Hughes v Federal Commissioner of Taxation - [1958] HCA 3

THE FEDERAL COMMISSIONER OF Income Tax-Assessment-Assessable income-Taxpayer-British subject-Resi-

dent in Australia-Malayan tin companies--Resident in Malaya-Shares owned by taxpayer-Profits of companies-Dividends-Sources out of Australia -Chargeable income-Set-off-Deduction-Malayan income tax-Credit Income Tax and Social Services Contribution Assessment Act 1936-1953, (No. 27 of 1936-No. 81 of 1953), SS. 6 (1), 44 (1), 45, 196 (2)-Income Tax Sept. 27, 30; Ordinance 1947-1953 (Malaya), SS. 10 (1), 12, 26, 36, 39, 40, 42, 68, 89.

During the year ended 30th June 1954 the appellant taxpayer, a resident of Australia, owned shares in three companies all of which were residents in the Federation of Malaya. In that year of income the companies declared dividends out of profits derived in the Federation. The Malayan Income Tax Ordinance 1947, as amended, imposed company tax and entitled a com- pany resident in the Federation to deduct from dividends tax at the rate paid or payable by the company; it provided that whether or not a deduction was made the company should furnish each shareholder with a certificate setting forth the amount of the dividend actually paid to the shareholder and the amount of tax which the company had deducted or was entitled to deduct in respect of the dividend. The Ordinance provided that in his return the tax- payer should put in the gross amount that is the dividend declared before deduction of tax; he was then entitled to a set-off of the amount set forth in the certificate. In fact, each of the companies deducted tax and in accord- ance with the above provisions the appellant taxpayer set out in his return the sum of the dividends he actually received and the amounts stated in the certificates and against his tax there was set off the amounts stated in the certificates as deducted. In his return under the Income Tax and Social Services Contribution Assessment Act 1936-1953 (Cth.), the appellant included in his assessable income the full amount of each of the Malayan dividends as declared before deduction of tax, and in respect of that full amount claimed a credit under S. 45 of the Act. The respondent commissioner assessed the appellant upon the amount of the dividends he actually received, that is after deduction of tax by the companies, and no credit under S. 45 was allowed.

98 CLR 346

Held: that the sums deducted were calculated with reference to the com- panies' tax and were SO characterised, and they were not paid or payable for or on account of the taxpayer by the companies and that the deduction of tax and issue of a certificate could not be considered a distribution or crediting of that amount to the taxpayer by a company.

Jolly v. Federal Commissioner of Taxation (1934) 50 C.L.R. 131, discussed.

REFERENCE to the High Court.

This was a reference by a board of review to the High Court of Australia under S. 196 of the Income Tax and Social Services Contribution Assessment Act 1936-1953 of a question of law.

The reference…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Hughes v Federal Commissioner of Taxation

Details

AGLC: Hughes v Federal Commissioner of Taxation [1958] HCA 3
Case: [1958] HCA 3
Decision Date: 11 March 1958

CaseChat Overview and Summary

The appellant, a resident of Australia, appealed against an assessment by the Federal Commissioner of Taxation concerning dividends received from three Malayan companies. The dispute centred on whether the appellant was entitled to a tax credit under Australian law for Malayan income tax deducted by these companies from the dividends. The matter was referred to the High Court of Australia.

The legal issues before the court were whether the appellant should have been assessed on the gross amount of the dividends declared by the Malayan companies or on the net amount actually received after the deduction of Malayan income tax. If assessed on the gross amount, the court also had to determine the extent of the credit the appellant was entitled to under section 45 of the Income Tax and Social Services Contribution Assessment Act 1936-1953 (Cth) for the Malayan tax.

The High Court held that the sums deducted by the Malayan companies were characterised as the companies' own tax liability, not as amounts paid or payable for or on account of the taxpayer. The court reasoned that the Malayan Income Tax Ordinance provided for the companies to deduct tax at the rate paid or payable by the company on its chargeable income, and this deduction was not a distribution or crediting of that amount to the shareholder. The deduction was a statutory mechanism for the company to satisfy its own tax obligations, and the shareholder's right was to a set-off against their own tax liability, not a direct payment or credit to them. Therefore, the initial condition for a credit under section 45 of the Australian Act, which required a dividend to be "paid" to the taxpayer, was not met in respect of the deducted tax.

Consequently, the High Court answered the first question in the case stated by stating that the appellant should have been assessed on the net amount of the dividends actually received (question 1(b) in the affirmative). As a result, the second question regarding the entitlement to a credit did not arise in the manner presented by the appellant. The costs of the reference were ordered to be paid by the taxpayer.

Orders