Case: St Lucia Usines and Estates Company Limited v Colonial Treasurer of St Lucia [1924] AC 508
Outcome: discussed
The authorities cited by the applicants are St Lucia Usines and Estates Company Limited v Colonial Treasurer of St Lucia [1924] AC 508 ( St Lucia ) at 512; Commissioner of Taxes (SA) v The Executor Trustee and Agency Company of South Australia Limited [1938] HCA 69 ; (1938) 63 CLR 108 ( Carden's Case ) at 155; Permanent Trustee Co v Federal Commissioner of Taxation (1940) 6 ATD 5 ( Prior's Case ) at 13; South Australia v Commonwealth [1992] HCA 7 ; (1992) 174 CLR 235 at 253; and Bowaters Sales Co Ltd v Commissioners of Inland Revenue (1958) 38 TC 593 ( Bowaters ) at 597 599. As well, the applicants refer to the Commissioner's Public Ruling TR 98/1 at [19], in which the Commissioner has said that as a general rule, the receipts method is appropriate to determine income derived from investments, although there are exceptions, such as in the case of interest from a business of money lending carried on by the taxpayer. 100 St Lucia [1924] AC 508 concerned the question whether interest on unpaid purchase money, payable but not paid, was "income arising or accruing" to the creditor for the purposes of the Income Tax Ordinance 1910 of St Lucia. After selling its estates and business in St Lucia, the taxpayer company did not reside or carry on business there, but was owed part of the purchase price at interest. Twelve months' interest fell due on 30 November 1921 but was not paid. Whether the company was liable to pay income tax in respect of the year 1921 on that interest depended on whether that interest was "income arising or accruing" to the company derived from a source in the colony. 101 The Privy Council rejected the Colonial Treasurer's contention that the interest accrued to the company in 1921. Their Lordships stated (at 512 513): The words "income arising or accruing" are not equivalent to the words "Debts arising or accruing". To give them that meaning is to ignore the word "income". The words mean "money arising or accruing by way of income". There must be a coming in to satisfy the word "income". This is a sense which is assisted or confirmed by the word "received" in the proviso at the end of s 4, subs 1. If the taxpayer be the holder of stock of a foreign Government carrying say 5 per cent interest, and the Government is that of a defaulting State which does not pay the interest, the taxpayer has neither received nor has there accrued to him any income in respect of that stock. A debt has accrued to him but income has not. It does not follow that income is confined to that which the taxpayer actually receives. Where income tax is deducted at the source the taxpayer never receives the sum deducted but it accrues to him. It is said, and truly, that a commercial company, in preparing its balance sheet and profit and loss account, does not confine itself to its actual receipts does not prepare a mere cash account but values its book debts and its stock in trade and so on and calculates its profits accordingly. From the practice of commerce and of accountants and from the necessity of the case this is so. But this is far from establishing that income arises or accrues from ... an investment which fails to pay the interest due. I do not think it necessary to refer further to s 4(1)'s reference to "received" that is mentioned in this passage. 102 The sale that gave rise to the liability to pay the interest appears to have been a one off, indeed a final, sale of the company's estates in St Lucia. The facts are therefore far removed from those of the present case in which ABB Australia was one of 1,000 wholly owned subsidiaries of ABB Zurich, and the latter company, in its role as shareholder, declared the dividend and framed the terms of payment. On the other hand, the passage does distinguish between money falling due and payable (in the present case, the amount of the dividend had not fallen due and payable as at 30 May 1996) and money coming in.