Commissioner of Taxation of the C of A v Rowe

[1996] HCATrans 223

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S84 of 1996

B e t w e e n -

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Appellant

and

ANTHONY JOHN POULSTON ROWE

Respondent

BRENNAN CJ
DAWSON J
TOOHEY J

GAUDRON J
McHUGH J
GUMMOW J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 8 AUGUST 1996, AT 10.19 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR W.G. MUDDLE, for the appellant.  (instructed by the Australian Government Solicitor)

MR D.G. RUSSELL, QC:   May it please the Court, I appear with my learned friend, MR H.L. ALEXANDER, for the respondent.  (instructed by Hunt & Hunt)

BRENNAN CJ:  Yes, Mr Jackson.

MR JACKSON:   Your Honours, will have copies of our outline of submissions.  I do not know if your Honours have read them.

KIRBY J:   I received them this morning; I have not had time to read them.

BRENNAN CJ:   Yes, Mr Jackson?

MR JACKSON:   Thank you, your Honours.  As is apparent from the outline of submissions, the central issue concerns the extent to which the fact that a payment is made to reimburse or compensate for an allowable deduction is relevant to whether the amount of the reimbursement or compensation is, itself, assessable income.

McHUGH J:   That is a departure from the way you put it on the special leave application, is it not?

MR JACKSON:   Well, it is not, no, your Honour, it is not.

McHUGH J:   At page 6 of the special leave transcript, your special leave point seemed to be that deductible allowance followed by reimbursement equals assessable income.

MR JACKSON:   Your Honour, that is what I am seeking to say.

McHUGH J:   Paragraph 6 of your written submissions has two very important qualifications.  “In the absence of unusual circumstances” and the word “ordinarily” in proposition C.  It just leaves the matter up for grabs.  Why is it a special leave?  Why should you have got special leave if you had put it on the basis of paragraph 6.

MR JACKSON:   Your Honour, if one goes to the special leave application, what your Honour will see is that the two matters that are referred to in paragraph 6(a) and 6(b) were specifically referred to in the framing of the issue and, your Honour, that appears - first of all, if one looks at page 2 your Honours will see between, I think, lines 15 and 20 the reference to what is in paragraph 6(a).  Secondly, in relation to what is in paragraph 6(b), that was referred to - - -

KIRBY J:   That was the rich aunt case that you referred to?

MR JACKSON:   Yes, that is at page 7, commencing about line 12, and, at the bottom on page 7 your Honours will see that it was accepted that, at the top of page 8, there may be some qualifications to it and all we are seeking to do is to say in paragraphs (c), (d) and (e) of paragraph 6 of our outline of submissions that in the absence of some other potential feature, the nature of which does not readily occur except, perhaps, in the preliminary observations referred to in 6(a) and 6(b), the situation will be that where the deductible expense, where the payment is made to reimburse or compensate for the deductible expense, then the payment will be of an income nature because there is nothing to give it any other character.

KIRBY J:   That seems a rather unstable principle.  The unusual circumstances is such an exception and so undefined and undefinable that it seems to be retreating from the broad proposition that you were advancing in the special leave application and, as I understand it, that the authorities in the United States may support.

MR JACKSON:   Well, your Honour, I really do not seek to resile from it.  We simply are seeking to, in effect, state in paragraphs 6(a) and (b) a recognition that where the deduction comes under a specific provision and it may come under a specific provision which either affects deductibility or affects the quantum of deductibility.  For example, your Honour, what I mean by that is that some provisions of the Income Tax Assessment Act allow deductions without it being necessary to enter upon the question whether section 51(1) would or would not apply.

Again, in some cases, some matters that are deductions are matters where, for example, there may be an accelerated rate of deduction or perhaps a particular rate applicable or a particular amount.  All we are seeking to say is that particular problems may, but may not necessarily arise if one was dealing with a position other than that in relation to which special leave was given, namely deductions under section 51(1).  So, your Honours, we seek to exclude that.  The second thing, your Honours, is that 6(b) is really stating the proposition in one way, that what has to be looked at is to identify whether the particular payment truly partakes of the nature of a reimbursement or compensation.

KIRBY J:   I think that is the problem from the point of view of the special leave issue, that if you allow such exceptions, is not the task then in every case simply one of characterisation, as I think the Chief Justice suggested at page 10 of the special leave application, and is there therefore anything that can be said except that one has to characterise it in each case?  It is just a question of fact really.

MR JACKSON:   Your Honour, because the issue is one in the end of what amounts to income, and “income” is a term that is not relevantly defined by section 25, nor of course in a relevant sense is “gross income” in the United States provisions.  Because the topic is not there, the term is not one that is defined and really is a concept.  There will inevitably be cases that are on the borderline.  If you take, for example, the case where a sum of money is provided by a parent to a child setting up in business or a sum of money provided to a child who has had expenses that are deductible expenses in conducting some activity in the preceding year, your Honours, it becomes very difficult, we would submit, to regard that as being something that could be regarded as a reimbursement or compensation, although it may be quantified by reference to the particular expense.

That is really all we are seeking to say in that regard, that there will be some payments that may be regarded in a broad sense as reimbursement or compensation but would not fall within the principle, but if in reality it is something that does not have an element of family benevolence in that sense ‑ ‑ ‑

McHUGH J:   But why should it be limited to family benevolence?  I mean, take a rugby league player who incurs legal expenses defending a disciplinary charge before the judiciary committee, let us say in June.  In July, supporters of his club say, “Oh, we better take up a collection for Fred, it has cost him $3000 to get out of that charge.”  Now, is the $3000 assessable income?

MR JACKSON:   Well, your Honour, it would be assessable income, in our submission, if the $3000 was money that was being paid to him to assist to defray the expenditure that he had had in relation to defending the charge.

McHUGH J:   Well, what if it was his wife who gave him the money, or some member of his family?

MR JACKSON:   Your Honour, that is really, we would say, on the other side of the line, because there you have got something that, even though one would quantify it by - perhaps quantify it by reference to the expenses that there were, there is certainly an element of deciding whether something is or is not a gift, or is or is not a reimbursement or compensation for it in the relevant sense.

McHUGH J:   Well, suppose instead of a collection it was one wealthy supporter of the club who gave him the money.  I mean, how do you distinguish these?  What, draw a bright line between family benevolence and other cases?

MR JACKSON:   Your Honour, that is an issue which has always arisen in relation to the question whether something which is a gift is or is not income.  Your Honour, that is so whether one - quite absent a case like this; the issue always arises if something is a gift.  And, your Honours, the cases demonstrate, of course, that a sum of money which is a gift in the sense that it is paid by a person who does not have a particular obligation to pay it, may or may not be income.  Your Honour, all we are seeking to say is that if you leave aside cases where you can regard the sum of money as being a gift in that sense, by applying ordinary principles, a gift not amounting to income, and its true nature is something that it is a reimbursement of compensation for it, then it falls within the principle.

McHUGH J:   But there are scores of these cases.  Why are they not all matters of fact and degree?

MR JACKSON:   Your Honour, cases of this kind, broadly speaking, as are very frequently cases, depending on income, are questions of fact and degree.  I accept that, broadly speaking.  But, it is a question then of deciding what element of the case is the one that can be so described.  If one is looking at the particular payment, and looking at that payment says, “Is it a payment that was one by way of gift?”, and apply the ordinary principles test to do that, then, if it is by way of gift - gift being the obverse of income, relevantly - then the issue does not arise.  But, if one says it is not something that is by way of gift in that sense, the next question would then be whether it is something that is income by virtue of income and not, for example, capital, by virtue of the fact that it is a payment which is made to reimburse, or “compensate for”, if I can use that expression, something that was the subject of a deduction in the past.

Your Honours, I have progressed a little into the argument, I think, in dealing with that.  May I, perhaps, seek, as it were, to start from the start, not going over the parts I have dealt with already.

Your Honours, what I was going to say was this, that, I have sought to identify the issue in broad terms before, but it does, in a sense, need some refinement.  First of all, your Honours, the matter I have mentioned.  The case is concerned only with income; with the general deduction provision of section 51(1), not with specific deduction provisions, and not with other general provisions bringing amounts into income other than the general provision of section 25(1).

Your Honours, the second thing is that, in our submission, the issue does not arise unless the amount sought to be treated as income is properly characterised as a reimbursement of a deduction.  And that is a case where there has been ‑ ‑ ‑

DAWSON J:   I am not sure that I understand that, Mr Jackson.  What if a taxpayer did not claim the deduction; that he incurred the expense and he was reimbursed?

MR JACKSON:   In those circumstances, in our submission, it would not be a case where the amount that was paid would be income by virtue of this notion.

DAWSON J:   Why not?

MR JACKSON:   Well, your Honour, the underlying reason would be this, in our submission, that what one has under the Income Tax Assessment Act is a situation where, ultimately, one is taxed upon taxable income.  The taxable income is the result of the calculation of the deduction from assessable income of allowable deductions.  If there is an allowable deduction which has not been claimed, then what one sees is a situation where the amount of assessable income going into taxable income has not been reduced by the amount of that claim.

DAWSON J:   But that is irrelevant.  What relevance can it have?  The income which he gets by way of ‑ if it is income ‑ the reimbursement, is the same, whether or not there has been a deduction claimed.

MR JACKSON:   Your Honour, what I was going to say was this, that, if one then goes to a following year, where the amount that is an amount equivalent to the amount that might have been deducted, is received, then, in relation to that, our submission is that it partakes of the quality of income for a reason ‑ perhaps amongst others ‑ if it otherwise would not by reason of the fact that one can identify it as being an amount which replaces the assessable income which was not the subject of the deduction that might have been claimed.

McHUGH J:   That turns the scheme of the Act on its head, does it not, because, apart from a couple of specific statutory provisions, the Act has two artificial boundaries:  30 June one year; 30 June the next year, and that is the beginning and end of it.  It is what happens within that period that counts.  How can the quality of the income in one year depend upon whether or not you got a deduction in the previous year?

MR JACKSON:   Your Honour, because what one gets is, let us say, a receipt in the subsequent year.  To see what the nature of that is, one is, in our submission, perfectly entitled to look to see to what it relates, and undoubtedly there is a division for the purpose of assessing income at the end of each year but there is not a conceptual division which prevents one looking to previous years to see what a sum is.  One has to in many cases, and if what you see when doing that ‑ ‑ ‑

McHUGH J:   But it cannot be because you claimed or allowed a deduction, surely.  How can that make any difference?

MR JACKSON:   Well, your Honour, it can make a difference because - may I say I assume claimed and properly allowed, put it that way, something to which one was entitled.  It can make a difference because, if you look to see the nature of the sum of money that is received in the subsequent year, what you see is that it is a sum of money which is designed to reimburse for an amount that was expended, let us assume, to take the simplest case, in a preceding year.  Your Honour, in doing that one looks to see what the nature of it is.  One sees then that the nature of it is that it is a sum of money paid to reimburse for a sum, the nature of which is such that it falls within section 51(1).  That is, it is an outgoing not of a capital nature, not of a personal or private, anything like that.  It is an outgoing of a business nature within the terms of section 51(1).

BRENNAN CJ:   But 51(1) speaks not of an allowed deduction but of an allowable deduction.

MR JACKSON:   Yes, your Honour.

BRENNAN CJ:   So it does not matter very much whether it has been allowed or not, does it?

MR JACKSON:   Your Honour, in one sense that is correct, but may I first deal perhaps with the simplest case, the case where it has been allowed.  In a case of that kind - your Honour, may I return to that in just a moment and perhaps deal with the first part of it in the simplest way.  What I am seeking to say in relation to it is this, that if you look to see what the nature of the amount is, the amount that is received, one goes back to see what it was received for.  One sees that it was received to reimburse for an amount which was an allowable deduction pursuant to section 51(1).  The nature of section 51(1) is such that it excludes capital things, personal, private and so on.

Having done that, one is left with a situation where the expenditure which was the subject of the deduction was an expenditure, to put it shortly, of a business revenue nature.  Having done that, one then looks to see what is the characterisation of the sum of money that comes about, that is returned for it.

McHUGH J:   But in most cases - in fact I would think in 99.9 per cent of cases - you are not reimbursed because it was an allowable deduction; it is because you incurred an expense.

MR JACKSON:   Well, your Honour, one incurred an expense but - perhaps we are talking about different things, but may I say this.  One incurred an expense but incurred an expense which falls within a particular category, the category being that it is an expense of a revenue nature falling within section 51(1).  Having said that, one then sees a sum of money coming to replace the revenue expense.  If one is looking to see what that sum of money is, the answer, in our submission, is that the nature of it is, prima facie, to put it at the lowest, the same.  Why is it not income?  If one is looking at that sum of money, it is to replace something that was taken away from income.  The nature of the amount that it replaces was something that was revenue.  Why is it not itself?  Why is it capital, for example?

McHUGH J:   It may or may not be, but at the moment it does not seem to me to have anything to do with whether or not the deduction was claimed and allowed.  That is the area we are discussing at the moment.

MR JACKSON:   Your Honour, I am simply seeking, in a sense, to put the proposition at its narrowest, in effect, to say a sum of money that is claimed and properly allowed.  Now, if one takes simply that situation then, in our submission, the answer would be, as I suggested, that the sum of money that comes in return for it is simply something that, to put it at the lowest, prima facie partakes of the same nature and the only reason why it would not be of the same nature would be if an earlier characterisation of it, in our submission, would make it a gift or something of that kind.

TOOHEY J:   Why would it make any difference whether the amount had been claimed and allowed, or not?  I mean, the taxpayer may have forgotten to claim the amount, or may have thought, wrongly, perhaps that it was not an allowable deduction and not claimed it in his income tax return.  Does your argument then stand or fall or vary according to the circumstances relating to the outgoing?

MR JACKSON:   Your Honour, it should not make any difference whether the sum has been claimed and allowed because it would be the replacement of the allowable deduction.  But, your Honour, the reason why I would, in a sense not - your Honour, I accept that the proposition really does go so far.  I say that immediately.  There seems no reason not to, your Honours, but having said that, of course, it does give rise to a potential issue that one sees in the United States cases or that arose at an early point in the United States cases, and that is that - I say, arose at an early point because it was fairly quickly changed by statute or provided for by statute.  An issue which arose was whether, because of the benefit approach that was adopted in the earlier cases, there should only be brought into income so much of the payment as could really be seen to have amounted to a benefit.  If there had not been an amount claimed in the first place or there had not been any tax benefit obtained by the deduction, then, that was the exclusionary part of the rule.  I am putting that badly, but may I come to that in a moment.

BRENNAN CJ:   Whatever might have been the situation in the United States, your argument, as I understand it, is based on the language of 51(1), and the conception of a payment which was properly characterised as a payment made in reimbursement of such an allowable deduction as is therein referred to.

MR JACKSON:   Yes.

BRENNAN CJ:   Well, then, if that is the logical proposition that you are advancing, the fact of whether there has been a benefit or whether it has been allowed is irrelevant.

MR JACKSON:   Ultimately, that is correct, yes, your Honour.

BRENNAN CJ:   Yes.

GUMMOW J:   If that is the proposition, Mr Jackson, is it not different from what is in your paragraph 6?

MR JACKSON:   I am sorry, your Honour?

GUMMOW J:   If your proposition is that which the Chief Justice just put to you, is that not a broader proposition than your paragraph 6 in the outline?  It is certainly differently expressed.

MR JACKSON:   It may be broader.  I am not certain if your Honour is talking about (c), (d) and (e) rather than (a) and (b) or ‑ ‑ ‑

GUMMOW J:   I am talking about paragraph 6 as a whole.

DAWSON J:   Particularly (e).

MR JACKSON:   Perhaps if one left out the word “prima facie” that would accommodate the proposition.

BRENNAN CJ:   There is one problem of whether a payment that is made is made for reimbursement.

MR JACKSON:   Yes, your Honour.

BRENNAN CJ:   That must always be a question of fact, must it not?

MR JACKSON:   Quite, your Honour.

BRENNAN CJ:   You would distinguish, as I understand your argument, between a payment which is made for reimbursement as distinct from a payment which is made simply to confer a benefit.

MR JACKSON:   Yes, your Honour.

BRENNAN CJ:   It is that distinction that may present some difficulty.

MR JACKSON:   The distinction is one that does not really, if I may say so with respect, really derive from this case.  It is a distinction that has been in existence for many years.  Your Honour, in that regard, could I just say this, that if one looks, for example, at decisions of the Court, leaving aside altogether the facts of the particular case, it is clear, in our submission, that the fact that a payment is made by a body having no legal obligation to make it - for example, an ex gratia payment - or the fact that the payment is not made by a person’s employer or the fact that a payment is made by way of bounty does not prevent a sum from being income.

Could I, in that regard, refer your Honours to - and I will do so very briefly - three passages?  The first is in Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540 at 556 per Chief Justice Dixon and Justice Williams. Your Honours, if I could just say, this is the case where the employer, whose employee had joined the army during the war, made up the salary, in effect. What your Honours will see is the relevant passage commences at about point 4 on the page but, most significantly, at the last six or seven lines on the page, commencing, “Indeed”.

GUMMOW J:   Is that to the same effect as Justice Fullagar at page 568 beginning about line 4?  In particular about point 3 he talks about substitution.

MR JACKSON:   Your Honour, I am sorry; the real point I was dealing with at page 556 is the one that is in the last five or six lines on the page:

it is clear that if payments are really incidental to an employment, it is unimportant whether they come from the employer or from somebody else -

What was decided in the case, of course, was that the payments, because of amongst other things their periodical nature, their relationship to former employment, were to be treated as income.  All I was seeking to do was to refer to the fact that that dictum indicates that the fact it does not come from the employer is not necessarily decisive.

The second reference I was going to give your Honours was a single Justice decision of Justice Windeyer in Scott v Commissioner of Taxation 117 CLR 514 at page 526 in the paragraph commencing halfway down the page. His Honour recognises, in effect, that things that are gratuities may yet be income and discusses that in the last paragraph on page 526 and up to the top of page 527.

And finally, your Honours, an observation of Justice Fullagar in Hayes v Commissioner of Taxation 96 CLR 47 at page 54, the paragraph commencing halfway down the page dealing with the question again whether gifts may amount to income.

KIRBY J:   We have gone off into this territory of gifts as a way of testing, in a sense, the general proposition.  But I really have not quite yet understood your theory of the case, which may be explained in the way the United States authorities have approached the matter.

MR JACKSON:   Your Honour, I was referring to these cases really in answer to the Chief Justice’s observation that a difficulty - your Honour, I might not have the exact word - difficulty may arise because of the need to characterise the payment or receipt as being something which is compensation for - and so on.  And, your Honour, what I was seeking to say was that questions of that kind are ones that arise quite apart from the particular proposition; it is simply an issue that does arise whenever a payment is made which is one which has, for example, an element of benevolence in it, or is a gift, or is made by a person who does not have an obligation to pay it. So, your Honour, that is -that really is not - - -

KIRBY J:   It iss the best that can be said, that this is a problem that has come up in many cases, that in every case you have to look at the particular suggested income, and there will be borderline cases of characterisation, but that that should not deflect the attention of the Court from the broad principle which should be applied in cases where there are reimbursements in a subsequent fashion, yes.

MR JACKSON:   Yes, your Honour, yes.

BRENNAN CJ:   Mr Jackson, perhaps you can assist me.  I have got a vague recollection of a case called Federal Coke; was this considered in that case, do you know?  It was a voluntary payment made in compensation for a disappeared stream of income, as I remember.  If you are not familiar with it, do not worry.  It just seemed to me that these cases are ones which have a familiar ring about them.

McHUGH J:   Federal Coke probably helps you to some extent, because it says you really look at it from the point of view of the payee - its character in the hands of the payee.

MR JACKSON:   Your Honour, I have read Federal Coke.  I am having some difficulty reading it, if I may say so with respect, but may I perhaps come back to that, your Honour, later.

BRENNAN CJ:   Yes.

MR JACKSON:   Your Honours, could I move very briefly to the circumstances of the particular case before going on?  Your Honour, they are set out in our outline of submissions and in the statement of agreed facts at pages 59 and following.  Your Honours, I do not think I need to take your Honours to the detail of them really at all.  May I just endeavour to summarise very briefly what occurred?  There was a 7:6 division of opinion on the Livingstone Council which resulted in the respondent being suspended in a manner which your Honours will see at page 66.

The matters involved are set out at page 65.  Very shortly afterwards, the decision was rescinded - that is at page 69.  The Minister established an inquiry - that is page 67.  The respondent was represented - page 70 - completely exonerated - page 73.  He claimed his legal costs from the council - page 77.  The council would not pay - page 78.  He claimed the legal expenses as a deduction - that is page 2.  The claim was eventually allowed in full - pages 84 to 85.  Your Honours, having had no joy with the council in relation to his costs, he claimed the costs from the State Government which agreed to pay them ex gratia.  Your Honours will see that at pages 87, 86, 88.  I put the pages in that order because one of the letters appears to have the wrong date on it.

KIRBY J:   You originally disputed that the costs were properly deductible, but do you contend before this Court that they were properly deductible?

MR JACKSON:   Yes.  It was conceded, your Honours.  It was conceded before the Administrative Appeals Tribunal that proceedings in which he brought to have the disallowance of the deduction reviewed, it was conceded in those that he was entitled to the deduction.  Your Honours will see that at pages 3 and 84 to 85.  Now, your Honours, it is clear, in our submission, that if one looks at the nature of the payment which he received, the character of the payment was in order to reimburse him for the amounts which he had expended in connection with the inquiry and the reimbursement was to replenish the income which he had been required to expend.  Your Honours, that appears from the correspondence at pages 86 to 88.  Your Honours, the view ultimately taken by the majority in the Full Court appears from the reasons of Justice Drummond at page 248, about line 5, where the question which his Honour posed - what his Honour said, I should say, was that:

Whether a particular receipt by a taxpayer who is assessable to income tax on a cash basis will be income in the period in question within the ordinary concept of income, depends on whether its receipt was the product of the performance of services by the taxpayer for his employer.

Now, your Honours, that view was expanded upon by his Honour in the remainder of that paragraph and, your Honours, if one looks at the remainder of that paragraph and in particular at lines 20 to 25 what his Honour says is that:

A payment made to reimburse a cost met by the employee in performing his duties in one period.....would be income in the period in which it was received because it was a receipt closely connected with the performance of his duties from which he derives assessable income.

Your Honours, may we say three things about that in, perhaps, ascending order of importance.  The first, your Honours, if your Honours look at the way in which his Honour expressed it is this:  If employment has ceased then, your Honours, it is not really very easy to see why the reimbursement of the receipt to which his Honour there refers at line 25 would be then closely connected with the performance of duties.  Your Honours, the second thing is that it is apparent from the immediately preceding passage which commences, your Honours at page 245, line 46 through to the top of page 248 that the judge has drawn a distinction between the position of a person carrying on business on a continuing basis and that of a taxpayer who is assessed on a receipts basis and we would refer your Honours particularly to page 247, line 44.

Your Honours, that would seem to mean - if I give one example - if a legal convention say, was cancelled for lack of support and a refund of the prepaid registration fee made in the next year, then the distinction drawn by his Honour would seem to have the result that the refund would be income of the company which employed an in-house counsel and had paid that fee for that person but, on the other hand, would not be income of say, a self‑employed barrister.  Your Honours, more importantly, in our submission, his Honour’s approach does not give sufficient weight to the fact that the form of accounting adopted in the case of a continuing business is not, of course, the end in itself but rather, the means to an end, namely to identify what is assessable income and what are reliable deductions.

The third point, your Honours, we would seek to make about what his Honour said, and I am speaking particularly about the approach of his Honour at page 245, is that it really does not pose, in our submission, the right question because the right question, we would submit, is not whether the reimbursement or et cetera is the product of performance of services by the taxpayer for the employer, nor is it really whether it is income, for example, from employment.  The real question is is the reimbursement income?  Your Honours, that is the fundamental question, not the narrower way in which it is put by the Court.

GAUDRON J:   That does not say a lot though, does it?  Is the payment income?  That is the question to be answered, admittedly, but what one is looking for is the test which gives you that answer.

MR JACKSON:   Yes, your Honour, I was going to go on to say this, that if the question is whether the sum is income, in circumstances where the payment is to reimburse, or compensate for an outgoing which falls within section 51(1), the outgoing is, ex hypothesi, not of capital or a capital nature.  It is not of a private or domestic nature, and it is difficult, we would submit, to identify a reason why a reimbursement of such a sum has any aspect of it which would make it anything other than income.

DAWSON J:   Well then, it does have to be a reimbursement of a sum that has been expended.

MR JACKSON:   Yes, your Honour.

DAWSON J:   But I thought you resiled from that a moment ago.

MR JACKSON:   I am sorry, your Honour.  I think I was talking about two different things, with respect.  I thought his Honour the Chief Justice was asking me whether, in the end, it was essential that the amount had been claimed and allowed.

DAWSON J:   Yes.

BRENNAN CJ:   Yes.

MR JACKSON:   And, your Honour, I think I said into the proposition that the question was whether the amount was something that fell within section 51(1).

DAWSON J:   It was an allowable deduction even though it had not been claimed and allowed?

MR JACKSON:   Yes.  Your Honour,  what I was saying a moment ago was that, where one has the reimbursement of a sum ‑ reimbursement of an outgoing which would fall within section 51(1) ‑ it is difficult to identify any reason, if one bears in mind the things that fall within section 51(1), why a sum properly so characterised would have any feature which would make it anything other than income.

DAWSON J:   What if you had some expenses which were deductible, whether you deducted them or not, and I said to you, “Mr Jackson, you’ve had a hard year and a hard time, I know you’ve had all sorts of expenses”, and I ‑ ‑ ‑

MR JACKSON:   Your Honour must be reading some of my documents, I think.

DAWSON J:   ‑ ‑ ‑ gave you $10,000; your expenses were, in fact, only $5,000.  Would $5,000 of that sum be income and the other $5,000 not?

MR JACKSON:   Yes, your Honour, yes, probably.

DAWSON J:   But the character of the payment is exactly the same., is it not?

MR JACKSON:   The character of the payment is that it is a payment which is to, on the one hand ‑ your Honour, it is difficult to think of benevolence in the circumstances but, your Honours, if I could just say this: it does to a degree depend on what the nature of the gift is.  Could I try to illustrate that?  If what was given was a sum which was intended to be something to help someone, to assist someone, then the characterisation of it may well be that it is something that is a gift.  If what is done is to say, “You’ve had a bad year with expenses.  What I am doing is giving you a sum which you can put towards your expenses to recoup them and if the expenses are higher than that, then the circumstances would be, in our submission, that the whole of this sum would be something that was income.

If, on the other hand, you have a situation where what is said is, “I’ll give you this sum of money, put it towards your expenses and keep the rest”, when one does not know exactly what the expenses are, then it is right to say it is the one sum of money but one has to look to see what it is given in a sense for, and what it is given for really involves two things, in our submission, in a case of that kind.

Your Honours, could I move then to the two leading decisions of the Court which are relied on to demonstrate in effect the contrary of the submission we are trying to advance.  The first is Allsop v Federal Commissioner of Taxation (1964) 113 CLR 341. Perhaps I could just say one thing as an additional answer to what your Honour Justice Dawson said to me a moment ago just before going on to that case. If one took, for example, the case of a talented young golfer who came from a country town and was about to enter on the golf circuit, had no money to speak of but was starting off on the golf circuit as a professional golfer. In the first year one would expect that there would be a lot of travelling expenses and so on. The local golf club, when he came back in, say, August, to take a period in the next financial year, presented him with the wallet of notes to help him with his career.

Your Honour, broadly speaking one would not expect that sum of money to be a sum of money which would amount to income.  Even though he is a professional golfer, one would regard it, prima facie, as a gift.  If, on the other hand, what was given was a sum of money which was to help pay for the expenses he had incurred in the preceding year in travelling or, for example, a sum of money given to him as the cost of an around the world air fare for two persons - himself and a manager or caddy, whatever they have - then it would be much easier to say in those circumstances the sum of money is a sum of money intended to recompense for the allowable deduction that there had been in the preceding financial year.  So, your Honours, there is the element of characterisation of what the sum of money is paid for, as it were.

McHUGH J:   But you seem to have moved the analysis to a determination of the giver’s motive, whereas the accepted doctrine is that, prima facie, a voluntary transfer of money or property is not income and it is a gift unless it can be related to or be regarded as the product of the employment or work activities of the recipient.

MR JACKSON:   It is a product, your Honour, of the - it is related to, undoubtedly - because there has to be some relationship - no doubt there has to be a relationship between, put it on the one hand, income earning activities, and on the other hand the making of the payment.  Now, if one is talking about the situation of someone who does carry on some income earning activity, for example, the young new professional golfer whose first year it is and in those circumstances incurs expenses which the person would be entitled to claim as an allowable deduction and to carry over in future years if the person made a loss during that.  Now, what I am seeking to say about it is that one has to identify what is the nature of the payment that is made to him.  I am not really seeking to make it purely a question of the motive of the donor.  It is really a question identifying what the character of it is.  Let us say it was done by letter.  “The sum of money is given to recompense you for some of your travelling expenses last year.”  Now, in a case like that, in our submission, it would be appropriate for the sum of money to form part of income.  I say “would be appropriate”, it does, in our submission, form part of income.

McHUGH J:   I find it very difficult to see how there is any rule about these matters.  I mean, people talk about you must determine the character of it in the hands of the payee, but there are plenty of statements where people look at the object of the payment and the purpose of the payment.  I mean, in Dixon’s Case, in the passage that Justice Gummow referred to, Justice Fullagar spoke about the object and effect of the payment.  In Scott’s Case Justice Windeyer said motive is not decisive, but, nevertheless, he said motive was a factor to be considered.

MR JACKSON:   The thing is, of course, if one has the simple making of a payment then one has to go dehors the payment itself to identify what its nature, if I could use a neutral term, is.  Now, if one takes the simplest case, if A receives a payment from B, then there may be nothing, let us say, accompanying the cheque, but you would have to go outside that part of the transactions to see the circumstances that gave rise to the payment.  They may well be the fact that a bill for some service has been delivered and it is a payment for that.  One may see that what it is is that it is a prepayment for something that has been ordered.  One may see again that it is a parent saying to a child who is in business, “This will help you with your liquidity.  Pay it back to me in two years time or when you can, at the bank rate of interest.” or something like that.  What I am seeking to say about it is that one has to look to the surrounding circumstances to identify what it is. 

One cannot exclude the motive of the donor.  It may not ultimately be decisive, but it is relevant, as Justice Fullagar said.  But could I just give one example, your Honour?  It may be that in the case of - if I could remain with golf - a rich American enjoys the company of a particular caddy at an Australian golf course, comes once a year, and, as a gift, gives a very large sum of money.  Now, in the ordinary course of events, the caddy’s income would be income from the club; tips, this sort of thing.  Now, the motive on the one hand is benevolence on the part of the donor, but the sum of money would be income in the hands of the caddy.  So, your Honour, one has to look at all the features.  None, in the end, is decisive; it is a question of the nature, I suppose, of the payment.

McHUGH J:   There is no mention in any of these passages at 247 through into 248 of Justice Drummond’s judgment of those professional sportsmen’s cases where they get a gift after retirement.  In certain cases, they have been held to be taxable, have they not?

MR JACKSON:   Yes, your Honour, and the classic case, one would think, is the benefit match or something of that kind.

McHUGH J:   Yes, Moorehouse and Doolan and those cases.

MR JACKSON:   Yes.  Your Honour, I think the only one of the sportsmen’s cases that is referred to is Maddalena, the footballer.

McHUGH J:   Yes, the footballer.

BRENNAN CJ:   Mr Jackson, it seems to me that there are two questions to be addressed.  The first is one of fact, that is, what is the payment for, if it is made voluntarily, and the second is, if it is made for reimbursement of the 51(1) allowable deduction, is it, on that account, necessarily income?  Now, as to the first proposition, I have been looking at Federal Coke and, for my part, I would be assisted to know whether you would accept the proposition which appears in Federal Coke 34 FLR 375 to 402 where I said:

If there be a consensus between the payer and the payee, their common understanding may identify the relevant matter.

Accepting that motive is not conclusive, but it is relevant, and the desire of the payee is not ultimately conclusive, but may be relevant.  But only if there be a consensus as to what it is for between the payer and the payee is one able to give it a character.

MR JACKSON:   Well, your Honour, there must, in our submission, be some qualifications to that.  What I mean by that is, it may well be - and this would very commonly be the case - in the case of payments, for example, made pursuant to an arrangement which was reduced to writing - it may be that the writing to which both parties assent, seeks to give the payment of a transaction a particular character.  A court may well take the view that the transaction or payment does not possess that character at all, but is of a different kind, lease or licence, your Honour.  The parties may say it is a licence, the court may hold it is a lease, or vice versa. 

Again, a transaction may be regarded as one which is a transaction of ‑ your Honour, I am just trying to think of a particular example:  the Court may take the view that a transaction, although expressed to be one of agency, an agency to sell, is in fact one that involves actually the person who is the agent being the owner of the goods which are the subject of the agency to sell.

BRENNAN CJ:   These are sham cases ‑ ‑ ‑

MR JACKSON:   No, your Honour, I am sorry, with respect.  They are not sham cases in a sense.  The parties may honestly take the view that the transaction is of the nature which they have named or described in the document.  The Court may take a view that it does not have that character but has a different legal effect.  It is giving it a different characterisation. Your Honour, without it being a sham, it is - - -

BRENNAN CJ:   But how does that apply in the present context where we are speaking about a voluntary payment?

MR JACKSON:   Your Honour, I am sorry.  What I was seeking to do was, as to what your Honour put to me about whether the proposition in the Federal Coke Case your Honour read out was one of universal application.

BRENNAN CJ:   No, I mean in the present context.  In other words, where one is endeavouring to discover whether a payment is made as reimbursement for a deductible allowance or whether it is on some general account of benefiting the payee, one may look to see whether or not the payer and the payee are of the same mind as to what it is for.

MR JACKSON:   Yes, your Honour, one may look, certainly.

BRENNAN CJ:   And if one finds that there is a consensus, then one then knows what it is for.

MR JACKSON:   Yes, your Honour.

BRENNAN CJ:   In the instance that Justice Dawson gave to you, if there was $10,000 being donated and $5,000 of it was agreed as between the payer and the payee to be compensation for reimbursement for a deductible allowance, then the $5,000, on your argument, would become income.

MR JACKSON:   Yes, your Honour.

BRENNAN CJ:   That is what I am putting to you.

MR JACKSON:   I am sorry, your Honour.  I thought your Honour was dealing with a rather larger proposition.

BRENNAN CJ:   But there seems to me there is a second proposition once you get to that which is the point of law that you seek to raise, as I understand it, and that is, if you find that it is a reimbursement for an allowable deduction, ergo, it is income.

MR JACKSON:   Yes, your Honour, and ‑ ‑ ‑

McHUGH J:   Ergo or prima facie.

MR JACKSON:   We would say ergo, your Honour.

TOOHEY J:   You would have to say ergo, would you not, I mean, in order for there to be a proposition of law with which this Court could grapple?  Otherwise, we have just drifted into the area of gifts and so on.  A lot of these cases seem to me, Mr Jackson, to have very little to do with the present situation.  I mean, where a payment is not clearly referrable to some particular outgoing, then one can understand why the courts look at questions of motive and try to get into the minds of the persons involved, because there is really very little else you can do in order to determine the character of the payment.  In some cases, it might be made because the taxpayer has had a bad year, but it is not referrable to any outgoing on the part of the taxpayer.  It is just that he might have been out of work for six months.

MR JACKSON:   Yes, your Honour.

TOOHEY J:   But here you have a payment which is referable - is there an argument as to whether it is referable to the outgoing incurred by the taxpayer?

MR JACKSON:   Is Your Honour saying, is there an argument from the other side that it is not, in effect?

TOOHEY J:   I know you have not got an argument that way.   If a payment is clearly referable to a particular outgoing, how far need the Court then be drawn into questions of motive and whether the payment is voluntary, questions of that sort?  I would have thought on your argument, be it successful or otherwise, you say by virtue of that very fact the payment constitutes income.

MR JACKSON:   Yes, your Honour, we do, but I think it is right to say that we do equally recognise that there may be some circumstances, for example, family benevolence being, one would think, the obvious example, where the mere fact that a payment is made from A to B in circumstances where the money is paid to recompense B for a sum of money that B has expended which would be an allowable deduction.  It does not necessarily follow ‑ ‑ ‑

TOOHEY J:   Once you make that concession, we have gone from a proposition of law to questions of law and fact.

MR JACKSON:   We have not, with respect, your Honour.  What I am seeking to say is this, that if you identify the sum of money as being a sum of money which can be regarded as being a recompense or reparation, if one likes, or compensation for the particular outgoing, then it is a sum of money which is income, in our submission.

McHUGH J:   Then you have to reframe paragraph 6(e) because, even excluding the family provision cases and the income tax specific provisions ‑ you say in paragraph (e), “prima facie the fact” ‑ ‑ ‑

MR JACKSON:   Your Honour, I thought I had been driven to cross that out about half an hour ago, with respect.

KIRBY J:   It may be enough for your purposes that you get a prima facie rule, if that is a stable principle.  Is that how the United States courts have approached it?  Have they said it is a prima facie rule?  Obviously, there have to be the voluntary exceptions, as you acknowledge, but can it ever be more than that?

MR JACKSON:   Your Honour, the United States’ position does involve some - if one goes to particular things, there are some complications.  But, broadly speaking, we would submit that the words, for example, “prima facie” really just do not more than cover a situation that there may be some statutory provision that alters the situation, but ‑ ‑ ‑

KIRBY J:   But the rich aunt is not a statutory provision and you can ‑ ‑ ‑

MR JACKSON:   No, the rich aunt is in (b), your Honour but, your Honour, perhaps I ‑ ‑ ‑

KIRBY J:   But it is simply an illustration of the fact that the principle is not stable.  It cannot be completely an absolutely one.

MR JACKSON:   Yes.  Your Honour, the proposition which we advance is  leaving out the “prima facie”, in effect.  I am in no doubt we would be happy enough to have a result that said “prima facie” and one does not always want to fly too close to the sun but, your Honour, perhaps I can strike out the “prima facie” and I hope that I will not be hanged for it.

TOOHEY J:   But if you go to paragraph 2 of your notice of appeal which is really the first ground on page 262, the attack is on what is described as the:

holding that there is no general principle of law that an amount paid as compensation for or reimbursement of a deductible expense is income within ordinary concepts.

The converse of that is that there is a general principle but you do not argue ‑ well, you might argue for a general principle but it is a principle to which you recognise a number of exceptions.

MR JACKSON:   Your Honour, it is a general principle.  The exceptions to which we have referred are not really exceptions.  What we have said is that the case is one dealing with section 51(1) and special leave was restricted to that.  So, your Honours, one should, no doubt, read that in the light of that.  It is dealing with section 51(1) cases and all we are saying in paragraph 6(a) and all I have sought to say is that that is all one is dealing with.  That is the first thing.  The second thing is that in speaking about the rich aunt or family benevolence cases, all we are seeking to do is to say that there are circumstances in which it may not be right to characterise the payment as being one which is reimbursement or compensation.

BRENNAN CJ:   That does not mater, that is a fact problem.

MR JACKSON:   Yes, your Honour.

BRENNAN CJ:   I mean, to raise your question of law, do you not have to take your paragraph 6 and score out of it the words “in the absence of unusual circumstances”, score out paragraph (b) and score out “prima facie” in paragraph (e)?  Then you have got a proposition of law.

McHUGH J:   And “ordinarily” in (c) and (d).

BRENNAN CJ:   Yes, “ordinarily” in (c) and (d).

KIRBY J:   It is not only family circumstances because Justice McHugh raised the question of the footballer and the benevolent supporter.

BRENNAN CJ:   In other words, if, on the balance of probabilities, this is the payment which is made to reimburse an allowable deduction, it is, itself, assessable income.  Is that not your proposition?

MR JACKSON:   Well, it is, your Honour.

BRENNAN CJ:   Well then, you cannot make a proposition of law out of the question of whether or not it is, in truth, a payment that is made in reimbursement of an allowable deduction when it is voluntarily made.  That must depend on all the circumstances of the case and, to use Justice Kitto’s phrase, “the how and the why of why it was made”.

DAWSON J:   And if it is made, it does not matter whether it is your mother, or your employer, or some third party makes the payment.

BRENNAN CJ:   Or anybody else.

MR JACKSON:   Your Honour, that may well be right.  It may well be that the way in which we have sought to express it in paragraph 6 does not put it very well.  But, in our submission, it does really come down to, fundamentally, the same thing.

KIRBY J:   How would you re‑express it now ‑ ‑ ‑

MR JACKSON:   Well, your Honour, I am just not sure.

KIRBY J:   ‑ ‑ ‑ after all this help from the Court?

MR JACKSON:   Your Honour, one perhaps should not do things by committee, in a sense, but what we would seek to say is really that what we have said in paragraph (a) that a payment made to reimburse or compensate for a deductible expense, first of all, will - perhaps if I could leave out the word “ordinarily” - take its character from the nature of the expense for which is reimbursement or compensation, and it will be - and in (b), it will be of an income nature, because there will be no feature to give it any other character.

KIRBY J:   But that is a self‑fulfilling prophesy, because  you say, if it is that, then it will be that, but it seems to me that you have answered the question by the first premise.

MR JACKSON:   Yes.

KIRBY J:   And the hidden jewel is to be found in the question of whether it is a payment made to reimburse or compensate, because that will be the area of debate.

MR JACKSON:   Well, your Honour, with respect, one can relatively easily, in most cases, one would think, identify whether it is or it is not a payment of that kind.  Perhaps the point of departure, as it were, from views taken in earlier cases, is really, in a sense, what we have got in paragraph (d) and that is that, we would say, once one identifies the payment as being of that nature, that does not leave room for the view that the payment is something other, such as capital.

KIRBY J:   Can I ask again.  Have the United States authorities approached it on the basis that it is a prima facie rule?  Because if, outside the statute, one fashions a principle of that kind, if one can, then that has a utility for approaching these particular cases.

MR JACKSON:   Your Honour,  the answer, I think it is right to say, is that the rule has two parts in the United States.  It is called the “tax benefit rule”, to put it shortly, but that is perhaps an inexact description of it.  It has two parts.  The first part is the inclusionary part; the second part is the exclusionary part.  The inclusionary part is the one that says, “If you get” ‑ to put it shortly ‑ “reimbursement of something that has been a deduction in a previous year, then it is income in the year in which it is received.”  And that is something developed, your Honours, under the general law, the common law.  It forms part of gross income for the purpose of that statute.

The exclusionary part is something that derives now, and almost always has, from statute, the statute saying, in effect, that you do not have to include it, except to the extent to which there was some tax benefit gained from the deduction in the first place.  Your Honours, that, perhaps, puts it a little too shortly, but that is essentially it.  As to the first of those aspects, which is, in a sense, the relevant one, our submission is that the United States’ view is not one that involves a discretion.  It is one that applies to the ‑ ‑ ‑

KIRBY J:   What, even if in the United States there is a rich uncle who makes money, surely there must be a problem of characterisation?

MR JACKSON:   Your Honours, I was not particularly thinking of the rich uncle case in saying that, and I was not really treating that as within the prima facie aspect of it.  I cannot give your Honour an immediate answer to that.  I will endeavour to, to the rich uncle case, as it were. 

McHUGH J:   Mr Jackson, one problem I have about this proposition of yours is that you are seeking to have a fixed rule of law in relation to one category of voluntary payments.

MR JACKSON:   Not necessarily voluntary, your Honour.

McHUGH J:   Well, not necessarily voluntary.  Take the current case.  Supposing that the Queensland Government had said in addition to reimbursing these expenses, “Here is $30,000 because you could not earn income during the period.”  Now, in relation to that $30,000, one would look at it in terms of the ordinary principles relating to gifts and one would have to look at all the circumstances, motives, purpose and so on.  Yet, in relation to the reimbursement aspect you would say, “Well, you don’t look at the overall situation.  There is just a fixed legal rule that that is income.”  Now, why should you differentiate between the two situations.

MR JACKSON:   In the first case, in a sense, that is the question.  When I say that I mean, is it income, is or is not, is really the question that has to be answered.  Now, your Honours, true it is that the same question has to be answered in respect of the payment made in relation to legal costs previously an allowable deduction.  The point we seek to make is that in the second case, when you look at the payment that is made, it is a payment made to reimburse for something that was an outgoing that fell within section 51(1) and in those circumstances payments of that kind themselves are income.  There is nothing to give them any other character.  They do not really have a capital nature.  They do not have any other nature other than an income nature, your Honour.  That is the reason.

McHUGH J:   But it excludes motive, it excludes all the circumstances and it excludes the fact that in truth the payment may have had nothing to do with the person’s income‑producing activities.  It might be a true gift.

KIRBY J:   Even in this case it is suggested that the difference between the quantum and the possible motivation of the government of upholding fairness in public administration gives it a character other than income.

MR JACKSON:   Your Honour, if one looks at the three pages that set out the dealings with the government, which are pages ‑ ‑ ‑

KIRBY J:   There is no doubt that historically it ....., but again it is a question of characterisation, whether, when one looks at the payment by the government, there was some higher public purpose than simply topping up this man’s income.

MR JACKSON:   Your Honour, it may well have been that considerations of, for example, fairness and so on motivated them, but what the government said - if your Honour looks at page 87 in the second paragraph, what was said was that:

Cabinet has agreed in principle to the State providing you with an ex gratia payment equivalent to the costs you incurred in the conduct of the Inquiry.

What had to go on then was the assessment of the costs, as your Honour will see in the next paragraph, then there is a letter in reply at the preceding page.  At page 88, about line 21, it is described as being “the claim for costs and interest”.

KIRBY J:   What is this Court to do if we reach a view that for ourselves, or one of us, we would have taken a different view on the facts and supported the Commissioner’s assertion on the facts but that your principle fails?  This is an appeal limited to a point of law, is it not, to the Full Federal Court?

MR JACKSON:   Yes, your Honour.  The facts, however, were not in dispute.

KIRBY J:   I am talking of the characterisation of the facts.  That paragraph on page 87 is pretty powerful evidence, from my point of view.

MR JACKSON:   Yes.  Your Honour, I should say in the Administrative Appeals Tribunal the view was taken that the payment - I will give your Honours the reference - was one which was made to reimburse for the legal costs.  That is at page 195, lines 20 to 23.  Dr Gerber said in the second line at paragraph 9:

I am satisfied that no part of the amount in issue represented anything other than an ex gratia reimbursement of legal costs incurred by the applicant.

Your Honours, I do not know that any different view of the characterisation in that regard was taken by the Federal Court.

BRENNAN CJ:   Is not the question whether on that finding the consequence is that the receipt was income?

MR JACKSON:   Yes, your Honour.

BRENNAN CJ:   Necessarily?

MR JACKSON:   Yes, your Honour.  In our submission, that would follow from a finding of that kind.  What I would seek to say, your Honours, is that if one looks at the two decisions of the Court to which I was about to go which deal with the question of the relationship of the fact that something is an allowable deduction to the question whether a payment and reimbursement of it is income ‑ ‑ ‑

GUMMOW J:   You were going to take us to Allsop’s Case.

MR JACKSON:   Yes, I was, your Honour.

GUMMOW J:   And Allsop’s Case, in a way, turns upon inseverability.

MR JACKSON:   Yes, it does, yes.

GUMMOW J:   And this finding of fact assumes a universal quality which would indicate income.page 

MR JACKSON:   Yes.  Your Honour, what I was going to say about Allsop was just this - your Honours, I think I gave the reference before; 113 CLR 341. It was a case where the taxpayer had paid road transport licensing fees and the imposition of such fees was later held to be ultra vires the State. The taxpayer had claimed and been allowed deductions for those payments and then sued the State for a sum of 58,000 pounds and they were suing to recover the overpaid fees. Now, that claim, your Honours, and all other possible claims he had against the government were settled by a payment of 37,500 pounds, a lesser sum, and the Commissioner sought to include that sum in his assessable income and the claim failed because, as your Honour Justice Gummow has said, the payment was treated as being an entire indivisible sum, and that that is so appears at page 351, at about point 2 on the page through to about point 6, Chief Justice Barwick and Justice Taylor, and at page 352, Justice Windeyer.

MR JACKSON:   Your Honour, I put to you shortly what I was seeking to say about them - what I was seeking to use them for.  What I was seeking to say about them was that reliance was placed by our learned friends on International Nickel as a case demonstrating that later, taking into account, one way or the other, was perfectly appropriate in the case of a continuing business.  What I am seeking to say is that, ultimately what one is seeking to do, whatever the category of taxpayer might be, is to discover, in effect, what that taxpayer’s true income is, and that that is something reflected in the task to which Sir Owen Dixon was there referring.

Your Honours, our learned friends, in paragraph 38 of their submissions, refer to the existence of a number of specific provisions requiring there to be refunds, in effect, taken into account, as militating against the view that the proposition which we have been advancing is correct.  Your Honours, I think two exceptions are those provisions which are based on specific deduction provisions.  If one looks, for example, if I could indicate these ones, your Honours, paragraph 26(k), 36(1), 59(2) and 63(3), and, your Honours, it may be 82KL, are all provisions which deal with deductions under a specific provision.

For example, in relation to section 36, the deduction is not provided for by section 51 but by section 28(3).  In the case of section 59(2), the deduction is provided for by section 59(1).  In the case of section 63(3), the deduction is provided for by section 63(1), and if one goes to section 26(k), it refers specifically to a deduction under another nominated provision.  So that, your Honours, the symmetry, in a sense, that is sought to be derived from the existence of those provisions really does not exist and your Honours would be drawing a very long bow to say that the few provisions which do not refer specifically to another deduction provision militate very strongly against the proposition for which we have been contending.

Your Honours, there are, I think, two further things I wish to say.  The first concerns Federal Coke 34 FLR, and may I just give your Honours a reference to one observation of your Honour the Chief Justice in that case, which is at page 401, in the short paragraph on that page, about point 8 on the page.  What your Honour said - and this is dealing with payments by way of gifts - is:

Whether a payment be made by way of gift or not, the principle is that moneys received from any source, representing items of a revenue account must be regarded as received by way of revenue.

BRENNAN CJ:   Does the case cited bear that out?

MR JACKSON:   I must say, I had relied on your Honour with respect in that regard.  If it does not, what your Honour has said builds incrementally upon what was said there in the way so characteristic of the common law, as your Honour has put it.

The last thing I wanted to say is this, that your Honours asked how we would put the proposition and I indicated earlier - may I seek to put it in this way:  where there is a finding of fact that a payment, whether made voluntarily or not, is made as a reimbursement of, or as reparation for, an amount deductible under section 51(1), the amount of the payment is income.

BRENNAN CJ:   “Made as”; that rather sounds as though it is a question of the intention of the payer.

MR JACKSON:   Your Honour, it is a question of ultimately reviewing all the circumstances including the intention of both parties and the object of circumstances of it.  Your Honours, those are our submissions.

BRENNAN CJ:   Thank you, Mr Jackson.  The Court will consider its decision in this matter.

AT 3.46 PM THE MATTER WAS ADJOURNED