Penrose v Federal Commissioner of Taxation

This case concerned an appeal by William Gould Penrose against an assessment of income tax made by the Federal Commissioner of Taxation for the financial year ended 30 June 1928. The primary dispute revolved around the calculation of "additional tax" imposed under section 67 of the *Income Tax Assessment Act 1922-1928* due to income allegedly omitted from Mr. Penrose's tax return. The matter was heard by Starke J. of the High Court.

The legal issues before the court were whether the Commissioner had correctly calculated the additional tax under section 67 of the Act, and whether the Commissioner's method of calculation was authorised by the legislation. Specifically, the court had to determine if section 67 permitted the calculation of additional tax based on the difference between the taxpayer's original return, as adjusted by the Commissioner to include omitted income, and the taxpayer's own return, or if it required a comparison between the tax properly payable and the tax assessed upon the basis of the return as lodged.

Starke J. held that section 67 of the *Income Tax Assessment Act 1922-1928* contemplates and predicates a tax assessed upon a taxpayer's return that is less than the amount properly payable. His Honour found that the Commissioner had not assessed tax on the basis of the return lodged, but rather had included disputed items of income and then calculated the additional tax based on the difference between this adjusted assessment and the taxpayer's original return. This method, the court determined, was not authorised by section 67, which requires the additional tax to be calculated on the difference between the tax properly payable and the tax assessed upon the basis of the return lodged.

Consequently, the appeal was allowed in relation to the additional tax of £220 18s. 4d., and the total tax payable by Mr. Penrose was reduced to £113 3s. 8d. The parties were ordered to abide their own costs of the appeal.