Mildura and District Dried Fruit Growers' Hail Storm Damage Compensation Scheme v Federal Commissioner of Taxation

[1968] HCA 70

HIGH COURT OF AUSTRALIA

Owen J.

MILDURA AND DISTRICT DRIED FRUIT GROWERS' HAIL STORM DAMAGE COMPENSATION SCHEME v. FEDERAL COMMISSIONER OF TAXATION

(1968) 118 CLR 342

31 October 1968

Income Tax (Cth)

Income Tax (Cth)—Assessable income—Mutual insurance association—Contributions by members—Association formed for purpose of insuring members against loss—Deemed to be company carrying on business of insurance—Whether members deemed to be shareholders—Whether contributions deemed to be premiums—Income Tax and Social Services Contribution Assessment Act 1936-1962 (Cth), s. 121.*

Decision

October 31.
OWEN J. delivered the following written judgment:-
In each of these matters the taxpayer appeals against a decision of the board of review which, by a majority, confirmed assessments made by the Commissioner. The first of these assessments related to the year ended 30th April 1962 and the second of them to the following year and the same points are involved in each case. (at p343)

2. In 1958 a severe hailstorm in the Mildura district caused much damage to crops of grapes then being grown and, as a result, a number of growers set about forming an association for the purpose of establishing what I will call a "scheme" to provide a measure of insurance against future loss that might be caused to grape crops by hailstorms. In pursuance of this aim the taxpayer, an unincorporated body of grape-growers, was formed. Its constitution stated that it was established to provide compensation to its members for hailstorm damage to crops of specified kinds of grapes. Each grower who became a member of the association was required to pay to it a membership fee the amount of which was based upon the acreage under vine in respect of which he sought to be covered against loss and an annual "subscription" of an amount which, as I understand it, was based upon his average annual production. Aboard of management was appointed to manage the "scheme" and trustees were appointed in whom the assets of the association were to be vested. The constitution did not contain any provisions relating to the distribution of any surplus moneys that the association might accumulate over and above the amounts required to meet its obligations nor did it contain any provisions relating to the winding up of the "scheme" and the distribution of its assets should it cease to operate. Detailed provision was made for the assessment of the amount to be paid to a member should damage by hail be done to his crop and for the payment of the amounts so assessed. (at p344)

3. In each of the years in question in these appeals the Commissioner, in reliance upon s. 121 of the Income Tax and Social Services Contribution Assessment Act 1936-1962 (Cth), included in the association's assessable income the amount of the "subscriptions" received by it from its members during that year and to this the association raised objections. (at p344)

4. Section 121 provides that

"Every association of persons formed for the purpose of insuring those persons against loss, damage or risk of any kind in respect of property shall, for the purposes of this Act, be deemed to be a company carrying on the business of insurance, and the assessable income of such company shall include all premiums derived by the company, whether from its shareholders or not, other than premiums received in respect of policies of life assurance or considerations received in respect of annuities granted."

My attention was drawn to the provisions of s. 6 of the Act by which, unless the contrary intention appears, "company" includes "all bodies or associations corporate or unincorporate" and "shareholder" includes "member". Whether these expanded meanings should be given to the words "company" and "shareholder" where they appear in s. 121 seems to me to be open to doubt but I think it unnecessary to decide that question since I am of opinion that the result of these appeals would be the same whichever view is taken. (at p344)

5. It is not disputed that the association was during the relevant years "an association of persons formed for the purpose of insuring those persons against loss, damage or risk of any kind in respect of property". As such, it was by virtue of the section "deemed to be a company carrying on the business of insurance" or, if s. 6 be read with s. 121, "deemed to be an unincorporated association carrying on the business of insurance". (at p345)

6. The first submission made on behalf of the association is that the section can apply only to cases in which the body which is formed for the purpose of insuring against loss or damage is in fact a company, that is to say a corporate entity in which there are shareholders. I am unable to accept that submission. If s. 6 is left on one side, what s. 121 does is to deem an association such as the one with which these cases are concerned to be a "company" and a company of a particular kind, namely one which is carrying on the business of insurance. Having deemed such a body to be a company it was natural enough for the draftsman to go on to speak of its members as "shareholders". If, on the other hand, the expanded meanings given by s. 6 to the words "company" and "shareholders" are applied the argument must also fail. Next it was said that the "subscriptions" paid to the association by its members are not to be regarded as "premiums" for the purposes of the section. I cannot agree that this is so. The "subscription" paid by each member is an amount paid by him in consideration of a promise to afford him insurance cover and as such it falls, in my opinion, within the meaning of the word "premium" as used in the section. (at p345)

7. Then it was submitted that in the case of a mutual insurance association such as the one under consideration the subscriptions of members, be they premiums or not, cannot be said to be "derived" by the association and in support of this submission I was referred to a number of the well-known mutual insurance cases decided under the United Kingdom taxation legislation, of which New York Life Insurance Co. v. Styles (1889) 14 App Cas 381 and Jones v. South-West Lancashire Coal Owners' Association (1927) AC 827 , are examples. It was submitted that in the light of these cases the word "derived" is inapt to describe the receipt by a mutual insurance association or company of subscriptions or premiums paid to it by its members. Again I am unable to agree. As Isaacs A.C.J. said in Federal Commissioner of Taxation v. Clarke (1927) 40 CLR 246, at p 261 , "'Derived' only means 'obtained' or 'got' or 'acquired'". The annual payments which the members of the association made in order to provide a fund out of which claims for loss or damage might be met were "obtained" or "got" by the association from its members and, by virtue of s. 121, became part of its assessable income. (at p345)

8. Finally it was argued that the income of the association was exempt from income tax under s. 23 (h) as being the

"income of a society or association not carried on for the purposes of profit or gain to the individual members thereof, established for the purpose of promoting the development of . . . the . . . viticultural . . . resources of Australia . . . ".

But the association was not established for any such purpose and the argument cannot be sustained. (at p346)

9. In my opinion each of the appeals should be dismissed with costs. (at p346)

Orders

Appeals dismissed with costs.