S Hoffnung and Company Limited v Federal Commissioner of Taxation

The appellant, S. Hoffnung & Company Limited, appealed to the High Court of Australia against assessments for war-time profits tax for the financial years 1917-1918 and 1918-1919. The dispute concerned the calculation of deductions allowable under section 15(4) of the War-time Profits Tax Assessment Act 1917-1918, which permitted a deduction for excess profits duty paid in England in respect of Australian profits. The company derived profits from both Australian and English operations and was liable for tax under both Australian and Imperial legislation.

The primary legal issue before the Court was how to determine the amount of deduction to be allowed under section 15(4). Specifically, the Court had to decide whether "the profits" referred to in that section meant the profits of the Australian business as determined by the Australian Commissioner of Taxation after all other deductions, or whether it referred to the profits derived from the Australian business as assessed by the British revenue authorities for the purpose of English excess profits duty, irrespective of differences in calculation methods. A secondary issue concerned whether the provisions of section 15(4) were merely directory or mandatory, and whether a payment of excess profits duty could be considered "paid" if it was subject to review by the British authorities.

The Court held that the Commissioner was required to take into account the deduction allowed by section 15(4) along with other deductions permitted by the Act. The Court reasoned that the phrase "the profits" in section 15(4) referred to the profits derived from the Australian business as assessed by the British revenue authorities, and that the deduction should be calculated based on the proportion of English excess profits duty attributable to these Australian profits. This interpretation was consistent with previous decisions of the Court. The Court also affirmed that the provisions of section 15(4) were mandatory and that payments of excess profits duty, even if subject to review, qualified for deduction.

Consequently, the appeals were allowed. The assessments for the financial year 1917-1918 were reduced to nil, and the assessment for the financial year 1918-1919 was reduced to £186 6s. 10d. The respondent was ordered to repay the appellant a total of £8,564 14s. and to pay the costs of both appeals.