Brent v Commissioner of Taxation

[20]

The sum of $10,000 referred to in cl. 2 (a) of the agreement was apparently paid to the appellant's solicitor on the signing of the agreement. There was a change of solicitors and on 31st October 1969 the appellant's new solicitor received from her former solicitor $7,490, the balance of the $10,000, after fees amounting to $2,500 and duties amounting to $10 had been deducted. Although the sum of $40,000 mentioned in cl. 2 (b) fell due for payment on or about 30th October 1969 and the further sum of $15,250 fell due on or about 20th November 1969, those sums were not paid on those dates and no explanation was given of this failure to observe the contractual requirements; the appellant's solicitor simply said in evidence: "The payments were not made and we did not ask for them." On 4th February 1970 the Commissioner, claiming to act in pursuance of the powers given by ss. 166, 167, 168 and 205 of the Income Tax Assessment Act 1936-1969 Cth ("the Act"), issued a notice of assessment based on income derived by the appellant during the period from 1st July 1969 to 3rd February 1970. The notice showed the taxable income as $65,250, the tax payable as $39,983.45 and the date for payment as 5th February 1970. On 5th February 1970 the Commissioner served on the company a notice under s. 218 of the Act requiring the company, as a person by whom money was due to a taxpayer, to pay to the Commissioner the amount of $39,983.45 claimed to be due by the appellant in respect of tax. The company did not immediately comply with the notice but eventually sent to the appellant's solicitor a letter, which was received about the end of June 1970, requesting the appellant to sign a document indemnifying the company if it made the payment demanded. On 1st July 1970 the appellant's solicitor refused this request and said that he would neither authorize the company to pay the Commissioner nor ask it to refrain from making the payment, but asked the company, if it did pay the Commissioner, to send the balance to the appellant. On 21st July 1970, the company finally paid $39,983.45 to the Commissioner and on the same day paid $15,266.55, the balance of the sum of $65,250, to the appellant.

[23]

By cl. 1 of the agreement the appellant purported to sell to the company the exclusive right to publish and reproduce her life story and especially the story of her life with Biggs. This provision was of doubtful value. At the time the agreement was signed no story had been written. As a matter of construction "the life story" referred to in cl. 1 would appear to mean the life story embodied in the manuscript which was in due course to be signed by the appellant and which is referred to in cll. 2 (b), 3, 4, 7 and 8 of the agreement. If cl. 1 purported to confer on the company an exclusive right to publish any account of the life of the appellant, it would be quite illusory, for anyone who could obtain enough information to enable him to do so would be entitled, subject to such restrictions as the law of copyright and defamation might impose, to write a biography of the appellant. By cl. 4 the appellant purported to assign to the company her copyright in the manuscript which she intended to sign. It is clear, however, that, in the events which happened, the appellant had no copyright to assign. The stories were about her life but she did not write them, and they were not told in her words; the journalists who made the notes were not mere amanuenses who took down and transcribed word for word what she said, but they gave to the stories the form in which they finally appeared. In those circumstances the appellant, who had provided the ideas but not the form in which they were expressed, had no copyright: Donoghue v. Allied Newspapers Ltd. [1] . Clauses 5 and 7 of the agreement required the appellant to perform certain services for the company - to assist its agents, to make herself available for interview and to give information and to sign the manuscript. She, in fact, did these things. Clause 6 also required the appellant to make available (but not to sell or give away) all photographs and tokens in her possession relating to the subject matter of the agreement. It may be inferred from the fact that the articles when published did contain photographs that the appellant made some available; whether she made available any tokens (whatever they might be) does not appear. Clause 8 contained an undertaking by the appellant not to communicate with or make statements to others relative to the subject matter of the agreement and, in particular, not to give press, radio or television interviews on any subject within sixty days from the signing of the manuscript. This negative covenant was no doubt of real value to the company, but it was ancillary to the main purposes of the agreement.

[28]

I have not been referred to any case in which it has been held that information which was not acquired or used in connexion with a business should be treated as a capital asset whose disposal would result in the receipt of a capital gain rather than of income. In Trustees of Earl Haig v. Commissioners of Inland Revenue [6] , the trustees who had the right to publish the war diaries of Earl Haig gave to an author the right to make full use of the diaries so far as the public interest permitted and the sum received by the trustees as consideration for so doing was held to be a capital payment and not assessable to income tax. However, in that case, the trustees had the copyright in the diaries, which was indubitably property, and they did not merely sell information to the author, but in effect partially realized their copyright. On the other hand, in Hobbs v. Hussey [7] , the appellant, who had apparently been a notorious criminal, entered into a contract with a newspaper to write his reminiscences in a series of articles for payment of a sum of money. The contract involved the sale of the appellant's copyright in the articles, which had not been written at the time the contract was entered into. Lawrence J. held that the true nature of the transaction was the performance of services and that the profits were of a revenue nature. He further held that the fact that the transaction involved the sale of copyright did not affect the true nature of the transaction, since the sale of the copyright was merely ancillary. He said, [1] , that in his opinion, "the performance of services, although they may involve some subsidiary sale of property (e.g. dentures sold by a dentist) are in their essence of a revenue nature since they are the fruit of the individual's capacity which may be regarded in a sense as his capital but are not the capital itself". In that case the appellant himself wrote the articles but in Housden (Inspector of Taxes) v. Marshall [2] , a jockey agreed to make available to a newspaper company reminiscences of his life and of his experiences on the turf and to provide photographs and press cuttings and granted the company the first British serial rights in the reminiscences and authorized the company to publish the articles under his own name. In fact, the articles were written by a professional journalist, largely as a result of his own researches, although the appellant "vetted" the final product. The money paid to the appellant was held to be income. Harman J. held that the major effect of the agreement was that the appellant was paid for services rendered and that the right to use his name, which Harman J. seems to have regarded as a right of property, was merely subsidiary. The case is very similar to the present but it was suggested on behalf of the appellant that there is a ground of distinction between the two cases. In the present case the information which the appellant agreed to give related to matters which might properly be called secret, being known only to herself and Biggs and possibly to their confederates, whereas, according to Harman J., the appellant in the case before him - apparently an exemplary jockey - "had no secrets to impart, his life was open". However, as Latham C.J. pointed out in Federal Commissioner of Taxation v. United Aircraft Corporation [3] , knowledge does not become property simply because it is secret. In my opinion this circumstance does not distinguish the two cases.

[33]

Speaking generally, in the assessment of income the object is to discover what gains have during the period of account come home to the taxpayer in a realized or immediately realizable form. However the decision itself shows that his Honour did not intend to hold that moneys realizable, but not received, in an accounting period should always be treated as income derived during that period. Indeed, Dixon J. went on to advert to the distinction between trade and other sources of income drawn by Sir Houldsworth Shaw and Mr. Baker in their Law of Income Tax in the following passage which he cited [2] : There is an important distinction between debts due to a trading company and unpaid in a particular year or period and other income which is not a trade receipt. Trading debts due but not yet paid must be included in arriving at the balance of profits or gains. With regard, however, to other income there must be something "coming in"; that is, for income tax purposes, receivability without receipt is nothing. His conclusions on the question whether a receipts basis appropriately reflected the professional income of a medical practitioner were expressed as follows [3] : Where there is nothing analogous to a stock of vendible articles to be acquired or produced and carried by the taxpayer, where outstandings on the expenditure side do not correspond to, and are not naturally connected with, the outstandings on the earnings side, and where there is no fund of circulating capital from which income or profit must be detached for actual enjoyment, but where, on the contrary, the receipts represent in substance a reward for professional skill and personal work to which the expenditure on the other side of the account contributes only in a subsidiary or minor degree, then I think according to ordinary conceptions the receipts basis forms a fair and appropriate foundation for estimating professional income. But this is subject to one qualification. There must be continuity in the practice of the profession. 1. (1938) 63 C.L.R. 108, at pp. 152-154. 2. (1938) 63 C.L.R., at p. 155. 3. (1938) 63 C.L.R., at p. 155. 4. (1938) 63 C.L.R., at pp. 157-158.

[38]

Income shall be deemed to have been derived by a person although it is not actually paid over to him but is reinvested, accumulated, capitalized, carried to any reserve, sinking fund or insurance fund however designated, or otherwise dealt with on his behalf or as he directs. It was submitted on behalf of the Commissioner that the appellant had failed to show that the balance of the money due to her had not been dealt with on her behalf or in accordance with her directions. However, the evidence is simply that the appellant did not ask for payment and that the company refrained from making payment. On the evidence I decline to hold that the company held the balance of the money pursuant to a request by the appellant not to pay it. However, even if the company had deferred payment at the request of the appellant, s. 19 would not have applied. Income is not "dealt with", under s. 19, when all that happens is that a debtor refrains from paying his debt at the request of the borrower. In Permanent Trustee Co. of New South Wales Ltd. v. Commissioner of Taxation [1] , Rich J. said: "The object" (of s. 19) "is to prevent a taxpayer escaping though his resources have actually been increased by the accrual of the income and its transformation into some form of capital wealth or its utilization for some purpose But here the facts show that the deceased got nothing except a new obligation to pay in exchange for an existing obligation to pay. He was no nearer getting his money or of transferring it into anything of any value." He held in those circumstances that s. 19 did not apply. In the present case, even if the money had been retained at the request of the appellant, her position would have remained exactly as it was; the income would not have been used on her behalf and the company would have remained under an obligation to pay it to her. There is not the slightest ground in the present case for applying the provisions of s. 19. 1. [1940] 2 A.I.T.R. 109, at pp. 110-111.

Brent v Commissioner of Taxation - [1971] HCA 48 - HCA 1971 case summary — Zoe

At a glance

Court

Decision date

Before

Source

Judgment (40 paragraphs)

Parties