Gupta v Federal Commissioner of Taxation

[2002] AATA 1301

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2002] AATA 1301

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          NS2002/58-59

SMALL TAXATION CLAIMS DIVISION		)
Re		Nitin Gupta

Applicant

And Commissioner of Taxation 

Respondent

DECISION

Tribunal P. J. Lindsay, Senior Member

Date16 December 2002

PlaceSydney

Decision The Tribunal affirms the objection decisions under review.

(sgd) P J Lindsay

Senior Member

CATCHWORDS  -

Income tax – review of objection decision - deduction claimed for self-education expenses by student in part-time employment – whether loss or outgoing incurred - whether expenses are allowable deductions - objection decision affirmed

Income Tax Assessment Act 1936, s.82A

Income Tax Assessment Act 1997, s.8-1

Taxation Administration Act 1953, s.14ZZK

Federal Commissioner of Taxation v Finn (1961) 106 CLR 60

Commissioner of Taxation v Studdert (1991) 33 FCR 75

Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478

Federal Commissioner of Taxation v Maddalena (1971) 2 ATR 541

Commissioner of Taxation v MI Roberts (1992) 39 FCR 118

Commissioner of Taxation v Payne (2001) 177 ALR 270

Federal Commissioner of Taxation v Hatchett (1971) 125 CLR 494

REASONS FOR DECISION

16 December 2002   P J Lindsay, Senior Member   

1.      Mr Nitin Gupta (the Applicant) objected to amended assessments issued by the Commissioner of Taxation (the Respondent) in respect of the years of income ended 30 June 1999 and 30 June 2000.  In his 1998-99 income tax return Mr Gupta claimed self-education expenses of $7,315.00 and in 1999-00 he claimed self-education expenses of $8,650.00.  Both the amended assessments disallowed the entire amount claimed for self-education. 

2. At the hearing, Mr Gupta was represented by Mr M. Dey, solicitor, and Mr T Fraser, an officer employed by the Australian Taxation Office appeared for the Respondent. The Tribunal had before it the documents lodged pursuant to s.37 Administrative Appeals Tribunal Act 1975 (T documents) and the exhibits tendered by the Respondent. Mr Gupta gave evidence at the hearing. There are two issues in this case. The first is whether Mr Gupta in fact incurred the self-education expenses, and, if so, the second is whether that expenditure was incurred in gaining or producing his assessable income and so deductible under s.8-1 of the Income Tax Assessment Act 1997.  Under s.14ZZK of the Taxation Administration Act 1953 the onus is on Mr Gupta to establish that the assessments are excessive.  The parties are no longer in dispute about Mr Gupta’s eligibility for exemption from the Medicare levy.

3.      Mr Gupta is an Indian citizen who arrived in Australia on 19 July 1997 under a sub-class 560 student visa (Exhibit R2).  He was then aged 19.  Very soon after arrival, he started the Bachelor of Computer Science degree at the University of Western Sydney in the Spring session, July 1997.  He told the Tribunal that his occupation is an information technology (IT) professional.

4.      In India, Mr Gupta completed high school and obtained his Secondary Education Certificate in March 1996.  He studied computer science at school and received his highest grade in that subject.  In October 1996 he commenced part-time studies in the field of computers.  He attained a Certificate of Proficiency in Information Systems in July 1997.  While studying in India for the Certificate of Proficiency, he was employed as a trainee technical assistant by BIPS Systems Limited (BIPS).  His evidence was that his responsibilities included configuring peripheral devices of a computer, such as a printer, and configuring software settings.  He replaced parts and other accessories, and repaired computer systems.  He prepared reports and did data entry work.  From November 1996 to January 1997 Mr Gupta took time off studying and worked in Hong Kong for a firm called Integrated Business Applications, where he performed data entry and rendered on-site assistance in the installation, configuration and maintenance of hardware and software.  Mr Gupta described his job at BIPS as an apprenticeship of data entry.  But he also pointed out that his work for BIPS required him to have some knowledge of operating systems so that he could assist clients with new systems, undertake research and prepare client reports, none of which was merely data entry. 

5.      The entry for the Bachelor of Computer Science course in the 1997 Calendar of the University of Western Sydney (T14-37) states that:

This [course] involves study in fundamental, abstract and practical areas of computer science.  Students are exposed to foundational material from the disciplines of mathematics and electrical engineering. 

Graduates will be knowledgeable in both theoretical and technical aspects of computer science.  …

Graduates will have a sound foundation for advanced study (at honours and postgraduate level) in computer science, possibly leading to an academic career.

…

Possible areas of employment for graduates include:

-   communications support

-   distributed software development

-   research and development

-   systems engineering support

-   systems programming

-   security support

The Calendar stated that students in their third year of the course must select a specialisation from one of the following: computer systems; computer languages and theory; and artificial intelligence.

6.      In cross-examination, Mr Gupta acknowledged that the conditions of his visa restricted him to working no more than twenty hours per week.  If he did not satisfy the Bachelor of Computer Science Course requirements, his visa would be cancelled.  Mr Gupta acknowledged that the whole purpose of his coming to Australia was to study and enhance his knowledge of computer science, and apply that knowledge.   It was not his intention to come to Australia to work but to study.  He said it was probable that successful completion of the degree would lead to a more highly paid position in India.

7.      From March 1998 Mr Gupta began working on a casual basis at the University of Western Sydney’s School of Computing and Information Technology.  At various times until July 2000 he held the following positions: laboratory assistant, user support, demonstrator, and exam supervisor among others (T15-54). 

8.      As a casual demonstrator, a position he held from March 1998 to June 1999 (T15-61), his duties included the conduct of practical classes, demonstrations and/or workshops; consultation with students; and limited administrative functions connected with the subject  (T12-3).  It was essential that he be currently completing his final year of an undergraduate degree, which appears not to have been a barrier for Mr Gupta, and to have at least a credit average.  His evidence was that, except for having to be part way through his degree, the skills he picked up in India qualified him for the jobs he did at the university.

9.      The specifications for the position of laboratory assistant stated that a number of criteria were essential including (T13-34): enrolled in a course taught by the School of Computing and Information Technology; experience with IBM compatible PCs; good Unix skills; extensive experience with Microsoft packages, especially Windows, Word, Excel and Power Point; and excellent problem solving skills.  It was desirable to have: at least a credit average in computer subjects; knowledge of the Java, C, Cobol and Visual Basic programming languages; and knowledge of SQL.  The statement of duties for the laboratory assistant included the following:

·     answering student enquiries in regards to the facilities provided by the School of Computing and Information Technology

·     the collection of print-outs every half-hour at quarter past and quarter to the hour

·     providing a heat binding service

·     providing low level systems support to students and staff of the School, namely changing user passwords, changing printing quotas, print queue maintenance and other such duties as may be specified by the School’s technical staff

·     ensuring correct receipt and recording of all transaction database transactions

·     ensuring correct receipt and handling of all incoming student assignments

·     ensuring correct handling of all outgoing student assignments

·     maintaining the laboratories in clean working order, and notifying the relevant staff when repairs are necessary

·     ensuring that adequate consumables are available

·     providing security for the computer laboratories

The specifications provide that the main role of a computer laboratory assistant is to (T13 p.35):

provide low level systems support to assist students with problems they may encounter whilst using hardware and software supported by the School of Computer and Information Technology.  Assistants are not expected to know all the answers to all possible problems, however they are expected to show high levels of initiative and excellent problem solving skills, so they may attempt to solve any problems that may occur.  For those problems that they cannot solve, … assistants are expected to have a high level of communication skills, so that they may communicate the problem and possible causes to the relevant member of technical staff. 

Mr R. O’Leary, the university’s user support supervisor, described computer laboratory assistants as those who “ … handle helpdesk type enquiries from our users.” (Exhibit R1).  In cross-examination, however, Mr Gupta disagreed that the laboratory assistant’s job was a low-level job. 

10.     Mr Gupta told the Tribunal that in a typical week in user support, he would respond to queries from 20 to 30 students about hardware and software problems, internet publishing and the availability of encryption techniques.  He also had to collect print-outs, unjam the printer, carry out network management duties such as looking at printer queues and ensuring the printer spoolers did not run out of memory.  A  typical week as a demonstrator could require him to give up to ten hours of practical demonstrations, install operating systems and format PCs.

11.     Since completing his course in June 2001, Mr Gupta has remained in the employ of the university, as a tutor and researcher working about twenty-five hours a week.  He agreed in cross-examination that the research work that he performs is more complex and requires a higher level of knowledge and skill than his job in India.

12.       In his 1998-99 income tax return (T4) Mr Gupta declared $7,761.00 assessable income from the University of Western Sydney, and $5,692.00.00 earnt from employment with Bi Lo Pty Ltd, and he claimed $7,315.00 in self-education expenses.  The following year’s return (T7) disclosed $13,214.00 in assessable income from the University of Western Sydney and $1,685.00 in total from employment with Bi Lo and Woolworths Ltd., and claimed self education expenses of $8,650.00.  He said that the returns were prepared with the assistance of an accountant.

13. Mr Gupta’s fees for the subjects he studied during the 1998-99 year of income amounted to $12,500.00. He explained that he thought only five of his eight subjects were related to his work at the university and accordingly, he said he claimed approximately 5/8 of $12,500.00. His fees for subjects taken during the 1999-2000 year of income totalled $13,500.00. Mr Gupta claimed $8,650.00, on the basis that only seven of the nine subjects he studied were related to his duties. When cross-examined about his explanation of the basis adopted for claiming only a portion of his fees in either year, Mr Gupta said he was familiar with the topics in each subject and knew which ones were related to his duties. He said he did not make any record at the time that explained his approach or his calculations. It was put to him that, without records, he could not be certain that his claim was founded upon this method. He disagreed and said he was certain that this was the approach he followed when the returns were prepared. However, the Tribunal finds that, leaving aside any application of s.82A of the Income Tax Assessment Act 1936, the correct amount calculated on this basis in 1998-99 would be $7,812.00, a difference of approximately $500.00.  In the 1999-00 year the Tribunal finds that the amount correctly calculated would have been $10,500.00, roughly $2,000.00 more than the amount he claimed.  It was submitted for Mr Gupta that the amount he claimed in his returns should be considered the amount properly calculated on his basis of apportionment.   The Tribunal rejects that submission and in view of the slip-shod manner of basing his claimed deductions, treats Mr Gupta’s evidence with some caution.

14.     During his evidence in chief Mr Gupta was asked whether he utilised the wages he received from the university for payment of his tuition fees and whether he paid the fees at particular times, after he had saved enough from his job.  He answered that his fees were paid up front and that they were paid by his parents. The issue of who incurred the fees was not addressed in cross-examination or in re-examination.  At the close of the Applicant’s submissions, the Tribunal asked his representative whether he was going to address the question, raised in the Applicant’s evidence, as to whether the Applicant had incurred the loss or outgoing in respect of the tuition fees.  Mr Dey said that the Applicant had disclosed the source of the money as being his parents and asked the Tribunal to consider that the money was a loan or an advance from his parents, as he was responsible for the expenditure.  On this point, the Respondent submitted that by his own admission, Mr Gupta did not pay the tuition fees.  The existence of any loan from his parents was a question of fact and there was no evidence before the Tribunal in relation to such a loan.  Further, Mr Fraser submitted that, according to the doctrine of the presumption of advancement, the parents’ payment conferred a benefit on their son and there was no evidence that they did not intend to make an absolute gift of the amount paid for his benefit. The Tribunal accepts the Respondent’s submissions.  Moreover the Tribunal is not satisfied that the Applicant has discharged his onus of proving that the amended assessments are excessive in relation to the amounts he claimed for self-education expenditure.  For these reasons alone, the Tribunal affirms the decision under review. 

15.     The Tribunal would also affirm the decision on the basis that the self-education expenses were not deductible under the general deductibility provision in s.8-1 of the Income Tax Assessment Act 1997, for the following reasons. 

16.     It was submitted for Mr Gupta that there was a direct connection between the expenses incurred on the particular university subjects that were the basis of his claim, and his maintaining or improving his skills necessary for the work at the university.  Mr Dey cited FederalCommissioner of Taxation v Finn (1961) 106 CLR 60 and Commissioner of Taxation v Studdert (1991) 33 FCR 75. Mr Dey submitted that there was a direct connection between the expenses claimed and the higher rates of pay received during the course and subsequent to graduation, when Mr Gupta was appointed a tutor and researcher. It was further submitted that the study was not undertaken to enable the Applicant to obtain employment from a new income earning activity.

17.     For the Respondent it was submitted that the requisite connection between the expenditure and Mr Gupta’s assessable income was absent.  The essential character of the expenditure was private in nature, since the expenses were incurred to enable him to gain his degree and were not incurred in the process of earning his assessable income as a part-time employee assisting students with their laboratory work (Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478). The decision in Finn’s case was distinguishable on the basis that there was a vast gap between the type of work Mr Gupta performed for BIPS and in Hong Kong, and the subject matter he studied in his university degree.  It was contended that, in his positions prior to coming to Australia, the Applicant was predominantly involved in manual labour whereas upon graduation he would be capable of working in a role demanding specialised knowledge and high level of skills.  There was reliance on the decision in FederalCommissioner of Taxation v Maddalena (1971) 2 ATR 541 as the expenditure on the course was said to be a means of obtaining skills that would allow Mr Gupta to earn income from new sources, albeit in the IT industry.

18.     The Tribunal finds that Mr Gupta commenced with BIPS immediately after completing high school.  Mr Gupta’s employment with BIPS ended in July 1997 and that month he came to Australia for the purpose of commencing a Bachelor of Computer Science course. At age 19, having completed a part-time, six month certificate course and worked at entry level in the IT industry for about nine months, Mr Gupta enrolled in a three year, full-time course involving fundamental, abstract and practical areas of computer science.  The Tribunal accepts that Mr Gupta’s intention was to come to Australia for study not for work.  When the opportunity to work at the university came up, he took it.  In Finn’s case Dixon CJ observed (at 67) that “ … so far as motive or purpose is material, advancement in grade and salary formed a real and substantial element in the combination of motives that led to his going abroad.”  At the time he started studying for the course, Mr Gupta was not employed by the University of Western Sydney or otherwise in the IT field.  Similarly, Hill J in Studdert’s case held that “ … the motivation of the taxpayer in a case such as the present is not an irrelevant matter in the question of characterisation” (at 81).  Here, the Tribunal finds that Mr Gupta’s purpose in enrolling for the degree was to enhance his knowledge in the IT field so that he could later obtain a more highly paid position.  He chose to do so by enrolling in a course that the university Calendar described as involving study in fundamental, abstract and practical areas of computer science, and that exposed students to foundational material from mathematics and electrical engineering.  The Tribunal rejects the submission that Mr Gupta enrolled in the course and completed the required subjects so that he could become more proficient at the type of duties he has performed in the past for BIPS, which the Tribunal considers to have been largely mechanical or routine in nature, requiring relatively low level skills.  Unlike the taxpayer in Studdert’s case, Mr Gupta did not enrol in the course to improve his proficiency as a casual employee in his positions with the School of Computing and IT.  He found the casual work after he embarked upon the course and had completed the first session of studies.  This is not a case of a taxpayer who has been employed by the same organisation for more than twenty years at the time of incurring the self-education expenses (cf. Finn’s case) or of one who has been in a particular occupation for a number of years, before incurring the expenditure (cf. Commissioner of Taxation v MI Roberts (1992) 39 FCR 118).

19.     It may be accepted as self-evident that the Applicant’s university studies in the School of Computing and IT would be likely to have made him better at his work for the School and possibly assist him with a promotion there, subject to his visa restrictions.  The issue remains, however, “ … whether the outgoing was incurred in the course of gaining or producing actual or expected income.  That is, is the occasion of the outgoing found in whatever is productive of actual or expected income?” (Commissioner of Taxation v Payne (2001) 177 ALR 270, at 273). The Tribunal is satisfied that the self-education expenses were occasioned by the Applicant’s goal of enhancing his knowledge through formal study in Australia, thereby assisting his advancement within the IT industry and so move up to a higher salary on returning to India. The Tribunal does not accept that the expenditure was in fact incurred in gaining or producing Mr Gupta’s assessable income from casual work at the university. That income was merely incidental to the studies. Accordingly, the Tribunal finds that the “perceived connection” between the self-education expenses and Mr Gupta’s assessable income is absent (Federal Commissioner of Taxation v Hatchett (1971) 125 CLR 494, at 499). Viewed objectively, the essential character of the expenditure was to qualify Mr Gupta through obtaining the degree so that he could get ahead within the IT industry to a more highly paid position.

20.     The Tribunal accepts the Applicant’s evidence that his experience and skills from India gave him the knowledge necessary for the casual university jobs, and the Tribunal is satisfied that these positions were relatively lowly skilled and routine.  On completion of the degree, however, he would have acquired more highly developed skills, qualifying him to undertake more responsible and demanding work than previously.  The Tribunal accepts the submission based on Maddalena’s case that the “ … expenditure would have been incurred in getting, not in doing, work as an employee.  It would come at a point too soon to be properly regarded as incurred in gaining assessable income” (at 549). 

21.     Finally there is the matter of penalty.  When the Respondent issued amended assessments disallowing the self-education expenses, a penalty of 25 per cent was imposed on the resulting increase in tax.  Section 226G of the Act authorises the imposition of this additional tax, as follows:

Subject to this Part, if:

(a) a taxpayer has a tax shortfall for a year; and

(b) the shortfall or part of it was caused by the failure of the taxpayer or of a registered tax agent to take reasonable care to comply with this Act or the regulations;

the taxpayer is liable to pay, by way of penalty, additional tax equal to 25% of the amount of the shortfall or part.

The Applicant’s evidence was that an accountant or other adviser helped him to prepare the returns in question but it was not established whether the person was a registered tax agent, and therefore the Tribunal finds that the tax shortfall resulted from action taken by Mr Gupta.  The amounts that he claimed were based on outgoings that he did not incur, were substantially inaccurate and suggestive of a cavalier approach to his responsibilities as a taxpayer to provide information that is true and correct.    There was a lack of reasonable care taken and the Tribunal is not disposed to vary the Respondent’s decision relating to additional tax.  

22.     Consequently, the Tribunal considers that the objection decisions under review were correct and should be affirmed.

I certify that the preceding 22 paragraphs are a true copy of the reasons for decision herein of P.J. Lindsay, Senior Member:

Signed:         
          ..................................................................................……………………………….

Associate

Date of Hearing  19 November 2002

Date of Decision  16 December 2002

Solicitor for Applicant  Mr M. Dey, Associated Legal

Advocate for Respondent               Australian Taxation Office