Richardson v Federal Commissioner of Taxation [1932] HCA 67; (1932) 48 CLR 192 (8 August 1932)

HIGH COURT OF AUSTRALIA

H C of A

On appeal from the High Court (Starke J.).

23 February 1932

Starke J.

Ham K.C. and Herring, for the appellant.

O'Bryan, for the Commissioner.

Feb. 23, 1932

Starke J

. delivered the following written judgment:—

These are appeals by James Richardson under the Income Tax Assessment Acts 1922-1930, in respect of assessments for the financial years 1924-1925, 1925-1926, 1926-1927, 1927-1928, 1928-1929 and 1929-1930. All are concerned with the inclusion of profits derived from a business carried on in the Exchange Hotel, Melbourne. These profits had been originally returned by one P. H. Collins, as income derived by him in carrying on the business in the hotel, but it is not now disputed that Collins was a nominee or dummy for Richardson, and that the profits were in fact part of the latter's income, for the purposes of the Income Tax Acts. Richardson failed to include these profits in the returns of his income, and was assessed in the various financial years upon the basis of the returns lodged by him. Richardson was guilty of a fraud upon the revenue, which cannot be excused or palliated, in pretending that the income represented by the profits of the Exchange Hotel belonged to Collins. He thus secured a considerable reduction in the rate of his tax, and thereby greatly reduced the amount of the tax payable by him. When the Commissioner discovered the facts, he amended his assessments upon Richardson, and included the profits from the Exchange Hotel in his assessable income. Thus, for the financial year which ended on 30th June 1924, the net income previously assessed at £13,730 was increased, by the inclusion of profits from the Exchange Hotel, by no less a sum than £11,597, which had been included in Collins's return. The result was to increase the tax payable by Richardson from £6,447 19s. 3d. to £10,223 10s. 5d., an amount of £3,775 11s. 2d. The Commissioner then applied sec. 67 of the Act, and added, as an additional tax, double the amount of the difference between the tax properly payable and the tax assessed upon the basis of the return lodged, that is, £3,775 11s. 2d. × 2, or £7,551 2s. 4d. A similar course was followed in each of the succeeding years other than the year 1929. In that year, the Commissioner brought into his assessment an item of £65, profits from the Exchange Hotel which Richardson had failed to include. He thus ascertained the taxable income of Richardson, and assessed him for the full amount of the tax legally payable by him. But he added as a penalty for the omitted income (£65) an additional tax or penalty of £36 11s. 6d. The results for the various years are shown in the following table:— Tax assessed on Richardson's returns and paid or payable by him. Increased tax upon Richardson by reason of inclusion of profits from Exchange Hotel in his assessments. Additional tax under sec. 67. 1924 £6,447 19 3 £3,775 11 2 £7,551 2 4 1925 7,033 15 6 2,956 2 5 5,912 4 10 1926 7,274 18 7 2,112 7 0 4,224 14 0 1927 6,580 16 3 1,531 11 3 3,063 2 6 1928 4,694 15 1 951 0 5 1,902 0 10 1929 5,527 0 0 — 36 11 6 £37,559 4 8 £11,326 12 3 £22,689 16 0

The taxation of Collins, however, was increased in the years 1924 to 1928 by the following respective sums, by the inclusion of the Exchange Hotel profits in his return: 1924, £2,054 1s. 6d.; 1925, £1,808 6s. 3d.; 1926, £1,252 15s.; 1927, £978 15s. 7d.; 1928, £693 6s. 3d.; £6,787 4s. 7d. And these amounts have been received by the Commissioner from Collins, the nominee or dummy of Richardson, but he refuses to make any allowance to Richardson in respect of these payments, and has not, so far, made any refund to Collins or any one else in respect of them.

Richardson's income tax therefore amounted in the aggregate, for the years in question here, to £48,885, and he has paid or is liable for that amount. But in addition he is now charged with additional tax by way of penalty under sec. 67 amounting to no less a sum than £22,689. And he is given no credit for the amounts paid by his dummy Collins, amounting to £6,787. Justice requires that some credit should be given to Richardson for this sum of £6,787, or that the money should be refunded.

But the Commissioner's attitude is that, whatever discretion he may have in the matter, Richardson has no legal right to any such credit or refund. Richardson expects but little relief if he must rely upon the discretion of the Commissioner, and I must say, from the evidence and my own observations of the conduct of these appeals, that his want of faith is not wholly unreasonable. The rights of the parties must, therefore, be determined according to law.

The Commissioner has challenged the jurisdiction of this Court to consider the propriety of the additional tax imposed under sec. 67, but my decision in Penrose v. Federal Commissioner of Taxation[1] is against him. And I adhere to that decision.

The taxpayer challenged the calculation of the additional tax. He denied that the Income Tax Acts, on their proper construction, enabled the Commissioner to make the assessments under appeal. Except as to the year 1929, which I shall deal with presently, the Commissioner is, I think, justified by the Acts—and particularly by sec. 67—in the assessments which he has made. He computed the tax upon the taxable income. Then he ascertained the difference between the tax computed by him—the tax properly payable—and the tax which had theretofore been assessed upon the taxpayer upon the basis of the returns lodged by him. He doubled this amount and charged the resulting sum as additional tax. It is, I think, the method prescribed by sec. 67. There is nothing in Penrose's Case[2] to the contrary. But as to the year 1929, Penrose's Case is against the Commissioner. As I understand the facts, the Commissioner in this year made only one assessment. He ascertained in the first instance the amount of tax properly payable by the taxpayer. The provisions of sec. 67 predicate, as I said in Penrose's Case, a difference between a tax properly payable and a tax assessed upon the basis of a return lodged by the taxpayer. The procedure adopted for the additional tax for the year 1929 is not warranted by sec. 67, and the additional tax—£36 11s. 6d.—must be disallowed. This brings me to the payments made by Collins. The taxpayer contended that these sums should be credited against the increase in the amount of the tax payable by him by reason of the inclusion of the profits of the Exchange Hotel in his taxable income, and that the additional tax under sec. 67 should be assessed on the balance. Thus, to take the year 1924:—Increased amount of tax, £3,775; paid by Collins, £2,054; balance, £1,721. Here, the additional tax, according to the taxpayer's contention, should be assessed on this sum of £1,721. Justice would thus be done to the taxpayer, though his punishment would still be heavy, for additional taxation by way of penalty would in the aggregate amount to £9,078, instead of £22,689, as now imposed. The provisions of sec. 67 are, I think, too strong. They explicitly enact that the additional tax shall be the difference in amount between the tax properly payable and the tax assessed upon the basis of the returns lodged. Another view is, however, possible. As I have said, the Commissioner, in arriving at his balance of the amount due by the taxpayer in each of the years under appeal has credited the taxpayer only with amounts paid by him, and gives no credit for any amounts paid by Collins. But if the Commissioner treats Collins as a mere nominee or dummy of Richardson, then, to my mind, he should act consistently, and treat all the acts of Collins on the same basis. The Income Tax Acts do not authorize the Commissioner to take income tax twice over in respect of the same source for the same period of time. The results on this view appear in the following table:— Balance due as assessed by the Commissioner. Amount paid by Collins. Balance Actually due. 1924 £11,326 13 6 £2,054 1 6 £9,272 12 0 1925 8,868 7 3 1,808 6 3 7,060 1 0 1926 6,337 1 0 1,252 15 0 5,084 6 0 1927 4,594 13 9 978 15 7 3,615 18 2 1928 2,853 1 3 693 6 3 2,159 15 0 1929 1,534 4 2 Additional tax wrongly levied 36 11 6 1,497 12 8 And, despite the Commissioner's objections, it appears to me that sec. 51 (6), as interpreted in Ruhamah Property Co. v. Federal Commissioner of Taxation[3] , warrants the assumption of jurisdiction by this Court in favour of the taxpayer.

The assessments of the Commissioner will accordingly be reduced to the following amounts: 1924-1925, £9,272 12s.; 1925-1926, £7,060 1s.; 1926-1927, £5,084 6s.; 1927-1928, £3,615 18s. 2d.; 1928-1929, £2,159 15s.; 1929-1930, £1,497 12s. 8d. The Commissioner will pay the costs of each of these appeals. So far as the notice of appeal to this Court does not cover the reductions above allowed, leave is given to the taxpayer to amend it.

Appeal dismissed.

Solicitors for the appellant, Hedderwick, Fookes & Alston.

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

H C of A

On appeal from the High Court (Starke J.).

8 August 1932

Dixon, Evatt and McTiernan JJ.

Ham K.C. and Herring, for the appellant.

O'Bryan, for the Commissioner.

Feb. 23, 1932

Starke J

. delivered the following written judgment:—

These are appeals by James Richardson under the Income Tax Assessment Acts 1922-1930, in respect of assessments for the financial years 1924-1925, 1925-1926, 1926-1927, 1927-1928, 1928-1929 and 1929-1930. All are concerned with the inclusion of profits derived from a business carried on in the Exchange Hotel, Melbourne. These profits had been originally returned by one P. H. Collins, as income derived by him in carrying on the business in the hotel, but it is not now disputed that Collins was a nominee or dummy for Richardson, and that the profits were in fact part of the latter's income, for the purposes of the Income Tax Acts. Richardson failed to include these profits in the returns of his income, and was assessed in the various financial years upon the basis of the returns lodged by him. Richardson was guilty of a fraud upon the revenue, which cannot be excused or palliated, in pretending that the income represented by the profits of the Exchange Hotel belonged to Collins. He thus secured a considerable reduction in the rate of his tax, and thereby greatly reduced the amount of the tax payable by him. When the Commissioner discovered the facts, he amended his assessments upon Richardson, and included the profits from the Exchange Hotel in his assessable income. Thus, for the financial year which ended on 30th June 1924, the net income previously assessed at £13,730 was increased, by the inclusion of profits from the Exchange Hotel, by no less a sum than £11,597, which had been included in Collins's return. The result was to increase the tax payable by Richardson from £6,447 19s. 3d. to £10,223 10s. 5d., an amount of £3,775 11s. 2d. The Commissioner then applied sec. 67 of the Act, and added, as an additional tax, double the amount of the difference between the tax properly payable and the tax assessed upon the basis of the return lodged, that is, £3,775 11s. 2d. × 2, or £7,551 2s. 4d. A similar course was followed in each of the succeeding years other than the year 1929. In that year, the Commissioner brought into his assessment an item of £65, profits from the Exchange Hotel which Richardson had failed to include. He thus ascertained the taxable income of Richardson, and assessed him for the full amount of the tax legally payable by him. But he added as a penalty for the omitted income (£65) an additional tax or penalty of £36 11s. 6d. The results for the various years are shown in the following table:— Tax assessed on Richardson's returns and paid or payable by him. Increased tax upon Richardson by reason of inclusion of profits from Exchange Hotel in his assessments. Additional tax under sec. 67. 1924 £6,447 19 3 £3,775 11 2 £7,551 2 4 1925 7,033 15 6 2,956 2 5 5,912 4 10 1926 7,274 18 7 2,112 7 0 4,224 14 0 1927 6,580 16 3 1,531 11 3 3,063 2 6 1928 4,694 15 1 951 0 5 1,902 0 10 1929 5,527 0 0 — 36 11 6 £37,559 4 8 £11,326 12 3 £22,689 16 0

The taxation of Collins, however, was increased in the years 1924 to 1928 by the following respective sums, by the inclusion of the Exchange Hotel profits in his return: 1924, £2,054 1s. 6d.; 1925, £1,808 6s. 3d.; 1926, £1,252 15s.; 1927, £978 15s. 7d.; 1928, £693 6s. 3d.; £6,787 4s. 7d. And these amounts have been received by the Commissioner from Collins, the nominee or dummy of Richardson, but he refuses to make any allowance to Richardson in respect of these payments, and has not, so far, made any refund to Collins or any one else in respect of them.

Richardson's income tax therefore amounted in the aggregate, for the years in question here, to £48,885, and he has paid or is liable for that amount. But in addition he is now charged with additional tax by way of penalty under sec. 67 amounting to no less a sum than £22,689. And he is given no credit for the amounts paid by his dummy Collins, amounting to £6,787. Justice requires that some credit should be given to Richardson for this sum of £6,787, or that the money should be refunded.

But the Commissioner's attitude is that, whatever discretion he may have in the matter, Richardson has no legal right to any such credit or refund. Richardson expects but little relief if he must rely upon the discretion of the Commissioner, and I must say, from the evidence and my own observations of the conduct of these appeals, that his want of faith is not wholly unreasonable. The rights of the parties must, therefore, be determined according to law.

The Commissioner has challenged the jurisdiction of this Court to consider the propriety of the additional tax imposed under sec. 67, but my decision in Penrose v. Federal Commissioner of Taxation[4] is against him. And I adhere to that decision.

The taxpayer challenged the calculation of the additional tax. He denied that the Income Tax Acts, on their proper construction, enabled the Commissioner to make the assessments under appeal. Except as to the year 1929, which I shall deal with presently, the Commissioner is, I think, justified by the Acts—and particularly by sec. 67—in the assessments which he has made. He computed the tax upon the taxable income. Then he ascertained the difference between the tax computed by him—the tax properly payable—and the tax which had theretofore been assessed upon the taxpayer upon the basis of the returns lodged by him. He doubled this amount and charged the resulting sum as additional tax. It is, I think, the method prescribed by sec. 67. There is nothing in Penrose's Case[5] to the contrary. But as to the year 1929, Penrose's Case is against the Commissioner. As I understand the facts, the Commissioner in this year made only one assessment. He ascertained in the first instance the amount of tax properly payable by the taxpayer. The provisions of sec. 67 predicate, as I said in Penrose's Case, a difference between a tax properly payable and a tax assessed upon the basis of a return lodged by the taxpayer. The procedure adopted for the additional tax for the year 1929 is not warranted by sec. 67, and the additional tax—£36 11s. 6d.—must be disallowed. This brings me to the payments made by Collins. The taxpayer contended that these sums should be credited against the increase in the amount of the tax payable by him by reason of the inclusion of the profits of the Exchange Hotel in his taxable income, and that the additional tax under sec. 67 should be assessed on the balance. Thus, to take the year 1924:—Increased amount of tax, £3,775; paid by Collins, £2,054; balance, £1,721. Here, the additional tax, according to the taxpayer's contention, should be assessed on this sum of £1,721. Justice would thus be done to the taxpayer, though his punishment would still be heavy, for additional taxation by way of penalty would in the aggregate amount to £9,078, instead of £22,689, as now imposed. The provisions of sec. 67 are, I think, too strong. They explicitly enact that the additional tax shall be the difference in amount between the tax properly payable and the tax assessed upon the basis of the returns lodged. Another view is, however, possible. As I have said, the Commissioner, in arriving at his balance of the amount due by the taxpayer in each of the years under appeal has credited the taxpayer only with amounts paid by him, and gives no credit for any amounts paid by Collins. But if the Commissioner treats Collins as a mere nominee or dummy of Richardson, then, to my mind, he should act consistently, and treat all the acts of Collins on the same basis. The Income Tax Acts do not authorize the Commissioner to take income tax twice over in respect of the same source for the same period of time. The results on this view appear in the following table:— Balance due as assessed by the Commissioner. Amount paid by Collins. Balance Actually due. 1924 £11,326 13 6 £2,054 1 6 £9,272 12 0 1925 8,868 7 3 1,808 6 3 7,060 1 0 1926 6,337 1 0 1,252 15 0 5,084 6 0 1927 4,594 13 9 978 15 7 3,615 18 2 1928 2,853 1 3 693 6 3 2,159 15 0 1929 1,534 4 2 Additional tax wrongly levied 36 11 6 1,497 12 8 And, despite the Commissioner's objections, it appears to me that sec. 51 (6), as interpreted in Ruhamah Property Co. v. Federal Commissioner of Taxation[6] , warrants the assumption of jurisdiction by this Court in favour of the taxpayer.

The assessments of the Commissioner will accordingly be reduced to the following amounts: 1924-1925, £9,272 12s.; 1925-1926, £7,060 1s.; 1926-1927, £5,084 6s.; 1927-1928, £3,615 18s. 2d.; 1928-1929, £2,159 15s.; 1929-1930, £1,497 12s. 8d. The Commissioner will pay the costs of each of these appeals. So far as the notice of appeal to this Court does not cover the reductions above allowed, leave is given to the taxpayer to amend it.

Appeal dismissed.

Solicitors for the appellant, Hedderwick, Fookes & Alston.

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

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1. [1931] HCA 25; (1931) 45 C.L.R. 263.

2. [1931] HCA 25; (1931) 45 C.L.R. 263.

3. [1928] HCA 22; (1928) 41 C.L.R. 148.

4. [1931] HCA 25; (1931) 45 C.L.R. 263.

5. [1931] HCA 25; (1931) 45 C.L.R. 263.

6. [1928] HCA 22; (1928) 41 C.L.R. 148.