Re Commissioner of Taxation of the Commonwealth of Australia v Solomon Bentley Sahhar [1985] FCA 45; 5 FCR 247 (25 February 1985)

FEDERAL COURT OF AUSTRALIA

Re: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
And: SOLOMON BENTLEY SAHHAR
No. V G79 of 1984
Income Tax
5 FCR 247

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Fox(1), and Lockhart(2) and Jenkinson(3) JJ.

CATCHWORDS

Income Tax - Partnership - Deduction claimed by taxpayer of part of partnership loss - Claim disallowed - Whether taxpayer liable for additional tax - Whether "expenditure incurred", by partner - Whether "expenditure" misstated in taxpayer's return - Effect of full and accurate information in return.

Income Tax Assessment Act 1936 - ss. 90, 91, 92, 226(2).

Crowe v. Commissioner of Taxation [1958] HCA 32; (1958) 100 C.L.R. 532 cons.

Curran v. Commissioner of Taxation [1974] HCA 46; (1974) 131 C.L.R. 409 referred to.

Rose v. Commissioner of Taxation [1951] HCA 68; (1951) 84 C.L.R. 118 referred to.

Rowe v. Federal Commissioner of Taxation (1982) A.T.C. 4243 cons.

Income Tax - Penal provisions and prosecutions - Additional tax - Liability - Claim in excess of expenditure incurred - Partnership loss disclosed in partnership return - Share of disallowed loss claimed by partner in own return - Income Tax Assessment Act 1936 (Cth), s 226(2). Held, that s 226(2) did not apply to a taxpayer who claimed in his return a deduction for an amount described therein as his share of a partnership loss, because such a claim was not for "expenditure incurred by him" within the meaning of the subsection.

HEARING

Canberra, 1984, November 20; 1985, February 25. 25:2:1985
APPEAL

Appeal from judgment and orders of the Supreme Court of Victoria (Fullagar J).

M. E. J. Black QC and J. H. Karkar, for the appellant.

A. R. Castan QC and F. G. Beaumont, for the respondent.
Cur adv vult

Solicitor for the appellants: Australian Government Solicitor.

Solicitors for the respondent: D. M. Okeby & Co.
GFV

ORDER

1. The appeal be dismissed.

2. The appellant pay the respondent's costs.

Appeal dismissed with costs

Cross appeal dismissed

DECISION

The facts in this matter are set out in the reasons for judgment of Lockhart J. and of Jenkinson J. As I agree with them that the appeal should be dismissed and in substance with their reasons, there is little I need say.

The Income Tax Assessment Act 1936 contains special provisions concerning partnerships, in particular the requirement of a partnership return, and the ascertainment of what is to comprise the net income of a partner in the partnership. A critical matter, when one looks to the definitions of "net income" and "partnership loss" in s.90, is that a separate sum is to be done. What is to be carried into the return of the individual partner is the result of this sum. It is correctly characterised in the individual's return as his individual interest in the net income (or loss) of the partnership. Normally what it is correct to put in the individual return will be a translation from the partnership return, but this may not be so. For example, the particular partner may disagree with it. The actual return of the partnership is not the governing factor; the statute prescribes the way the sum is to be done. The point is that the assessable income of the partnership (calculated as if the partnership were a taxpayer) and the allowable deductions are matters for separate accounting.

It was long ago pointed out that the sections, being then relevantly in the same terms, do not make any requirement about the income being "derived", such as is found in the case of the individual taxpayer (s.25, qualified in this connection by s.19) (see Rose v. Federal Commissioner of Taxation [1951] HCA 68; (1951) 84 C.L.R. 118, 124; Commissioner of Taxation v. Happ (1952) 59 Argus L.R. 382, 386; Tindal v. Federal Commissioner of Taxation [1946] HCA 26; (1946) 72 C.L.R. 608, 621, 628). In Henderson v. Commissioner of Taxation [1969] HCA 14; (1970) 119 C.L.R. 612), consideration was given to the question whether the income of the partnership for taxation purposes should be computed on a cash or accrual basis, apart from the situation or accounting methods of a partner.

In this case, the partnership, in the accounts and statements which were a schedule to the return, showed a trading loss which the Commissioner has disallowed. There is no scope for saying that the respondent's share of the loss was expenditure incurred by him, or that his return showed that share as a deduction for expenditure incurred by him. What his return showed was, in the words of the Act, "his individual interest in the partnership loss".

Crowe v. Commissioner of Taxation [1958] HCA 32; (1958) 100 C.L.R. 532, is a decision of Fullagar J. which has aspects similar to those arising in the present case. A partnership had effected life insurance policies on the lives of each of its partners. Premiums were paid by the partnership. Each partner was debited in the accounts of the partnership with the premium on the policy on his life. One of the partners claimed a deduction under s.82H of the Act for the amount thus debited. Her claim was disallowed, because the amount was not paid by her, but was paid and payable by the partnership. It is to be remembered that in the present case the sum of $50,001 was an aliquot part of a total sum "paid" by the partnership. In Crowe (supra), at pp.535-536, Fullagar J. said:

"In the present case it cannot, in my opinion, be said that the taxpayer has paid the premium. The premium was not only payable by the partnership: it was paid by the partnership in each month of the year of income when the bank acted on the bank order and debited the amount of the payment to the partnership's current account. The fact that the payment was made by the partnership to the society cannot, as it seems to me, be altered or affected in any way by any antecedent or subsequent agreement among the partners as to the manner in which, as between themselves, the burden of the outgoing shall be borne."

It is unnecessary, and perhaps inappropriate, to say more. It does seem to me, however, that the Commissioner was given, in the partnership return and scheduled accounts, a full and accurate statement of expenditure relative to the share transaction in Goanna Enterprises Pty. Ltd. That alone, following what was said and decided in Federal Commission of Taxation v. Rabinov (1983) 50 A.L.R. 541, would preclude reliance on s.226(2) (see also Federal Commissioner of Taxation v. Levy [1960] HCA 76; (1961) 106 C.L.R. 448).

This appeal concerns sub-s. 226(2) of the Income Tax Assessment Act 1936 ("the Act"). During the relevant year of income, the year ending 30 June 1978, the sub-section provided:

"226(2) Any taxpayer who omits from his return any assessable income, or includes in his return as a deduction for, or as a rebate in respect of, expenditure incurred by him an amount in excess of the expenditure actually incurred by him, shall be liable to pay as additional tax an amount equal to double the difference between the tax properly payable by him and the tax that would be payable if it were assessed upon the basis of the return furnished by him, or the amount of Two dollars, whichever is the greater."

The primary question before this Court is whether the sub-section applies where a taxpayer claims a deduction in his income tax return of an amount representing his share or interest in the loss of a partnership of which he is a member. The second question (it is relevant also to the first question) is whether the words "his return" in the sub-section include both a taxpayer's individual return and the partnership return. The third question is whether, on the facts of this case, assuming the sub-section is otherwise applicable, the amount claimed by the taxpayer as a deduction exceeded "the expenditure actually incurred by him".

The facts may be collected from not very complete evidence given before the Supreme Court of Victoria (from the judgment of which this appeal was brought), a circumstance which attracted that Court's criticism; but they appear to be as follows. The taxpayer is a medical practitioner. He wished to reduce the incidence of income tax, so he signed various documents during the financial year ended 30 June 1978 ("the relevant year") for the purpose of gaining what he mistakenly thought was the advantage of becoming a member of a "Curran" scheme (the scheme for tax avoidance considered by the High Court in Curran v. The Commissioner of Taxation of the Commonwealth of Australia [1974] HCA 46; (1974) 131 C.L.R. 409). A first and final return was lodged dated 30 October 1978 purporting to be a return of the "Curran" type partnership known as "Siward Traders" for the relevant year. The return described the nature of the partnership business as "share trading". It appears from the partnership return that the partnership ceased on 23 May 1978 and that it had been involved in a small number of transactions in shares in listed public companies for a gross profit of $131.70. It also disclosed a transaction in shares of a company known as Goanna Explorations Pty LLimited. It revealed that 6,583,302 shares in that company were "bought" for $14,823,687 and that 9,983,302 shares were "sold" for $14,823.737. The $50 "profit" increased the overall gross profit to $181.70 which, after $16 dividends and $260.30 expenses, yielded a financial loss of $62.60. For taxation purposes a deduction was claimed of $2,500,000 being "the cost" of 2,500,000 bonus shares issued by Goanna Explorations Pty. Limited, to yield a net loss for the partnership of $2,500,062.60 of which the taxpayer's share was $50,001.25. On cessation of the partnership the taxpayer received $498.75, namely, his $500 contribution less $1.25 being his share of the partnership's financial loss of $62.60.

In his return of income for the relevant year the taxpayer returned his income derived as a medical practitioner from which he claimed as a deduction the loss of $50,001 described in his return as a deduction relating to income derived from the Siward Traders Partnership.

The Commissioner, by notice of assessment issued on 7 March 1979, disallowed $49,997 of the loss claimed and thus added that sum to the taxable income of the taxpayer as returned. By the same notice of assessment the Commissioner assessed the taxpayer's income tax at an amount which included $15,571 as additional tax imposed pursuant to sub-s. 226(2). The taxpayer objected to the disallowance of $49,997 of the loss claimed and to the imposition of the additional tax. After the Commissioner disallowed the objection it was referred to a Board of Review. Board of Review No. 1 heard the matter and allowed the appeal in so far as it related to the additional tax imposed.

The Commissioner appealed to the Supreme Court of Victoria. The appeal was heard by Fullagar J. who dismissed it with costs. That appeal was concerned solely with the question of the application of sub-s. 226(2). Any claim by the taxpayer to a deduction in relation to his share of the alleged partnership loss was not pressed by him beyond the Board of Review.

Leave to appeal to this Court from the Supreme Court's judgment was granted by a single Judge of this Court, but on terms that the Commissioner pay the taxpayer's costs of the appeal and of the application for leave in any event.

I turn first to the question whether sub-s. 226(2) applies where a taxpayer includes an amount in his return as a deduction for his share or interest in the loss of a partnership of which he is a member.

Section 226 imposes additional tax where the taxpayer (a) fails to furnish, as and when required, a return or information relating to his liability to tax or the amount of the tax (sub-s. 226(1)); or (b) omits from his return any assessable income, or claims as a deduction or rebate in that return, expenditure in excess of that actually incurred by him (sub-s. 226(2)). The additional tax imposed by the section is in the nature of a penalty: Trautwein v. The Federal Commissioner of Taxation No. 2 [1936] HCA 46; (1936) 56 C.L.R. 196 per Evatt J. at p. 217. The object of the section is plainly to impose a heavy penalty on taxpayers for the purpose of ensuring the accuracy and completeness of returns, upon which the Australian income tax system is based. As Lord Loreburn L.C. said in Attorney-General v. Till (1910) A.C. 50 at p. 53 in relation to s. 55 of the Income Tax Act 1842 (Eng.):

"The Act appears to have been formed in full view of the conditions under which income tax has to be collected. On the one hand hundreds of thousands, if not millions, of people are required to make returns. It is necessary, therefore, that there should be a sharp weapon available in order to prevent the requirements of the Act being trifled with."

A partnership has, of course, no existence independent of its members. The gross income of a partnership is earned jointly by the partners; and partnership outgoings are joint outgoings of the partners. The partnership profits and losses are the profits and losses of the partners. The Act, however, for some purposes treats a partnership as if it were a distinct entity from those who constitute it: Rowe v. Federal Commissioner of Taxation (1982) A.T.C. 4243 (a judgment of a Full Court of this Court). It is true, as was pointed out in Rowe's Case at p. 4244, that "There is nothing in the Act which denies or alters the basic legal principle that the profits or net income of a partnership are the profits or net income of those who constitute it"; but ss. 90, 91, 92 and 93 of Division 5 of the Act determine the nature of a partner's interest in the net income of the partnership of which he is a member and his interest in a partnership loss for the purposes of the Act. To determine his interest in the net income of the partnership it is necessary to ascertain the assessable income of the partnership, calculated as if the partnership were a taxpayer, less all allowable deductions except concessional deductions and deductions allowable under s. 80 or 80AA in respect of losses of previous years (s. 90). To determine a partner's interest in a partnership loss the Act requires that the allowable deductions, except the concessional deductions and deductions allowable under ss. 80 or 80AA, be deducted from the assessable income of a partnership, calculated as if the partnership were a taxpayer; and the excess of allowable deduction over the assessable income of the partnership is treated as the partnership loss (s. 90). Sub-section 92(1) provides that the assessable income of a partner shall include his individual interest in the net income of the partnership of the year of income, and his individual interest in the partnership loss incurred in the year of income shall be an allowable deduction.

Section 91 provides that a partnership shall furnish a return of the income of the partnership, but shall not be liable to pay tax thereon.

In my opinion it is impossible to characterise a claim by a taxpayer for a deduction constituted by a partnership loss as a claim for "expenditure incurred by him . . . in excess of the expenditure actually incurred by him" within the meaning of sub-s. 226(2). To so describe the claim would be to negative the operation of ss. 90-92, their evident purpose and plain language. Expenditure by the partnership is a necessary element in determining the "net income" of the partnership or the "partnership loss". The formula provided by s. 90 makes this plain enough; but that consideration serves to contrast the nature of a partner's allowable deduction with the notion referred to in sub-s. 226(2) of a claim for expenditure by a taxpayer in excess of expenditure actually incurred by him.

It is true that in Rowe's Case the Court said of ss. 90 to 92: "These provisions of the Act are, however, essentially for accounting purposes". But that statement was made in a context where their Honours were emphasising that those provisions did not deny or alter the basic principle that the profits or net income of a partnership are the profits or net income of those who constitute it. I do not read what their Honours said as suggesting that those provisions in Division 5 did not operate to determine the nature of the assessable income of a partner or his interest in a partnership loss for the purposes of the Act. That was not a matter that arose for consideration in Rowe's Case.

It was submitted by the Commissioner that it would be anomalous if sub-s. 226(2) did not extend to the present case. As ss. 90-92 treat the assessable income of a partner as including his individual interest in the net income of the partnership, sub-s. 226(2) would therefore apply and penalise a partner for omitting that assessable income from his return. It was said to be anomalous if the sub-section did not also penalise all claims for deductions by taxpayers for excessive expenditure in relation to their share of a partnership loss.

I accept that sub-s. 226(2) penalises a taxpayer who omits from his return assessable income being his interest in the net income of a partnership of which he is a member. But the nature of allowable deductions under the Act varies considerably. Some are for expenditure incurred, others are not. Depreciation, investment allowances, bad debts written off pursuant to s. 63C and losses carried forward pursuant to s. 80 are examples of allowable deductions which do not involve or require expenditure by the taxpayer in the relevant year of income.

Sub-section 226(2) applies where "facts are withheld from or falsely stated to the Commissioner. It is the failure to make a full and true disclosure of relevant information that attracts a liability to additional tax, not a failure properly to characterise an amount which has been disclosed": Federal Commissioner of Taxation v. Rabinov (1983) 50 A.L.R. 541 at p. 543.

The Commissioner argued that, if sub-s. 226(2) does not apply to the present case, there would be a lacuna in the Act that would allow unscrupulous taxpayers to form partnerships to trifle with the requirements of the Act. I fail to see how this circumstance, even if it were true, supports the adoption of a construction of the Act which it cannot bear. Also taxpayers will have to wrestle with a new set of provisions in the future as Pt. VII of the Act, which included s. 226, was repealed by s. 152 of the Taxation Laws Amendment Act 1984 which came into operation on 14 December 1984 substituting a new Pt. VII specifically dealing, inter alia, with partners.

It must be remembered also that the Act, at the relevant time, contained various provisions rendering it an offence for taxpayers to make false statements in returns (s. 223), to understate their income (s. 230) and to avoid or attempt to avoid assessment of taxation by any wilful or fraudulent act (s. 231). Thus the Act contained comprehensive machinery designed to prevent the requirements of the Act being circumvented.

I turn to the submission of the Commissioner that the expression "his return" in sub-s. 226(2) includes the return of a partnership of which the taxpayer is a member as well as the taxpayer's individual return. The Commissioner submitted that the policy of the sub-section, namely, to ensure the accuracy of returns so as to enable the proper assessment of tax, is advanced by such a construction. He asserted that the need for accuracy in a return is just as great in the case of a partnership return as it is in the case of an individual's return because the accurate statement of the taxpayer's net partnership income or loss is essential to the determination of his assessable income. It was said that, since partnership income or loss bears directly on the assessment of a taxpayer's assessable income and, consequently, upon his liability to pay tax, the lodging of a partnership return which will reflect accurately the income of each partner is an essential element in the overall obligation imposed upon a taxpayer by sub-s. 161(1) of the Act which requires him to furnish to the Commissioner a return signed by him setting forth a full and complete statement of the total income derived by him during the year of income and of any deductions claimed by him. It was submitted that, in this context, it is natural to say in respect of a taxpayer who is a partner that the partnership return is "his return". It was also submitted that on the assumption, which the Act was said to require, that the partnership return is accurate, the taxpayer will adopt the income or loss shown by the partnership return for the purpose of his individual return. Hence it was said to be natural for sub-s. 226(2) to refer to "his return" as encompassing the individual return and the partnership return. It was submitted that "his return" includes a partnership return because a partnership return is a return of all the partners jointly and the taxpayer is one of those partners.

Sub-section 226(2) is directed to any taxpayer who omits from his return any assessable income, or includes in his return as a deduction for expenditure incurred by him an amount in excess of the expenditure actually incurred by him. In the result, he is liable to pay as additional tax an amount equal to double the difference between the tax properly payable by him and the tax that would be payable if it were assessed upon the basis of the return furnished by him or the amount of $2 whichever is the greater. The emphasis is mine. I find it impossible to ascribe to the sub-section the meaning for which the Commissioner contends. The language and the purpose of the provision are clear. It speaks of a taxpayer's return, not his return and the return of somebody else. The fact that a partnership does not exist independently of the partners who constitute it and the fact that a partnership is required by s. 91 to furnish a return of the income of the partnership says nothing to aid the Commissioner's argument. No doubt the word "return" includes the plural "returns" for certain purposes of the Act, and I accept that this extends to sub-s. 226(2). A taxpayer may file a return, or a further or fuller return (s. 162) or "any return required by the Commissioner for the purposes" of the Act (s. 163); see Richardson v. Federal Commissioner of Taxation [1932] HCA 66; (1932) 48 C.L.R. 192 at p. 208. These matters are, it seems to me, irrelevant to the question whether the return of which sub-s. 226(2) speaks includes the partnership return as well as the taxpayer's own return.

The remaining question is whether on the facts of this case, if the sub-section was otherwise applicable, the amount claimed by the taxpayer as a deduction exceeded "the expenditure actually incurred by him" within the meaning of the sub-section. The question does not strictly arise since I have found that sub-s. 226(2) does not apply where a taxpayer claims a deduction of an amount representing his share or interest in a partnership loss. However, if this were not the case I would agree with Fullagar J. that "What is critical is the character in which the taxpayer's assertion in the return is made rather than the true character of any item included in the return." The sub-section requires a comparison to be made between two amounts for the purpose of ascertaining the difference between them. One amount is the amount claimed by the taxpayer in his return as the amount of the expenditure incurred by him and said to constitute the deduction. The other amount which the sub-section requires to be ascertained is the amount of the expenditure actually incurred by the taxpayer. The difference between the two amounts is then treated by the Act as the basis for calculating the additional tax payable by the taxpayer.

I accept the Commissioner's argument (and the contrary was not suggested by the taxpayer) that the Commissioner may look at the taxpayer's return or the partnership return or indeed any other material properly before him to determine whether sub-s. 226(2) applies and, if so, to calculate the amount of additional tax payable by the taxpayer. However, the taxpayer's return and the partnership return for the relevant year disclosed that the partnership sustained a loss. If the "Siward Traders Partnership" sustained a loss, then the taxpayer's share or interest of that partnership loss was $50,001. This appears from an examination of the two returns. It is not a case of a taxpayer claiming as expenditure incurred by him an amount greater than that actually incurred by him. If he had incurred expenditure which would have entitled him to a deduction, it would have been the amount claimed in his return. In other words, if the Curran type partnership had achieved its purpose and not been rendered inutile by s. 6BA of the Act - a provision inserted to block Curran schemes - then by accepting the bonus shares in the capital of Goanna Explorations Pty. Limited allotted to him, the taxpayer would have agreed to the application to the capital of the company of the amount of the distributable profits so credited to him, and thus would have been treated as having paid for the shares: Curran's Case. There was no attempt by him to withhold or falsely state facts to the Commissioner; indeed, the Commissioner did not contend to the contrary. All that happened here is that the taxpayer gave an incorrect description of the relevant facts. He failed properly to characterise an amount which had been disclosed: Rabinov's Case at p. 543. I should emphasise, however, that what I have said in relation to the last question proceeds on the hypothesis that the amount claimed by the taxpayer as a deduction in truth answers the description of "expenditure actually incurred by him"; but, for the reasons I have already given, the hypothesis does not apply.

I would therefore dismiss the appeal.

Appeal against an order of the Supreme Court of Victoria (Fullagar J.) dismissing the appellant's appeal from a decision of a Board of Review.

The respondent included in his income tax return, in respect of the year of income ended 30 June 1978, as an allowable deduction the sum of $50,001. He was throughout the year of income a partner in a partnership and a resident of Australia. The partnership had furnished, by an agent, a return of the income of the partnership in respect of that year. The latter return disclosed a partnership loss of $2,500,062.60, in which the respondent's individual interest was $50,001.25. It was that interest which was the subject of his claim for the deduction of $50,001. All but $62.60 of the partnership loss was attributed in the return to "additional cost of shares:

Amounts capitalised and used to distribute bonus shares.

- Goanna Explorations Pty. Ltd. $2,500,000."

Of the deduction claimed by the respondent ($50,001) the appellant Commissioner disallowed $49,997 in assessment and disallowed the respondent's objection to the assessment. Upon reference of the Commissioner's decision to a Board of Review the assessment was confirmed in that particular. But the assessment had included an amount of $15,571.49 as additional tax, the liability to which the Commissioner considered had derived from the inclusion by the respondent in his return of the deduction disallowed and the operation of s.226(2) of the Income Tax Assessment Act 1936. The Board of Review reduced the assessment by the amount of that additional tax and Fullagar J. dismissed the Commissioner's appeal from that decision of the Board.

When the respondent's return was furnished to the Commissioner, and when notice of the Commissioner's assessment was served on the respondent, s.226(2) of the Income Tax Assessment Act 1936 was in these terms:

"Any taxpayer who omits from his return any assessable income or includes in his return as a deduction for, or as a rebate in respect of, expenditure incurred by him an amount in excess of the expenditure actually incurred by him shall be liable to pay as additional tax an amount equal to double the difference between the tax properly payable by him and the tax that would be payable if it were assessed upon the basis of the return furnished by him or the amount of Two dollars, whichever is the greater."

The parties to the appeal canvassed in their submissions the questions whether, and in what sense, and by reference to what considerations, the return furnished by the partnership might be said to be comprehended by the words "his return" in s.226(2). It is, I think, unnecessary to express any concluded opinion concerning those submissions. Let it be assumed that a return furnished in compliance with the requirement of s.91 of the Act that a "partnership shall furnish a return of the income of the partnership" is comprehended by the words "his return" in s.226(2), in relation to each member of the partnership, or, more plausibly, that such a return will be so comprehended if the member of the partnership in question has signified his concurrence in, and his adoption of, the assertions which the partnership return contains by including in his return of his income, without comment or qualification, the amount which according to the partnership return is his individual interest in the net income of the partnership of the year of income or his individual interest in a partnership loss of that year, as assessable income of his or as an allowable deduction respectively.

The first three sections of Division 5 of Part III of the Act at relevant times provided:

"90. In this Division -

'net income' in relation to a partnership, means the assessable income of the partnership, calculated as if the partnership were a taxpayer, less all allowable deductions except the concessional deductions and deductions allowable under section 80 or section 80AA in respect of losses of previous years;

'partnership loss' means the excess, if any, of the allowable deductions, except the concessional deductions and deductions allowable under section 80 or section 80AA in respect of losses of previous years, over the assessable income of a partnership, calculated as if the partnership were a taxpayer.

91. A partnership shall furnish a return of the income of the partnership, but shall not be liable to pay tax thereon.

92. (1) The assessable income of a partner shall include his individual interest in the net income of the partnership of the year of income, and his individual interest in a partnership loss incurred in the year of income shall be an allowable deduction.

(2) The exempt income of a partner shall include his individual interest in the exempt income of the partnership of the year of income."

The partnership return asserted the firm's business to be share trading. Among the share trading transactions particularised in that return are a purchase of 6,583,302 shares in Goanna Explorations Pty. Ltd. for $14,823,687 and a sale of 9,083,302 shares in that company for $14,823,737. The difference of $50 between those two prices is included in the calculation of the partnership loss. The difference of 2,500,000 between the number of shares bought and the number sold is consistent with the laconic reference to "additional cost of shares" which I have previously quoted.

The parties assumed that what was asserted in the partnership return to have occurred in relation to those 2,500,000 shares was that transactions of the kind which were considered by the High Court in Curran v. The Commissioner of Taxation [1974] HCA 46; (1974) 131 C.L.R. 409 had produced the result that in respect of the issue to the partnership of 2,500,000 paid-up $1 bonus shares in Goanna Explorations Pty. Ltd. the partnership was entitled to a deduction of $2,500,000, the amount credited to the partnership in respect of a dividend declared by that company and capitalized by resolution for the bonus issue. I think the assumption on which the parties framed their submissions to be the finding which the exiguous evidence requires.

Such an assertion may be said to amount to an assertion that the deduction of $2,500,000 claimed in the partnership return is "a deduction for expenditure incurred by" the partnership. I shall assume, without expressing any opinion, that it does. If, counsel for the appellant Commissioner submits, expenditure is claimed to have been incurred by the partnership, then that is a claim that each member of the partnership incurred expenditure. But the amount which was included in the partnership return as a deduction, $2,500,000, was not in my opinion included as a deduction for expenditure incurred by the respondent. Neither in the partnership return nor in the return of his own income is any claim made to deduct from the respondent's assessable income the sum of $2,500,000. When regard is had to the terms of s.48 and the definitions, in s.6(1), of "allowable deduction" and "taxable income", it cannot in my opinion be doubted that the word "deduction" in s.226(2) means a deduction asserted by the taxpayer to be an allowable deduction from his assessable income. Counsel for the Commissioner submits that the respondent has included in the two returns, read together, as a deduction for expenditure incurred by him, that amount which bore to the sum of $2,500,000 the same proportion as his individual interest in a partnership loss bore to that loss, that is $49,997. That submission cannot, in my opinion, be accepted. It may be possible to say that an assertion that expenditure of a certain sum has been incurred by a partnership amounts to, or involves, an assertion that expenditure of that sum has been incurred by a member of that partnership. (Sed quaere: Crowe v. Commissioner of Taxation [1958] HCA 32; (1958) 100 C.L.R. 532; Wilson v. Simpson (1926) 2 K.B. 500.) It is not in my opinion possible to say, in a sense apposite to Australian income tax law, that an assertion that expenditure of a certain sum has been incurred by a partnership amounts to, or involves, an assertion that expenditure has been incurred by a member of the partnership of a lesser sum which bears to the greater sum that proportion which the member's share of partnership profits and losses bears to the whole. Nowhere in either of the returns under consideration, or in both of them read as one, is there, in my opinion, to be found an assertion, express or to be implied, that some part of the sum of $2,500,000 to which the partnership return refers was expenditure incurred by the respondent. The inclusion by the respondent in his return of the amount of $50,001, upon which any argument in justification of liability to pay additional tax must rest, involves no assertion by the respondent that a specified part of that amount was expenditure incurred by him, even if the contents of the two returns can be taken as amounting to an assertion that the sum of $2,500,000 included in the partnership return was expenditure incurred by him and the other members of the partnership.

I would dismiss the appeal.