The main legal point established in the judgment is that the surplus realized by the company from the assets companies and distributions of bonus and debenture stock were taxable as profit derived from Victoria.

Lord Dunedin :—

The Commissioner of Taxes for the State of Victoria assessed the respondent company for income tax in respect of the year 1910 upon the sum of £113,998, being the sum which in his judgment upon the figures appearing in the balance-sheet and report of directors of the said company, dated 9th April, 1910, fell to be assessed under the Income Tax Acts. The respondent company objected to the assessment in so far as it was levied upon the sums of £104,782-1s. 4d. and £509-1s., which sums were admittedly included in the above-mentioned sum of £ 113,998. What these sums were in respect of which objection was taken will be presently explained. The Commissioner of Taxes, at the request of the respondent company, stated a special case for the opinion of the Supreme Court of Victoria.

The questions for the opinion of the Supreme Court as put were :-

"(1) Whether the surplus of £ 104,782-1s. 4d. mentioned in paragraphs 19 and 22 of this case is profits earned in or derived in or from Victoria by the new company, the respondents during the year 1909 or previous years within the meaning of Section 9 of Act No. 1819 so as to subject the new i.e., the respondent company to income tax in respect thereof ?

"(2) Whether the difference of £ 509 1s. between the prices of debenture stock and par mentioned in paragraphs 19 and 22 of this case is profits of the kind mentioned in question (1)?"

The Supreme Court, by a majority of two to one, decided in favour of the Commissioner of Taxes, answering the questions put as follows :

"(1) The surplus of £ 104,782 1s. 4d. mentioned in paragraphs 19 and 22 of the said case is profits earned in or derived in or from Victoria by a company during the year 1909 or previous years within the meaning of Section 9 of Act No. 1819 so as to subject the company to income tax in respect thereof?

"(2) The difference of £ 509 1s. between the prices of debenture stock and par mentioned in paragraphs 19 and 22 of the said case is also profits of the kind above mentioned so as to subject the company to income tax in respect thereof."

An appeal was taken to the High Court of Australia, and that Court by a majority of two to one reversed the judgment of the Supreme Court of Victoria, and in lieu of the order pronounced by that Court declared "that neither of the sums mentioned in the said questions is taxable."

From this judgment appeal is taken to their Lordships' Board.

It appears from what has been above stated that judicial opinion on the question has been strongly divided — three learned judges in all having been of one opinion and three of another. In such a state of matters it is not to be expected that the question should be one of easy solution, or that cogent arguments should not be found on both sides. Their Lordships recognize that fact, and have given careful and repeated consideration to the arguments addressed to them, and to the reasons put forward for their judgment by the learned judges of the Courts below. They will now state the result at which they have arrived.

To make the question intelligible it is necessary here to give as briefly as may be a history of the occurrences which led to the point arising.

Three Australian banks, namely, the English and Australian Mortgage Bank, Limited, the Federal Bank of Australia, Limited, and the City of Melbourne Bank, Limited were unable to satisfy their creditors, and went into liquidation. The shareholders had virtually no interest in the liquidations, as the assets were avowedly insufficient to pay the creditors. Eventually in 1897 schemes of arrangement were sanctioned by the High Court in England and the Supreme Court in Victoria and, in the case of the second bank, also by the Courts of New South Wales and South Australia. In the case of each bank the scheme as affecting it sanctioned in England was identical with that sanctioned in Australia. In pursuance of the schemes of arrangement three companies were formed bearing the names of the English and Australi