Commissioner of Taxation v Verzyden, D

[1988] FCA 441

I

CATCHWORDS

TAXATION - whether benefit paid by the Netherlands Government to person interned as a prisoner of war in Sumatra while serving in the Royal Dutch Indies Army during World War I1

was exempt income under the Income Tax Assessment Act prior

to the introduction of S. 23(kca) - whether pension paid t o an Australian resident in such circumstances was exempt income under para. 23AD(3)(c) of the Income Tax Assessment - Act - whether payment answered description of payment of a

wounds or disability pension of the kind specified In para.

365(2)(c) of the Income and Corporation Taxes Act 1970 (Imp).

Administrative Appeals Tribunal Act 1975 (Cth): s.44
Benefit Payments to Victims of Persecution Act 1940-1945
(Netherlands)
Income and Corporation Taxes Act 1970 (Imp): S. 365
Income Tax Assessment Act 1936 (Cth): para. 23AD(3)(c)
Income Tax (International Agreements) Act 1953 (Cth): s s . 4,

11A.

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
V DIRK VERZYDEN

G75 of 1988	, .
WOODWARD, LOCKHART and RYAN JJ.
15 AUGUST 1988
BRISBANE	. ,
i ( ! .

t

I

FEDERAL COURT OF
AUSTRALIA

PRINCIPAL REGISTRY

-7

...

IN THE FEDERAL COURT OF AUSTRALIA )

)

QUEENSLAND DISTRICT REGISTRY	1	No. G75 of 1988
1
GENERAL DIVISION	)

ON APPEAL FROM A SINGLE JUDGE

I	OF THE FEDERAL COURT OF
AUSTRALIA

i

BETWEEN:  THE COMNISSIONER OF TAXATION OF
THE COMMONWEALTH OF AUSTRALIA

Appellant

- AND : DIRK VERZYDEN

Respondent

JUDGES MAKING ORDER:	WOODWARD, LOCKHART and RYAN JJ.
DATE ORDER MADE:	15 AUGUST 1988

L.

, .

WHERE ORDER MADE:  BRISBANE

MINUTE OF ORDER

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.	The appellant pay the costs of the respondent Of the

appeal.

- NOTE: Settlement and entry of orders is dealt with in Order

36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

QUEENSLAND DISTRICT REGISTRY	No. G75 of 1988
GENERAL DIVISION

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:  THE COMMISSIONER OF TAXATION OF
THE COMNONWEALTH OF AUSTRALIA

Appellant

AND :	DIRK VERZYDEN
-

Respondent

COURT :	WOODWARD, LOCKHART and RYAN JJ.
DATE :	15 AUGUST  1988

PLACE : BRISBANE

REASONS FOR JUDGMENT

THE COURT I '

This is an appeal from a decision of a single judge of

this Court (Spender J.) dismlssing an appeal from the Administrative Appeals Tribunal ("the Tribunal") on questions of law pursuant to S. 44 of the Administrative Appeals Tribunal Act 1975. The appellant 1s the Commissioner of

Taxation who seeks to have treated as assessable income under

the Income Tax Assessment Act 1936 ("the Assessment Act") the

I

j l i

2.   f i

j	I	i
!	I -

payment of an amount of $20,945 received in June 1979 by Dirk

I

Verzyden, the respondent. The amount was paid to the

respondent by the Kingdom of the Netherlands pursuant to a

!

law of that country entitled Beneflt Payments to Victims of

l

Persecution Act 1940-1945 ("the Benefits Act"). i -

I In his return of income for the year ended 30 June 1979

the respondent described the payment as compensation from the Netherlands Government for losses suffered during World War	i
11 and claimed that the payment was a non-assessable capital
receipt. The Commissioner assessed the appellant	on the
basis that the payment	was assessable income, was neither a

capital receipt nor exempt income and that it was assessable

in the year of recelpt, namely, the year ended 30 June 1979.

The assessment was the subject of a request for review by the

Tribunal. The respondent was successful before both the

Tribunal and the learned primary Judge on the appeal brought by the Commissioner from the Tribunal's decision.

We refer first to the facts found by the Tribunal. The respondent was born in 1915. He lived in Sumatra before the

outbreak of world War 11. The Tribunal assumed, as the contrary was not asserted, that the respondent was a Dutch citizen before taking up residence in Sumatra and that he remained a Dutch citizen at all relevant times until he

became an Australian citizen some years after the end	of
World War 11.	Upon the outbreak of hostilities with Japan
the appellant was mobilized into the Royal	Dutch Indies Army
("KNIL") on 10 December 1941.	He served on military duties

t

with KNIL until March 1942 when he was captured by the

Japanese army. From r4arch 1942 untll August 1945 the

respondent was incarcerated as a prisoner of war on Sumatra.

The respondent left the former Dutch East Indies upon the cessation of colonial rule by the Kingdom of the Netherlands and settled in Australia.

The Tribunal found that the payment of $20,945 was in

the nature of income but was exempt from income tax in

L '

Australia pursuant to para. 23AD(3)(c) of the Assessment Act.

I	,
i

The Tribunal also found that the payment of $20,945 a pension coming within the terms of Article was

19 o f an

agreement between the Commonwealth of Australia and the

Kingdom of the Netherlands, commonly known as the Double Tax

Agreement. Section 11A of the Income Tax (International Agreements) Act 1953 ("the International Agreements Act")

provides that, subject to the Act, the provisions of the

Netherlands Double Tax Agreement, so far as those provisions affect Australian law, have and shall be deemed to have had the force of law in relation to tax other than withholding tax, in respect of years of income including and since that

which commenced on 1 July 1975. Sub-section	4(1) of the
International Agreements Act incorporates the Assessment	Act
into the Internatlonal Agreements Act. Sub-section 4(2)	of

the International Agreements Act provldes that the provlsions

of that Act shall have effect notwithstanding inconsistency

between those provisions and the provisions of the Assessment

Act. The Tribunal found that Article 19 o f the Double Tax Agreement had the effect -

i

of making the amount of $20,945

i '
I

taxable by the Kingdom of the Netherlands and accordlngly not

taxable by the Commonwealth of Australla. Article 19

provides, so far as is presently relevant, that remuneration,

which includes a pension, paid to any Individual in respect

I

of services rendered in the	discharge	of	governmental	I
i -

functions to one of the States or to a political subdivision

I

of one of the States (in this case the Dutch East Indies) or

L .

to a local authority of one of the States may be taxed in	i
that State.

Although the respondent received the sum of $20,945 in

one amount in June 1979, It represented an accumulation of arrears of monthly payments for the precedlng two years. It was not a commutatlon of rights to periodic payments into

a lump sum. The Tribunal, having found that the amount of $20,945 was not taxable income of the respondent, did not find it necessary to conslder the question whether the whole

of the income of $20,945 was derived in the year of receipt

or during the years in which the right to recelve the monthly

payments accrued.

It was not argued before the primary Judge OK this F u l l

Court that the finding of the Tribunal that the payment	to
the respondent was in the nature of income was erroneous.

The primary Judge found that the payment of $20,945 was

exempt income pursuant o the provisions	of para. 23AD(3)(c)
of the Assessment Act.	His HOnOUK disagreed, however, with

i
:

the finding of the Tribunal that the pension paid to the

respondent came within the terms of Artlcle 19 of the Double

i

Tax Agreement. His Honour found that the pension was not

properly characterised as one in respect of services rendered

in the discharge of governmental functions to one of the

States. The Article 19 point was raised before us on appeal; but the primary question argued was whether the

I

payment of the amount of $20,945 by the Kingdom of the

I

Netherlands to the respondent under the Benefits Act was

exempt from Australian income tax on the ground that it was a payment of the kind referred to in para. 23AD(3)(c) of the Assessment Act. That paragraph provides, in its form prior to amendments pursuant to sub-s. 5(1) of the Taxation Laws Amendment Act (No. 4 ) 1985, Act No. 173 of 1985:

"(3) The following payments are exempt from income !

tax :

(a) payments (other than excepted payments) of
pensions and attendants' allowances, and payments

(other than excepted payments) of a llke nature,

! '

(b) payments of pensions and allowances, and other payments, made by the Government of Australia or the Government of the United Kingdom of Great Brltain and Northern Ireland, being payments that, in the opinion of the Commissioner,

are of a similar nature to payments (other than excepted payments) referred to in paragraph (a);

(c) payments of wounds and disability pensions of the klnds specifled In sub-section 365(2) of

the Imperial Act known as the Income and

Corporation Taxes Act 1970, other than payments that, In the oplnlon of the Commissioner, are of a similar nature to excepted payments; and

(d) payments (other than excepted payments) by

way of:

(i) pension, allowance, endowment or

benefit under the Social Services Act

1947-1973;

I

(ii) allowance under the Tuberculosis Act

i

1948; and

I-

(iii) domiciliary nursing care benefit ,. ,

under Division 5B of Part V of the National	I .,
Health Act 1953-1973.”

The expression ”excepted payment” has the meaning given

in sub-s. 23AD(1). Nothing turns for the purpose of the

present appeal on that	definition, the position being	khat if
the payment In question otherwise	falls	within the

description in para. 23AD(3) (c), it does not on any basis

fall within any of the exceptions.

Paragraph 23AD(3)(c) refers to sub-s. 365(2) of the

i

Imperial Act known as the Income and Corporation Taxes Act

1970 (“the Imperial Act”). Section 365 provides:

“(l) Income from wounds and disability pensions to which this subsection applies shall be exempt

from income tax and shall not be reckoned in

computing income for any of the purposes of the

Income Tax Acts.

( 2 ) Subsection (1) above applies to -

(a) wounds pensions granted to members of the I .

naval, military and air forces	of the Crown,	1- ’
I

(b) retired pay of disabled officers granted on

account of medical unfitness attributable to or aggravated by naval, military o r air-force service,

( c ) disablement or disability pensions granted L

to members other than commissloned officers of the	i
naval, mllitary or air forces of the Crown on
i
I
:

l.

account of medical unfitness attributable to or aggravated by naval, military or air-force service,

i

(d) disablement pensions granted to persons who have been employed in the nursing services of	any
of the naval, milltary or air forces	of the Crown

on account of medical unfitness attributable to or aggravated by naval, military or air-force service, and

(e) injury and disablement pensions payable

under any scheme made under the Injuries in War (Compensation) Act 1914, the Injuries in War (Compensation) Act 1914 (Session 2), and the Injuries in War (Compensation) Act 1915, or under

i '

any War Risks Compensation Scheme for the I~

Mercantlle Marine:  !

provided that, where the amount of any such

retired pay or penslon to which subsection (1)

above applies is not solely attributable to

disablement or disability, the relief conferred by

the said subsection (1) shall extend only	to such
part as is certified	by the Secretary of State for

Social Services, after consultation with the appropriate Government Department, to be attributable to disablement or disability."

It was argued on behalf of the respondent that paragraph

(c) applies to the payment in question. It was not argued

that any other paragraph of sub-s. 365(2) applies.

We turn first to the question whether the payment o the

respondent answered the d scription under para. 23AD(3)(c) of

the Assessment Act of a payment of a wounds or disability

pension of the kind specified in para. 365(2)(c) of the

Imperial Act.	The comparison to be made	is between the
particular	pension which	the respondent received and the
kinds of pension specified in para.	365(2)(c) of the	Imperial
-	Act.

I

i	8.
!	*

The interpretation of para. 23AD(3)(c) of the Assessment

- Act has been considered in various reported cases. In

Goodfellow v Federal Commissioner of Taxation (1976) 76 A.T.C. 4199 the Supreme Court of New South Wales, Administrative Law Division (Sheppard J.) said at 4211 that para. 23(kab) of the Assessment Act in its then form (which

in all material respects is to the same effect as para.

23AD(3)(c)) embraced not only the specific pensions exempt

from English income tax under the Imperial Act, but also

other wounds and disability pensions of the same kind payable

from sources outside the United Kingdom.

On appeal to the High Court in Goodfellow's Case, (1977)

77 A.T.C. 4086; (1977) 51 A.L.J.R. 437, Jacobs J. expressed

agreement (atA.T.C. 4087; A.L.J.R. 438) with the reasons of

Sheppard J. on this point. Jacobs J. said that he was

content to adopt Sheppard J.'s reasons on the point, but took

a different view on the question whether the pension of the

appellant in that case answered the d scription of a pension

of the kind specified in sub-s. 380(2) of the Imperial Act.

Barwick C.J. and Aickin J., who were the other two members of	the High Court in Goodfellow's Case, expressed no views on
this question.

The question arose before a Full Court of this Court

in Melkman v Federal Commissioner of Taxation (1988) 88

A.T.C. 4468. The Court said at 4474-5:

"The question [i.e. the interpretation of para.

23AD( 3 ) (c) 1 has also come before Income Tax Boards

of Review in Australla and the reasons of the

members of the Boards reflect divergent views:
see Case N45, 81 ATC 220; Case P29, 82 ATC 136;
Case T2, 86 ATC 107; and Case U66, 87 ATC 424.
The question was considered by Spender 3 . in F.C.
of T. v Verzyden 88 ATC 4205 at pp. 4209-4210,z

on appeal to a Full Court of this Court.

At one end o f the scale it IS said that para.

23AD(3)(C) exempts only the pensions

particularised in subsec. 365(2)	of the Income and
Corporation Taxes Act 1970. This	view gives an
effect to the words 'of the kinds specified in'	1
similar to that aiven to the words 'of a kind	j I

specified in' in sec. 30 of the Compensation

(Commonwealth Government Employees) Act1971 (Cth)

and reg. 12 of the Compensatlon (Commonwealth

Government Employees) Regulatlons by Mason C.J.,

Brennan and Toohey JJ. In Brrd v. Commonwealth of

Australia (delivered 20 M n 9 8 8 ) . The view 1 s

~~

also supported by the use in para. 23AD(3)(b) of the different term 'of a similar nature to'. A

wider view 1 s that the	exemption extends to
pensions payable by	Governments other than the
Government of the United Kingdom provided	they
answer the description 'of the Crown'	for the

purposes of subsec. 365(2). At the other end of the scale it is said that the exemption extends further to include similar pensions payable by any

Governments, including Governments formerly	at war
with the United Kingdom and Australia.

For reasons whlch appear later it is not ecessary for us to decide thls question and we think it inappropriate to do s o . The question was not

argued before us and only arose incidentally when

raised by the Bench in the course of argument.

Further, the correctness of the views expressed by

Sheppard J. and by Jacobs J. In Goodfeliow's case was assumed by counsel for both partles. Nor, as we said earlcer, were we referred to any of the relevant Orders in Council or Royal Warrants

i

pursuant to which schemes were made under the	Acts
mentioned in para.	(e) of subsec. 365(2) of the

Income and Corporation Taxes Act 1970."

The facts in Melkman's Case were materially different from the facts in the i l

present case. The taxpayer in j:T

Melkman's Case became	subject to the restrictions imposed on	!
i
r
!

Jews when the German Armed Forces invaded and occupied the Netherlands in 1940; and, although during the German occupation he was placed in a concentration camp, possibly because of his connection with the underground, he was not a

I '

member of any relevant Armed Forces.

The Benefits Act is common to this case and Melkman's Case as is the question whether a pension paid to an	1-
i
Australian resident was exempt income by reason of the operation of para. 23AD(3)(c) of the Assessment Act, the taxpayer in each case having been at relevant times (world War 11) a Dutch national. However, Melkman's Case was concerned with paragraph ( e ) of sub-s. 365(2) of the Imperial
Act. It was not argued that paragraph (c) applied. In the present case the only paragraph of sub-s. 365(2) which was

said to be appllcable was paragraph (c). The conclusion

I '.

which we have reached in the present appeal is consonant,

however, with the views expressed by the Full	Court in
Melkman's Case.

The application of the exempting provislons of para. 23AD(3) (c) arises with respect to pensions payable . . _ .

to persons t

who are, during the relevant year of income, Australian

residents, most of whom would be Australlan citizens.

Notwithstanding that para. 23AD(3)(c) of the Assessment

Act	- is an exempting provislon in a taxlng statute, the
construction of the expression "of the kinds specified in
sub-section 365(2) of the Imperial Act" (our emphasls) in the

i

i

!

11.

context of payments of wounds and disability pensions to

Australian residents calls for no narrow or pedantic

approach. Plainly that expression envisages a wider class of

i

pensions than those	specified in sub-s. 365(2) of the
Imperial Act.	! ; I '

i

It was conceded by counsel for the Commissioner that the

Government of the Kingdom of the Netherlands	can be equated
with "the Crown" in paragraph	(c) of in sub-s. 365(2) of the
Imperial Act for the purpose	of considering whether the

pension payable by the Kingdom of the Netherlands to the

respondent with which this case is concerned is of one "of

I

the kinds" referred to in para. 23AD(3)(c). It is

unnecessary, therefore, for u s to consider the interpretation

and scope of application of the expression "the Crown" in

paragraph (c) of the Imperial Act for the purposes of para.

I	23AD(3)(C) Of the Assessment Act.
The only evidence as to the nature of the pension paid to the respondent is a document described as "Guide for the
victims of persecution during the 1940-1945 war who are

I

resident outside the Netherlands" and apparently issued in	:.
I .

July 1975 by the	1,Iinistry of Cultural Affalrs, Recreation and	i ,'
r -

Social Welfare of the Netherlands. It is a regrettable

feature of the case that reliance must be placed solely on

this document to determine the character of the pension

payable to the respondent.	It is explained, at least in
part, by the	fact that the respondent represented himself
before the Tribunal, and the Commissioner did not	seek to

l	!
i	! '
i	12.
I	.

tender material of greater probative value.	We have examined	i -
I
I. .

the facts as recorded In the judgments in Iqelkman's Case and	:
in Goodfellow's Case which refer to some extent to the Benefits Act and its provisions. We draw to some extent on those cases for present purposes.

An examination of the guide shows that the basic

principle of the Benefits Act is the:

"joint liability of the Dutch people towards their

persecuted compatriots;"

i

The Beneflts Act is intended to benefit:

"Dutch citizens, at home o r abroad, and their next

of kin, as well as for a specific group of aliens who were persecuted on account of their race, religion or world-conception, by the enemy during the occupation of the Netherlands and the former Dutch East Indies".

i

,-,

Since 1 July 1975 the Benefits Act has been applied to "a certain group of ex-Dutch citizens living abroad and their	L
I .
!
next of kin". The	Benefits Act is intended to apply to
people who:

I' ... as a result of the persecutlon they have

suffered, are handicapped by dlseases or

infirmities .._ ."

The Beneflts Act beneflts certain groups of people:

"regarded as victims of persecution provided that

they were persecuted by the occupying forces of the Netherlands during the Second world War on

l	account of their race, religion	and
world-conception".

The groups include "Dutch citizens at home or abroad" and certain other classes of persons, and relevantly for present purposes:

"c.

Aliens who were Dutch Citizens during the

war, but have since become citizens of another
country;"

It is common ground that the respondent was a Dutch citizen at all material tlmes during the Second world War, that he has since become a citizen of Australia and is therefore within the description of an "alien" for the purposes of the Benefits Act.

The Guide describes "persecution", "within the framework

of" the Benefits Act, as meaning:

"- Deprivation of liberty by imprisonment or

detention in a concentration or internment camp;

- Submitting to sterilisation escape to

deprivation of liberty;

- Go into hiding to elude deprlvation of

liberty."

The deprivation of liberty must have been:

"motivated by persecution for reasons of race,

religion or world-conception".

The Guide states:

"In the case of victims from the former Dutch East

Indies, this can best be translated as persecution

on the grounds of their Dutch nationality or their European disposition. Persecution, consequently, does not include measures taken by the occupying forces against individuals or groups of individuals on account of their withdrawal from forced labour or internment in prisoner-of-war

camps. Individuals who went into hiding during the war to escape 'arbeitsceinsatz' (forced labour) or internment in prisoner-of-war camps, or who were deprived of their liberty as a result of

such actions are, therefore, not considered to be

victims of persecution in the	sense	of	the
[Benefits Act]."

The passage just cited as to what persecution does not include is cast in slightly ambiguous language; but its meaning is clear, namely, that persecution does not include measures taken by the occupying forces against individuals or groups of individuals on account of their withdrawal either from forced labour - or from internment in prisoner-of-war camps. It appears that "withdrawal" in this context connotes, as the last sentence of the passage makes clear, the action

of individuals who went into hiding during the	war to escape
The Guide goes on to say:
either forced labour or internment in prisoner-of-war camps.

"Furthermore, it should be observed that the

[Benefits Act]	is not applicable to victims or	!	. I
I .

their next of kin, who are entitled to benefits in

virtue of the ... (Special Penslon 1940-1945

Act), nor to those who on the strength of !

persecution can lay claims to the provislons in	!
I .

I	force for the members of the armed forces, unless the victim was a member of the former Royal Dutch
Indies Army (KNIL) ."

The Guide contains a sectlon headed "Entitlement to benefits" which states:

"By benefits is meant a periodlcal (monthly)	c
payment, made as a supplement to a person's own

income.	!
Anyone unable to earn an average income as a
consequence of diseases or infirmities, caused or	. I

aggravated by	persecution, is entitled to	such
benefits.	In so far as such diseases	or

infirmities have not clearly developed from or

been aggravated by other causes, they are assumed

to be the result of persecution, provided this

assumption is not contrary to general accepted

medical views and experience."

The description of victims of persecution and the

definition of persecution under the Benefits Act includes various classes of persons. One such class consists of

persons who were Dutch citizens during World War 11, but who

have since become citizens of another country who were

interned in prisoner-of-war camps (and therefore, by

definition in the Benefits Act, persecuted by the Japanese

Armed Forces on the ground of their Dutch nationality or

their "European disposltion"). The fact that a person was a member of the former Royal Dutch Indles Army does not

disqualify him or her from the class of persons entitled to

receive the pension. Thls may be because members of the Netherlands Armed Forces during World War I1 have specific entitlements to pensions under other legislation of the

Kingdom of the Netherlands which may not extend	to former
members of the Royal Dutch	Indies Army.

The pension granted to the respondent under the Benefits

Act -was a disablement or disability pension. The respondent

was a member, not being a commissioned officer (or its

equivalent in the Royal Dutch Indies Army), of the Royal

Dutch Indies Army. The pension was granted to him on account of his medical unfitness attributable to his internment by the Japanese military forces in Sumatra during the ’Second

World War.	Whilst he was interned as a prisoner-of-war he
was a member of the Royal	Dutch Indles Army so that his
unfitness was plainly attributable to his military service.	I
The respondent therefore fits precisely into one of the
I .
categories of persons entitled	to receive pensions under

para. 365(2)(c) of the Imperial Act.

We consider it an unduly restrictive interpretation of

para. 23AD(3)(c), an interpretation for which the

Commissioner argued, to regard a pension as not being one of the kinds specified in sub-s. 365(2) of the Imperial Act if it is payable under a statutory regime which also allows a

person to	qualify for the	same or a similar pension by
reference to a disability incurred otherwise than in the	r .

course of service of a defence o r analogous force.

Accordingly, in our opinion the payment of the sum in question in this case answers the descrlption of the payment of a wound or disability pension of the kind specified in para. 365(2)(c) of the Imperial Act and therefore 1 s exempt

from income tax under para. 23AD(3)(c) of the Assessment Act.

i

! 17.

,

We note that the introduction of S. 23(kca) into the

Assessment Act by sub-s.	4(1) of the Income Tax Assessment
Amendment Act (No.	4 ) 1982, Act No. 76 of 1982, which applies

to pensions derived on or after 3 March 1982, allows a

specific exemption for pensions of the kind received by the

respondent in so far as entitlements under the pension were

derived on or after that date.

In view of our findings on the primary question in the

case it is unnecessary to consider the question relating to

Article 19 of the Double Tax Agreement. !

We would dismiss the appeal with costs.

I certify that this and the preceding

sixteen (16) pages are a true copy of the

reasons for judgment herein of the Court.

Associate	fl 15 Ausust 1988
-	Date:

Counsel for the Appellant: Mr. J.D. Huir Q.C. with

Mr. P.E. Hack

I '

Solicitor for the Appellant:	Australian Government Solicitor
Counsel for the Respondent:	Mr. F.L. Harrison Q.C. with
Mr. G.A. Thompson
Solicitors for the Respondent:	Messrs. Barry & Nilsson
Date of Hearing:	1, 2 August 1988
Date of Judgment:	15 August 1988