Penrose v Federal Commissioner of Taxation [1931] HCA 25; (1931) 45 CLR 263 (30 July 1931)

HIGH COURT OF AUSTRALIA

Penrose Appellant; and The Federal Commissioner of Taxation Respondent.

H C of A

30 July 1931

Starke J.

E. M. Mitchell K.C. (with him Bowie Wilson), for the appellant.

Jordan K.C. (with him E. F. McDonald), for the respondent.

July 30

Starke J. read the following judgment:—

This is an appeal against an assessment to income tax for the year 1928-1929. [After dealing with other matters not material to this report the judgment proceeded:—] The last item to which objection was taken is — Additional tax on omitted income £220 18s. 4d. This question depends upon the provisions of sec. 67 of the Income Tax Assessment Act 1922-1928, which, so far as material are as follows:—"Any person who ... (b) fails to include any assessable income in any return ... if a taxpayer to whom paragraph (b) ... of this sub-section applies, shall be liable to pay by way of additional tax the amount of one pound or double the amount of the difference between the tax properly payable and the tax assessed upon the basis of the return lodged, whichever is the greater." Under sec. 35 the Commissioner causes assessments to be made for the purpose of ascertaining the taxable income upon which income tax is levied, but I think secs. 32 (2), 39, 40, 54, 57, 62 (3A), (3D) and 67 show that ascertaining the rate and amount of tax is a function within the duty of assessment. If that were not the case, then, I suppose, no appeal would lie to this Court against the amount of tax calculated by the Commissioner, for sec. 50 is limited to objections against assessments; on that view, the rate of tax would be regarded as imposed by the Act, and the calculations of the amount would be matter of proof in proceedings taken to recover the tax based upon the assessment of taxable income made by the Commissioner. But in the view I take, the propriety of the charge of additional tax upon omitted income falls for decision in this appeal. Now sec. 67 predicates, to my mind, a tax assessed upon the basis of the return lodged. The Commissioner did not assess a tax upon the return lodged, or, in my opinion, upon the basis of that return, but brought into his assessment the items which he alleged the taxpayer had improperly omitted, and thus ascertained the amount of the tax properly payable by the taxpayer in accordance with the provisions of the Income Tax Assessment Act. The additional tax was calculated on the difference between the return as lodged and adjusted by the Commissioner and the return of income made by the taxpayer. The provisions of sec. 67 do not, in my opinion, warrant any such proceeding: they contemplate and predicate a tax assessed upon a taxpayer's return which is less than the amount properly payable. No such assessment was ever made. A suggestion was made during argument that the additional tax is calculated on a basis unfair to the taxpayer, and the officer of the Commissioner certainly said that if the average of the existing assessments were taken, the result would be favourable to the taxpayer. But it is unnecessary, on the construction of sec. 67 which I have adopted, to consider or express any opinion upon this aspect of the case.

The result is that the appeal will be allowed as to the additional tax £220 18s. 4d., and otherwise dismissed. The total amount of tax payable is reduced to £113 3s. 8d.

The parties will abide their own costs of appeal.

Appeal allowed on this point; otherwise dismissed. Each party to abide his own costs.

Solicitors for the appellant, Faithfull, Maddock & Oakes.

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