Sun Newspaper Ltd v FC of T

                Sun newspaper was a famous newspaper in Sydney. The company was used to sell out its every copy of the newspaper for 1 and half a penny. At the same prices, other competitor companies were also selling their newspapers on a daily and weekly basis. In accordance with the case analysis, World newspaper (a competitor of Sun newspaper) introduced a newspaper Star in 1932 (Jade.io, 2015). Basically, the main idea behind the introduction of star newspaper was to replace the world newspaper in Sydney market as consciously high competition was preventing world newspaper to show better performance in the targeted market.

        At the time of introduction, prices of Star newspaper was kept very low. It was almost two third prices of Sun newspaper. Low prices resulted in an increase in sales immediately. As all these newspaper companies were working in the same targeted market, therefore, the increase in the sales of a company was a threat to the business of other companies. Sun newspaper sales got a negative influence from the customer switch to the new low price newspaper (KREVER, 1986). To control and manage this situation Sun Newspaper Company took a decision to restrict the publication of competitor newspaper. The company paid a huge amount to the world newspaper after the development of an agreement regarding the restriction of newspaper publication and use of assets (world newspapers publishing plant) for a specified period of time. Somehow, later a case was presented in the high court related to income taxes of these companies. The facts, judgments, and reasons for this case are presented below in detail (Jade.io, 2015).

Facts/judgment/ reasons

        Sun newspaper Ltd. paid money for the restriction of their rival's newspaper published in the targeted market of Sydney (in Australia) for the next 3 year duration. As a result of this newspaper, circulation got decline and the potential drop was recorded in the prices of the newspaper. Basically, the case relates to two famous newspaper companies in Sydney (Jade.io, 2015). The world newspaper and Sun Newspaper Company. The world newspaper is the competitor’s product that was restricted from publication for 3 years under the rival public sales restriction agreement.

        The key facts related to this case are discussed here in this assignment by evaluating and analyzing the available information from online sources and Jade.io (website). According to CLR of Australia, excluding “enduring benefit/’ none of the mentioned characteristics in the last sentence can be considered a decisive characteristic, in fact, all elements represent the material that needs to be in the consideration of the question (Jade.io, 2015). Judges raised the point that the most important and relevant questions concerning with this case are whether the expenditure is to meet a continuous demand or should it be regarded as enduring expenditure serving the whole business or not?. In this case, the payment made by the company was not a capital expenditure or asset enduring for 3 year increase in revenue but in fact, it was providing an advantage to the competitor company in term financial profit. Providing a reason to this claim it was said that when term enduring and permanent is used in the letters and agreement it does not mean that benefit and advantage will last forever. In fact, term enduring and permanent also cover benefits given to a company for 3 year long duration (KREVER, 1986). Thus, in short, the payment made for restriction resulted in an increase of goodwill of the company. In other words, the agreement made for the restriction of the world newspaper resulted in the increase of goodwill (a valuable asset in the business) of the Sun newspaper. As a result of this company took financial advantage for their present and future business operations.

        According to the case analysis, the expenditure made by the Sun newspaper company for the world newspaper regarding restriction of newspaper publication was a capital nature expenditure. Rich J. and other supporters present a reason for the court that capital expenditure has resulted in an increase of goodwill (capital asset) (Jade.io, 2015). Thus considering the going concern business approach the company will not have any kind of liability to pay income taxes on this capital expenditure and its return. In the case, confusion was raised because the agreement was officially made between Associated Company and World Company while the payment was made by Sun Newspaper Company.

        According to jade.io, deduction from the income in response to the financial advantage should be claimed by the operating company Sun Newspaper Company or by the associated newspaper company as the holding company. Moreover, the case was related to the 12-month accounting period or fiscal year ending 24^th September 1933. Somehow, during this period managing editor was responsible for the publication of these companies (Jade.io, 2015). According to the contract or agreement, Associated Company was given permission to use assets including machinery, plant, and material (over which option was made) of World Company to publish a new newspaper entitled as Star. The agreement was made between these companies in the form of letters written from both companies to each other. From Associated Company, the letter was written on the behalf of its chairman and board of directors. In the letter, they clearly stated that the total offered amount is £86,500 with a down payment of £12,00o immediately on next morning (the day after agreement) (Jade.io, 2015). Moreover, in the letter, the reason for restriction and payment was also clearly mentioned that all supported the claim that £86,500 should be treated as an item of capital expenditure while deducting and calculating income tax.

        The agreement was not made between Sun and World newspaper but as payment was made by the Sun newspaper company, therefore, they mentioned this amount in their profit and loss account statement for that fiscal year (Jade.io, 2015). Sun Newspaper Company not only mentioned this amount but also claimed in its income tax returns. Deduction of £24,363 was considered as outgoing capital or loss for the Sun Newspaper Company in their annual financial statements of Profit and Loss.

        Considering all these facts and reasons high court took the decision regarding the case of the Sun newspaper, associated newspaper and world newspaper agreement (Jade.io, 2015). According to the court, these expenditures should be considered as revenue for world Newspaper Company. Sun Newspaper was using its assets including machinery and plant. In response, they were paying them a fixed amount each week. Considering this amount as rent to these assets and machinery court concluded that payment is not capital expenditure but in fact, it should be considered as income expenditure that relates to one or less than one fiscal year only (Jade.io, 2015). Thus in accordance with the judgment of the court, the tax should be deducted from the income of these company while considering its income expenditure (for sun newspaper) and revenue (for world Newspaper Company).

Explain how the principles of the case have repeatedly been applied in cases involving outgoing for legal expenses

        The principles of the case (Sun Newspaper Company and World Newspaper Company) has repeatedly been applied in cases involving outgoing for legal expenses. According to section 23 (1) {a,) of the Income Tat Assessment Act 1922-1934 outgoing of capital is not deductible from assessable income. In the case company, claimed that expenditure could not be deducted from the taxable income as it capital expenditure were related to the outgoing of capital nature. Payment made by Sun newspaper to Associated Newspaper was not a gift or any other kind of financial benefit because of business operations. In fact, expenditure was to take financial benefit by excluding a competitor company from the competition for a limited period of time (KREVER, 1986). While dealing with this case, several relevant cases were used as reference cases. Some examples of the referred case are Anglo-Persian Oil Co. Ltd. v. Dale, Maryborough Newspaper Co. Ltd. Taxation v. Gordon, Dott v. Brown, and W. Nevill & Co. Ltd. v. Federal Commissioner of Taxation.

        The principle of this case was further again used in other cases. After this case court judge other similar cases on three kinds of tests (KREVER, 1986). These testing approaches include testing of expenditure purpose, expenditure benefits, and expenditure nature. An example of a similar case in which the same principles were applied is known as Hallstroms Pty. Ltd. v. Federal Commissioner of taxation. In this case, the court analyzed the benefits generated from the outgoing capital to conclude taxable income. Moreover, another case Southern v. Borax Consolidated Ltd. case was also related to the relatively same scenario. The court used the principles of Sun newspaper company and world newspaper company case (Sun newspapers Ltd v FC of T (1938) to solve the case of this Southern v. Borax Consolidated Ltd. Court conducted benefits oriented testing to analyze the possible impact of outgoing capital on profit and loss account of these companies at the time of making the judgment for taxpayers (KREVER, 1986). Thus in short, principles of Sun Newspaper Ltd v FC of T case were later used in several other cases as reference case principle particularly in the cases related to the outgoing capital.