Commissioner of Taxation v Linter Textiles Australia Ltd ((in Liquidation))

• Jurisdiction: Australia Federal only
• Judge: Gleeson CJ,Gummow,Hayne,Callinan,Heydon JJ,McHugh J,Kirby J
• Judgment Date: 26 April 2005
• Neutral Citation: 2005-0426 HCA A,[2005] HCA 20
• Court: High Court
• Docket Number: S606/2003
• Date: 26 April 2005

[2005] HCA 20

HIGH COURT OF AUSTRALIA

Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ

S606/2003

Commissioner of Taxation

Appellant

and

Linter Textiles Australia Ltd (In Liquidation)

Respondent

Income Tax Assessment Act 1936 (Cth), s 80A.

Commissioner of Taxation v Linter Textiles Australia Ltd (In Liquidation)

Income tax — Allowable deductions — Loss carry forward provisions — Losses incurred by taxpayer company in preceding years — Requirement of continuity during year of income of beneficial ownership in shares in the taxpayer company that carry between them various rights — Winding-up order made in respect of parent of taxpayer company and subsequently in respect of taxpayer company — Liquidators appointed in each case — Whether shares in the taxpayer company still carried between them the rights required to be attached to those shares.

Income tax — Allowable deductions — Loss carry forward provisions — Losses incurred by taxpayer company in preceding years — Requirement of continuity during year of income of beneficial ownership in shares in the taxpayer company that carry between them various rights — Winding-up order made in respect of parent of taxpayer company and subsequently in respect of taxpayer company — Liquidators appointed in each case — Whether, subsequent to winding up of parent company, the shares held by parent company in the taxpayer company were not ‘beneficially owned’ by the parent company.

Income tax — Allowable deductions — Loss carry forward provisions — Losses incurred by taxpayer company in preceding years — Discretion in Commissioner of Taxation to apply additional requirements for carrying forward previous tax losses — Requirement that voting power in taxpayer company be controlled, or capable of being controlled, by an individual or two or more persons not being companies — Ultimate holding company of parent of taxpayer company was trustee of two trusts administered for benefit of a family — Whether family still controlled voting power in taxpayer company.

Statutes — Construction — Loss carry forward provisions in income tax legislation — Meaning of requirement that shares held in taxpayer company be ‘beneficially owned’ by parent company — Effect of intervening winding-up orders and appointment of liquidators in each company — Meaning and purpose of the requirement of beneficial ownership in this context — Relevance and utility of analysis by reference to the law of trusts and equitable ownership of property.

Corporations — Involuntary winding up — Whether company in liquidation divested of beneficial ownership of assets — Whether liquidator trustee for the benefit of creditors.

Trusts — Whether liquidator trustee for the benefit of creditors.

Appeal — Appeal before High Court — Application to amend notice of appeal to raise explicitly the application of statute to the facts and circumstances of the case — Whether amendment should be granted — Whether any procedural injustice involved in such amendment — Considerations relevant to the determination of application.

Words and phrases — ‘beneficially owned’, ‘trustee’, ‘satisfaction’.

1 Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. The appellant (‘the Commissioner’) appeals from the judgment of the Full Court of the Federal Court (Hill, Goldberg and Conti JJ)1. The Full Court dismissed the Commissioner's appeal against the judgment of Hely J2. His Honour upheld an ‘appeal’ by the respondent taxpayer (‘Linter Textiles’) against the disallowance by the Commissioner of its objection to an assessment of income tax under the Income Tax Assessment Act 1936 (Cth) (‘the Act’) for the year of income ended 30 June 1992.

Gleeson CJ

2 These reasons seek to demonstrate that the appeal to this Court should be allowed, but only on a ground available to the Commissioner by amendment of the grounds of appeal. The necessary leave for that amendment should be granted.

The effect of winding-up orders

3 At all material times, the taxpayer, Linter Textiles, was a wholly owned subsidiary of Linter Group Ltd (‘Linter Group’). The ultimate holding company of Linter Group was Pochette Nominees Pty Ltd (‘Pochette’). That company was the trustee of two trusts, which, while described as discretionary trusts, nevertheless were administered solely for the benefit of the Goldberg family3.

4 On 12 April 1991, an order was made by the Supreme Court of New South Wales that Linter Group be wound up under theCompanies (New South Wales) Code (‘the Code’). Thereafter, on 24 February 1992, an order was made by that Court for the winding up of Linter Textiles under the Corporations Law (‘the Law’). In each case, the Court appointed a liquidator to the company. What were the legal consequences of those orders and appointments? The answer supplies the context in which the issues in this Court are to be considered.

5 Each liquidator, as Deane and Gaudron JJ put it inTanning Research Laboratories Inc v O'Brien4, ‘assume[d] a responsibility, as an officer of the court, to administer the statutory scheme for the winding up of a company’. In respect of Linter Group, s 374(1) of the Code stated that the liquidator ‘shall take into his custody or under his control all the property to which [Linter Group] is or appears to be entitled’. Section 374(2) empowered the Supreme Court on the application of the liquidator by order to direct that all or any part of the property of Linter Group vest in the liquidator; if such an order were made, thereupon the property in question would vest in the liquidator. No such order was made.

6 It may be noted that rather differently expressed provision was made in the Code respecting the effect of a voluntary winding up. Section 394(1) of the Code provided that, from the commencement of the winding up, the company was to cease to carry on its business ‘except so far as is in the opinion of the liquidator required for the beneficial disposal or winding up of that business, but the corporate state and corporate powers of the company, notwithstanding anything to the contrary in its articles, continue until it is dissolved’. Section 493(1) of the Law was in similar terms. It will be necessary later in these reasons to note the significance that has been attached in some of the cases to distinctions between voluntary and involuntary winding up.

7 Another consequence of the order made for the winding up of Linter Group was provided in s 371(2) of the Code. No action or other civil proceeding might be commenced or be proceeded with against Linter Group without the leave of the Supreme Court in accordance with such terms as the Supreme Court imposed.

8 The Law contained provisions to like effect of s 371 and s 374 of the Code, and these operated upon the winding up of Linter Textiles5. As with Linter Group, no vesting order was made in respect of the assets of Linter Textiles.

9 Section 58 of theBankruptcy Act 1966 (Cth) provides for the automatic vesting in the Official Trustee of the property of the bankrupt. However, as exemplified by the above provisions of the Code and the Law, the successive

companies statutes have not included an equivalent of s 586. It also should be noted that it has long been settled that an action commenced at the instigation of the liquidator would nevertheless be instituted by the company as the party on the court record7.

10 As Hely J pointed out8, it was not an inevitable consequence of the orders for the winding up of Linter Group and Linter Textiles that they be dissolved. The Code (s 383) and the Law (s 482) empowered the Supreme Court to order the stay or termination of the winding up9. His Honour added10:

‘Where an order is made terminating the winding up, directions may be given with a view to restoring management and control of the company to its officers. It was accepted by counsel for the Commissioner that if an order staying or terminating the winding up were made, the company would thereupon resume beneficial ownership of its assets.’

11 That reference to beneficial ownership introduces the issues of revenue law which arise on this appeal.

Loss carry forward provisions

12 On 23 December 1999, the Commissioner issued an assessment under the Act against the taxpayer, Linter Textiles, for the year ended 30 June 1992 (‘the 1992 year’). In the 1992 year, Linter Textiles derived as assessable income an amount of $10,163,773, but sought to carry forward certain losses. Generally speaking, in the 1992 year, a taxpayer which in preceding years had incurred or was deemed itself to have incurred a loss was entitled to a deduction for the year of income for that loss which the taxpayer was able to carry forward. The Full Court approached the matter on the basis that the losses which Linter Textiles

sought to carry forward had been incurred after the 1989 year of income, with the consequence that the relevant provision was s 79E, rather than s 80 which would have applied had the losses been incurred in an earlier year11.

13 In what appears to have been accepted as the year ended 30 June 1990 (‘the loss year’), Linter Group had incurred a tax loss of $9,929,676. By operation of s 80G of the Act, the Linter Group loss was deemed to have been incurred by Linter Textiles, the taxpayer, in the loss year. Linter Textiles itself had incurred a tax loss of $10,393,871. Section 80G of the Act made detailed provision for the transfer of losses within a company group. It is common ground that, but for the arguments turning upon the consequences for the Act of the winding-up orders, the losses from the loss year were available to Linter Textiles to offset against its assessable income for the 1992 year. In particular, there is no separate question disputing the operation of s 80G. Rather, the critical questions concern the construction of s 80A in the light of the consequences of the...