Case: Esquire Nominees Ltd v Federal Commissioner of Taxation [1972] HCA 32 ; (1973) 129 CLR 177
Outcome: considered
In Esquire Nominees Ltd v Federal Commissioner of Taxation [1972] HCA 32 ; (1973) 129 CLR 177, Stephen J said (at 224-225): "The process of identification of the locality of a source of income may differ depending upon the nature of the income in question. Where income may be seen to be derived solely from the acts of the taxpayer the source is to be found where those acts are performed; but the problem is seldom set in such simple terms, such personal exertion income will often be seen to be derived from the performance of work pursuant to some contract and the place of performance, the place of payment and the locus of the contract may all affect the question of source French's Case, per Taylor J. ... To say that questions of source depend upon practical matters of fact will not necessarily assist in determining which of a range of possible meanings of source is meant, but context should provide a solution. The context furnished by the proviso to s 7(1) is that of the individual taxpayer and of his derivation of his income either by his own acts or from property rights which he possesses. It is a context unconcerned with the questions of ultimate origin; the source referred to is that from which income is produced by the taxpayer's own acts of derivation or ownership. All this suggests that a quite proximate source is being referred to." 210 In this case, the TVI Project and the TVA Project, insofar as they involved overseas territories, were to operate by Plutora finding sub-licensees and not by the licensees directly approaching advertisers and travel agents in those areas. The licence agreements or sub-licence agreements did not affect TVI's right to the exclusive ownership of any intellectual property in the Travel Vision system. 211 The two possible sources of income for the licensees under a sub-licence agreement were sub-licence fees and advertising royalties or advertising service fees. The licence agreements between TVI and the CECK partnership (or the TVA partnership) were made in Australia and governed by Australian law, and the CECK partnership and Civil and Earth carried on business in Australia. Plutora was the marketer and it also carried on business in Australia. 212 In relation to sub-licence fees (had they been earned) I agree with the submissions of the respondent that they would not have been income derived from a source in a foreign country. The CECK partnership and the TVA partnership did not itself undertake any activity in a foreign territory and it was not required to under the licence agreements and deeds of variation to those agreements with the licensor. I agree with the submission of the respondent that in practical terms the source of the partnership income was "its licence agreement with TVI, and through that agreement, its right to share in the income stream of TVI from the sale of rights to use the TVI product to persons in the territories for which the partnership held licences". 213 As to the advertising royalties or advertising service fees (had they been earned) I also agree with the respondent's submission that they would not have been income derived from sources in a foreign country. The fact is that the activities that represent the consideration for such advertising royalties or advertising service fees were activities in the nature of the production and distribution of the Disks which were to be carried out, not by the CECK partnership or by the TVA partnership, but by TVI in Australia.