Polla-Mounter, Craig v The Commissioner of Taxation
[1996] FCA 1104
•18 DECEMBER 1996
CATCHWORDS
INCOME TAX - Scholarship - whether exempt from tax under s 23(z)(i) of the Income Tax Assessment Act - whether scholarship to rugby league player was made available on the condition that he would continue to render services to a rugby league club.
ADMINISTRATIVE LAW - Discussion of the correct approach by a court on appeal from the Administrative Appeals Tribunal to verbal infelicities in the formulation of the Tribunal's reasons - whether these reasons disclosed an approach or assumption amounting to an error of law.
Income Tax Assessment Act 1936 - s 23(z)(i)
Federal Commissioner of Taxation v Ranson (1989) 25 FCR 57
Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280
Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259
Employers' Mutual Indemnity Association Limited v Federal Commissioner of Taxation (1943) 68 CLR 165
Port of Geelong Authority v The "Bass Reefer" (1992) 37 FCR 374
CRAIG POLLA-MOUNTER -v- THE COMMISSIONER OF TAXATION
NG 962 of 1996
CORAM: BURCHETT, FOSTER & TAMBERLIN JJ
DATE: 18 DECEMBER 1996
PLACE: SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 962 of 1996
)
GENERAL DIVISION )
On appeal from a Judge of the Federal Court of Australia
BETWEEN: CRAIG POLLA-MOUNTER
Appellant
AND: THE COMMISSIONER OF TAXATION
Respondent
JUDGES MAKING ORDERS: BURCHETT, FOSTER & TAMBERLIN JJ
DATE: 18 DECEMBER 1996
PLACE: SYDNEY
MINUTE OF ORDERS
THE COURT ORDERS THAT:
1.The appeal be allowed.
2.The orders made by the Judge at first instance be set aside, and in lieu thereof it be ordered that the appeal from the decision of the Administrative Appeals Tribunal be dismissed with costs.
3.The respondent pay the appellant's costs of the appeal to this Court.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 962 of 1996
)
GENERAL DIVISION )
On appeal from a Judge of the Federal Court of Australia
BETWEEN: CRAIG POLLA-MOUNTER
Appellant
AND: THE COMMISSIONER OF TAXATION
Respondent
CORAM: BURCHETT, FOSTER & TAMBERLIN JJ
DATE: 18 DECEMBER 1996
PLACE: SYDNEY
REASONS FOR JUDGMENT
THE COURT: This is an appeal from a decision of a single judge of this Court. The learned primary judge upheld an appeal by the Commissioner of Taxation ("the Commissioner") from a determination of a senior member of the Administrative Appeals Tribunal ("AAT") in its Taxation Appeals Division. The determination appealed from was one setting aside an objection decision made by the Commissioner disallowing an objection by the taxpayer (the present appellant) to the inclusion in his assessable income for the taxation year ended 30 June 1992 of certain payments which had been made to him by
the Canterbury-Bankstown League Club Limited (the Leagues Club).
The appellant had argued that the payments in question amounted to a "scholarship" within the meaning of s 23(z) of the Income Tax Assessment Act 1936 (Cth) ("the Tax Act") and were thus exempt from income tax. Section 23 of the Tax Act provides that certain income of a taxpayer shall be exempt from tax including:-
"(z) income derived by way of a scholarship, bursary or other educational allowance or educational assistance ... by a student receiving full-time education at a school, college or university, but not including -
(i)an amount received by the student from a person or authority upon condition that the student will (or will if required) render, or continue to render, services to that person or authority ..."
The learned senior member held that the payments in question were derived by the appellant by way of a scholarship provided to him whilst a student receiving full-time education at the University of Sydney. He further held that they were not received by the appellant from the Leagues Club upon condition that he would render or continue to render services to it within the meaning of the exception. Accordingly, he held that the receipts were not liable to income tax.
From this determination, the Commissioner appealed to this Court pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act"). It was, accordingly, an appeal only on a question of law. Before considering the case before the learned primary judge, it is convenient to set out the essential background to this appeal.
BACKGROUND
The Leagues Club is a company limited by guarantee. Related to it is the Canterbury-Bankstown District Rugby League Football Club Limited ("the Football Club"). Prior to 1980 the Football Club had been an unincorporated association of members formed in 1934 under the name of Canterbury-Bankstown District Rugby League Football Club. It was incorporated in 1980 into a company also limited by guarantee. The Football Club has, at all relevant times, fielded a team playing rugby league football in the competition conducted by the New South Wales Rugby League.
The Leagues Club has amongst its objects the following:-
"(a)To provide for members and for members' guests a social and sporting Club with all the usual facilities of a Club including residential and other accommodation liquid and other refreshment libraries and provision for sporting musical and education activities and other social amenities.
(b)To assist generally in the promotion conduct and propagation of Rugby League Football in the Rugby League Football District of Canterbury-Bankstown or elsewhere and to provide or assist in the provision of training and conditioning and teaching facilities for football played in accordance with the rules of the New South Wales Rugby League Limited.
...
(l)To render aid either financial or by other means to clubs or associations in the Rugby League Football District of Canterbury-Bankstown or elsewhere which clubs or associations are playing or conducting football played in accordance with the rules of the New South Wales Rugby League Limited."
The Football Club has among the objects in its memorandum of association the following:-
(a)To support and promote the game of rugby league football in the Canterbury and Bankstown Municipalities and elsewhere.
(b)To control the playing of the game of rugby league football within such boundaries as may be determined by the New South Wales Rugby Football League ..."
Over a long period of time the Leagues Club has made substantial grants of money to the Football Club. Quite apart from moneys paid by way of scholarships in the circumstances hereafter mentioned it contributed, in the financial years 1991-1992, amounts in excess of $2.5 million to assist in the financial operation of the Football Club.
The senior member was satisfied that in 1970 the Leagues Club established a "scholarship" scheme for the purpose of providing a level of financial assistance to members of the Football Club engaged in full-time courses of study at universities and other institutions providing tertiary education. At the time of the hearing before the AAT 53 scholarships had been awarded under the scheme. The senior member accepted that the award of a scholarship was completely in the discretion of the Leagues Club's Board of Directors and that "only those players who are recommended by the Football Club and satisfy the Leagues Club's Directors that they qualify within the guidelines are considered". Procedures leading to consideration included interviews with the parents, teachers and other persons with close knowledge of the candidate, such interviews being conducted by the Chief Executive Officer of the Football Club or some other senior executive of that club. At the time of the awarding of the scholarship the subject of these proceedings, three of the seven directors of the Leagues Club were also directors of the Football Club.
The guidelines which were applicable to the selection of any candidate for the scholarship were not reduced to writing, although it was accepted by the AAT that they were well known to relevant persons in the two clubs. The senior member accepted the evidence of Mr McIntyre, the President and Chairman of the Board of Directors of the Leagues Club, that a successful candidate had to "qualify within the following guidelines":-
be an active playing member of the Football Club
(ii)be a person of good character and desirably come from a strong family background
(iii)be undertaking or about to undertake a full-time course of study at a university or other tertiary institution leading to a degree, diploma, certification or other qualification
(iv)be a person who is considered as being suitable to pursue and having reasonable prospects of succeeding in his chosen course of study.
(v)be a person who is perceived as having above average potential at playing the game of rugby league."
The evidence of Mr McIntyre also satisfied the AAT that once a scholarship had been awarded to a successful candidate he continued to hold it until the completion of his educational course unless he was "guilty of conduct which [was] in the opinion of the Board, unbecoming that of a scholarship holder; or he displayed an attitude to studies which in the Board's opinion was not of a sufficient standard".
It was also Mr McIntyre's evidence that, subject to the matters referred to in the guidelines, "the award of a scholarship is unconditional and does not impose on the scholarship holder any obligation to provide any services to the Leagues Club or the Football Club". He provided two instances of players retaining their scholarships notwithstanding that they had stopped playing for the Football Club.
The taxpayer, whilst at High School, showed himself to be a player of considerable skill and promise in rugby union football. Whilst still at school he was approached by representatives of the Football Club to secure his services as a player of rugby league football after he left school. In accordance with the guidelines, discussions took place with him, his parents and teachers. The taxpayer wished to undertake a course of study at university on a full-time basis. The course would lead to a degree in the area of physical education. The offer of a scholarship was made in these discussions and the offer influenced him in his ultimate decision to sign a contract to play with the Football Club. This contract was signed on 9 October 1990 and provided that he would play for the Football Club and receive payment for those services. The period of the contract expired on 31 October 1994.
The taxpayer's application for a scholarship was successful. On 1 December 1990 a resolution was passed by the Board of Directors of the Leagues Club that he "be awarded a sporting scholarship of 866.66 dollars per month commencing 1st February 1991 until 31 October 1994".
Formal notification of the award of the scholarship was sent to the taxpayer by way of letter of 23 December 1990. This letter read as follows:-
"I wish to inform you that the Board of Directors of Canterbury-Bankstown League Club Limited has granted you a Sporting Scholarship for $866.66 per month commencing 1st February 1991.
Congratulations Craig and best wishes for your studies and may I add that there are no services to be rendered by you in return for this payment."
Thereafter, the taxpayer, in 1991, became a full-time student at Sydney University, being enrolled in a course of studies leading to the award of a Bachelor's degree in Education. He received payments in terms of the scholarship. From 1 February 1991 he received $866.66 per calendar month paid to him by the Leagues Club. He performed no services directly for that club except for a period of vacation employment for which he received additional and separate payment in accordance with the wage level appropriate to those services. In December 1992 he voluntarily discontinued his university course, whereupon payments under the scholarship ceased. He continued to play football for the Football Club.
The scholarship payments received by him for the taxation year ending 30 June 1992 amounted to $11,646. On 29 July 1993 the Commissioner issued an amended assessment for that year including that sum in his assessable income. The sum, so included, was described as "scholarship payments received from the Canterbury-Bankstown League Club". On 23 August 1993 the taxpayer lodged a notice of objection claiming that the payments were exempt income, reliance being placed upon s 23(z) of the Tax Act. This objection was disallowed, it being asserted by the Commissioner that the receipts of the scholarship moneys were assessable as income according to ordinary concepts under s 25(1) of the Tax Act. Alternatively, it was contended that they came to tax under s 26(e) of the Tax Act. It was also denied that the payments
qualified as exempt income under s 23(z). The taxpayer applied to the AAT for review of this objection decision.
THE CASE BEFORE THE AAT
We have already made some reference, in dealing with the background, to findings made by the AAT. The case before the AAT was argued on far wider grounds than ultimately came before the primary judge. There was an issue as to whether the receipts could be treated as income according to ordinary concepts. Because of their periodicity it was held by the AAT that they fell within this concept. This finding was not subsequently challenged. The question whether they fell under s 26(e) of the Tax Act was not the subject of decision before the AAT and is no longer an issue in the case. There was a strongly contested factual issue as to whether the taxpayer was a student receiving full-time education at the university. This was decided in the taxpayer's favour. It was also contended that the payments were not truly provided as scholarship payments. However, the senior member found that, although there was a duality of purpose on the part of the Leagues Club in that it was seeking to secure the services of players for the Football Club as well as providing assistance to players seeking a tertiary education, there was a sufficiently established educational purpose in the making of the payments to enable them to qualify as scholarship payments. No attack has been made on these findings. Indeed, they would appear to be findings of fact which are invulnerable to appeal.
It is the senior member's decision on the remaining issues before him that became the subject of appeal to this Court. These issues were stated in the reasons for decision in the AAT in the following manner:-
"51. ... the applicant [i.e. the taxpayer] contended that the amounts were received from the Leagues Club in its own right, and not from the Football Club or on behalf of the Football Club, and that they were not received by the applicant upon condition that he would, or would if required, render services to the Leagues Club. Further, it was contended that the amounts were not paid by the Leagues Club on condition that the applicant provide services to the Football Club, and that even if this were the case it would not matter as the services would not have been rendered to `that person'; ie., the Leagues Club."
It will be observed that this formulation corresponds to the issues posed by the exclusion in s 23(z)(i) of the Tax Act.
In opposition to these contentions the Commissioner advanced two main arguments before the AAT. In the first place, he submitted that, on the facts, it should be found that the Leagues Club acted as agent for the Football Club with the result that the scholarship payments should be found to have been made to the taxpayer by the latter Club. The AAT rejected the submission of "agency" and it was not raised as an issue on appeal to this Court. The second main argument was "that the evidence established that the payments were made by the Leagues Club on condition that the applicant render services to it by playing for the Football Club, which benefited the Leagues Club".
The senior member dealt with these issues in the following paragraphs of his decision:-
"53. I am satisfied that the payments made to the applicant were received from the Leagues Club. The letter of offer is from the Leagues Club, the payments came from Leagues Club funds, and the applicant collected his monthly scholarship cheque from the Leagues Club.
I am also satisfied that the amounts were received from the Leagues Club without condition that the applicant would, or would if required, render services to the Leagues Club. This finding is based particularly upon the following evidence which I accept: the applicant's evidence as to his understanding concerning the scholarship conditions and his evidence that he had never been required to render services to the Leagues Club; his separate employment and remuneration by the Leagues Club during the University vacation; the letter of offer from the Leagues Club that specifically states that the applicant is not required to render services to the Leagues Club; and the oral and written evidence of AA as regards the unconditional nature of the scholarship.
I am also satisfied that the amounts were not paid by the Leagues Club on condition that the applicant render, or render if required, services to the Football Club. On this point I am persuaded particularly by the evidence of AA as regards two other scholarship holders who ceased to play for the Football Club, and yet continued to receive the scholarship. While being an active playing member of the Football Club is a criteria of eligibility for a scholarship, I am satisfied that should a scholarship holder no longer play for the Football Club, the scholarship could continue, and that it would only be in circumstances of misbehaviour or academic slothfulness that a scholarship would be discontinued.
Given this finding, it is not necessary for me to express an opinion as to whether `that person or authority' at the end of paragraph 23(z)(i) of the Income Tax Assessment Act 1936 should be narrowly construed so as to refer only to the person or authority who pays the scholarship."
The senior member later reiterated these findings in the context of his rejection of the Commissioner's "agency" argument. He said:-
"58. As I have already stated, I do not accept that the payments were made by the Leagues Club on condition that the applicant render services to the Football Club, and I therefore reject the respondent's contention that he was required to render services to the Football Club, which in turn benefited the Leagues Club."
THE CASE ON APPEAL BEFORE THE PRIMARY JUDGE AND THIS COURT
In the judgment under appeal the learned primary judge noted that the Commissioner's notice of appeal identified ten grounds of appeal in respect of which errors of law were said to have been committed by the AAT. He noted that most of the grounds were not pressed at the hearing and that the scope of the appeal was further narrowed by a concession made by learned counsel appearing for the taxpayer. We shall refer to this concession later in these reasons.
After noting that the Commissioner had abandoned what was a primary contention before the AAT, namely that the payments made by the Leagues Club had been made as agent for the Football Club, his Honour observed that the Commissioner's "primary argument was that the payments were received by the taxpayer on condition that services would be rendered to the Football Club and that this was sufficient to establish, in the circumstances of the case, a condition that services would be rendered to the League Club". His Honour then went on to
state that this argument, as he followed it, involved the following steps:-
"(i)a condition that the student receiving scholarship payments will render services to the person or authority from whom the payments are received, may be imposed expressly or by implication;
(ii)as a matter of construction the phrase `render services' in s.23(z)(i) of the Tax Act is not confined to services provided under a contract with the person or authority making the payment;
(iii)the time at which to determine whether an amount is received by the student upon a condition of the kind caught by s.23(z)(i) is the time at which the scholarship is granted Federal Commissioner of Taxation v Ranson, at 70-71, per Jenkinson J.;
(iv)the evidence in the present case inevitably led to the conclusion that, at the time the scholarship was granted (December 1990), the scholarship amounts were to be received by the taxpayer on condition that he would render services to the Football Club;
(v)the services to be rendered to the Football Club by the taxpayer were also to be rendered to the League Club, because the League Club intended that the services should be rendered to the Football Club and obtained benefits from the provision of those services to the Football Club."
His Honour then noted his understanding that counsel for the taxpayer accepted steps (i), (ii) and (iii), disputed (v) and neither conceded nor disputed (iv).
His Honour added, in relation to step (iii), that counsel "conceded that the position was correctly stated by Jenkinson J" in Federal Commissioner of Taxation v Ranson (1989) 25 FCR 57 at 70-71 in the following passage:-
"But I do not consider that the futurity of tense of the verbs in s.23(z)(i) has reference to the time of receipt of the amount contemplated by that paragraph. I would understand the phrase `upon condition that' in the sense `upon a condition in the terms that', or `upon a condition providing that'. The phrase being understood in that sense, the futurity of tense has reference to the time at which the condition came into existence. The `amount received' would, if that construction of the paragraph were adopted, be received `upon' such a condition as the paragraph specifies if it were such an amount, or an amount of such a character, as had been at the time the condition came into existence declared, expressly or impliedly, to be payable subject to the condition."
It was noted that this passage had not been brought to the attention of the learned senior member. It is clear, however, that his Honour was of the view - and apparently considered the correctness of his view to have been conceded by counsel for the taxpayer - that the acceptance of this passage necessarily meant that paragraph 55 of the AAT's reasons, set out above, involved an error of law. The critical question was "whether the amounts were received by the taxpayer upon condition that he would render services to the Football Club", and, his Honour said, "that question was to be decided not at the time of receipt of the payment, but at the time the condition came into existence" [emphasis original]. His Honour went on to indicate that the question fell for decision "by reference to what was in the contemplation of the parties at that time", pointing out that "at that time, the first criterion for eligibility under the scholarship scheme was that the candidate had to be an active playing member of the Football Club".
His Honour then went on to state (again indicating that it was also a matter of concession by counsel) that:
"... if the correct conclusion was that the payments were made upon condition that the taxpayer would render services to the Football Club, the AAT was required to consider whether such a condition was capable of amounting, in the circumstances, to a condition that the taxpayer would render services to the League Club."
His Honour then indicated that the AAT had not addressed this issue. It had concluded that it did not have to do so because of "an erroneous construction of s 23(z)(i) of the Tax Act", this being an error of law which vitiated the decision. As this erroneous construction was found to be revealed in what the senior member stated in paragraph 55 of his reasons and that error was found to arise from a failure to apply the principle of Ranson to his consideration of the facts, it is both necessary and convenient, at this stage, to consider the facts and the reasons for judgment in Ranson.
Ranson, a university student, had accepted a cadetship from an insurance company, the terms of which provided that he would be "expected to work at Head Office during Christmas vacation" and that on graduation from the university he "would join the Society's staff and a condition of employment [would] be willingness to work in Sydney or Melbourne as the Society [required]". The insurance company made payments to Ranson under the cadetship in the academic years 1979 to 1981. Ranson claimed that payment for the period February to June 1981 did not form part of his assessable income being exempted by s 23(z) of the Tax Act. His objection in this regard was disallowed by the Commissioner and he sought review of this decision by the AAT. The AAT upheld the objection on the basis that the words "on condition" in s 23(z)(i) required that there be a legal obligation imposed upon the student to render services as contemplated by the section. It further found that, in the circumstances, no contract existed between the insurance company and Ranson for the performance of services, the matter being only in the area of "expectation or likelihood". Having regard to its construction of the section, the AAT, accordingly, held that the exclusion to the exemption did not apply and that the amounts received as scholarship payments did not form part of the assessable income of Ranson.
The Commissioner appealed to this Court. The appeal was heard in the first instance by Gummow J who was also of the view that the proper construction of s 23(z)(i) required that there be contractual obligations on the part of the student in relation to the rendering of services. His Honour read the words in the sub-section "upon condition that" as requiring "a stipulation, the fulfilment or non-fulfilment of which has an effect on legal relations, whether those relations be in terms of rights, duties, powers or immunities".
His Honour also had regard to a document "Actuarial Cadetship - Macquarie University", which contained the provisions relating to the cadetship, in determining whether the case fell within the exclusion to s 23(z). He accepted that all relevant terms in relation to the cadetship were to be found in this document. He found that the right to the cadetship was conditional upon Ranson providing services to the insurance company during the Christmas vacation; however, as the payment for the period February to June 1981 was made after the completion of the last possible period of vacation employment his Honour found that that payment could not be conditional upon his rendering service in the long vacation, there being no such service still to be performed. He further held that the provisions in relation to employment after the completion of university studies did not amount to a "condition affecting legal relations". Accordingly, they did not fall within the exclusion, with the result that the income in question remained exempt under s 23(z). The Commissioner's appeal was, therefore, dismissed.
The Commissioner appealed successfully to a Full Court of this Court. In the majority judgment Davies and Hill JJ, after considering the circumstances in which s 23(z) was introduced into the Tax Act, through legislative adoption of recommendations made in The Report on Income Tax - Scholarships and Similar Payments for Educational Purposes, of the Commonwealth Committee on Taxation (the Spooner Committee) and also the fact that scholarships, bursaries and educational allowances could be paid voluntarily without attendant legally enforceable arrangements, expressed the view (at 67) that "the Commissioner in determining whether an amount is or is not to be exempt income under s 23(z) is not required to determine whether the payer of the grant could obtain legal relief in the event of non-performance of the condition". They further said that "in our view, it is sufficient to exclude the scholarship amount from the exemption contained in s 23(z) if, as a matter of ordinary language, it can be said that the receipt of the scholarship amount is conditional upon the recipient working with the payer if the payer so requires". They further said (at 67-68) that "it is sufficient that the condition satisfies the words of the sub-section, that is to say that it be one requiring that a student will, or will if required, render or continue to render services to the payer, whether or not there are legal relations created between the parties in respect of the fulfilment of the condition."
Jenkinson J expressed views to the same effect. Accordingly, the construction previously adopted by the AAT and by Gummow J was reversed.
These considerations formed the major part of the judgment on appeal and were sufficient to dispose of the case. However, in both the majority and minority judgments, consideration was given to Gummow J's finding that the payment received in respect of the period February to June 1981 was not relevantly subject to the condition of rendering vacation services, the opportunity for their rendering having passed. It was held by Jenkinson J, in the passage already set out, that the appropriate time to consider whether the payments were conditional was not at the time when they were actually made but at the time when the scholarship arrangements were initially entered into. The condition then accepted operated to confer upon future payments the relevant conditional quality. In the majority judgment (at 68) the question was dealt with as follows:-
"The words `amount received upon condition that the student will render services', being elliptical, look to the receipt of the amount under an arrangement under which the student will render services, so that it is sufficient that the rendering of services lay in the future at the time the arrangement was entered into irrespective of whether the services had been performed at the time of payment. Any other interpretation would produce, as in the present case, a somewhat extraordinary result that the scholarship payments could be for part of the time in which they were paid exempt income and for part of the time assessable income. In our view, even if it were necessary that a legally binding relationship were created by the acceptance of the offer of cadetship and even if the condition that the respondent work for the Society on graduation be disregarded, the payments in the year of income would still have been excluded from the exemption to s 23(z) with the consequence that those payments formed part of the respondent's assessable income."
It would seem, therefore, that in determining whether any amount received by a taxpayer pursuant to a scholarship scheme is exempt income under s 23(z) or whether it is excluded from that category by operation of s 23(z)(i), it is necessary to determine only whether the relevant condition was imposed as part of the initial arrangements for the scholarship. If that be so, then all future payments are to be regarded as subject to the condition.
Accordingly, we are in respectful agreement with the primary judge so far as he held that, in determining whether the amounts received by the taxpayer in the present case were so received upon condition that he would render services to the Football Club, it is necessary to consider the question not at the time of the receipt of the relevant payments but "at the time the arrangement was entered into" (as Davies and Hill JJ put it). So much would appear to have been decided in Ranson. However, we do not consider that this leads inevitably to the exposure of relevant error of law in the AAT's reasoning.
A consideration of Ranson discloses that their Honours did not purport to lay down any definitive or comprehensive construction of s 23(z)(i). They put to rest the notion that the "condition" referred to must be contractual in nature. They also established that the time to consider the scope and effect of the condition was when it was imposed, namely at the time of the granting of the scholarship. The decision does not, however, in our view, cover aspects of the section which are germane to the resolution of the present case. We turn to those matters now.
In our opinion, a reading of the section shows that a "condition" that will enliven the exclusion from the exemption may take any of three forms. In the first place it will be sufficient if it provides that the student "will render" the relevant services. This contemplates that the student, at the time of the imposition of the condition, is not in fact rendering those services. The condition requires that he commence to render them immediately or at some appointed future time. The second contemplated situation is encompassed in the words "will if required". Here the condition does not impose the requirement of immediate or definite future commencement of the services but demands that the services will be provided at a time in the future if the "person or authority" so requires. Again, this condition contemplates that the student is not performing relevant services at the time of imposition of the condition. The third situation is provided for in the words "continue to render". These words clearly contemplate that at the time of the imposition of the condition, the student is in fact already rendering the relevant services. The condition, in these circumstances, is one requiring that he not cease to provide the services.
It is of fundamental importance, in our view, to determine not merely whether the student claiming the exemption under s 23(z) was, at the time when the relevant scholarship was awarded to him, then engaged in the rendering of the services contemplated by s 23(z)(i), but whether a condition was imposed requiring either the rendering or the continuance of those services. He will become disentitled to the exemption from tax only if he accepts a condition that he will render or continue to render these services. He will not be so disentitled merely because, at the time of the awarding of the scholarship, he is in fact rendering those services. For the exclusion from exemption to operate it is necessary that he accept a condition of one of the kinds contemplated by s 23(z)(i).
With these considerations in mind we return to the judgment under appeal and the question whether the reasons of the senior member disclosed an error of law, as was held in that judgment. It is convenient, in the first instance, to refer to the question by reference to step (iv) in the Commissioner's argument as set out in the passage from his Honour's judgment cited above. It would appear that his Honour, on the basis of Ranson, regarded this "step" as established and that the senior member's failure to recognise this contributed to the error of law which his Honour found to exist in paragraph 55 of the AAT's reasons, set out above.
It will be remembered that step (iv) posited that the evidence "inevitably led to the conclusion that at the time the scholarship was granted, the scholarship amounts were to be received by the taxpayer on condition that he would render services to the Football Club". The senior member's conclusion to the contrary in paragraph 55 was vitiated by error of law in that the very fact that the scholarship was only available to him as a current playing member of the Football Club led, because of Ranson, "inevitably" to the conclusion that the scholarship was granted on the relevant condition.
It follows from the views that we have expressed above as to the limited effect of Ranson and as to the construction of s 23(z)(i), that we must respectfully disagree with this conclusion. In our opinion, it is nothing to the point that the scholarship could only be made available to the applicant on the basis that he was currently a playing member of the Football Club. The vital question posed by the section was whether it was made available on condition that he would continue to render services to that Club by his continuing as a playing member. This was the question which the senior member was required to address.
If the mere rendering of services were to disqualify, there would be no reason for s 23(z)(i) to speak of a "condition". And, of course, the reference to a condition of continuance plainly implies that the rendering of services at the very date of the grant of the scholarship was contemplated as something which would disqualify only if a relevant condition were imposed.
In our opinion, there is nothing in paragraph 55 of the Tribunal's reasons to suggest that it did not approach the question in the correct way. It is, of course, trite law that this Court, in considering appeals from the AAT, should adopt a reasonably liberal and benevolent approach to the wording of the AAT's reasons when considering whether or not they reveal an error of law: Corlette v Mackenzie (1995) 95 ATC 4578 at 4582; Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287; Yim v Immigration Review Tribunal (1994) 54 FCR 186 at 189; Politis v F C of T (1988) 88 ATC 5029 at 5030; Muralidharan v Minister for Immigration & Ethnic Affairs (1996) 62 FCR 402 at 413-414; Minister for Immigration & Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 271-272. For our part we do not consider a finding can be sustained that paragraph 55 discloses, notwithstanding that the AAT was not referred to Ranson, the commission of an error through the senior member's considering only the question whether the condition applied at the time of payment and not at the time of the actual granting of the scholarship. Although he does not expressly analyse the situation in terms of whether there was an imposition of a condition that the taxpayer continue to render services to the Football Club at the time of receipt of the scholarship it is, in our view, sufficiently clear that this was the basis of his approach. There was ample evidence to support his finding that no such condition was imposed. In the first place, the letter advising the taxpayer of the grant of the scholarship expressly negatived the imposition of any such condition. It does not appear to have been suggested that this letter was, in effect, a sham. Accordingly, he was quite entitled to accept it at face value.
Moreover, he had the evidence of Mr McIntyre, the President of the Leagues Club, to which reference has been made, which was entirely supportive of the fact that the scholarship was granted without any condition that the recipient be required to continue his playing services. In these circumstances, the reference in paragraph 55 to the non-withdrawal of the scholarship from two recipients who had ceased to play for the Club is, in our view, not indicative that the senior member had transgressed the principle of Ranson but, on the contrary, is to be regarded as being supportive of the proposition that no condition of continuance of service was imposed. In our view, this was a perfectly proper use to be made of the evidence and indicates, as we have said, no relevant error of law.
The question before the learned primary judge was, of course, complicated by what he apparently accepted as a concession made on behalf of the taxpayer that paragraph 55 did, in truth, embody an error of law based upon failure to apply Ranson. For our part, after hearing the argument in the appeal, we are in some uncertainty as to whether the concession was made in absolute terms or only on the footing that, if the senior member were found to have proceeded on the basis that he need consider the operation of the relevant condition only at the time of payment and not at the time of the granting of the scholarship, then relevant error of law, in terms of Ranson, would have been demonstrated. Whether this be so or not, we are of the view that whereas concessions of fact made by counsel may well have the effect of limiting the area of relevant considerations in an appeal, the same will not necessarily be said of concessions of law. In this case no concession made before his Honour could affect the evidence which was established in final form in the AAT, the Court having no fact-finding function. In such a case it must always be the role and duty of the appellate court to determine for itself questions of law germane to the determination of an appeal.
As we have said, it is our respectful view that, whether or not an absolute concession was made, the position is that no error of law has been demonstrated in the reasons of the senior member. In so finding, we should add, that we have had regard to the fact that in expressing his findings in paragraph 55 (and also in paragraph 54) the senior member has used the phrase "would, or would if required" render services rather than the phrase "continue to" render such services. When it is borne in mind that this method of expression was adopted in the uncontested circumstances that, at the time of the granting of the scholarship and, as a qualification for eligibility for the grant, the taxpayer was a playing member of the Football Club then the senior member could, logically, only have been approaching the determination on the basis of considering whether the taxpayer was being required to continue his existing services. We do not consider that the use of the phrase chosen can reasonably be regarded as indicative of error of law; rather it falls within the permissible area of errors or infelicity of expression which, within the terms of the authorities referred to, should be viewed in a benevolent light.
Because of the finding that there was no condition requiring the rendering of services to the Football Club, the AAT did not find it necessary to consider the question whether the taxpayer's playing football for the Football Club would relevantly amount to the rendering of services to the Leagues Club. The question did not arise. The primary judge, having found the relevant error of law, was of the view that the matter must necessarily be returned to the AAT so that findings of fact could be made on this issue, which in the circumstances, then arose for determination. He made orders accordingly.
This course was taken after he had heard and considered submissions that, on the basis of the facts before the AAT, it could not, in law, be found that the taxpayer's playing of football for the Football Club could constitute the rendering of services to the Leagues Club. These submissions were renewed in this appeal. It was put on behalf of the taxpayer that, although in some circumstances it was conceivable that services rendered to a third party could qualify as services rendered to the person or authority making the actual scholarship payments, this could not be such a case. It was submitted that if we found that there was vitiating error of law in the AAT's reasoning based on Ranson, we should nevertheless refrain from sending the matter back for reconsideration because the claim that the taxpayer would render services to the Leagues Club by playing for the Football Club could not possibly succeed.
In view of the decision we have reached as to the absence of any error of law, it is unnecessary to express any concluded view on this latter point. We note, however, that it was conceded by Mr McIntyre in cross-examination that, in view of the objects of the Leagues Club, the acquisition of suitable players for the Football Club would be of benefit to the Leagues Club insofar as it would promote and benefit the playing of rugby league football in the Canterbury-Bankstown area. It seems unlikely that further evidence would advance the Commissioner's case beyond this point. If that was so, we would be of the view that the conferring of the benefit in this way would fall far short of the concept of rendering of services to the Leagues Club by the taxpayer. The concept of rendering services to the payer would seem to require some personal activity on the part of the taxpayer far more directly focussed towards the Leagues Club than the mere playing of football on behalf of the Football Club ( see eg. Employers' Mutual Indemnity Association Limited v Federal Commissioner of Taxation (1943) 68 CLR 165 at 173-175; Port Of Geelong Authority v The "Bass Reefer" (1992) 37 FCR 374 at 386). The Commissioner's argument would appear to disqualify from exemption any scholarship awarded by a Rotary Club to encourage civic service, if it required the recipient to continue to render such service; for this would fulfil the purposes of the club, though the service might be rendered to the local lifesavers. However, as the point does not arise squarely for decision, we think it better not to express any concluded view on this aspect of the case.
The appeal is upheld and the decision of the Administrative Appeals Tribunal is restored. The respondent should pay the costs of the appeal and of the hearing before the primary judge.
I certify that this and the preceding twenty-eight (28) pages are a true copy of the reasons for judgment herein of the Court.
Associate:
Date: 18 DECEMBER 1996
A P P E A R A N C E S
COUNSEL FOR THE APPELLANT: R.F. EDMONDS SC
INSTRUCTED BY: G.J. McINTYRE
COUNSEL FOR THE RESPONDENT: S.W. GIBB
INSTRUCTED BY: AUSTRALIAN GOVERNMENT SOLICITOR
DATE OF HEARING: 14 MAY 1996
DATE OF JUDGMENT: 18 DECEMBER 1996
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