Merchant v Commissioner of Taxation

[1999] FCA 225

FEDERAL COURT OF AUSTRALIA

Merchant v Commissioner of Taxation [1999] FCA 225

INCOME TAX – appeal – costs.

Income Tax Assessment Act1936 (Cth) subs 51(1)

VERNON MERCHANT v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
WAG 121 OF 1995

R D NICHOLSON

15 MARCH 1999

PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAG 121 OF 1995

BETWEEN:	VERNON MERCHANT Applicant
AND:	COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent
JUDGE:	R D NICHOLSON
DATE OF ORDER:	15 MARCH 1999
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

(a)The respondent pay 50 per cent of the applicant’s taxed costs of the appeal on the lease and management charges;

(b)The applicant pay the respondent’s taxed costs of the appeal on the interest charge;

(c)There be a set-off of costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAG 121 OF 1995

BETWEEN:	VERNON MERCHANT Applicant
AND:	COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	R D NICHOLSON
DATE:	15 MARCH 1999
PLACE:	PERTH

REASONS FOR JUDGMENT

1. On 5 February 1999 I reserved costs in this matter for written submissions.  These are my reasons for the order which I propose to make in relation to costs.

2. The other orders which I made on that date were to allow the application in part; to vary the objection to decision so as to allow the applicant a deduction for lease and management charges apportioned to the relevant tax year to 30 June 1987 as calculated in accordance with reasons delivered on that date; and to otherwise affirm the objection decision.  The applicant’s objection which was appealed to the Court was in respect of the respondent’s decision to refuse allowable deductions in the year of income ended 30 June 1987 for $1,320 in lease charges, $10,680 in management charges and a $3,484 interest charge.  The effect of the orders was that the applicant failed in respect of the interest charge and succeeded in respect of the lease and management charges.

3. For the applicant it is submitted that the central issue was the deductibility of the claimed expenses in terms of subs 51(1) of the Income Tax Assessment Act 1936 (Cth). That is the case but it is also to be borne in mind that the quantum of the deduction was equally a central issue. On that the applicant did not succeed beyond the amount apportioned to the year ended 30 June 1987. In effect a lease charge of $2.00 and a management charge of $2.00 would be the allowable deduction in the year of income when apportionment took place in accordance with the reasons. The success on the central issue was therefore limited.

4. Also I consider costs should not be determined by reference only to what the applicant says is the central issue, but by reference to the principal issues.

5. The applicant was neither wholly nor substantially successful on his claims in respect of the amended assessment for the year ended 30 June 1987.  He succeeded only on a small portion of his case and this should be reflected in the costs order in relation to the aspects on which he succeeded.  I accept the respondent’s submission that it is reasonable that the applicant bear the costs of litigating the portion of his case on which he failed.

6. For the applicant it is submitted that it had been agreed with the Australian Taxation Office that his case would be run as “a lead case”.  There is no evidence of this nor of the eligibility of the applicant to make an application to be included in the test case funding programme of the Australian Taxation Office.  These matters can play no part in the exercise of the discretion as to costs.

7. Neither party considers that I should take into account the provisions of O 62 r 36A of the Federal Court Rules and I do not do so.

8. I accept the structure of the proposed order as it appears in the respondent’s submission.  The effect of those orders overall seem to me to reflect the balance of issues in the trial.

9. For these reasons I have made the orders in the form attached.

I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice R D Nicholson.

Associate:

Dated:             15 March 1999

Counsel for the Applicant:	Dr J J Hockley
Solicitor for the Applicant:	Wilson & Atkinson
Counsel for the Respondent:	Ms L B Price
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	5 February 1999
Date of Judgment:	15 March 1999