Jones & Steains v Federal Commissioner of Taxation (No 2) [1928] HCA 16; (1928) 41 CLR 99 (19 July 1928)

HIGH COURT OF AUSTRALIA

Jones and Steains Appellants; and The Federal Commissioner of Taxation Respondent. [No. 2.]

H C of A

19 July 1928

Isaacs J.

Owen Dixon K.C. and Russell Martin, for the appellants.

C. Gavan Duffy, for the respondent.

Isaacs J. delivered the following written judgment:—

July. 25

Isaacs J

Since the Full Court decision in this case a further question of law has arisen, and, subject to that, the parties can agree upon the final order. The question is: In applying sub-sec. 1 of sec. 12 of the War-time Profits Tax Assessment Act to the circumstances of this case, which show the relevant "profits standard" to be £372 in fact, do the words "but shall not in any case be less than the sum of five hundred pounds," appearing in sub-sec. 3 of sec. 16, require the relevant profits standard to be taken as £500? The taxpayer contends for an affirmative answer, and the Commissioner opposes it.

The words actually used in sec. 12 (1) are: "the profits standard on the average capital and borrowed money (if any) used in the pre-war trade years by reference to which the profits standard has been arrived at." That is a clear reference to certain provisions of sub-sec. 3 of sec. 16, by which "the profits standard" is defined for one, two or three pre-war trade years, as the case may be. So far the actual profits are referred to.

The difficulty arises from the fact that the quoted words as to a minimum occur in the same sub-section. They refer, however, not to "the profits standard," but to "the pre-war standard of profits," which is a special phrase employed by the Legislature. It appears in sec. 7 (2). There it is provided that from the sum representing the profit ultimately found to be the profit of the financial year by uniting the results of the accounting period or periods, there is to be deducted "the pre-war standard of profits as defined for the purposes of this Act." The difference—subject to some special deductions—is the war-time profits. The process so far assumes practical identity of the business as the profit-making machine. Sec. 16 defines "the pre-war standard of profits," the function of which has been stated. And in that connection it enacts the words of minimum quoted. But incidentally it also, as shown, defines the other phrase "the profits standard." "The profits standard" performs two functions, one in sec. 16 and one in sec. 12: and they are distinct. In sec. 16 "the profits standard" mentioned may constitute also "the pre-war standard of profits"; but it may not. The "pre-war standard of profits" may be constituted under sec. 16 (6) (b) by another "profits standard" or under sub-sec. 8 by a percentage standard. But the normal "profits standard" applicable to sec. 12 (1) is not for the purpose of arriving directly at war-time profits, assuming identity of the profit-making machine. It assumes non-identity of profit-making capacity, and is introduced for the purpose of restoring equality in that respect. It is applied for the purpose of a deduction, not from the ultimate "sum," but from "the profits of the accounting period," and, in the absence of any language compelling the interpretation of the phrase "the profits standard" in sec. 12 (1) as being "the pre-war standard of profits" in sec. 16 (3), I am not prepared to depart from its natural meaning and actual practical effect. To give it the meaning contended for by the taxpayer would confuse its function and operation, and in some cases of decreased capital might result in great hardship to taxpayers. However that may be, I adhere to the actual words used by the Legislature, and as they are expressly defined, and I find no other context controlling that definition. On the contrary, the inclusion in sec. 12 (1) of the "statutory percentage" in par. (a) tells in the opposite direction. And if by "the profits standard" in par. (b) the Legislature meant "the pre-war standard of profits," it would have been easy to say so, particularly since the expression appears both in the immediately preceding section (11 (1) (g) (ii)) and later in sec. 12 itself, namely, in sub-sec. 5, in a passage recognizing that the phrase "pre-war standard of profits" is not identical with the phrase "profits standard."

In the result, the Commissioner's view is in my opinion the right one.

Question answered accordingly.

Solicitors for the appellants, Dunlop & Dunstan.

Solicitor for the respondent, W. H. Sharwood, Crown Solicitor for the Commonwealth.