Elder Smith and Company Limited v Commissioner of Taxation (NSW)

The appellant, Elder Smith and Company Limited, appealed to the High Court of Australia from a decision of the Supreme Court of New South Wales. The dispute concerned the appellant's claim for a deduction of £18,483 as a bad debt in its income tax return for the year ended 30 June 1929, under section 19(1)(k) of the *Income Tax (Management) Act 1928* (NSW). The Commissioner of Taxation had disallowed the deduction, allowing only £170.

The central legal issue before the court was the interpretation of section 19(1)(k) of the *Income Tax (Management) Act 1928* (NSW), specifically the meaning of the phrase "bad debts proved to be such... and to have been incurred in and actually written off by the taxpayer in the income year." The appellant contended that "incurred" referred to the point at which the debt became bad, regardless of when the debt was originally contracted. The respondent argued that "incurred" referred to the time the debt was contracted.

The High Court, dismissing the appeal, held that the word "incurred" in section 19(1)(k) referred to the contraction of the debt, not the point at which it became bad. The court reasoned that the grammatical construction of the provision indicated that "incurred" qualified "debts," meaning the debts must have been contracted within the relevant income year to be deductible as bad debts under the primary provision of the section. The court noted that while the debt was proven to be bad and written off in the income year, it had been contracted more than six years prior to that year, thus failing the requirement that the debt itself be incurred in the income year. The court affirmed the decision of the Supreme Court of New South Wales.