Automatic Totalisators Ltd v Federal Commissioner of Taxation

[1968] HCA 81

HIGH COURT OF AUSTRALIA

Kitto, Taylor and Menzies JJ.

AUTOMATIC TOTALISATORS LTD. v. FEDERAL COMMISSIONER OF TAXATION

(1968) 119 CLR 666

11 December 1968

Income Tax (Cth)

Income Tax (Cth)—Assessable income—Rebate of payroll tax—Whether assessable as refund of amount paid for taxes allowed or allowable as a deduction—Income Tax and Social Services Contribution Assessment Act 1936-1964 (Cth), s. 72 (2)—Pay-roll Tax Assessment Act 1941-1963 (Cth), s. 16G.

Decision

December 11.
THE COURT delivered the following written judgement:-
The Commissioner of Taxation included in the assessable income of the appellant for the year ended 30th June 1964 the sum of 25,226 pounds 16s. 0d., being a payment made during the year by the Commissioner to the appellant under s. 16G of the Pay-roll Tax Assessment Act 1941-1963 (Cth). The appellant objected to this inclusion, and Taylor J. has stated a case asking whether he was bound to find that the payment did form assessable income of the appellant or whether he was at liberty to find that it was not a receipt in the nature of income. The answers turn upon the character of the receipt in the hands of the taxpayer. (at p668)

2. The taxpayer, at all times material, carried on the business of precision engineers and the manufacturing of totalisators. As an employer it was liable to and did pay pay-roll tax which was allowed as a deduction in its assessment under the Income Tax and Social Services Contribution Assessment Act 1936-1964 (Cth), which we shall call the Act. It exported some of its goods and, because of increases in export sales in 1962 and 1963 over and above the aggregate in export certificates issued by it, the taxpayer became entitled to what s. 16C of the Pay-roll Tax Assessment Act described as "a rebate in respect of the tax . . . imposed on wages paid or payable" in respect of some of the years there specified, viz. 1960 and the next seven succeeding financial years. This rebate was, in accordance with the formula set out in s. 16C (2) of the Pay-roll Tax Assessment Act, calculated at 25,226 pounds 16s. 0d., and, pursuant to a claim therefor, this sum was paid to the taxpayer by the Commissioner pursuant to s. 16D. It is not, we think, necessary to examine the formula further than to point out that it brings into account what may perhaps be described as the net increase in export sales of a year, the gross receipts of the year and the amount of tax that would have been payable without any rebate by reference to exports. The source of the power to enact Div. 2 of the Pay-roll Tax Assessment Act - Rebate of Tax by reference to Exports - may be both par. (ii.) and (iii.) of s. 51 of the Constitution. In the circumstances we do not find it necessary to come to a conclusion about that legislative source; the legislation is clearly within power. (at p669)

3. The first matter for consideration, as we see it, is whether the payment, in satisfaction of the right to what is called a rebate, which was made to the taxpayer, was also "a refund" for the purposes of s. 72 (2) of the Act as being "a refund of an amount paid for . . . taxes which has been allowed or is allowable as a deduction" under the Act. If so, that sub-section requires its inclusion in the taxpayer's assessable income. Section 72 (2) refers both to "a refund" and "a rebate of tax" but the rebate there referred to is a rebate in an assessment under Pt. III, Div. 17 of the Act. This reference, as we see it, bears in no way upon the question whether a payment in satisfaction of the right to a "rebate" under s. 16C of the Pay-roll Tax Assessment Act is a "refund" for the purposes of s. 72 (2) of the Act. A refund of tax is a reimbursement of tax paid and, no doubt, the primary meaning of a "rebate" in income tax law is the sense in which the word is used in Pt. III, Div. 17 of the Act, i.e., a rebate or reduction in a taxpayer's assessment. In s. 16C of the Pay-roll Tax Assessment Act, however, the word "rebate" is used in a sense importing a reimbursement of tax; it is "a rebate" in respect of tax imposed and paid, and its calculation results in a sum to be paid or credited pursuant to s. 16G to the person who has paid the tax. When such a sum has been paid, tax already paid has been reimbursed and so has been refunded. Subject, therefore, to consideration of a further argument, we would regard the sum in question as a refund of tax. (at p670)

4. For the taxpayer it was, however, contended that the taxes referred to in s. 72 (2) of the Act are simply the taxes specified in s. 72 (1) of the Act. We see no warrant, in principle or in authority, for this restriction. All that is necessary is that the tax paid should have been allowed or be allowable as a deduction and there is no justification for inferring an unexpressed limitation. Section 72 (2) is not merely consequent upon s. 72 (1). (at p670)

5. Accordingly we consider the sum in question did constitute part of the appellant's assessable income by reason of s. 72 (2) of the Act. (at p670)

6. The decision so reached would enable us to answer the questions submitted, but because the character of the payment may be of some importance in assessments in later years, we think we should go on to refer to two other matters that were fully debated. The Commissioner claimed that the payment made was income according to ordinary standards, and that, in any event, it was a bounty received in, or in relation to, the carrying on of the taxpayer's business so as to form part of the proceeds of that business as provided by s. 26 (g) of the Act. These claims the taxpayer resisted. (at p670)

7. The taxpayer did, in fact, carry the receipt to the credit of its trading account in its books for the year ended 30th June 1964. The mere fact that it did so is not important, but what is of importance is that the course which was followed did accurately recognize the character of the receipt. It was what would ordinarily be regarded as a trading receipt because it was earned and received on account of the taxpayer's successful trading in a particular way, viz. in increasing the annual exports of the products of its manufacture. The Pay-roll Tax Assessment Act offered the appellant an inducement to trade in a particular way, and whether the inducement operated or not - and it may be supposed that it was not overlooked - the conditions for a rebate having been met, the appellant applied for a rebate to increase its annual trading profits by obtaining a reimbursement of annual taxes which had been paid in reduction of those profits. The appellant relied upon the decision of the House of Lords in Seaham Harbour Dock Co. v. Crook (H.M. Inspector of Taxes) (1931) 16 TC 333; 48 TLR 91 , but that case is distinguishable. Lord Atkin said of the payment for unemployment relief there in question: "This amount could not be taken into account in calculating your profits", i.e., trading profits. That is the very thing that was done here and, as we have said, was properly done. Moreover, the House was considering legislation very different from that which concerns us. (at p671)

8. We do not find it necessary to express any opinion upon the question whether the payment in question was a "bounty . . . in or in relation to the carrying on of a business" within s. 26 (g) of the Act. (at p671)

9. In the course of the hearing the taxpayer indicated that it did not seek an affirmative answer to question (b) (ii); it is therefore sufficient to answer the questions asked as follows: (a) Yes; (b) (i) No. (at p671)

Orders

Answer questions as follows:

(a) Yes. (b) (i) No.

Costs of the case stated reserved for the Justice disposing of the appeal.