Emanuel v Federal Commissioner of Taxation [1968] HCA 57; (1968) 118 CLR 292 (10 September 1968)

HIGH COURT OF AUSTRALIA

EMANUEL v. FEDERAL COMMISSIONER OF TAXATION [1968] HCA 57; (1968) 118 CLR 292

Income Tax (Cth)

High Court of Australia
Windeyer J.(1)

CATCHWORDS

Income Tax (Cth) - Dividends paid to non-residents - Dividends paid to Australian agent of person resident but not domiciled in United Kingdom - Not remitted to United Kingdom - Election to treat as assessable income - No liability to United Kingdom income tax - Rate of tax applicable - Income Tax Act, 1952 (U.K.), s. 132 - Income Tax (International Agreements) Act 1953-1963 (Cth), First Schedule - Income Tax and Social Services Contribution (Non-resident Dividends) Act 1959 (Cth) - Income Tax and Social Services Contribution Assessment Act 1936-1964 (Cth), ss. 128B, 128D.

HEARING

Perth, 1967, September 26;
Adelaide, 1968, September 10. 10:9:1968
APPEAL pursuant to the Income Tax and Social Services Contribution Assessment Act 1936-1964 (Cth).

DECISION

1968, September 10.
WINDEYER J. delivered the following written judgment:-
This is an appeal by Sydney Francis Emanuel, a taxpayer, against the income ended on 30th June 1964. I heard the cse last year. I regret that my delivering judgment has been, by untoward events, long delayed. The statements which I now make are to be read as relating to the facts as they existed at the date of the hearing. (at p293)

2. The question for decision arises in relation to what is called "dividend (witholding) tax", being tax payable in accordance with s. 128B of the Income Tax and Social Services Contribution Assessment Act 1936-1964 (Cth). (at p293)

3. In December 1964 the taxpayer gave a notice of election that income on which dividend (witholding) tax was payable should be included in his assessable income. This notice was given pursuant to s. 128D of the Act as it then was. That section was later amended and then repealed, and by Act No. 85 of 1967, s. 17, a new s. 128D was substituted. Nothing turns on this except as a reminder that the case is to be decided on the Act as it stood in relation to the year of income in question as applied to the facts then existing. When I refer to the Assessment Act I mean therefore the Act of 1936 as amended up to July 1964. The ultimate question is whether the taxpayer is liable for dividend (witholding) tax in the year ended 30th June 1964 at the rate of thirty per cent or fifteen per cent. (at p293)

4. No oral evidence was given; but the file of documents which the Commissioner forwarded to the Court and a written statement described as a "statement of agreed submissions" were tendered and admitted by consent. The latter document is couched in the present tense. It is to be read as referring to facts existing in the year of income in question and continuing thereafter to the date of the assessment and of the hearing before me. It is as follows:

"For the purposes of this appeal the parties agree that: 1. The appellant taxpayer is a non-resident of Australia,

other than a non-resident engaged in business through a
permanent establishment in Australia.
2. He is a resident of the United Kingdom.
3. The appellant taxpayer is not domiciled in the United
Kingdom.
4. The dividends concerned in this appeal fall within Case V
of Schedule D in Section 123 of the Income Tax Act, 1952
of the United Kingdom and Section 132 (3) (b) of that Act
applies to these dividends.
5. Neither at the date of the assessment concerned in this
appeal nor since have the dividends been remitted to the
United Kingdom."

This document is in parts somewhat loosely expressed. (at p294)

5. Paragraph 1 reproduces the phraseology of s. 128B. This, thus removed from its context, reads awkwardly: but the parties agree that the paragraph means that the taxpayer is, within the meaning of the Assessment Act, a non-resident, a term defined therein as meaning a person who is not a resident of Australia; and that he is not engaged in business through a "permanent establishment" in Australia within the meaning of that expression as used in s. 128B and defined in s. 128A (4) and (5) and as used in Art. II of the United Kingdom agreement appearing as the First Schedule to the Income Tax (International Agreements) Act 1953-1963 of the Commonwealth of Australia. (at p294)

6. Paragraphs 2 and 3, as to the residence and domicile of the taxpayer, were in the argument related to s. 132 of the Income Tax Act 1952 of the United Kingdom. The parts of that section which are relevant deal with "any person who satisfies the Commissioners of Inland Revenue that he is not domiciled in the United Kingdom, or that, being a British subject or a citizen of the Republic of Ireland, he is not ordinarily resident in the United Kingdom". Paragraphs 2 and 3 of the agreed facts do not state that the taxpayer has satisfied the Commissioners of Inland Revenue of the United Kingdom as to his domicile and residence. However, I shall proceed as if what are stated to be the facts, or rather conclusions of mixed law and fact, have been established to the satisfaction of the Commissioners of Inland Revenue. And I shall assume too that par. 2 of the agreed facts means that the taxpayer is a "United Kingdom resident" within the definition of that phrase in Art. II of the United Kingdom agreement abovementioned. (at p294)

7. Paragraph 4 of the agreed facts is again a statement of conclusions on a question of mixed law and fact. I have proceeded on the assumption that, properly understood, it correctly states the law of England applicable to the facts. (at p295)

8. Paragraph 5 of the agreed facts is a bare statement that the dividends in question have not been remitted to the United Kingdom. I take this to mean that the taxpayer has not received there the equivalent of them, in money or otherwise, in any one of the ways referred to in Thomson v. Moyse (1961) AC 967 . (at p295)

9. In the year of income in question several Australian companies in which the taxpayer was a shareholder declared and paid dividends. It is not disputed that these companies were residents within the meaning of s. 128B of the Assessment Act as that term is defined in that Act. The dividends to which the taxpayer became entitled were in fact paid in Australia apparently to a Western Australian company. Emanuel Brothers Pty. Limited, as the taxpayer's agent to receive them. These dividends were thus "non-resident dividend income", the term used by the Act and therein defined as meaning "income upon which dividend (withholding) tax is payable". (at p295)

10. The general rate of dividend (witholding) tax payable under s. 128B (2) was at the relevant time thirty per cent of the amount of the dividend. This was declared by s. 6 of the Income Tax and Social Services Contribution (Non-resident Dividends) Act 1959 to be the rate. But this is qualified in the case of dividends paid by Australian companies to shareholders resident in the United Kingdom. That is the result of the Income Tax (International Agreements) Act 1953-1963 and of the United Kingdom agreement abovementioned. Article VI (3) of the agreement is as follows (with certain words critical in this case italicized):

"Subject to such provisions as may be enacted in Australia
for the purpose of determining the amount of Australian tax
payable in respect of any dividend, and without limiting the
exemptions provided by paragraphs (1) and (2) of this Article,
the amount of Australian tax payable in respect of any dividend
the whole or part of which is paid out of profits derived from
sources in Australia to a United Kingdom resident who is subject
to United Kingdom tax in respect thereof and is not engaged
in trade or business in Australia through a permanent
establishment
situated therein, shall not exceed half the amount which
would be payable in respect of the dividend or part thereof
but for this paragraph."

The result is that in cases to which this paragraph applies the amount of Australian tax shall not exceed half of thirty per cent - that is fifteen per cent - of the amount of the dividend. The critical question then is whether or not the words italicized above describe the facts of the present case. (at p296)

11. However, counsel for the taxpayer sought to secure the position he took up on that, the main front, by moving forward into other provisions of the Australian legislation. By doing so he was able to put arguments based upon the policy and the practical working of the legislative scheme. He referred to Div. 4 of the Assessment Act dealing with the "Collection of Dividend (Witholding) Tax" and in particular to s. 221YL. These provisions can create doubts and difficulties, especially when they are read with regs. 54ZF to 54ZK under the Act. To some of the questions which thus arise I shall return later. At this point it is enough to say that I agree generally with the answering proposition advanced by counsel for the Commissioner that the provisions of the Assessment Act and the Regulations dealing with the collection of dividend (withholding) tax cannot control the other provisions of the Act and of the Income Tax (International Agreements) Act which prescribe the rate of the tax to be collected and create the liability to pay it. In cases to which the latter Act applies its provisions are dominant. Section 4 expressly makes them so. The words of the Canadian and New Zealand agreements and of the United States Convention are not in all respects the same as those of the United Kingdom agreement. All are designed, as they expressly state, for "the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income". The provisions of each are by s. 5 of the last-mentioned Australian Act to have "the force of law so far as they affect Australian tax". In the construction of each, its declared purpose must no doubt be borne in mind. But each must be read as a separate instrument. (at p296)

12. I go back to Art. VI (3) of the United Kingdom agreement, which I have set out above. Were the dividends now in question "paid out of profits derived from sources in Australia to a United Kingdom resident who is subject to United Kingdom tax in respect thereof"? That they were derived from sources in Australia is not disputed. Having been paid to the taxpayer's agent to receive them as between him and the company paying them they were paid to the taxpayer. I do not think that to come within the statutory description they must be paid directly by the company to him in the United Kingdom. The provisions of the Assessment Act for the collection of dividend (witholding) tax - particularly s. 221YL (2) - and the recognition of dividend (withholding) tax in the Income Tax (International Agreements) Act, s. 17A, are not compatible with it being necessary, if a taxpayer is to have the benefit of that Act, that the dividends should have been paid to him directly by the company and not paid to a person in Australia to receive them on his behalf and deal with them as he directs. But suppose, as the fact here is, that the dividends paid to the taxpayer's agent have not been remitted to the taxpayer in the United Kingdom but are held in Australia for him and are to be applied here according to his directions. Can it then be said that the dividends were "paid . . . to a United Kingdom resident who is subject to United Kingdom tax in respect thereof" ? Whether this taxpayer must pay Australian tax at the rate of thirty or fifteen per cent depends, I consider, upon the answer to that question. (at p297)

13. The answer depends upon s. 132 of the Income Tax Act, 1952 of the United Kingdom. That section deals with "the basis of computation under Cases IV and V". Case V is "tax in respect of income arising from possessions out of the United Kingdom". As the statement of agreed facts says, that description covers the dividends with which this appeal is concerned. (at p297)

14. Section 132 must be read as a whole for its full operation to be grasped. However, I do not think it necessary to set it out. It is enough to say that its effect is that tax under Case V is computed on what is commonly called in England the "arising" basis - that is to say on the full amount of the income arising in the year preceding the year of assessment, whether the income has been or will be received in the United Kingdom or not. But the "arising" basis does not apply to persons not domiciled in the United Kingdom or to British subjects or citizens of the Republic of Ireland not ordinarily resident in the United Kingdom. In their cases, tax under Case V is, by s. 132 (3) (b), charged on the "remittance" basis - that is on the full amount of the actual sums received in the United Kingdom in the year preceding the year of assessment. The income in question must be actually received in the United Kingdom in some form or another as described in s. 132 (3) (b): see Halsbury's Laws of England, 3rd ed. vol. 20, pp. 267, 268, and Robertson v. Federal Commissioner of Taxation [1937] HCA 32; (1937) 57 CLR 147, at pp 155, 156 . (at p297)

15. The present case has, as I have said, proceeded on the basis that the taxpayer is not domiciled in the United Kingdom - and that he is to be treated as having satisfied the Commissioners of Inland Revenue of that fact. Therefore in respect of the dividends in question the "remittance" basis would apply. Therefore, in my opinion, unless and until they be remitted and received by him in the United Kingdom he is not "subject to United Kingdom tax in respect thereof". These words I think describe a present liability of a person to tax, not the character of income in respect of which he will if it comes to him in the United Kingdom in the future incur then a liability to tax. In my opinion, therefore, this case does not fall within Art. VI (3) of the United Kingdom agreement. The taxpayer is, I consider, liable to tax in the sum of thirty per cent of the dividends. (at p298)

16. A taxpayer who is not domiciled in the United Kingdom, but who is resident there, will, it seems to me, only escape dividend (withholding) tax in Australia at the full rate if he ensures that his Australian dividends are promptly paid to him in the United Kingdom. I appreciate that in some cases difficulties could arise. Under s. 221YL the amount of dividend (withholding) tax must be forthwith deducted by the company, or by the person in Australia receiving the dividends on behalf of the taxpayer. Section 221YN requires that the amount so deducted be paid to the Commissioner within twenty-one days after the end of the month in which the deduction was made. In the result thirty per cent, not fifteen per cent, could be received by the Commissioner as tax, although the amount of the dividend was thereafter paid to the taxpayer in the United Kingdom. If that occurred, I assume that in the computation of tax in the United Kingdom a credit could be allowed in accordance with Art. XII of the United Kingdom agreement and s. 347 of the Income Tax Act, 1952, of the United Kingdom: but it is not apparent to me that any allowance or refund could be made in such case by the Commissioner in Australia. Counsel for the Commissioner said that some refund or rebate would in practice be made and that this could be done under s. 128E. But s. 128E in its earlier form was linked with s. 128D as it then was. Both were completely recast by Act No. 85 of 1967. Counsel for the Commissioner nevertheless said that, according to his instructions, the Commissioner would in the case supposed make a refund to the taxpayer. I found this statement surprising. If tax be exigible the Commissioner's duty is to collect it. Unless the law expressly allows it, he cannot forego any tax which the law obliges him to collect. If obedience to the law causes injustice or anomaly, the remedy lies in an alteration of the law by Parliament. However, I express no view on whether or not any injustice or anomaly is likely to occur in other cases. There is no evidence of it in this case. Consideration of possible consequences in other cases was relevant only as an aid in the construction of the complex catena of legislative provisions. Certainly some consequences can be imagined which seem odd. Some practical difficulties might, it seems, be created by the different periods of the income tax year in the United Kingdom, 6th April to 5th April, from that in Australia, 1st July to 30th June. And a question can arise as to the time at which the existence of relevant conditions - domicile, residence, no place of business, and receipt of income - has to be ascertained to determine whether or not Art. VI of the United Kingdom agreement applies. (at p299)

17. It is hardly necessary to say but I wish to make it clear that throughout this judgment references to the United Kingdom agreement are to the agreement a copy of which forms the First Schedule of the abovementioned Income Tax (International Agreements) Act 1953-1963. A new agreement came into force in 1968. It has no bearing on this case. (at p299)

18. The problems I have referred to do not beset this case. It must be decided on its own facts and on the application of the statutory language as it was and the language of the United Kingdom agreement as it was to those facts. I see nothing anomalous in the result. A taxpayer derives income from Australian sources in Australia: he leaves it there instead of having it sent to England: he must pay Australian tax at the full rate; but he is not liable for United Kingdom income tax unless he brings the income there. One can imagine many circumstances, not only of a business but of a family or domestic character, in which a taxpayer, especially one domiciled in Australia, might wish to keep here income derived here. I cannot accept the view that there is anything in the policy or purpose of the legislation which makes unlikely what seems to me to be its effect in this case. (at p299)

19. In my opinion the taxpayer's objection cannot be upheld. I therefore dismiss the appeal and confirm the assessment. The taxpayer must pay the Commissioner's costs. I make the usual order as to the two exhibits. (at p299)

ORDER

Appeal dismissed with costs. Assessment confirmed. Usual order as to exhibits.