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High Court of Australia |
H C of A
On appeal from the Supreme Court of Victoria.
3 November 1904
Griffith, C.J., Barton and O'Connor, JJ.
Higgins, K.C. (Attorney-General for the Commonwealth), and Drake, for the appellants.
Isaacs, K.C., and Cussen (Bryant with them), for the respondent.
Higgins, in reply.
Isaacs, K.C.,
October 28th
Griffith, C.J.
These are two appeals from decisions of the Supreme Court of Victoria upon cases stated by the Commissioner of Taxes of that State, raising the question whether sums of money received by the appellants in respect of their remuneration for the year 1901 as Ministers of State of the Commonwealth and Members of the House of Representatives were properly included in the assessment of their income for that year for the purposes of determining the income tax payable in 1902 under the Victorian Income Tax Acts. The only difference between the two cases is that Sir W. Lyne represented a New South Wales constituency, and was domiciled in that State, in which he also resided, except so far as his official and parliamentary duties required his presence at the temporary seat of the Government at Melbourne, in Victoria, while Mr. Deakin represented a Victorian constituency, and was domiciled and resident in Victoria. The Supreme Court, following their previous decision in Wollaston's Case (28 V.L.R., 357), held that both sums were properly included in the assessment so far as they related to the earnings of the appellants in Victoria. The Court had held in Wollaston's Case that the salary of a Commonwealth officer whose duties require his presence in more than one State is apportionable in proportion to the periods spent within the several States.
The Victorian Income Tax Act 1895 (No. 1374), defines (sec. 2) the term "income derived by any person from personal exertion," or "income from personal exertion," as meaning "all income consisting of earnings, salaries, wages, allowances, pensions, superannuations, or retiring allowances or stipends earned in or derived from Victoria, and all income arising or accruing from any trade carried on in Victoria." The material words in the present case are "salaries ... earned in ... Victoria." Sec. 5 enacts that subject to the Act "there shall be charged levied collected and paid for the use of Her Majesty in aid of the Consolidated Revenue for each year duties of income tax at such rates as may for each year be declared by an Act of Parliament, that is to say—(a) On all incomes derived by any person from personal exertion a tax at such rates as shall be so declared." The tax is to be charged and paid upon "assessments" made under the Act. Sec. 8 enacts that every person shall be liable to tax "in respect of ... income from personal exertion." For the purpose of making the assessments returns are required to be made annually by every taxpayer to the Commissioner of Taxes (sec. 14 (1)). These returns are to be "based upon the amount of income which was earned derived or received by the taxpayer during the year ending on the 31st of December immediately preceding the commencement of the year of assessment" (ib. (3)). The income tax payable in each year is, therefore, computed upon and payable in respect of the income received in the preceding year.
For the appellants it was contended that the income tax claimed from them was in substance a tax upon and diminution of their remuneration for their services performed as federal officers, and that an attempt by a State to tax or diminish federal remuneration is an interference with an agency or instrumentality of the Commonwealth, and is therefore obnoxious to the rule laid down by this Court in D'Emden v. Pedder, (ante p. 91, at p. 111): "When a State attempts to give to its legislative or executive authority an operation which, if valid, would fetter, control, or interfere with the free exercise of the legislative or executive power of the Commonwealth, the attempt, unless expressly authorized by the Constitution, is to that extent invalid and inoperative." It was also objected that, having regard to the nature of the remuneration in question, it could not be said to have been earned locally in Victoria, although the recipients were bodily present in that State during a portion of the year during which it was earned, but should be considered as having been earned in the Commonwealth regarded as a whole, and not in any special part of it. For the respondents it was contended that the tax, being payable in respect of the remuneration for a previous year which had been actually received by the taxpayer, was in substance a tax on realized property, and not a tax on the income. It was further argued that the doctrine laid down in D'Emden v. Pedder (supra) was inconsistent with the decision of the Judicial Committee in the case of Bank of Toronto v. Lambe (12 App. Cas., 575); and we were invited to follow the decision of the Judicial Committee in that case, and to review and, in effect, to depart from our decision in D'Emden v. Pedder (supra). It was also contended that, admitting the soundness of the rule as stated by this Court in D'Emden v. Pedder (supra), yet that rule, being based upon necessary implication, could not be extended beyond the necessity, and that its application to any particular case might be excluded by a contrary and controlling implication to be found in the Constitution. And it was said that, upon a consideration of the whole Constitution, it would be found that it was manifestly contemplated that the powers of the States to impose direct taxation should be left unimpaired as to all persons actually found within their boundaries.
In the Supreme Court (as reported in 29 V.L.R., 748) the learned Chief Justice, who delivered the judgment of the Court, after dealing with some arguments which were not pressed before us, based his judgment substantially upon Wollaston's Case (supra), which the Court thought quite consistent with the actual decision in D'Emden v. Pedder (supra).
In the "reasons" furnished to this Court, a'Beckett, J., thus states his grounds for concurring in the decision:—" 1. That the case is not distinguishable from Wollaston's Case (28 V.L.R., 357), which binds our Court until shown to be erroneous by the judgment of a higher Court. 2. I consider that the decision of the High Court in D'Emden v. Pedder (supra), was not based upon the reduction of the officer's income by the amount of the stamp, but on the requirement of a stamp being an interference with the conduct of federal business. 3. My view of the effect of the American authorities appears at pp. 393, 394, 395 of 28 V.L.R., in which I state my reasons for thinking that our Income Tax Act does not offend against the rule laid down in McCulloch v. State of Maryland (4 Wheat., 316). "
Hodges, J., states that his reasons for concurring are that the case is not distinguishable from Wollaston's Case (supra). (The learned Judge was not a member of the Court which decided that case).
It will be convenient to deal first with the argument based upon Bank of Toronto v. Lambe (supra). After having had the advantage of a very full and able argument on the point, we adhere to all that we said in D'Emden v. Pedder (supra), as to the principles to be applied in interpreting the Australian Constitution, so far as regards the respective powers of the Commonwealth and the States. These principles are substantially the same as those laid down by Chief Justice Marshall in McCulloch v. State of Maryland (supra).
The learned Judges of the Supreme Court intimated that they did not consider themselves bound by the reasoning contained in the judgment of this Court in D'Emden v. Pedder (supra), although they agreed in the conclusion. They said that they preferred to follow the decisions of the Judicial Committee of the Privy Council upon the Constitution of Canada, suggesting that this Court had indicated a disposition to show a preference for the American over the English decisions. This is, we think, a somewhat novel mode of dealing with a judgment of a Court of final appeal. A Court of law performs the double function of declaring the law, and of applying it to the facts. When the legal principles which govern the case are in controversy, it is the practice of English Courts not to content themselves with a statement of their conclusion, but to express their reasons, which, in the case of Courts of Appeal, are ordinarily accepted by other Courts upon whom the decision is binding, as an authoritative exposition of the law on the point under consideration. If the reasons may be disregarded and treated as mere obiter dicta, because, in the opinion of the Court, the same conclusion might have been reached by another road, the value of judgments as expositions of the law would be sensibly diminished. The learned Judges are, however, quite in error in supposing that we have, in any case that has yet come before us, indicated any preference for American decisions, or any disregard for British decisions. In D'Emden v. Pedder (supra), we pointed out, briefly, that the case of Bank of Toronto v. Lambe (supra) had no application to the matter then before us. In deference to the learned Judges who decided the present case, and to the elaborate argument for the respondent, we proceed to deal with the point again, and at some greater length.
The scheme of the Australian Constitution, like that of the Constitution of the United States, is to confer certain definite and specified powers upon the Commonwealth, and to leave the residue of power in the hands of the States. This is expressed in our Constitution by the language of secs. 51 and 52, which confer the federal power, and sec. 107, which provides that "Every power of the Parliament of a Colony which has become or becomes a State, shall, unless it is by this Constitution exclusively vested in the Parliament of the Commonwealth, or withdrawn from the Parliament of the State, continue as at the establishment of the Commonwealth." In the American Constitution it is expressed in the words of the Tenth Amendment: "The powers not delegated to the United States by the Constitution, nor prohibited to it by the States, are reserved to the States respectively, or to the people." In our judgment the schemes of these two Constitutions are, in this respect, identical. In neither case is any new power conferred upon the States, nor is there any exclusive distribution of powers, except as to a limited class of cases. It was suggested in argument that a distinction is to be found in the fact that in the United States the ultimate source of power is the people, i.e., the collective people of the United States in the one case, and the people of the several States in the other, while in Australia the ultimate source is, in each case, the Crown or the Parliament of the United Kingdom. We are quite unable to see the relevancy of this distinction. It is a matter of common knowledge that the framers of the Australian Constitution were familiar with the two great examples of English speaking federations, and deliberately adopted, with regard to the distribution of powers, the model of the United States, in preference to that of the Canadian Dominion. They used language not verbally identical, but synonymous, for the purpose of defining that distribution. And the respective powers of the Commonwealth and the States having been defined and distributed by the ultimate sovereign power, it appears to be quite irrelevant to the question of interpretation whether that sovereign power is one or several, or whether it is the collective people or a personal monarch or a constitutional parliament. The scheme of the Canadian Constitution, which was rejected by the framers of this Constitution, is essentially different. An attempt was made in the British North America Act, by which the powers of the Dominion and the Provinces are conferred, to enumerate all possible subjects of legislation, and to distribute them between the Dominion and the Provinces, giving the power in each case to the one authority to the exclusion of the other. It follows that every power of legislation must reside in one authority or the other, and if it cannot be exercised by the authority on whom it is conferred in express terms, it cannot be exercised at all. Whether the doctrine of McCulloch v. Maryland (supra) is applicable to the exercise of an express power of legislation apparently conferred on a Province, but repugnant to the general scheme of the instrument (the British North America Act) from which the implied restriction is sought to be inferred, is a question which has not yet come before the Judicial Committee for decision, but in the Provincial Courts it has long been held that the doctrine is applicable to such a case (Leprohon v. Ottawa, 2 Ontario App. Cas., 522; Ex parte Owen, 20 New Br. R., 487; R. v. Bowell, 4 Brit. Col. R., 498.) In the later case of Brewers and Maltsters Association of Ontario v. Attorney-General for Ontario, 1897 A.C., 231, however, the Judicial Committee intimated that they would approach the consideration of such a question with an open mind.
The case of Bank of Toronto v. Lambe (supra) did not raise any such question. Amongst the matters within the exclusive legislative power of the Dominion are "banking, incorporation of banks and the making of paper money;" and amongst the matters within the exclusive power of the Provinces is "direct taxation within the Province in order to the raising of a revenue for Provincial purposes" (sec. 92 (2)). The Bank of Toronto was a bank incorporated by Dominion law. The question was whether a tax imposed under a law of the Province of Quebec was within the power of the Provincial legislature. The Act in question, which was entitled "an Act to impose certain direct taxes on certain commercial corporations," enacted that "every bank carrying on the business of banking in this Province" and a number of other specified companies should annually pay the several taxes thereby imposed upon them. In the case of a bank the tax imposed varied with the paid-up capital, with an additional sum for each office or place of business. The question was whether the law imposing the tax was valid under the power to impose "direct taxation within the Province." It was objected that the tax was an indirect tax; that it was not imposed within the limits of the Province, inasmuch as, although the bank carried on part of its business in the Province of Quebec, its principal place of business was in the Province of Ontario, where its principal capital, which was the basis for estimating the tax, was kept; that the Provincial legislature could only tax that which exists by their authority or is introduced by their permission; and that if the power to tax such banks existed they might be crushed out of existence by it, and so the power of the Dominion Parliament to create them might be nullified. The case of McCulloch v. Maryland (supra), was cited, apparently in support of the two last stated objections. The Judicial Committee first addressed themselves to the question whether the tax was a direct tax within the meaning of the British North America Act, and came to the conclusion that it was. They next determined that the tax was taxation within the Province. Sec. 92 (2), they thought, did not require that the persons to be taxed should be domiciled or even resident within the Province. It was sufficient if the persons were found within the Province provided that they were taxed directly. The bank was found to be carrying on business there, and on that ground alone it was taxed. There was no attempt to tax the capital of the bank or its profits, but the legislature had adopted its own measure of taxation by reference to facts which could be verified without doubt or delay. Their Lordships then inquired whether there was anything in sec. 91, by which the legislative powers of the Dominion are defined, which would operate to restrict the meaning so assigned to sec. 92 (2), and found nothing. They thought that the power to make banks contribute to the public objects of the Provinces where they carry on business did not interfere at all with the power of making laws on the subject of banking or with the power of incorporating banks. But they said nothing to suggest that if there were such an interference the Provincial law would be valid. So far there is nothing in the opinion expressed by their Lordships to affect the doctrine of McCulloch v. Maryland. With regard to the objection that the power, if existent, might be used so as to crush a bank out of existence, and so nullify the power of the Dominion Parliament to create banks, they observed that people who are trusted with the great power of making laws for property and civil rights may well be trusted to levy taxes; and added that "whatever power falls within the meaning of classes 2 and 9 is, in their Lordships' judgment, what the Imperial Parliament intended to give; and to place a limit on it because the power may be used unwisely, as all powers may, would be an error, and would lead to insuperable difficulties in the construction of the Federation Act." The foundation of this argument is, obviously, the fact that the power in question was conferred by the express words of the Statute. It is, indeed, self-evident that when a power is conferred in express terms the possibility of its abuse affords no argument against its existence. But when an alleged power is not expressly conferred, but the question of the existence of the power or the limits of its exercise is a matter of inference and of implication depending upon a consideration of the whole of an instrument dealing with the relations of the several parts of a federated State, the possibility that the power, if existent or unlimited, might be exercised to the destruction or the impairment of the efficiency of the agencies of the general government, is very relevant in considering whether, upon the proper construction of the whole instrument, it appears that the power was intended to be conferred, either absolutely or with limitations.
Their Lordships then dealt with the last objection, and with the arguments based on McCulloch v. Maryland (supra), and said (12 App. Cas., at p. 587):—"Their Lordships have been invited to take a very wide range on this part of the case, and to apply to the construction of the Federation Act the principles laid down for the United States by Chief Justice Marshall. Everyone would gladly accept the guidance of that great Judge in a parallel case. But he was dealing with the Constitution of the United States. Under that Constitution, as their Lordships understand, each State may make laws for itself, uncontrolled by the federal power, and subject only to the limits placed by law on the range of subjects within its jurisdiction. In such a Constitution Chief Justice Marshall found one of those limits at the point at which the action of the State legislature came into conflict with the power vested in Congress. The appellant invokes that principle to support the conclusion that the Federation Act must be so construed as to allow no power to the provincial legislatures under sec. 92, which may by possibility, and if exercised in some extravagant way, interfere with the objects of the Dominion in exercising their powers under sec. 91. It is quite impossible to argue from one case to the other. Their Lordships have to construe the express words of an Act of Parliament which makes an elaborate distribution of the whole field of legislative authority between two legislative bodies, and at the same time provides for the federated Provinces a carefully balanced constitution, under which no one of the parts can pass laws for itself except under the control of the whole acting through the Governor-General. And the question they have to answer is whether the one body or the other has power to make a given law. If they find that on the due construction of the Act a legislative power falls within sec. 92, it would be quite wrong of them to deny its existence because by some possibility it may be abused, or may limit the range which otherwise would be open to the Dominion Parliament."
We respectfully agree that, so far as regards the question then under consideration, it was quite impossible to argue from one case to the other. But it is equally impossible to argue from secs. 91 and 92 of the Dominion Constitution to the Constitution of the Australian Commonwealth. In the case of the British North America Act the function of the judiciary is "to construe the express words of an Act of Parliament which makes an elaborate distribution of the whole field of legislative authority between two legislative bodies," in one or the other of which, but never in both, every legislative power is vested. In the construction of such an Act, to deny the power to the legislature in which it is expressly and exclusively vested would be, as already said, to deny altogether the existence of the power. This, however, does not determine whether Chief Justice Marshall's doctrine is, or is not, applicable to an attempt by a Provincial legislature, under the form of direct taxation, or otherwise, to interfere with a Dominion agency or instrumentality. No such question arose in the bank case. The doctrine of McCulloch v. Maryland (supra) has never been extended in the United States so far as to cover such a case as the taxation of the Bank of Toronto, in the manner effected by the Quebec Act. Some confusion has arisen from a misconception of the reference in the judgment to the fact that under the Canadian Constitution "no one of the parts can pass laws for itself except under control of the whole acting through the Governor-General." It may, perhaps, be argued, when the time comes to argue it, that a Provincial law which interferes with the operations of the Dominion Government is not lightly to be held invalid merely for that reason, having regard to the fact that it has received the assent of that Government, which may, therefore, be said to have offered no objection to the interference; just as it was said that laws interfering with the royal prerogative were valid on the ground that the Crown, by assenting to them, waived the prerogative pro tanto. But, as already said, no such question arose in the case before their Lordships in the view which they took of the operation of the Quebec Statute. And no such question can arise under the Australian Constitution, under which the Commonwealth Government has no control over the laws of the States. There is no analogy between the control of the Dominion Government, acting through the Governor-General, over Provincial legislation, and the power of disallowance reserved by the Australian State Constitutions to the Sovereign. The principles on which those powers are respectively exercised are essentially different. In the case of Canada the power is a power intended to be exercised by the Governor-General on the advice of the Dominion Ministers of State, having regard to the interests of the Dominion, while, in the case of the Australian States, it is familiar to all students of constitutional law that the power is exercised by the Sovereign on the advice of the Imperial Ministers as a trustee for the interests of the whole Empire. We are, therefore, of opinion that the case of Bank of Toronto v. Lambe (supra) has no bearing upon the question now under consideration, and that we are not showing any preference for American over English decisions when we decline to accept the decisions of the Judicial Committee on the construction of the British North America Act as necessarily applicable to the Australian Constitution. If, indeed, objection were taken to the power of a State legislature to impose taxation upon the property of a bank within the State, or to impose a licence fee upon a bank estimated upon the amount of its paid up capital or the number of its branches, on the ground that by the Australian Constitution the Parliament of the Commonwealth has power to make laws with respect to "banking other than State banking, the incorporation of banks, or the issue of paper money" (sec. 51 (xiii.)), Bank of Toronto v. Lambe (supra) would be very much in point, and we should hesitate a long time before declining to follow it. It is sufficient to say that that is not the present case.
We pass to the argument which seeks to establish that the tax now under consideration is not a tax on the income of the appellants, but a tax on realized property. In one sense income tax is undoubtedly a tax on property. In Italy, where it is said to have been invented, it is expressly known as the Tassa sulla ricchezza mobile. Indeed, all taxes except poll taxes and some licence fees, are taxes in respect of property, although payable by persons. But in considering grave constitutional questions involving the reciprocal powers and duties of States regard must be had to things and not to words, to substance and not to form. When a tax is imposed upon a person in respect of property, as, for instance, in the case of municipal taxation, the substance of the matter is that the tax is imposed upon the property. And the ordinary use of language follows this principle. We talk of land tax, income tax, customs duties on imports, excise duties on manufactures, succession duties. In each case the substance of the matter is the exaction of a fixed sum from the taxpayer, computed according to the value or quantity of the thing in respect of which the tax is payable. Nor can it make any difference in substance whether, in the case of an income tax, the tax is deducted "at the source" —to use a term applied under the English system—or collected from the taxpayer after the receipt of the income. In either case the effect, if any, of the imposition as a diminution of the net emoluments of the taxpayer is identical. The matter may be illustrated by considering a case in which the reduction of a salary is expressly prohibited. By the Constitution the salary of the Governor-General may not be altered during the continuance of office. If the Federal Parliament were to attempt to impose an income tax of, say, two shillings in the pound with respect to the Governor-General's salary, the result would be that the effective salary would be reduced by ten per cent. whether the tax were deducted before payment of the salary or demanded and collected afterwards. This is the accepted view in the United States (see Mr. Justice Miller's Lectures on the Constitution of the United States, pp. 247-8). This would be a case in which the payment and the deduction are made by the same hands. Or suppose the case of an employer who makes a levy upon his employés against their will, of a sum equal to a fixed percentage of their wages. Whether the levy is deducted from each payment, or is adjusted periodically as a matter of account, it would be in plain violation of a law which forbade any deduction from the salary. If, however, the levy is not made by the same Government that makes the payment, although it is not a diminution in exactly the same sense, the effect upon the recipient of the income is the same. His effective salary is diminished. The question in that case is whether the authority which makes the diminution has power to do so so. If it has no such power, it cannot effect the same purpose by the use of another form of words. The corollary of the maxim quando lex aliquid alicui concedit, concedit et id sine quo res ipsa esse non potest, on which this Court mainly based its judgment in D'Emden v. Pedder (supra), is quando aliquid prohibetur, prohibetur et omne per quod devenitur ad illud. When the law prohibits the doing of anything, the prohibition cannot be evaded by doing something which is substantially the same, merely by using a different form of words to describe it. For example, if the taxation of income were expressly prohibited by the Constitution of a State, a law which required every citizen to pay annually a sum of money equal to an aliquot part of his income, whether for that year or for a preceding year, would be manifestly invalid. For these reasons we think that the tax now under consideration is, in substance, if valid, both a tax upon the income of the appellants, and a diminution of that income.
The next question is whether such an imposition or diminution made by the authority of a State would, if valid, fetter, control, or interfere with the free exercise of the legislative or executive power of the Commonwealth (D'Emden v. Pedder, ante p. 91, at p. 111). The question so put appears to supply its own answer. On this point the case of Dobbins v. Commissioners of Erie County [1842] USSC 6; (16 Peters, 435), was referred to, and relied on for the appellants. That case was decided by the Supreme Court of the United States in 1842, and its authority has never since been doubted. It has been followed in Canada for more than 25 years, and the decisions adopting it, and following it, have never been appealed from, either to the Supreme Court of Canada or to the Privy Council. The question in that case was whether the salary of an officer of the United States was subject to taxation under a law of the State of Pennsylvania. The Supreme Court, after pointing out that the tax was in substance a tax on the emoluments of the office, said, in language exactly applicable to the Australian Constitution, (p. 446): "Taxation is a sacred right, essential to the existence of government—an incident of sovereignty. The right of legislation is co-extensive with the incident to attach it upon all persons and property within the jurisdiction of a State. But in our system there are limitations upon that right. There is a concurrent right of legislation in the States and in the United States, except as both are restrained by the Constitution of the United States. Both are restrained upon this subject by express prohibitions in the Constitution; and the States, by such as are necessarily implied, when the exercise of the right by a State conflicts with the perfect execution of another sovereign power delegated to the United States; that occurs when taxation by a State acts upon the instruments, emoluments, and persons which the United States may use and employ as necessary and proper means to execute their sovereign powers. The government of the United States is supreme within its sphere of action. The means necessary and proper to carry into effect the powers of the Constitution are in Congress. Taxation is a sovereign power of a State; but the collection of revenue by imposts upon imported goods, and the regulation of commerce, are also sovereign powers in the United States. Let us apply, then, the principles just stated, and the powers mentioned to the case in judgment, and see what will be the result." They then pointed out that an officer of the United States is a means for carrying out the ends of government, just as much as ships or guns, and proceeded (p. 448): "Is not compensation the means by which his services are procured and retained? It is true it becomes his when he has earned it. If it can be taxed by a State, as compensation, will not Congress have to graduate its amount with reference to its reduction by the tax? The execution of a national power, by way of compensation to officers, can in no way be subordinate to the action of the State legislatures upon the same subject. It would destroy also all uniformity of compensation for the same service, as the taxes by the States would be different. To allow such a right of taxation to be in the States would also, in effect, be to give the States a revenue out of the revenue of the United States, to which they are not constitutionally entitled, either directly or indirectly; neither by their own action, nor by that of Congress. The revenue of the United States is intended by the Constitution to pay the debts, and provide for the common defence and general welfare of the United States; to be expended, in particular, in carrying into effect the laws made to execute all the express powers, "and all other powers vested by the Constitution in the Government of the United States." But the unconstitutionality of such taxation by a State as that now before us may be safely put (though it is not the only ground) upon its interference with the constitutional means which have been legislated by the Government of the United States, to carry into effect its powers to lay and collect taxes, duties, imposts, &c., and to regulate commerce." ... "But we have said that the ground upon which we have just put the unconstitutionality of the tax in the case before us, is not the sole ground upon which our conclusion can be maintained. We will now state another ground; and we do so, because it is applicable to exempt the salaries of all officers of the United States from taxation by the States. The powers of the national government can only be executed by officers whose services must be compensated by Congress. The allowance is in its discretion. The presumption is that the compensation given by it is no more than the services are worth, and only such in amount as will secure from the officer the diligent performance of his duties. The officers execute their offices for the public good. This implies their right of reaping from thence the recompense the services they may render may deserve; without that recompense being in any way lessened, except by the sovereign power from whom the officer derives his appointment, or by another sovereign power to whom the first has delegated the right of taxation over all the objects of taxation, in common with itself, for the benefit of both. And no diminution in the recompense of an officer is just and lawful, unless it be prospective, or by way of taxation by the sovereignty who has a power to impose it, and which is intended to bear equally upon all according to their estate. The compensation of an officer of the United States is fixed by a law made by Congress. It is in its exclusive discretion to determine what shall be given. It exercises the discretion and fixes the amount, and confers upon the officer the right to receive it when it has been earned. Does not a tax, then, by a State upon the office, diminishing the recompense, conflict with the law of the United States, which secures it to the officer in its entireness? It certainly has such an effect, and any law of a State imposing such a tax cannot be constitutional, because it conflicts with a law of Congress made in pursuance of the Constitution, and which makes it the supreme law of the land."
We are not, of course, bound by this case as an authority. But the reasoning of the judgment appears to us to be unanswerable, and we adopt it. Indeed the only attempt made to answer it was the contention that the principles applicable to the interpretation of the Constitution of the United States are not applicable to that of the Commonwealth, with which we have already dealt at sufficient length. The principles in either case are well known canons of legal interpretation applicable to the construction of written instruments.
In its application to the present cases the reasoning of the Supreme Court in Dobbins's Case (supra) derives additional weight from the circumstance, adverted to in the judgment of this Court in D'Emden v. Pedder (supra), that, the interpretation of the American Constitution as to this point having been long since settled by judicial decision, it is a reasonable inference that it was intended by the framers of the Australian Constitution, when adopting similar language, that like provisions should receive like interpretation.
In the case of the Commonwealth the argument from the destruction of uniformity of compensation has especial force when regard is had to the circumstances of Australia. The income taxes in the several States are unequal in their incidence. They may be of any amount which the State thinks fit to impose. In order, therefore, to give effect to the provisions of the federal laws regulating the salaries of officers according to their duties, classification, and length of service, it would be necessary to make special provision for adjusting their incomes when transferred from one State to another. State taxation of federal salaries is open then to two objections: (1) It in effect diminishes the recompense allotted by the Commonwealth to its officers, and so interferes with its agencies; and (2) It interferes with the freedom of action of the Commonwealth in the transfer of its officers from State to State, except at the risk of doing them an injustice by reducing their effective remuneration—an injustice only to be remedied by the appropriation of federal revenues for that purpose. Moreover, in the case of officers whose duties require their presence in different States at different times, their effective remuneration would, if the view of the Supreme Court in Wollaston's Case as to the apportionment of income is correct, depend in part upon the place to which from time to time their duties might call them. Taxation of the remuneration of the members of the Federal legislature is open to the first objection only. If the view of the Supreme Court is accepted, the taxation of the salaries of Federal Ministers is open to both.
Is there, then, any express provision in the Constitution which authorizes such an interference? It was contended that sec. 107 of the Constitution is equivalent to an express re-enactment of the provisions of the State Constitutions, and operates expressly to confer upon the States de novo all the powers of legislation which they had as States not forming part of the Commonwealth, except those specially mentioned in the Constitution as withdrawn. This section does not purport to confer any new powers. What, then, were the existing powers of taxation possessed by the States? They included unlimited powers of taxation of all property within the limits of the States, and of all persons who come within the State by its permission. Such a power is an attribute of sovereignty, and extends to all persons to whom the sovereignty itself extends quoad hoc. But could such a power have been applied to a person who came within the State, not by the State's permission, but under the direction of a paramount sovereign power, and merely for the purpose of performing duties assigned to him by that paramount power? For instance, an admiral of the British fleet stationed in State waters for the whole or part of a year. An ordinary citizen has the choice of living, or refusing to live, within the State. If he elects to live there, he cannot refuse to obey the laws which prescribe the conditions of his residence. But, in the case of a person who is sent to live within a State by a paramount sovereignty without choice on his part, it is manifest that any law which imposes, as a condition of his residence, the obligation of contributing a portion of his official salary to the State revenue is an interference with the freedom of action of the paramount sovereignty. In practice, we know that such a power has never been asserted with respect to governors or admirals or officers of the Imperial fleet, and it has not been necessary to inquire into the legal foundation for the admitted exemption. We can find nothing in sec. 107, or any other provisions of the Constitution, to suggest the existence of such a power. If, however, the power of taxation under the State Constitution did, in point of law, extend to all persons whatever found within its boundaries, we think that the power, so far as its exercise would interfere with federal agencies, is a power withdrawn from the States by the Constitution within the meaning of sec. 107. We cannot accede to the argument that this withdrawal applies only to the matters specifically mentioned in the Constitution as being so withdrawn—a construction which, for the reasons already given, would deny to the Federal Government the freedom of action which the case of D'Emden v. Pedder (supra) declares it to possess.
Can it, then, be said to be a matter which must have been contemplated by the framers of the Constitution? The contrary inference is suggested, if not, indeed, compelled, by the consideration that, both under the Constitution of the United States, and that of Canada, which were considered by the framers, the power had always been denied. It is not material that the Income Tax Act (No. 1374), was passed before, while the Act fixing the rate of income tax for the year 1902 was passed after, the establishment of the Commonwealth. No doubt, when the language of an Act is general, it will be construed as extending to new forms of the same subject-matter afterwards coming into existence. But, for the reasons already given, we think that the Income Tax Act (No. 1374) cannot be construed as extending to federal incomes, and that the Act of 1901, if construed as extending to them, is, to that extent, invalid.
It is not necessary to express any opinion as to the argument that the income of the appellants was not earned in Victoria within the meaning of the Income Tax Act (No. 1374), or upon the question whether the salaries of federal officers, whose duties require their presence in several States during the same year, could, if they were taxable, be apportioned. But we are not to be understood as assenting to the view of the Supreme Court on either point.
The appeals must, therefore, be allowed, and the question in each case must be answered by declaring that no portion of either sum was rightly included in the assessment. The respondent must pay the costs in the Supreme Court, and of these appeals.
Appeals allowed with costs here and in the Supreme Court.
Motion dismissed with costs.
Certificate refused.
Solicitors, for appellants, George Turner & Son, Melbourne.
Solicitor, for respondent, Guinness, State Crown Solicitor.
H C of A
On appeal from the Supreme Court of Victoria.
3 November 1904
Griffith, C.J., Barton and O'Connor, JJ.
Higgins, K.C. (Attorney-General for the Commonwealth), and Drake, for the appellants.
Isaacs, K.C., and Cussen (Bryant with them), for the respondent.
Higgins, in reply.
Isaacs, K.C.,
October 28th
Griffith, C.J.
These are two appeals from decisions of the Supreme Court of Victoria upon cases stated by the Commissioner of Taxes of that State, raising the question whether sums of money received by the appellants in respect of their remuneration for the year 1901 as Ministers of State of the Commonwealth and Members of the House of Representatives were properly included in the assessment of their income for that year for the purposes of determining the income tax payable in 1902 under the Victorian Income Tax Acts. The only difference between the two cases is that Sir W. Lyne represented a New South Wales constituency, and was domiciled in that State, in which he also resided, except so far as his official and parliamentary duties required his presence at the temporary seat of the Government at Melbourne, in Victoria, while Mr. Deakin represented a Victorian constituency, and was domiciled and resident in Victoria. The Supreme Court, following their previous decision in Wollaston's Case (28 V.L.R., 357), held that both sums were properly included in the assessment so far as they related to the earnings of the appellants in Victoria. The Court had held in Wollaston's Case that the salary of a Commonwealth officer whose duties require his presence in more than one State is apportionable in proportion to the periods spent within the several States.
The Victorian Income Tax Act 1895 (No. 1374), defines (sec. 2) the term "income derived by any person from personal exertion," or "income from personal exertion," as meaning "all income consisting of earnings, salaries, wages, allowances, pensions, superannuations, or retiring allowances or stipends earned in or derived from Victoria, and all income arising or accruing from any trade carried on in Victoria." The material words in the present case are "salaries ... earned in ... Victoria." Sec. 5 enacts that subject to the Act "there shall be charged levied collected and paid for the use of Her Majesty in aid of the Consolidated Revenue for each year duties of income tax at such rates as may for each year be declared by an Act of Parliament, that is to say—(a) On all incomes derived by any person from personal exertion a tax at such rates as shall be so declared." The tax is to be charged and paid upon "assessments" made under the Act. Sec. 8 enacts that every person shall be liable to tax "in respect of ... income from personal exertion." For the purpose of making the assessments returns are required to be made annually by every taxpayer to the Commissioner of Taxes (sec. 14 (1)). These returns are to be "based upon the amount of income which was earned derived or received by the taxpayer during the year ending on the 31st of December immediately preceding the commencement of the year of assessment" (ib. (3)). The income tax payable in each year is, therefore, computed upon and payable in respect of the income received in the preceding year.
For the appellants it was contended that the income tax claimed from them was in substance a tax upon and diminution of their remuneration for their services performed as federal officers, and that an attempt by a State to tax or diminish federal remuneration is an interference with an agency or instrumentality of the Commonwealth, and is therefore obnoxious to the rule laid down by this Court in D'Emden v. Pedder, (ante p. 91, at p. 111): "When a State attempts to give to its legislative or executive authority an operation which, if valid, would fetter, control, or interfere with the free exercise of the legislative or executive power of the Commonwealth, the attempt, unless expressly authorized by the Constitution, is to that extent invalid and inoperative." It was also objected that, having regard to the nature of the remuneration in question, it could not be said to have been earned locally in Victoria, although the recipients were bodily present in that State during a portion of the year during which it was earned, but should be considered as having been earned in the Commonwealth regarded as a whole, and not in any special part of it. For the respondents it was contended that the tax, being payable in respect of the remuneration for a previous year which had been actually received by the taxpayer, was in substance a tax on realized property, and not a tax on the income. It was further argued that the doctrine laid down in D'Emden v. Pedder (supra) was inconsistent with the decision of the Judicial Committee in the case of Bank of Toronto v. Lambe (12 App. Cas., 575); and we were invited to follow the decision of the Judicial Committee in that case, and to review and, in effect, to depart from our decision in D'Emden v. Pedder (supra). It was also contended that, admitting the soundness of the rule as stated by this Court in D'Emden v. Pedder (supra), yet that rule, being based upon necessary implication, could not be extended beyond the necessity, and that its application to any particular case might be excluded by a contrary and controlling implication to be found in the Constitution. And it was said that, upon a consideration of the whole Constitution, it would be found that it was manifestly contemplated that the powers of the States to impose direct taxation should be left unimpaired as to all persons actually found within their boundaries.
In the Supreme Court (as reported in 29 V.L.R., 748) the learned Chief Justice, who delivered the judgment of the Court, after dealing with some arguments which were not pressed before us, based his judgment substantially upon Wollaston's Case (supra), which the Court thought quite consistent with the actual decision in D'Emden v. Pedder (supra).
In the "reasons" furnished to this Court, a'Beckett, J., thus states his grounds for concurring in the decision:—" 1. That the case is not distinguishable from Wollaston's Case (28 V.L.R., 357), which binds our Court until shown to be erroneous by the judgment of a higher Court. 2. I consider that the decision of the High Court in D'Emden v. Pedder (supra), was not based upon the reduction of the officer's income by the amount of the stamp, but on the requirement of a stamp being an interference with the conduct of federal business. 3. My view of the effect of the American authorities appears at pp. 393, 394, 395 of 28 V.L.R., in which I state my reasons for thinking that our Income Tax Act does not offend against the rule laid down in McCulloch v. State of Maryland (4 Wheat., 316). "
Hodges, J., states that his reasons for concurring are that the case is not distinguishable from Wollaston's Case (supra). (The learned Judge was not a member of the Court which decided that case).
It will be convenient to deal first with the argument based upon Bank of Toronto v. Lambe (supra). After having had the advantage of a very full and able argument on the point, we adhere to all that we said in D'Emden v. Pedder (supra), as to the principles to be applied in interpreting the Australian Constitution, so far as regards the respective powers of the Commonwealth and the States. These principles are substantially the same as those laid down by Chief Justice Marshall in McCulloch v. State of Maryland (supra).
The learned Judges of the Supreme Court intimated that they did not consider themselves bound by the reasoning contained in the judgment of this Court in D'Emden v. Pedder (supra), although they agreed in the conclusion. They said that they preferred to follow the decisions of the Judicial Committee of the Privy Council upon the Constitution of Canada, suggesting that this Court had indicated a disposition to show a preference for the American over the English decisions. This is, we think, a somewhat novel mode of dealing with a judgment of a Court of final appeal. A Court of law performs the double function of declaring the law, and of applying it to the facts. When the legal principles which govern the case are in controversy, it is the practice of English Courts not to content themselves with a statement of their conclusion, but to express their reasons, which, in the case of Courts of Appeal, are ordinarily accepted by other Courts upon whom the decision is binding, as an authoritative exposition of the law on the point under consideration. If the reasons may be disregarded and treated as mere obiter dicta, because, in the opinion of the Court, the same conclusion might have been reached by another road, the value of judgments as expositions of the law would be sensibly diminished. The learned Judges are, however, quite in error in supposing that we have, in any case that has yet come before us, indicated any preference for American decisions, or any disregard for British decisions. In D'Emden v. Pedder (supra), we pointed out, briefly, that the case of Bank of Toronto v. Lambe (supra) had no application to the matter then before us. In deference to the learned Judges who decided the present case, and to the elaborate argument for the respondent, we proceed to deal with the point again, and at some greater length.
The scheme of the Australian Constitution, like that of the Constitution of the United States, is to confer certain definite and specified powers upon the Commonwealth, and to leave the residue of power in the hands of the States. This is expressed in our Constitution by the language of secs. 51 and 52, which confer the federal power, and sec. 107, which provides that "Every power of the Parliament of a Colony which has become or becomes a State, shall, unless it is by this Constitution exclusively vested in the Parliament of the Commonwealth, or withdrawn from the Parliament of the State, continue as at the establishment of the Commonwealth." In the American Constitution it is expressed in the words of the Tenth Amendment: "The powers not delegated to the United States by the Constitution, nor prohibited to it by the States, are reserved to the States respectively, or to the people." In our judgment the schemes of these two Constitutions are, in this respect, identical. In neither case is any new power conferred upon the States, nor is there any exclusive distribution of powers, except as to a limited class of cases. It was suggested in argument that a distinction is to be found in the fact that in the United States the ultimate source of power is the people, i.e., the collective people of the United States in the one case, and the people of the several States in the other, while in Australia the ultimate source is, in each case, the Crown or the Parliament of the United Kingdom. We are quite unable to see the relevancy of this distinction. It is a matter of common knowledge that the framers of the Australian Constitution were familiar with the two great examples of English speaking federations, and deliberately adopted, with regard to the distribution of powers, the model of the United States, in preference to that of the Canadian Dominion. They used language not verbally identical, but synonymous, for the purpose of defining that distribution. And the respective powers of the Commonwealth and the States having been defined and distributed by the ultimate sovereign power, it appears to be quite irrelevant to the question of interpretation whether that sovereign power is one or several, or whether it is the collective people or a personal monarch or a constitutional parliament. The scheme of the Canadian Constitution, which was rejected by the framers of this Constitution, is essentially different. An attempt was made in the British North America Act, by which the powers of the Dominion and the Provinces are conferred, to enumerate all possible subjects of legislation, and to distribute them between the Dominion and the Provinces, giving the power in each case to the one authority to the exclusion of the other. It follows that every power of legislation must reside in one authority or the other, and if it cannot be exercised by the authority on whom it is conferred in express terms, it cannot be exercised at all. Whether the doctrine of McCulloch v. Maryland (supra) is applicable to the exercise of an express power of legislation apparently conferred on a Province, but repugnant to the general scheme of the instrument (the British North America Act) from which the implied restriction is sought to be inferred, is a question which has not yet come before the Judicial Committee for decision, but in the Provincial Courts it has long been held that the doctrine is applicable to such a case (Leprohon v. Ottawa, 2 Ontario App. Cas., 522; Ex parte Owen, 20 New Br. R., 487; R. v. Bowell, 4 Brit. Col. R., 498.) In the later case of Brewers and Maltsters Association of Ontario v. Attorney-General for Ontario, 1897 A.C., 231, however, the Judicial Committee intimated that they would approach the consideration of such a question with an open mind.
The case of Bank of Toronto v. Lambe (supra) did not raise any such question. Amongst the matters within the exclusive legislative power of the Dominion are "banking, incorporation of banks and the making of paper money;" and amongst the matters within the exclusive power of the Provinces is "direct taxation within the Province in order to the raising of a revenue for Provincial purposes" (sec. 92 (2)). The Bank of Toronto was a bank incorporated by Dominion law. The question was whether a tax imposed under a law of the Province of Quebec was within the power of the Provincial legislature. The Act in question, which was entitled "an Act to impose certain direct taxes on certain commercial corporations," enacted that "every bank carrying on the business of banking in this Province" and a number of other specified companies should annually pay the several taxes thereby imposed upon them. In the case of a bank the tax imposed varied with the paid-up capital, with an additional sum for each office or place of business. The question was whether the law imposing the tax was valid under the power to impose "direct taxation within the Province." It was objected that the tax was an indirect tax; that it was not imposed within the limits of the Province, inasmuch as, although the bank carried on part of its business in the Province of Quebec, its principal place of business was in the Province of Ontario, where its principal capital, which was the basis for estimating the tax, was kept; that the Provincial legislature could only tax that which exists by their authority or is introduced by their permission; and that if the power to tax such banks existed they might be crushed out of existence by it, and so the power of the Dominion Parliament to create them might be nullified. The case of McCulloch v. Maryland (supra), was cited, apparently in support of the two last stated objections. The Judicial Committee first addressed themselves to the question whether the tax was a direct tax within the meaning of the British North America Act, and came to the conclusion that it was. They next determined that the tax was taxation within the Province. Sec. 92 (2), they thought, did not require that the persons to be taxed should be domiciled or even resident within the Province. It was sufficient if the persons were found within the Province provided that they were taxed directly. The bank was found to be carrying on business there, and on that ground alone it was taxed. There was no attempt to tax the capital of the bank or its profits, but the legislature had adopted its own measure of taxation by reference to facts which could be verified without doubt or delay. Their Lordships then inquired whether there was anything in sec. 91, by which the legislative powers of the Dominion are defined, which would operate to restrict the meaning so assigned to sec. 92 (2), and found nothing. They thought that the power to make banks contribute to the public objects of the Provinces where they carry on business did not interfere at all with the power of making laws on the subject of banking or with the power of incorporating banks. But they said nothing to suggest that if there were such an interference the Provincial law would be valid. So far there is nothing in the opinion expressed by their Lordships to affect the doctrine of McCulloch v. Maryland. With regard to the objection that the power, if existent, might be used so as to crush a bank out of existence, and so nullify the power of the Dominion Parliament to create banks, they observed that people who are trusted with the great power of making laws for property and civil rights may well be trusted to levy taxes; and added that "whatever power falls within the meaning of classes 2 and 9 is, in their Lordships' judgment, what the Imperial Parliament intended to give; and to place a limit on it because the power may be used unwisely, as all powers may, would be an error, and would lead to insuperable difficulties in the construction of the Federation Act." The foundation of this argument is, obviously, the fact that the power in question was conferred by the express words of the Statute. It is, indeed, self-evident that when a power is conferred in express terms the possibility of its abuse affords no argument against its existence. But when an alleged power is not expressly conferred, but the question of the existence of the power or the limits of its exercise is a matter of inference and of implication depending upon a consideration of the whole of an instrument dealing with the relations of the several parts of a federated State, the possibility that the power, if existent or unlimited, might be exercised to the destruction or the impairment of the efficiency of the agencies of the general government, is very relevant in considering whether, upon the proper construction of the whole instrument, it appears that the power was intended to be conferred, either absolutely or with limitations.
Their Lordships then dealt with the last objection, and with the arguments based on McCulloch v. Maryland (supra), and said (12 App. Cas., at p. 587):—"Their Lordships have been invited to take a very wide range on this part of the case, and to apply to the construction of the Federation Act the principles laid down for the United States by Chief Justice Marshall. Everyone would gladly accept the guidance of that great Judge in a parallel case. But he was dealing with the Constitution of the United States. Under that Constitution, as their Lordships understand, each State may make laws for itself, uncontrolled by the federal power, and subject only to the limits placed by law on the range of subjects within its jurisdiction. In such a Constitution Chief Justice Marshall found one of those limits at the point at which the action of the State legislature came into conflict with the power vested in Congress. The appellant invokes that principle to support the conclusion that the Federation Act must be so construed as to allow no power to the provincial legislatures under sec. 92, which may by possibility, and if exercised in some extravagant way, interfere with the objects of the Dominion in exercising their powers under sec. 91. It is quite impossible to argue from one case to the other. Their Lordships have to construe the express words of an Act of Parliament which makes an elaborate distribution of the whole field of legislative authority between two legislative bodies, and at the same time provides for the federated Provinces a carefully balanced constitution, under which no one of the parts can pass laws for itself except under the control of the whole acting through the Governor-General. And the question they have to answer is whether the one body or the other has power to make a given law. If they find that on the due construction of the Act a legislative power falls within sec. 92, it would be quite wrong of them to deny its existence because by some possibility it may be abused, or may limit the range which otherwise would be open to the Dominion Parliament."
We respectfully agree that, so far as regards the question then under consideration, it was quite impossible to argue from one case to the other. But it is equally impossible to argue from secs. 91 and 92 of the Dominion Constitution to the Constitution of the Australian Commonwealth. In the case of the British North America Act the function of the judiciary is "to construe the express words of an Act of Parliament which makes an elaborate distribution of the whole field of legislative authority between two legislative bodies," in one or the other of which, but never in both, every legislative power is vested. In the construction of such an Act, to deny the power to the legislature in which it is expressly and exclusively vested would be, as already said, to deny altogether the existence of the power. This, however, does not determine whether Chief Justice Marshall's doctrine is, or is not, applicable to an attempt by a Provincial legislature, under the form of direct taxation, or otherwise, to interfere with a Dominion agency or instrumentality. No such question arose in the bank case. The doctrine of McCulloch v. Maryland (supra) has never been extended in the United States so far as to cover such a case as the taxation of the Bank of Toronto, in the manner effected by the Quebec Act. Some confusion has arisen from a misconception of the reference in the judgment to the fact that under the Canadian Constitution "no one of the parts can pass laws for itself except under control of the whole acting through the Governor-General." It may, perhaps, be argued, when the time comes to argue it, that a Provincial law which interferes with the operations of the Dominion Government is not lightly to be held invalid merely for that reason, having regard to the fact that it has received the assent of that Government, which may, therefore, be said to have offered no objection to the interference; just as it was said that laws interfering with the royal prerogative were valid on the ground that the Crown, by assenting to them, waived the prerogative pro tanto. But, as already said, no such question arose in the case before their Lordships in the view which they took of the operation of the Quebec Statute. And no such question can arise under the Australian Constitution, under which the Commonwealth Government has no control over the laws of the States. There is no analogy between the control of the Dominion Government, acting through the Governor-General, over Provincial legislation, and the power of disallowance reserved by the Australian State Constitutions to the Sovereign. The principles on which those powers are respectively exercised are essentially different. In the case of Canada the power is a power intended to be exercised by the Governor-General on the advice of the Dominion Ministers of State, having regard to the interests of the Dominion, while, in the case of the Australian States, it is familiar to all students of constitutional law that the power is exercised by the Sovereign on the advice of the Imperial Ministers as a trustee for the interests of the whole Empire. We are, therefore, of opinion that the case of Bank of Toronto v. Lambe (supra) has no bearing upon the question now under consideration, and that we are not showing any preference for American over English decisions when we decline to accept the decisions of the Judicial Committee on the construction of the British North America Act as necessarily applicable to the Australian Constitution. If, indeed, objection were taken to the power of a State legislature to impose taxation upon the property of a bank within the State, or to impose a licence fee upon a bank estimated upon the amount of its paid up capital or the number of its branches, on the ground that by the Australian Constitution the Parliament of the Commonwealth has power to make laws with respect to "banking other than State banking, the incorporation of banks, or the issue of paper money" (sec. 51 (xiii.)), Bank of Toronto v. Lambe (supra) would be very much in point, and we should hesitate a long time before declining to follow it. It is sufficient to say that that is not the present case.
We pass to the argument which seeks to establish that the tax now under consideration is not a tax on the income of the appellants, but a tax on realized property. In one sense income tax is undoubtedly a tax on property. In Italy, where it is said to have been invented, it is expressly known as the Tassa sulla ricchezza mobile. Indeed, all taxes except poll taxes and some licence fees, are taxes in respect of property, although payable by persons. But in considering grave constitutional questions involving the reciprocal powers and duties of States regard must be had to things and not to words, to substance and not to form. When a tax is imposed upon a person in respect of property, as, for instance, in the case of municipal taxation, the substance of the matter is that the tax is imposed upon the property. And the ordinary use of language follows this principle. We talk of land tax, income tax, customs duties on imports, excise duties on manufactures, succession duties. In each case the substance of the matter is the exaction of a fixed sum from the taxpayer, computed according to the value or quantity of the thing in respect of which the tax is payable. Nor can it make any difference in substance whether, in the case of an income tax, the tax is deducted "at the source" —to use a term applied under the English system—or collected from the taxpayer after the receipt of the income. In either case the effect, if any, of the imposition as a diminution of the net emoluments of the taxpayer is identical. The matter may be illustrated by considering a case in which the reduction of a salary is expressly prohibited. By the Constitution the salary of the Governor-General may not be altered during the continuance of office. If the Federal Parliament were to attempt to impose an income tax of, say, two shillings in the pound with respect to the Governor-General's salary, the result would be that the effective salary would be reduced by ten per cent. whether the tax were deducted before payment of the salary or demanded and collected afterwards. This is the accepted view in the United States (see Mr. Justice Miller's Lectures on the Constitution of the United States, pp. 247-8). This would be a case in which the payment and the deduction are made by the same hands. Or suppose the case of an employer who makes a levy upon his employés against their will, of a sum equal to a fixed percentage of their wages. Whether the levy is deducted from each payment, or is adjusted periodically as a matter of account, it would be in plain violation of a law which forbade any deduction from the salary. If, however, the levy is not made by the same Government that makes the payment, although it is not a diminution in exactly the same sense, the effect upon the recipient of the income is the same. His effective salary is diminished. The question in that case is whether the authority which makes the diminution has power to do so so. If it has no such power, it cannot effect the same purpose by the use of another form of words. The corollary of the maxim quando lex aliquid alicui concedit, concedit et id sine quo res ipsa esse non potest, on which this Court mainly based its judgment in D'Emden v. Pedder (supra), is quando aliquid prohibetur, prohibetur et omne per quod devenitur ad illud. When the law prohibits the doing of anything, the prohibition cannot be evaded by doing something which is substantially the same, merely by using a different form of words to describe it. For example, if the taxation of income were expressly prohibited by the Constitution of a State, a law which required every citizen to pay annually a sum of money equal to an aliquot part of his income, whether for that year or for a preceding year, would be manifestly invalid. For these reasons we think that the tax now under consideration is, in substance, if valid, both a tax upon the income of the appellants, and a diminution of that income.
The next question is whether such an imposition or diminution made by the authority of a State would, if valid, fetter, control, or interfere with the free exercise of the legislative or executive power of the Commonwealth (D'Emden v. Pedder, ante p. 91, at p. 111). The question so put appears to supply its own answer. On this point the case of Dobbins v. Commissioners of Erie County [1842] USSC 6; (16 Peters, 435), was referred to, and relied on for the appellants. That case was decided by the Supreme Court of the United States in 1842, and its authority has never since been doubted. It has been followed in Canada for more than 25 years, and the decisions adopting it, and following it, have never been appealed from, either to the Supreme Court of Canada or to the Privy Council. The question in that case was whether the salary of an officer of the United States was subject to taxation under a law of the State of Pennsylvania. The Supreme Court, after pointing out that the tax was in substance a tax on the emoluments of the office, said, in language exactly applicable to the Australian Constitution, (p. 446): "Taxation is a sacred right, essential to the existence of government—an incident of sovereignty. The right of legislation is co-extensive with the incident to attach it upon all persons and property within the jurisdiction of a State. But in our system there are limitations upon that right. There is a concurrent right of legislation in the States and in the United States, except as both are restrained by the Constitution of the United States. Both are restrained upon this subject by express prohibitions in the Constitution; and the States, by such as are necessarily implied, when the exercise of the right by a State conflicts with the perfect execution of another sovereign power delegated to the United States; that occurs when taxation by a State acts upon the instruments, emoluments, and persons which the United States may use and employ as necessary and proper means to execute their sovereign powers. The government of the United States is supreme within its sphere of action. The means necessary and proper to carry into effect the powers of the Constitution are in Congress. Taxation is a sovereign power of a State; but the collection of revenue by imposts upon imported goods, and the regulation of commerce, are also sovereign powers in the United States. Let us apply, then, the principles just stated, and the powers mentioned to the case in judgment, and see what will be the result." They then pointed out that an officer of the United States is a means for carrying out the ends of government, just as much as ships or guns, and proceeded (p. 448): "Is not compensation the means by which his services are procured and retained? It is true it becomes his when he has earned it. If it can be taxed by a State, as compensation, will not Congress have to graduate its amount with reference to its reduction by the tax? The execution of a national power, by way of compensation to officers, can in no way be subordinate to the action of the State legislatures upon the same subject. It would destroy also all uniformity of compensation for the same service, as the taxes by the States would be different. To allow such a right of taxation to be in the States would also, in effect, be to give the States a revenue out of the revenue of the United States, to which they are not constitutionally entitled, either directly or indirectly; neither by their own action, nor by that of Congress. The revenue of the United States is intended by the Constitution to pay the debts, and provide for the common defence and general welfare of the United States; to be expended, in particular, in carrying into effect the laws made to execute all the express powers, "and all other powers vested by the Constitution in the Government of the United States." But the unconstitutionality of such taxation by a State as that now before us may be safely put (though it is not the only ground) upon its interference with the constitutional means which have been legislated by the Government of the United States, to carry into effect its powers to lay and collect taxes, duties, imposts, &c., and to regulate commerce." ... "But we have said that the ground upon which we have just put the unconstitutionality of the tax in the case before us, is not the sole ground upon which our conclusion can be maintained. We will now state another ground; and we do so, because it is applicable to exempt the salaries of all officers of the United States from taxation by the States. The powers of the national government can only be executed by officers whose services must be compensated by Congress. The allowance is in its discretion. The presumption is that the compensation given by it is no more than the services are worth, and only such in amount as will secure from the officer the diligent performance of his duties. The officers execute their offices for the public good. This implies their right of reaping from thence the recompense the services they may render may deserve; without that recompense being in any way lessened, except by the sovereign power from whom the officer derives his appointment, or by another sovereign power to whom the first has delegated the right of taxation over all the objects of taxation, in common with itself, for the benefit of both. And no diminution in the recompense of an officer is just and lawful, unless it be prospective, or by way of taxation by the sovereignty who has a power to impose it, and which is intended to bear equally upon all according to their estate. The compensation of an officer of the United States is fixed by a law made by Congress. It is in its exclusive discretion to determine what shall be given. It exercises the discretion and fixes the amount, and confers upon the officer the right to receive it when it has been earned. Does not a tax, then, by a State upon the office, diminishing the recompense, conflict with the law of the United States, which secures it to the officer in its entireness? It certainly has such an effect, and any law of a State imposing such a tax cannot be constitutional, because it conflicts with a law of Congress made in pursuance of the Constitution, and which makes it the supreme law of the land."
We are not, of course, bound by this case as an authority. But the reasoning of the judgment appears to us to be unanswerable, and we adopt it. Indeed the only attempt made to answer it was the contention that the principles applicable to the interpretation of the Constitution of the United States are not applicable to that of the Commonwealth, with which we have already dealt at sufficient length. The principles in either case are well known canons of legal interpretation applicable to the construction of written instruments.
In its application to the present cases the reasoning of the Supreme Court in Dobbins's Case (supra) derives additional weight from the circumstance, adverted to in the judgment of this Court in D'Emden v. Pedder (supra), that, the interpretation of the American Constitution as to this point having been long since settled by judicial decision, it is a reasonable inference that it was intended by the framers of the Australian Constitution, when adopting similar language, that like provisions should receive like interpretation.
In the case of the Commonwealth the argument from the destruction of uniformity of compensation has especial force when regard is had to the circumstances of Australia. The income taxes in the several States are unequal in their incidence. They may be of any amount which the State thinks fit to impose. In order, therefore, to give effect to the provisions of the federal laws regulating the salaries of officers according to their duties, classification, and length of service, it would be necessary to make special provision for adjusting their incomes when transferred from one State to another. State taxation of federal salaries is open then to two objections: (1) It in effect diminishes the recompense allotted by the Commonwealth to its officers, and so interferes with its agencies; and (2) It interferes with the freedom of action of the Commonwealth in the transfer of its officers from State to State, except at the risk of doing them an injustice by reducing their effective remuneration—an injustice only to be remedied by the appropriation of federal revenues for that purpose. Moreover, in the case of officers whose duties require their presence in different States at different times, their effective remuneration would, if the view of the Supreme Court in Wollaston's Case as to the apportionment of income is correct, depend in part upon the place to which from time to time their duties might call them. Taxation of the remuneration of the members of the Federal legislature is open to the first objection only. If the view of the Supreme Court is accepted, the taxation of the salaries of Federal Ministers is open to both.
Is there, then, any express provision in the Constitution which authorizes such an interference? It was contended that sec. 107 of the Constitution is equivalent to an express re-enactment of the provisions of the State Constitutions, and operates expressly to confer upon the States de novo all the powers of legislation which they had as States not forming part of the Commonwealth, except those specially mentioned in the Constitution as withdrawn. This section does not purport to confer any new powers. What, then, were the existing powers of taxation possessed by the States? They included unlimited powers of taxation of all property within the limits of the States, and of all persons who come within the State by its permission. Such a power is an attribute of sovereignty, and extends to all persons to whom the sovereignty itself extends quoad hoc. But could such a power have been applied to a person who came within the State, not by the State's permission, but under the direction of a paramount sovereign power, and merely for the purpose of performing duties assigned to him by that paramount power? For instance, an admiral of the British fleet stationed in State waters for the whole or part of a year. An ordinary citizen has the choice of living, or refusing to live, within the State. If he elects to live there, he cannot refuse to obey the laws which prescribe the conditions of his residence. But, in the case of a person who is sent to live within a State by a paramount sovereignty without choice on his part, it is manifest that any law which imposes, as a condition of his residence, the obligation of contributing a portion of his official salary to the State revenue is an interference with the freedom of action of the paramount sovereignty. In practice, we know that such a power has never been asserted with respect to governors or admirals or officers of the Imperial fleet, and it has not been necessary to inquire into the legal foundation for the admitted exemption. We can find nothing in sec. 107, or any other provisions of the Constitution, to suggest the existence of such a power. If, however, the power of taxation under the State Constitution did, in point of law, extend to all persons whatever found within its boundaries, we think that the power, so far as its exercise would interfere with federal agencies, is a power withdrawn from the States by the Constitution within the meaning of sec. 107. We cannot accede to the argument that this withdrawal applies only to the matters specifically mentioned in the Constitution as being so withdrawn—a construction which, for the reasons already given, would deny to the Federal Government the freedom of action which the case of D'Emden v. Pedder (supra) declares it to possess.
Can it, then, be said to be a matter which must have been contemplated by the framers of the Constitution? The contrary inference is suggested, if not, indeed, compelled, by the consideration that, both under the Constitution of the United States, and that of Canada, which were considered by the framers, the power had always been denied. It is not material that the Income Tax Act (No. 1374), was passed before, while the Act fixing the rate of income tax for the year 1902 was passed after, the establishment of the Commonwealth. No doubt, when the language of an Act is general, it will be construed as extending to new forms of the same subject-matter afterwards coming into existence. But, for the reasons already given, we think that the Income Tax Act (No. 1374) cannot be construed as extending to federal incomes, and that the Act of 1901, if construed as extending to them, is, to that extent, invalid.
It is not necessary to express any opinion as to the argument that the income of the appellants was not earned in Victoria within the meaning of the Income Tax Act (No. 1374), or upon the question whether the salaries of federal officers, whose duties require their presence in several States during the same year, could, if they were taxable, be apportioned. But we are not to be understood as assenting to the view of the Supreme Court on either point.
The appeals must, therefore, be allowed, and the question in each case must be answered by declaring that no portion of either sum was rightly included in the assessment. The respondent must pay the costs in the Supreme Court, and of these appeals.
Appeals allowed with costs here and in the Supreme Court.
Motion dismissed with costs.
Certificate refused.
Solicitors, for appellants, George Turner & Son, Melbourne.
Solicitor, for respondent, Guinness, State Crown Solicitor.
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