Royal Australasian College of Surgeons v Federal Commissioner of Taxation [1943] HCA 34; (1943) 68 CLR 436 (5 November 1943)

Royal Australasian College of Surgeons Appellant; and The Federal Commissioner of Taxation Respondent.

Case stated upon an appeal from an assessment of the Royal Australasian College of Surgeons to income tax in respect of income derived by the College from investments. It is contended for the appellant that the income of the College is exempt from tax under the Income Tax Assessment Act 1936-1941, s. 23 (e), which provides that "the income of a religious, scientific, charitable or public educational institution" shall be exempt from income tax. It is contended for the College that the College is a scientific institution. If it is a scientific institution, then it is a charitable institution. It has not been argued that the College can on the evidence be held to be a charitable institution if it is not a scientific institution. It has not been argued that it is a public educational institution. The only question, therefore, is whether the College is a scientific institution within the meaning of the provision quoted.

The company was incorporated under the Companies Act 1928 Vict. as a company with limited liability without the addition of the word "limited" to its name (see s. 27 of the Act). The objects of the company as set forth in its memorandum of association are stated in the case. They include the following:—

Other "objects" are plainly incidental and subsidiary, such as to acquire land and buildings, to erect buildings, to invest moneys, to draw, &c., cheques.

The activities of the College are fully stated in the case. They include the holding of conferences of surgeons for the discussion and study of surgical matters and dissemination of knowledge. Papers are read and addresses are given at these meetings. The programmes of three annual meetings have been put in evidence. They show that a very large number of papers have been read, addresses given and demonstrations conducted, all relating to surgical science. A consideration of the subjects dealt with at the meetings shows that on only one occasion, when a discussion took place upon surgical apprenticeship, was any strictly professional, as distinct from a scientific, subject dealt with in an address. The other lectures and addresses and demonstrations, more than three hundred in number, all related to matters of surgical science.

The College also maintains a technical surgical library and publishes a surgical journal. It admits fellows by examination. The fellowship of the College does not constitute a qualification to practise surgery. The College administers funds devoted to surgical research and conducts and assists such research in various ways.

It is plain that the objects and activities of the College include the promotion of surgical science, but the question to be determined is whether it can properly be found upon the evidence that it is a scientific institution. The question for consideration was very clearly expressed in the case of Inland Revenue Commissioners v. Aberdeen Medico-Chirurgical Society[1], by the Lord President:—"Now the members and associates of the Society are composed exclusively of members of the medical profession; and while it is easy to grasp the general distinction between a society for the advancement of professional objects and interests, and a society for the advancement of letters and science, the distinction is not always easy to draw in the case of societies composed of professional men just because all professional work belongs to the sphere of either letters or science. Nothing could show this more clearly than the difference of opinion displayed in Inland Revenue Commissioners v. Forrest2(1887) 19 Q.B.D. 610; (1888) 20 Q.B.D. 621; (1890) 15 App. Cas. 334.. But the question—difficult or easy to answer—must always be—what is the true nature and the objects and activities of the particular society? If these objects and activities are of a mixed character, being partly professional and partly literary or scientific, then the question must be decided according to the prevalent or main character." In that case it was held that the Society was a professional society and not a scientific institution. See also Institution of Civil Engineers v. Inland Revenue Commissioners[3], where the same test was applied in determining whether the Institution of Civil Engineers was a body of persons established for charitable purposes only or a body of persons established for scientific purposes only.

Unless the promotion of surgical science is the main substantial or primary object of the College, it cannot be described as a scientific institution. It is argued for the Commissioner that the College has another object than the promotion of surgical science, namely, the promotion of the professional interests of its members, and that this object cannot be described as subsidiary or secondary or auxiliary only to the promotion of surgical science. Attention is called in particular to object (a) in the memorandum, namely, "To cultivate and maintain the highest principles of surgical practice and ethics," and also to objects (b) and (c) (which have already been quoted), which also have a relation to the professional practice of surgery. The pursuit of these objects would improve the professional qualifications, and thereby would, in the normal course of events, promote the professional interests, of the members of the College.

Similar arguments were used in the case of an Institution of Civil Engineers, the character of which was considered in Inland Revenue Commissioners v. Forrest[4], where the question was whether the property of the Institution was legally appropriated and applied for purposes connected with the promotion of science. It was pointed out that membership of the Society, though valuable to members, did not constitute a qualification to practise, and it was said:—"The Institution of Civil Engineers stands in a very different position from such professional bodies as the Society of Writers to the Signet. The mere fact that membership is confined to those who are actively engaged, and have attained some degree of eminence, in the profession, does not militate against the object of the institution being the advancement of engineering science; because they are really the only persons possessing the knowledge and practical experience requisite for the efficient promotion of that object. Membership is not required for admission to the profession of a civil engineer: it confers no rights or privileges in the practice of that profession, over which the institution neither has, nor professes to have any power of control. A writer to the signet, in carrying on his private business, and practically in no other form, exercises his rights and privileges as a member of the society to which he belongs; but a member of the Society of Civil Engineers does nothing whatever in his corporate capacity except when he takes part in its proceedings within the walls of the Institution... I do not doubt that membership is accompanied with a certain amount of prestige which may prove to be of service to the member in his professional career; but I believe that the same result would attend membership of any society which effectively promoted a branch of science intimately connected with the profession or business in which the member was engaged... It occurs to me that, if any one were asked to say what would be a more efficient method of promoting engineering science than that which the Institution has adopted, he would have difficulty in making a satisfactory reply." These words of Lord Watson[5], applied to engineering science in the case of the Institution of Civil Engineers, are, in my opinion, equally applicable to surgical science in the case of the College.

In Institution of Civil Engineers v. Inland Revenue Commissioners[6], Lawrence L.J. quotes Fry L.J. in Forrest's Case[7]:—"It has been pressed upon us that the membership in this society is of pecuniary value to engineers, and I have no doubt that that is the case: but the observation does not appear to me to go far. It is obvious that membership in many bodies formed for the cultivation of science is of pecuniary value to certain classes of persons. A fellowship in the Royal Society is undoubtedly of pecuniary value to medical men, to engineers, chemists, and others; nevertheless it is plain that the object of that society is the promotion of science."

The by-laws of the Institution of Civil Engineers contained "rules as to professional conduct to be observed by all corporate members of the Institution": See Institution of Civil Engineers v. Inland Revenue Commissioners[8]. This object and activity of the Institution may be compared with object (a) quoted from the memorandum of association of the College. The fact that the Institution concerned itself with the professional conduct of its members did not prevent the conclusion being reached that the Institution was exempt from tax as being carried on for the promotion of engineering science and not for the promotion of the professional interest or advantage of the members.

The College, as already stated, does not grant any degree which is a qualification for professional practice. Accordingly, the constitution of the College is different in this important respect from that of the Royal College of Surgeons of England (See In re Royal College of Surgeons of England[9]), and the Royal College of Surgeons of Edinburgh (See Sulley v. Royal College of Surgeons, Edinburgh[10]).

In my opinion the College is a scientific institution within the meaning of s. 23 (e) of the Income Tax Assessment Act 1936-1941 and the question in the case should be answered in the affirmative.

The intention of the legislature as it appears in s. 23 (e) of the Income Tax Assessment Act 1936-1941 is to exempt the income, inter alia, of a scientific institution. The Act gives no definition of "scientific" and one must therefore look to the objects and practice of the particular institution. By "practice" I understand its activities. The principal activities of the College are set out in par. 7 of the admitted facts contained in the case stated. The object clause in the memorandum of association of the College consists partly of purposes and partly of powers. And, as I understand the cases, the test is whether it can be predicated that the College is in the main scientific. The inclusion of an institution in the exemption clause depends upon the intrinsic character of the object which it promotes and not upon the scope of the benefits which may result from its transactions. After considering all the relevant matter in the case stated (including the annexures) I have come to the conclusion that the main or real object of the College is the promotion and advancement of surgery. By this I mean that its essential purpose is to enlarge and extend the boundaries or area of the science of surgery. Its other objects are not collateral or independent but merely concomitant and incidental to the main object. And the fact that some of these subsidiary or ancillary functions and purposes may indirectly and incidentally be of benefit to the members of the profession does not destroy the exemption claimed.

For these reasons I consider that the College is a scientific institution and as such is entitled to the exemption provided in the Act.

Case stated pursuant to the provisions of the Income Tax Assessment Act 1936-1941.

The Royal Australasian College of Surgeons is registered as a company pursuant to the provisions of the Companies Act 1928 of Victoria. It was assessed to income tax for the financial year 1940-1941 based on income derived during the year ended 31st January 1940. But it claimed the benefit of s. 23 of the Act, which exempts from income tax the income of a religious, scientific, charitable or public educational institution. The case states the following question:—

Is the income of the appellant exempt from income tax as being the income of a scientific, charitable or public educational institution within the meaning of s. 23 (e) of the Income Tax Assessment Act 1936-1941?

Several cases were cited and a number of relevant decisions are collected in Konstam on The Law of Income Tax, 6th ed. (1933), p. 302, note j. It was rightly conceded that the College was an institution. The substantial question is whether the College is a body for the advancement of professional objects and interests or for "something higher and larger," namely, the promotion of science in the advancement of surgical knowledge and practice.

The College would not be the less a scientific institution because it does not confine its activities to abstract or speculative science but applies scientific knowledge and practice to the advancement of surgery: See Inland Revenue Commissioners v. Forrest[11]. It would seem that if the College be not a scientific institution then for much the same reason it would not be a charitable or a public educational institution, but it is unnecessary in the view I take of the case to resolve this question. And I rather think that the question we have to determine is one of fact (Inland Revenue Commissioners v. Forrest[12]; Inland Revenue Commissioners v. Yorkshire Agricultural Society[13]; Usher's Wiltshire Brewery Ltd. v. Bruce[14]), but all the relevant facts are stated in the case and may perhaps be regarded as raising a mixed question of law and fact proper to be stated for the opinion of this Court pursuant to s. 198 of the Act.

The College is a limited company, but its income and property is applicable solely towards the promotion of its objects and no portion thereof is payable directly or indirectly by way of dividend, bonus or otherwise by way of profits to its members: See Companies Act 1928 Vict., s. 27. The objects of the College as stated in its memorandum of association are partly for the promotion of professional interests and partly for the promotion of surgical knowledge and practice. Thus, for example, object (a) is to cultivate and maintain the highest principles of surgical practice and ethics, whilst (d) is to promote research in surgery. The objects of the College are therefore of a mixed character and the memorandum does not make it clear which are its main or dominating characteristics. The activities of the College must therefore be examined.

If it be found that those activities are mainly or predominantly directed towards the promotion or advancement of scientific knowledge or, in other words, the advancement of surgical knowledge and practice, then the authorities make it clear that a finding that the College is a scientific institution is in point of law correct (Commissioners of Inland Revenue v. Forrest[15]; Inland Revenue Commissioners v. Aberdeen Medico-Chirurgical Society[16]; Inland Revenue Commissioners v. Yorkshire Agricultural Society[17]). The members of the College are called fellows. The College cannot confer degrees in surgery, nor can it admit its fellows or any other persons to practice as surgeons or as medical practitioners. Some of the fellows are foundation members, and others are admitted after examination by the College to ensure that its fellows have "sound training in the basic principles of surgery" and should be capable of performing operations competently. The fact that fellowship of the College is confined to those who have attained eminence or skill in the practice of surgery "does not militate against the object of the institution being the advancement" of surgical knowledge; "they are really the only persons possessing the knowledge and practical experience requisite for the efficient promotion of that object" (Inland Revenue Commissioners v. Forrest[18]). But the examination of surgeons for fellowship is not by any means the sole activity of the College. They are set forth at large in the case. The College holds periodical conferences of surgeons for the discussion and study of surgical matters and the dissemination of knowledge of surgery. It publishes and distributes to its members a periodical known as the "Australian and New Zealand Journal of Surgery", containing original articles on various branches of professional knowledge, case reports and résumés of foreign professional publications, reviews of professional books and so forth. It also maintains a library in which are collected numerous works on surgery and current surgical literature for the use of its fellows. It has arranged for the collection and collation of records of clinical cases occurring in hospital and private practice. It has also arranged for the establishment of a school at the Prince Henry Hospital, Melbourne, for post-graduate surgical education, research and investigational work, but the actual commencement of this school has been postponed for the present owing to the outbreak of the war. It has accepted a bequest of some £60,000, one-half of the income whereof is to be applied for research work, and the other half for assisting young graduates of exceptional ability and promise in post-graduate work.

The activities of the College may benefit its fellows, but the facts related speak for themselves and establish that the College is doing "something higher and larger" than the mere promotion of professional interests. It is actively engaged in the promotion and advancement of science in the advancement of surgical knowledge and practice. And that, I think, is the main and prevailing and the characteristic nature of the activities of the College. As Lord Watson observed in Inland Revenue Commissioners v. Forrest[19], "I do not doubt that membership" of the College "is accompanied with a certain amount of prestige which may prove to be of service to the member in his professional career; but I believe that the same result would attend membership of any society which effectively promoted a branch of science intimately connected with the profession or business in which the member was engaged."

In short, in my opinion, on the facts stated in the case the Royal Australasian College of Surgeons is a scientific institution, and the question stated should be answered accordingly.

The appellant claims that its income derived during the accounting period 1st February 1939 to 31st January 1940 was the income of a scientific or charitable institution within the meaning of s. 23 (e) of the Income Tax Assessment Act 1936-1941 and is therefore exempt from taxation. The appellant also claims that it is a charitable institution for the reason that it is a scientific institution, but on no other ground. It is to be observed that in the Institution of Civil Engineers Case[20] Romer L.J. said: "That the promotion of science is a charitable object is not disputed." In the first place, therefore, the appellant claims that it is a scientific institution. The ground of this claim is that the object of the association is the promotion of the science of surgery. The claim is resisted on the ground that another object of the association relates to the practice of surgery as an art, and the association is therefore not substantially a scientific institution. It is not necessary, to satisfy the section, that the object of the association should be exclusively scientific. But it is necessary that the promotion of the science of surgery should be its main object (Forrest's Case[21]; In re Royal College of Surgeons of England[22]; Institution of Civil Engineers v. Inland Revenue Commissioners[23]; Inland Revenue Commissioners v. Aberdeen Medico-Chirurgical Society[24]). It is not possible from the statement of the objects in the memorandum of the appellant to draw any distinction such as is made in the cases last mentioned between the objects for which the appellant was instituted. The only distinction which is apparent from the terms of its memorandum is that some of its objects could be regarded as being ancillary to the scientific and professional objects of the appellant rather than as principal objects in themselves. The members of the association might have devoted their corporate endeavours either to its scientific objects, the promotion of the science of surgery, or to its professional objects, the maintenance of proper standards for the practice of surgery, or to both of these objects. But the question whether the appellant fulfils the description of a scientific institution depends less upon the fact that it can direct its efforts to all these objects than what it does in pursuit of each of them. In the case stated the principal activities of the association are set out. It shows that the activities of the appellant were mainly devoted to the promotion of the science of surgery. That was the primary and dominant object of the activities carried on by it. The facts do not show more than that its activities were directed to the promotion of surgery merely as an art and to the protection of the professional interests of surgeons, as subordinate and merely concomitant objects. The fact that its memorandum includes these objects does not destroy the exemption to which the appellant is entitled by reason of its activities in the promotion of the science of surgery.

The question is whether, on the agreed facts as appearing in the body of the case stated and in the annexures and exhibits thereto, the proper conclusion in law is that the Royal Australasian College of Surgeons, which is a company incorporated not for profit under the Victorian Companies Acts, is a scientific, charitable or public educational institution within the meaning of s. 23 (e) of the Income Tax Assessment Act 1936-1941 (Institution of Civil Engineers v. Commissioners of Inland Revenue[25]; Royal Choral Society v. Inland Revenue Commissioners[26]). If, however, the College is a scientific institution within the meaning of the sub-section, it will be unnecessary to discuss whether it is also a charitable institution, while, if it is neither a scientific nor a charitable institution, it would be difficult to establish that it is a public educational institution.

The first question is, therefore, whether it is a scientific institution within the meaning of the sub-section.

This depends upon whether the main and dominant object for which the College was incorporated is to promote the science of surgery (Keren Kayemeth Le Jisroel Ltd. v. Inland Revenue Commissioners[27]).

Clause 2 of the memorandum of association contains fifteen objects but of these only six, namely, (a), (b), (c), (d), (e) and (g), should be described as objects, while the balance should be described as powers to be exercised in order to enable the objects of the College to be carried into effect.

The principal contention on behalf of the respondent is that the College has two co-ordinate main purposes, the one the promotion of the science of surgery and the other the advancement of the personal and professional interests of its fellows.

It is submitted that objects (a), (b) and (c) are, on their true construction, objects to achieve this second purpose. Object (a), "to cultivate and maintain the highest principles of surgical practice and ethics," would be calculated to promote the second purpose, but object (b) would include within its ambit investigations in order to ascertain what would be desirable improvements in the equipment and methods used in hospitals for surgical operations as well as taking steps to see that this equipment was installed and these methods were adopted, so that this object is equally consistent with the first purpose as with the second. Object (c) is in a similar position as the arrangement of adequate post-graduate surgical training at universities and hospitals could promote knowledge and skill in surgery just as it could promote the professional interests of surgeons. Objects (d) and (e) are objects the purpose of which is plainly to promote surgical knowledge and skill, and object (g) should also be placed in the same category.

But, in order to determine what is the main or dominant purpose of the College, it is a mistake to examine the objects contained in the memorandum in this disjunctive fashion. They should be examined in conjunction with one another and in the light of the circumstances in which the College was formed and of the manner in which the College is fulfilling the purposes for which it was incorporated.

The College holds examinations for candidates for fellowship and has a Board of Censors and an Ethics Committee which inquires into and reports to the Council, which is the governing body of the College, upon the personal qualifications of candidates for fellowship, but these examinations and inquiries are to ensure that the surgeons whom it admits as fellows are men of high professional skill and ethical standards. The College has no right to qualify any surgeon to practise or to disqualify any surgeon from practising his profession. The only disciplinary action which the College can take if a fellow fails to maintain the highest principles of surgical practice and ethics is to expel him from the College.

It has been held in several cases that it is permissible to examine the facts in order to see what are the principal activities which an institution is carrying on in accordance with its constitution. For instance, in Inland Revenue Commissioners v. Yorkshire Agricultural Society[28] Atkin L.J. said: "The question you have to consider is whether at the relevant time you are dealing with the income of a society established for charitable purposes only, and in respect of that income also you have to consider whether the income is applied in fact to charitable purposes only." In Keren Kayemeth Le Jisroel Ltd. v. Inland Revenue Commissioners[29] Lord MacMillan, referring to the income tax code, said: "It looks at the nature of the transactions; it looks at the character of the activities; and it does not look behind these to what may be the motive which has prompted the formation of the company."

When the principal activities which the College has carried on since its incorporation such as the holding of periodical conferences of surgeons for the discussion and study of surgical matters and the dissemination of surgical knowledge, the collection and collation of records of clinical cases occurring in hospital and private practice, the giving of evening lectures in surgical subjects, the provision of a technical library upon surgical subjects, the publication and distribution of a quarterly periodical known as the Australian and New Zealand Journal of Surgery, and research work in surgery are examined, it becomes clear that the College is in fact essentially an institution engaged in the promotion of the science of surgery in both a theoretical and practical sense. It is for this purpose that it has exercised its powers to purchase land, erect buildings, acquire a library and print and publish a scientific journal and other works.

Under the corresponding English Act an institution, in order to obtain exemption, must prove that it is a body of persons established for charitable purposes only, but it has always been held that an institution qualifies for exemption if its main purpose is charitable, although as subsidiary and incidental to that main purpose its members derive some personal and professional benefit from being members of the institution (Inland Revenue Commissioners v. Yorkshire Agricultural Society[30]; Institution of Civil Engineers v. Inland Revenue Commissioners[31]; Royal Choral Society v. Inland Revenue Commissioners[32]).

The present case is distinguishable on its facts from the Royal College of Surgeons of England Case[33], because the objects of that College included the examination of students and others to qualify for practice or honours in surgery and kindred subjects. Romer L.J., delivering the judgment of the Court of Appeal, pointed out that "these examinations by the College have always been of great importance, and the certificates given to those who passed have been highly valued in the surgical profession, and a large income has been derived by the College from the fees on these examinations"[34]. The Court came to the conclusion that the facts "amply show the dual nature of the object and purpose of the College"[35]. The facts also established the dual nature and purpose of other institutions referred to in other cases which were cited to us and which are collected in Halsbury's Laws of England, 2nd ed., vol. 17, pp. 56, 57, note u.

The facts in the present case are more close to those in the two cases relating to the Institution of Civil Engineers, Forrest's Case[36] and Institution of Civil Engineers v. Inland Revenue Commissioners[37]. In Forrest's Case[38] Lord Watson (in passages most of which are cited by Romer L.J. in the latter case[39]), said:—"The mere fact that membership is confined to those who are actively engaged, and have attained some degree of eminence, in the profession, does not militate against the object of the institution being the advancement of engineering science; because they are really the only persons possessing the knowledge and practical experience requisite for the efficient promotion of that object. Membership is not required for admission to the profession of a civil engineer: it confers no rights or privileges in the practice of that profession, over which the institution neither has, nor professes to have any power of control. A writer to the signet, in carrying on his private business, and practically in no other form, exercises his rights and privileges as a member of the society to which he belongs; but a member of the Society of Civil Engineers does nothing whatever in his corporate capacity, except when he takes part in its proceedings within the walls of the institution... I do not doubt that membership is accompanied with a certain amount of prestige which may prove to be of service to the member in his professional career; but I believe that the same result would attend membership of any society which effectively promoted a branch of science intimately connected with the professional business in which the member was engaged... I have accordingly come to the conclusion that the income of the institution is, in fact, applied, not for the professional ends of individuals, but for the promotion of science in the proper sense of the words"[40]. These passages apply most aptly, mutatis mutandis, to the present appeal, in which a similar conclusion should, in my opinion, be reached to that arrived at in the two cases relating to the Institution of Civil Engineers.

For these reasons I would answer the question asked by saying that the appellant is a scientific institution within the meaning of the sub-section.

Question answered: Yes. Case remitted to Williams J. Costs of case to be costs in appeal.

Solicitor for the respondent, H. F. E. Whitlam, Crown Solicitor for the Commonwealth.

[1] (1931) 16 Tax Cas. 237, at p. 249.

[2] (1887) 19 Q.B.D. 610; (1888) 20 Q.B.D. 621; (1890) 15 App. Cas. 334.

[3] (1932) 1 K.B. 149.

[4] (1890) 15 App. Cas. 334.

[5] (1890) 15 App. Cas., at pp. 350-352.

[6] (1932) 1 K.B., at p. 171.

[7] (1888) 20 Q.B.D., at p. 631.

[8] (1932) 1 K.B., at p. 151.

[9] (1899) 1 Q.B. 871.

[10] (1892) 3 Tax Cas. 173.

[11] (1890) 15 App. Cas. 334, at p. 353.

[12] (1890) 15 App. Cas., at p. 341.

[13] (1928) 1 K.B. 611, at pp. 625, 634.

[14] (1915) A.C. 433, at p. 466.

[15] (1890) 15 App. Cas. 334.

[16] (1931) Sess. Cas. 625.

[17] (1928) 1 K.B. 611, at p. 631.

[18] (1890) 15 App. Cas., at p. 350.

[19] (1890) 15 App. Cas., at p. 351.

[20] (1932) 1 K.B., at p. 177.

[21] (1890) 15 App. Cas. 334.

[22] (1899) 1 Q.B. 871.

[23] (1932) 1 K.B. 149.

[24] (1931) 16 Tax Cas. 237.

[25] (1932) 1 K.B. 149, at p. 163.

[26] (1943) 2 All E.R. 101, at pp. 102-103.

[27] (1932) A.C. 650, at p. 658.

[28] (1928) 1 K.B. 611, at p. 633.

[29] (1932) A.C., at p. 661.

[30] (1928) 1 K.B. 611.

[31] (1932) 1 K.B. 149.

[32] (1943) 2 All E.R. 101.

[33] (1899) 1 Q.B. 871.

[34] (1899) 1 Q.B., at p. 880.

[35] (1899) 1 Q.B., at p. 882.

[36] (1890) 15 App. Cas. 334.

[37] (1932) 1 K.B. 149.

[38] (1890) 15 App. Cas. 334.

[39] (1932) 1 K.B., at pp. 175, 176.

[40] (1890) 15 App. Cas., at pp. 350-352.

High Court of Australia

Royal Australasian College of Surgeons v Federal Commissioner of Taxation [1943] HCA 34; (1943) 68 CLR 436 (5 November 1943)

HIGH COURT OF AUSTRALIA