Emmerton v Federal Commissioner of Land Tax [1916] HCA 53; (1916) 22 CLR 40 (19 September 1916)

HIGH COURT OF AUSTRALIA

Emmerton and Another Appellants; and The Federal Commissioner of Land Tax Respondent.

H C of A

19 September 1916

Griffith C.J., Barton, Isaacs, Gavan Duffy and Rich JJ.

Weigall K.C. (with him Miller), for the appellants.

Starke, for the respondent.

The following judgments were read:—

Sept. 19

Griffith C.J., and

Barton, Gavan Duffy and Rich JJ.

Dr. O'Mullane, who died in 1863, by his will devised his real estate to trustees upon trust for sale and distribution of the proceeds. He disposed of the beneficial interest as follows:—One-half to his son Arthur; one-fourth to his son George; one-fourth to his daughter Ann Elizabeth for life with remainder to her children.

Arthur died in 1865, having by his will given half his estate to his brother George, and the other half to his sister Ann and her children for the same estates as they respectively took in the share given her by her father's will. The result was that half of the estate, which I will call Ann's share, was now held on trust for her for life with remainder to her children. George's share and Ann's share thus each comprised one-half of the estate.

George died in 1866, intestate, and so far as his share in Dr. O'Mullane's estate was concerned the operation of that gentleman's will was exhausted. His next of kin were his mother and his sister Ann, between whom his one-half share in Dr. O'Mullane's estate became divisible, each of them becoming entitled to one-fourth of the estate. The interest taken by Ann in this share was the whole beneficial interest, and not, as in the case of the half share which she already had, a life interest only. This interest was derived directly from George, and was free from any trusts.

By a deed of settlement dated 21st October 1868 Mrs. O'Mullane (the widow of Dr. O'Mullane) and Ann settled the interests which they had acquired under George's intestacy upon the same trusts in favour of Ann and her children as those of her original share under the testator's will. This deed operated as two distinct settlements, namely, a settlement of the widow's fourth share and a settlement of Ann's new fourth share. Ann had five children, all of whom took vested interests, and were living at the time as of which the assessment now in question was made. She died in 1883.

The position thus was that the whole beneficial interest in the land was held by the trustees of the testator's will in trust for the same persons, namely, Ann's five children. But the rights of the beneficiaries were derived from four distinct sources. As to one undivided fourth of the estate they were derived directly from the testator's will, as to another undivided fourth from Arthur's will, as to a third undivided fourth from the widow's settlement, and as to the remaining fourth from Ann's settlement, the combined effect being that they took the whole beneficial interest.

Sec. 38, par. 7, of the Land Tax Assessment Act confers a privilege on joint owners of land in the case specified in it. The conditions upon which the privilege can be claimed are: (1) The joint holders must hold the beneficial interest in the land under a settlement or will which took effect before 1st July 1910; (2) they must all be relatives of the settlor or testator by blood, marriage or adoption; (3) they must all share the beneficial interest in such a way as to be joint owners. When these conditions co-exist, then, for the purposes of their joint assessment as joint owners, there may be deducted from the unimproved value of the land, instead of the sum of £5,000 as provided by sec. 11 of the Act, as many sums of £5,000 (or less) as there are joint owners who at the time of the assessment hold original shares as defined by par. 8.

It was held by this Court in Clifford's Case[1] that the term "beneficial interest in land," as used in par. 7, means the whole beneficial interest in the land assessed, and that the privilege does not extend to the case of a settlement of an undivided share of land.

In Wilson's Case[2], with which the present case was argued, it was decided that, except in cases within sec. 38A, in order that the privilege may be claimed it is not sufficient that all the persons who for the time being share the land or income should be relatives of the settlor or testator, but that it is essential that they should all hold directly under the settlement or will, so that if any part of the interest is held under a mesne assignment the privilege is lost. It follows that the present beneficiaries could not claim the privilege under the testator's will.

The appellants, however, contend that, although they cannot claim the benefit of par. 7, they are entitled to the benefit of a proviso added to sec. 38 by the amending Act of 1912, which is as follows:—"Provided that, where the same persons have a beneficial interest in land or in the income therefrom under more than one settlement or will or under a settlement and will, they shall be jointly assessed in respect of the whole of their interests under the settlements or wills or settlement and will, and there may be deducted in the joint assessment from the unimproved value of the land comprised in the joint assessment, instead of the sum of £5,000 as provided by par. (b) of sub-sec. 2 of sec. 11 of this Act, the aggregate of the following sums, namely:—In respect of each of the joint owners who holds an original share in the land being jointly assessed—(a) the total sum of £5,000, or (b) the sum which bears the same proportion to the unimproved value of the land after deducting the value of any annuity under sec. 34 of this Act as the share bears to the whole, whichever is the less."

The question is whether they are entitled to these several deductions or only one deduction of £5,000.

The words "provided that" are ordinarily used to introduce an exception from, or qualification of, a general rule to which it is added, and, when that rule is an enactment granting a privilege, suggest, primâ facie, that the privilege is to be limited or qualified, and not that a larger privilege is to be conferred, although the context may compel the latter construction.

In what way, then, was the existing law altered by the proviso?

The only enacting words in the proviso are the words which prescribe that in the cases specified the persons claiming the privilege shall be jointly assessed in respect of the whole of their interests under all the instruments by which they are created, and that in the joint assessment so made of the unimproved value of the land comprised in the joint assessment there may be made a single set of deductions. This, primâ facie, means that the value of the several parcels of land subject to the settlements or wills shall be added together and treated as a single whole and not dealt with severally. It does not suggest that the value of several undivided interests each of which is itself incapable of being the subject of a settlement within par. 7 shall be added together so as to form a new entity which is capable of being so subject. In our opinion the term "beneficial interest in land" when used in the proviso refers to the beneficial interest in land mentioned in the earlier part of the sub-section, and has the meaning that was assigned to it in Clifford's Case[3], and the proviso does not apply to such a case as the present in which each of the settlements relied upon comprises only an undivided interest in land.

In our judgment the effect of the proviso is that, when the same group of persons take different parcels of land under more than one settlement or will, then, whether the settlors or testators are a single person or not, the privilege conferred by par. 7 must be claimed, once for all, in respect of the aggregate value of all the land. And we do not think it has any other effect.

If the Parliament had intended to enact that the privilege conferred by par. 7 should be extended to cases in which the whole beneficial interest in land which is to be jointly assessed is held under the conjoint operation of several settlements or wills made by independent settlors or testators, we think that such an intention would have been expressed in very different language from that of the proviso which we have considered.

It follows that the appellants are entitled to only one deduction of £5,000, and the question must be answered accordingly.

Isaacs J.

For some time I thought that Wilson's Case[4] controlled this case in favour of the Commissioner. However, notwithstanding some difficulty occasioned by the reasons as stated, I have come to the conclusion that it should not be held to govern such a case as the present. This case calls, therefore, for an independent consideration of the meaning of the proviso to sub-sec. 7 of sec. 38 of the Land Tax Assessment Act, and in connection with that proviso the effect of sub-sec. 8. In that regard two points arise:—(1) The true scope of the proviso, and (2) the determination of whether any of the appellants holds an original share in the land within the meaning of sub-sec. 8.

On the first point, the meaning of the proviso, I am unable to take the same view as my learned brethren. This is the most important branch of the case, and as in my opinion the prevailing view excludes from the relief intended by the Legislature nearly all the possible cases to which that relief in the ordinary course of events could apply, I propose to state as clearly as I can the reasons leading me to my conclusion.

One firmly established canon of construction I carry into the interpretation of the Act. It finds expression in many cases, and I refer only to two of the most recent. "Judicial tribunals must in interpreting these taxing Acts stick to the letter of the Statute." Those are the words of Lord Atkinson in Attorney-General v. Milne[5]. In the same case Lord Parker said[6]:—"The Finance Act is a taxing Statute, and if the Crown claims a duty thereunder it must show that such duty is imposed by clear and unambiguous words."

In a subsequent case in the same volume, Lumsden v. Commissioners of Inland Revenue[7], Haldane L.C. said:—"The duty of Judges in construing Statutes is to adhere to the literal construction unless the context renders it plain that such a construction cannot be put on the words. This rule is especially important in cases of Statutes which impose taxation." I italicize the word "cannot."

By that canon of construction I measure sec. 38. It is divided into sub-sections, but as it declares in the first of them that "joint owners of land shall be assessed and liable for land tax in accordance with the provisions of this section" the Crown must in any given case of joint tenancy show that the tax it claims is in conformity with the section. It is not a question of privilege of the subject; it is a question of the right of the Crown to demand the tax upon the ascertained facts.

By sub-sec. 2—as amended by the Act of 1912, and omitting immaterial exceptions—joint owners are to be jointly assessed in respect of "the land" and as if it were owned by a single person. "The land," means incontestably the whole mass of land brought into the joint assessment, and whether consisting of one or twenty separate tenements. Further, it matters not by how many or various titles "the land" if composed of separate tenements is held, so long as the persons taxed as "joint owners" own the land jointly or in common, or have "a life or greater interest in shares of the income from the land" (sec. 3).

Apart from sub-sec. 7, the joint owners being assessed as if they were "a single person," there would, in ascertaining the taxable value, be deducted one deduction of £5,000 only (sec. 11). But sub-sec. 7 provided a special deduction in a special case of joint assessment. Where the "joint owners" under one settlement or one will, called "the will" (and a man can leave but one will in howsoever many documents it is contained—see Douglas-Menzies v. Umphelby[8]), share among them—not the whole of the land or the whole of the beneficial interests in the land making up its complete ownership—but "the beneficial interest in the land or in the income therefrom for the time being"; then, if the settlement or the will were operative before 1st July 1910 and the joint owners are all relatives of the settlor or testator, a special deduction is made to ascertain the net "taxable value" of the land.

But this provision was rigidly confined to the case where beneficial interest "for the time being" was shared under one instrument only. Then in 1912 the Legislature enacted the proviso, which, with great deference, seems to me, when read so as to gather the expressed intention of the Legislature—because it is only the intention as expressed that we have any right to inquire after,—to be remarkably plain. Being a proviso to the sub-section, it of course assumes to deal with the same subject matter and to alter the main part of the sub-section to the extent indicated either by express words or necessary implication.

Now we have to assume the very same persons as joint owners holding the very same interests in the very same "land," whether consisting of one or many tenements, but being one jointly taxable unit. But we have to assume one difference and one only, namely, that the joint owners hold their "beneficial interests for the time being"—that is, possibly, partial fragments of ownership in the land—not under one instrument (settlement or will) but under more than one instrument (that is, more than one settlement or will, or a settlement and a will), and in that case, says the proviso in effect, the same method of deduction—not necessarily the same deduction—shall be followed as in the case of one settlement or will. The difference between the proviso and the main part of the sub-section is simply in the number of instruments of title.

My learned brethren think that in the proviso, "settlement" and "will" mean a settlement or a will disposing of the whole of the ownership in a given piece of land. But the proviso does not say so, and there is nothing in the inherent nature of a settlement or a will to require it. The notion, as I understand, is derived from the circumstance that in the main part of the sub-section, the settlement or will is supposed to dispose of the total ownership in given land, and "settlement" in the proviso must mean the same thing. I am by no means prepared to say that the major premise is correct; but suppose it to be true, then if we confine "settlement" in the proviso to the identical operation of "settlement" in the original part of the sub-section, we should have to hold that "settlement" in the proviso meant settlement disposing of the entire ownership of the whole land jointly assessed. That would, of course, nullify the proviso.

The truth is that if the "settlement" or the "will" in the early portion of the sub-section does deal with the whole beneficial interest in the land not merely "for the time being" but for all time, it does so, not because it is a settlement, or a will, but because the sub-section insists upon there being only one instrument. Directly that condition is altered and "more than one" substituted, the result disappears also. According to the view from which I have the misfortune to differ, a father and a mother each having an undivided moiety in land, and severally "settling" or devising their respective interests upon their children before the date mentioned, would have made their children joint owners within the meaning of the Act, but not under "more than one settlement or will" within the meaning of the proviso. I regret that I am bound to confess my inability to grasp this conclusion consistently with adherence to the ordinary meaning of the words used. Literally read, and with a meaning that is certainly rational, they apply, in my opinion, exactly to this case, and Mr. Weigall's main contention is, I think, correct.

I should add that when sec. 38A is looked at, as it was in Wilson's Case[9], to aid the construction of sec. 38, which requires all the interests for the time being to be held "under" the settlement or will, it confirms the conclusion I have stated. The phrase "a settlement made before that day by a beneficiary under the original settlement or will of his share thereunder or a will of a beneficiary under the original settlement or will who died before that day" necessarily includes a settlement or a will of a partial interest in the land.

When a suggested interpretation of a word is not only unsupported by express words or necessary implication but is opposed to the recognized and technical meaning of the word itself and to the distinct sense in which the Legislature has used it in the same document, I entertain no doubt—except that naturally occasioned by the fact of the opposite opinion—that the suggested interpretation is wrong.

I should add that I do not take the same view of the meaning of Clifford's Case[10] as my learned brethren. As one of the majority the point suggested was not my meaning.

The second branch of the case related to the question of "original share." The only result of a given case falling within sub-sec. 7 is that search must be made for "original shares." These are arbitrarily defined by sub-sec. 8, and the shares held by the appellants do not, I think, come within the definition. Not one of the shares as held by the appellants is a first interest under the will or a first interest in remainder after the settlor or the settlor's husband. Strictly speaking, by the settlement of 1868 the mother of the appellants made the appellants rank after the survivor of herself and her husband, so that the literal meaning of the definition does not apply. If, as I think, "after" is used in the sense of immediately after, then, as the literal meaning must govern since there is no other guide, the interposition of the survivor's interest stands in the appellants' way. Such a case as the present was apparently not contemplated, and the form of the amendment of sub-sec. 8 by the Act of 1912 strengthens the view.

Question answered "One deduction only."

Solicitors for the appellants, J. M. Smith & Emmerton.

Solicitor for the respondent, Gordon H. Castle, Crown Solicitor for the Commonwealth.

[1] [1914] HCA 57; 19 C.L.R., 593.

[2] [1916] HCA 16; 21 C.L.R., 225.

[3] [1914] HCA 57; 19 C.L.R., 593.

[4] [1916] HCA 16; 21 C.L.R., 225.

[5] (1914) A.C., 765, at p. 772.

[6] (1914) A.C., at p. 781.

[7] (1914) A.C., 877, at pp. 896, 897.

[8] (1908) A.C., 224, at p. 233.

[9] [1916] HCA 16; 21 C.L.R., 225.

[10] [1914] HCA 57; 19 C.L.R., 593.