Watson v Commissioner of Taxation (WA) [1930] HCA 28; (1930) 44 CLR 94 (11 September 1930)

HIGH COURT OF AUSTRALIA

Watson Appellant; and The Commissioner of Taxation for Western Australia Respondent.

H C of A

On appeal from the Supreme Court of Western Australia.

11 September 1930

Gavan Duffy, Rich, Starke and Dixon JJ.

Sir Walter James K.C. and Lappin, for the appellant.

J. L. Walker, for the respondent.

Sir Walter James, in reply.

The Court delivered the following written judgment:—

Sept. 11

Gavan Duffy, Rich, Starke and Dixon JJ.

In October and November 1924, in the course of his business of a public accountant, which he carried on at Perth, the appellant made an arrangement with a taxpayer, who had been assessed to war-time profits tax, by which the appellant was to "handle and investigate" the taxpayer's Federal assessments on the following conditions, namely:—(1) The taxpayer was to be unconditionally entitled to the first thousand pounds of any remission which the appellant might obtain upon the taxes in respect of the assessments in each individual year. (2) The appellant was to receive and retain as his commission the full amount, if any, by which the total remission of such taxes for each individual year exceeded the sum of one thousand pounds. During the year ended 30th June 1927 a refund was made by the Deputy Federal Commissioner at Perth of a sum amounting at least to £14,047. Of this sum the appellant received, as his commission, £11,047, the taxpayer taking £3,000 in respect of the period of three years involved. In earning this commission the appellant expended £464. The question upon this appeal is whether the sum of £11,047 less this amount is liable to income tax under the Land and Income Tax Assessment Act 1907-1924 of Western Australia.

The appellant contends that he is not so liable because the remission of tax by the Deputy Federal Commissioner in Western Australia would not have been made but for his activities outside Western Australia. The refund was in fact made because of the provisions of sec. 4 of the War-time Profits Tax Assessment Act 1926, which was assented to on 8th July 1926. The appellant maintains that by his efforts in Melbourne and elsewhere outside Western Australia, he secured, or contributed towards securing, the enactment of that provision, and that it was by these efforts therefore that he earned his commission. Sec. 15 (1) of the Land and Income Tax Assessment Act 1907-1924 of Western Australia provides that, subject to the provisions of the Act income tax shall be levied in respect of income arising or accruing to any person wheresoever residing from any profession, trade, employment or vocation carried on in Western Australia. The appellant continued to carry on his vocation of public accountant in Perth until 8th July 1925, when he closed his office and went to Melbourne. He returned to Perth on 1st October 1925 and remained there during the progress of a general election, and until 28th January 1926, when he again went to Melbourne, whence he returned to Perth in July or August 1926. He then resumed his business in Perth. Before leaving Melbourne he had despatched a letter to the Deputy Federal Commissioner of Taxation at Perth claiming on behalf of his client a refund under the provisions of the Act of 8th July 1926. On his arrival in Perth he interviewed the Deputy Commissioner on a number of occasions, and obtained the remission of the tax. On these facts the proper conclusion is that the appellant's commission did arise or accrue to him from his vocation of accountant carried on in Western Australia. In the course of that business, he arranged with the taxpayer, who became his client, for a commission to be paid by reason only of the appellant obtaining a remission of tax. He ascertained from an examination of the taxpayer's returns and assessments conducted in Perth in the course of that business that a refund was obtainable only by an amendment of the legislation, and he learnt that proposals for such amendment were on foot. When he suspended the ordinary practice of accountancy to lend his aid and support to those proposals, he was pursuing an opportunity of profit which had arisen in the course of that business. When he returned and resumed his business, he performed the very services, again in the course of that business, for which that profit was given and he there did the very thing upon which his right to commission depended. He secured and received the remission. But the conclusion that the income arose from his vocation carried on in Western Australia does not determine completely the appellant's liability. Sec. 30 (3) of the Land and Income Tax Assessment Act 1907-1924 of Western Australia provides that for the purpose of ascertaining the sum on which income tax is payable, directions and provisions shall be observed and carried out which include a direction that no tax shall be payable in respect of income earned outside the State of Western Australia. The appellant contends that his commission was earned outside Western Australia inasmuch as his exertions for the purpose of ensuring an amendment of the legislation were made outside Western Australia. It may be remarked that this contention attributes to sec. 30 (3) the effect of an overriding provision which prohibits the inclusion in a Western Australian assessment of any item of income which arose from activities or operations of the taxpayer any part of which extends beyond the boundaries of that State. It is difficult to suppose that, by this provision, it was intended to exempt from taxation income which would otherwise fall within sec. 15 (1) unless the activities or operations or other source from which it arose were wholly outside the State. But, however this may be, the word "earned" does not contemplate an inquiry into the whole causation by which the derivation of income was made possible. For the purpose of taxation the place where those earnings occur which directly give rise to income must be regarded rather than the place or places where remoter causes exist. In this case the matters upon which the appellant's right to remuneration was conditioned were things done in Western Australia. The appellant earned his commission by obtaining a remission from the Commissioner, or, at all events, by performance of such acts as were necessary and effectual on his part to obtain such remission under the law in force at the time of the remission. Moreover, the agreed statement of evidentiary facts did not satisfy either of the Courts below that what the appellant did outside Western Australia was the effective cause of his obtaining the remission in the end. On the contrary, they appear to have considered that it was in truth earned not only when but because the appellant in Western Australia obtained a remission of tax on behalf of his client pursuant to an arrangement for commission which he made while in Western Australia. In this opinion we concur.

The appeal should be dismissed with costs.

Appeal dismissed with costs.

Solicitors for the appellant, Dwyer & Thomas.

Solicitors for the respondent, J. L. Walker, Crown Solicitor of Western Australia.