discretion, his Honour concluded: [97] ... There are significant differences in the section considered by the Court of Appeal in Lyons [(1959) 76 RPC 120] and s 101(3). In the English section, regard had to be had to the bona fide use of the trade mark during the relevant period. No such regard is had in s 101(3). It is always dangerous to have regard to a statement of principle in relation to the exercise of a discretion in a section in an Act which is not in pari materia with a section of a second Act for the purpose of considering the way in which a discretion should be exercised in that second Act. [98] In Upjohn [(1998) 42 IPR 576] it was said that the power may be applied in "exceptional circumstances". Section 101(3) does not say that. There is no warrant to read the expression "exceptional circumstances" into the subsection. That would be to give the subsection a construction contrary to its express terms. In my opinion, the discretion which is to be exercised under s 101(3) is to be exercised as the subsection itself says, "when it is reasonable to do so". To suggest that the party against whom the non-use has been put in a case such as this should establish exceptional circumstances is to put too high a hurdle in that party's path. 207 The present proceedings, it is considered, stand in stark contrast to those confronting both the trial judge and the Full Court in C A Henschke & Co v Rosemount Estates Pty Ltd [2000] FCA 1539 , 52 IPR 42. The trial judge there had indicated that he would have allowed the mark to remain registered, even had it not been used. The registered proprietor of the mark had died in 1972 and no steps had been taken to transfer the mark until 1997. The beneficial interest in the mark had at all times resided directly or indirectly in members of the Henschke family. The only " formal " deception which could be pointed to was an impression that it may have been the partnership, rather than the executors, who owned the " Hill of Grace " trade mark. The persons using the mark were the persons who gave the mark its value. See also: Health World Ltd v Shin-Sun Australia Pty Ltd [2008] FCA 100 at [223] [225], [2008] FCA 100 ; 75 IPR 478 at 503 per Jacobson J.


case_title: Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12 , 202 CLR 45

case_text: Although the " guiding principle behind the discretion is public interest, particularly in the integrity of the register " ( Kowa Co Ltd v Organon [2005] FCA 1282 at [92] , [2005] FCA 1282 ; 223 ALR 27 at 41 2 per Lander J), the private commercial interests of both Gallo Winery and Lion Nathan remain matters which may be taken into account when exercising the discretion. Trade mark law, it has been recognised, is more complex than is suggested by the proposition that the supreme -- or, at least -- a predominant interest is the maintenance of the integrity of the Register: Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12 at [40] , [2000] HCA 12 ; 202 CLR 45 at 65. Speaking of the 1955 Act, Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ there pointed out the balance struck by the legislation between various interests. Both the interests of the consuming public and the interests of traders have to be recognised. Their Honours observed that: [42] ... the Australian legislation has manifested from time to time a varying accommodation of commercial and the consuming public's interests. There is the interest of consumers in recognising a trade mark as a badge of origin of goods or services and in avoiding deception or confusion as to that origin. There is the interest of traders, both in protecting their goodwill through the creation of a statutory species of property protected by the action against infringement, and in turning this property to valuable account by licensing or assignment. The provisions of the 1955 Act with respect to defensive registrations and certification marks were recognitions that the interests of the owners of registered trade marks may go beyond that of indicating trade origin. In Yale Electric Corporation v Robertson [(1928) 26 F 2d 972 at 973], Judge Learned Hand said of this interest: "that one merchant shall not divert customers from another by representing what he sells as emanating from the second. This has been, and perhaps even more now is, the whole Law and the Prophets on the subject, though it assumes many guises." In this decade, legislation in the United States, the United Kingdom, and now in Australia to varying degrees has extended the infringement action to restrain activities which are likely adversely to affect the interests of the owner of a "famous" or "well-known" trade mark by the "dilution" of its distinctive qualities or of its value to the owner.


case_outcome: considered

case_text: Whatever use there had been of the trade mark by its registered proprietor in the course of trade, that use had ended outside Australia. See: Carnival Cruise Lines Inc v Sitmar Cruises Ltd (1994) 120 ALR 495 at 510 per Gummow J. 152 The second way in which Gallo Winery contends that there has been a use of the mark during the non-use period is again to rely upon the fact that BAREFOOT wine was sold by Beach Avenue Wholesalers and offered for sale during the non-use period. This, together with the quality control exercised by Mr Houlihan, it is submitted, made Beach Avenue Wholesalers an " authorised user " of the mark within the meaning of s 8(1) of the 1995 Act. Its use of the mark, it is contended, is an " authorised use " within the meaning of s 8(2). 153 Section 8 of the 1995 Act provides as follows: Definitions of authorised user and authorised use (1) A person is an authorised user of a trade mark if the person uses the trade mark in relation to goods or services under the control of the owner of the trade mark. (2) The use of a trade mark by an authorised user of the trade mark is an authorised use of the trade mark to the extent only that the user uses the trade mark under the control of the owner of the trade mark. (3) If the owner of a trade mark exercises quality control over goods or services: (a) dealt with or provided in the course of trade by another person; and (b) in relation to which the trade mark is used; the other person is taken, for the purposes of subsection (1), to use the trade mark in relation to the goods or services under the control of the owner. (4) If: (a) a person deals with or provides, in the course of trade, goods or services in relation to which a trade mark is used; and (b) the owner of the trade mark exercises financial control over the other person's relevant trading activities; the other person is taken, for the purposes of subsection (1), to use the trade mark in relation to the goods or services under the control of the owner. (5) Subsections (3) and (4) do not limit the meaning of the expression under the control of in subsections (1) and (2).


case_title: Coca Cola Co v All-Fect Distributors Ltd [1999] FCA 1721 , 96 FCR 107

case_text: A " trade mark " is defined by s 17 of the Trade Marks Act 1995 (Cth) as being: ... a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person. The function of a trade mark, it has repeatedly been said, is "to give an indication to the purchaser or possible purchaser as to the manufacture or quality of the goods -- to give an indication to his eye of the trade source from which the goods come, or the trade hands through which they pass on their way to the market": In re Powell's Trade Mark [1893] 2 Ch 388 at 403 4 per Bowen LJ. Use "as a trade mark" in s 120(1) is use of the mark as a "badge of origin" in the sense that it indicates a connection in the course of trade between goods and the person who applies the mark to the goods: Coca Cola Co v All-Fect Distributors Ltd [1999] FCA 1721 at [19] , [1999] FCA 1721 ; 96 FCR 107 at 115 per Black CJ, Sundberg and Finkelstein JJ; Global Brand Marketing Inc v YD Pty Ltd [2008] FCA 605 at [45] per Sundberg J. See also: Shell Co of Australia Ltd v Esso Standard Oil (Australia) Ltd (1964) 109 CLR 407 at 424 5 per Kitto J; Rothnie W, Gray Goods Billow onto the Open Main: Section 123 of the Trade Marks Act 1995 (1996) 7 AIPJ 87 at 89 90. 43 And whether marks are " substantially identical " requires a side by side comparison and depends on the Court's own judgment: Shell Co of Australia Ltd v Esso Standard Oil (Australia) Ltd (1963) 109 CLR 407 at 414. Windeyer J there observed: In considering whether marks are substantially identical they should, I think, be compared side by side, their similarities and differences noted and the importance of these assessed having regard to the essential features of the registered mark and the total impression of resemblance or dissimilarity that emerges from the comparison. "The identification of an essential feature depends", it has been said, "partly on the Court's own judgment and partly on the burden of the evidence that is placed before it": de Cordova v. Vick Chemical Co. [(1951) 68 RPC 103 at] [2], at p. 106. Whether there is substantial identity is a question of fact... In order to determine whether marks are " substantially identical ", they should thus be compared side by side with their similarities and differences noted: Coca-Cola Co v All-Fect Distributors Ltd [1999] FCA 1721 at [38] , [1999] FCA 1721 ; 96 FCR 107 at 121. Black CJ, Sundberg and Finkelstein JJ there observed that the similarities and differences should be noted and the importance of these similarities and differences assessed having regard to the essential features of the registered mark and the total impression of resemblance or dissimilarity that emerges from the comparison. 58 It is considered that the impression which would be left on the mind of a person of ordinary intelligence would be that there was a deceptive similarity as between the mark used by Gallo Winery and that used by Lion Nathan and as pleaded in its Amended Defence . The similarity is such that persons would wonder whether the products came from the same source; an actual probability of deception need not be established: Southern Cross Refrigerating Co v Toowoomba Foundry Pty Ltd (1954) 91 CLR 592. Kitto J was there dealing with an application for registration of a trade mark and the statutory phrase " likely to deceive " and observed (at 595): ... It is not necessary, in order to find that a trade mark offends against the section, to prove that there is an actual probability of deception leading to a passing-off. While a mere possibility of confusion is not enough--for there must be a real, tangible danger of its occurring ... --it is sufficient if the result of the user of the mark will be that a number of persons will be caused to wonder whether it might not be the case that the two products come from the same source. It is enough if the ordinary person entertains a reasonable doubt. ... No intention to deceive or cause confusion is required and there is no element of culpability to be inferred from the word " deceive ": Coca Cola Co v All-Fect Distributors Ltd [1999] FCA 1721 at [39] , [1999] FCA 1721 ; 96 FCR 107 at 122 per Black CJ, Sundberg and Finkelstein JJ. 93 Reference may also be made to Tavener Rutledge Ltd v Specters Ltd [1959] RPC 355. Lord Evershed MR there referred to the prospect of a plaintiff being able to establish the mark of a defendant causing confusion. His Lordship continued at 359 60: ... If the plaintiffs establish that then, as I have said, the defendants may still have another line of defence and may say, "Though it may generally be as you say a mark likely to cause confusion, in fact the way I have used it and in the circumstances and environment in which I have used it, it is not likely to cause confusion." Cited: Coca-Cola Co v All-Fect Distributors Ltd [1999] FCA 1721 at [43] , [1999] FCA 1721 ; 96 FCR 107 at 123.