Case: Esquire Nominees Limited v Federal Commissioner of Taxation [1972] HCA 32 ; (1973) 129 CLR 177
Outcome: distinguished
The Commissioner submits that for the purposes of identifying the appropriate basis of accounting, the authorities show or suggest that a holding company is classified as a trading company. He cites Carapark Holdings Ltd v Commissioner of Taxation [1967] HCA 5 ; (1966) 115 CLR 653 ( Carapark ) at 663 664; Esquire Nominees Limited v Federal Commissioner of Taxation [1972] HCA 32 ; (1973) 129 CLR 177 ( Esquire Nominees ) at 212 per Barwick CJ, 221 per Menzies J; Brookton Co-operative Society Limited v Commissioner of Taxation [1981] HCA 28 ; (1981) 147 CLR 441 ( Brookton ) at 469 per Aickin J; and Broken Hill Pty Co Ltd v Federal Commissioner of Taxation (1999) 99 ATC 5193 ( BHP v FCT ) at [48] per Kenny J. 134 The Commissioner relies on a statement in Esquire Nominees [1972] HCA 32 ; 129 CLR 177 by Barwick CJ (at 212) that a company may make profits without trading in goods or commodities, or, for that matter, in securities, and that it may do so simply through its investment portfolio, indeed, through investment in a single subsidiary. 135 Esquire Nominees [1972] HCA 32 ; 129 CLR 177 concerned an issue over the location of the source from which income was derived. The taxpayer company, Esquire Nominees Ltd, was incorporated in Norfolk Island, as was Mitchell Credits Ltd. Each had its registered office and central management and control in Norfolk Island. In the year ended 30 June 1969, Esquire Nominees Ltd received a dividend from Mitchell Credits Ltd. Mitchell Credits Ltd derived the funds for the payment of the dividend from a dividend which it received from Pharmaceutical Investments Ltd, which was also incorporated in Norfolk Island. That company paid the dividend to Mitchell Credits Ltd from funds constituted by a dividend it received from an Australian company, whose income came from dividends paid to it by another Australian company carrying on business in Australia. 136 Barwick CJ (at 212) said that the place where a company makes its investment income is the place where it has its central management and control, whereas the place where a trading or manufacturing company makes its income is the place where its trading or manufacturing activities are carried on. 137 The High Court held that Esquire Nominees Ltd was a resident of Norfolk Island and that the source of the dividend, the fund out of which Mitchell Credits Ltd declared it, was within Norfolk Island. 139 The Commissioner also refers to a passage in the judgment of Aickin J in Brookton [1981] HCA 28 ; 147 CLR 441. His Honour stated (at 469) that in the case of a company that had no activity other than the receipt of dividends from shares that it had purchased, it would ordinarily be regarded as carrying on a business, even if it did not actively manage its portfolio of investments, whereas an individual in the same circumstances would not necessarily be regarded as carrying on such a business. Aickin J cited Esquire Nominees [1972] HCA 32 ; 129 CLR 177 at 212 per Barwick CJ and 221 per Menzies J. Again, the statement is relevant only to the question whether ABB Zurich carried on a business. I accept that it did. 140 Finally, the Commissioner relies on BHP v FCT 99 ATC 5193, in which Kenny J said (at [48]) that the taxpayer company carried on businesses which included holding shares in, and managing, its subsidiaries. Her Honour stated, citing Esquire Nominees [1972] HCA 32 ; 129 CLR 177 and Brookton [1981] HCA 28 ; 147 CLR 441, that the holding of shares in subsidiaries can of itself constitute the carrying of a business for the purposes of s 51(1) of the Act.