Broken Hill South Limited (Public Officer) v Commissioner of Taxation (NSW) [1937] HCA 4

Broken Hill South Limited (Public Officer) v Commissioner of Taxation (NSW) [1937] HCA 4 - HCA 1937 case summary — Zoe

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of any property in the State," and, therefore, is income within the meaning of that word as defined in sec. 4. That interest is income derived from a source in New South Wales, and comes within the scope and operation of the Acts. The literal meaning of the words of the Acts should not be restricted. A mortgagee who elects of his own free will to take as security for his debt property in New South Wales takes it subject to the laws of New South Wales. How far he accepts a charge and how much he puts upon it are matters entirely within his own control. It is immaterial whether the tax is one upon income, or is any other class of tax so long as it is a tax within the taxing power of the State. The source of the income is the covenant in the mortgage over the land in New South Wales (Commissioners of Taxation v. Jennings (1) ). The reasons which existed in Commissioner of Stamp Duties (N.S.W.) v. Millar (2) for rejecting the argument that death duty was the price of probate do not exist here. Here the tax imposed is the price which the legislature by its legislation has notified that it intends to charge those people who elect to use the State's resources for the protection of their mortgage debt. It is not contrary to comity or principles of international law for the legislature to say that any person who comes to the State shall pay a tax in relation to the specific purposes for which he desires to use the property in New South Wales. Where property in the State is used for a particular purpose it is competent for the State to tax the use made of that property (Walsh v. The Queen (3)). In that case the Privy Council impliedly held that the legislation there in question was valid. Under the circumstances there was jurisdiction to measure the quantum of the tax by reference to the property of the taxpayer wherever situated (Millar's Case (4) ). Here the holding of the security is the sole occasion for this par- ticular tax. The repayment of the principal and payment of interest is none the less secured by the mortgage of property in the State because it is secured by the mortgage of property elsewhere. When the legislature intended to use the word " exclusively " or the expression " wholly in the State" it has done so (see, e.g. 1928 Act, secs. 11 (b), 20 (1) (d), 26 (2)). Also, whenever it so

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the Act and therefore cannot be modified by that which "deems" income secured over property in New South Wales to have a local source. Apart from any such artificial definition or presumption, I should have no doubt that the debenture interest in the present case had not a source in New South Wales. It is interest payable out of New South Wales under an instrument held out of New South Wales securing money borrowed out of New South Wales by a company incorporated out of New South Wales from a lender residing out of New South Wales. But under the Act of 1928 I think that, if there were no question of exterritoriality controlling either the interpretation or the validity of the enactment, its pro- visions, construed according to their natural meaning, would suffice to make the debenture interest taxable. It may be right to limit the crucial part in the definition of " income" so as to avoid giving it an exterritorial effect, and, if so, the limitation proposed by the taxpayer has a good deal to commend it. That limitation is best expressed by saying that this part of the definition should be read as if it contained the word " wholly," so as to provide for the inclusion of interest wholly secured by the mortgage of any property in the State. But in any case I have arrived at the opinion that, unless it is so limited, in this or some similar manner, the provision must fail on the ground of exterritoriality. For unless it is so limited the provision amounts to an attempt to tax in New South Wales the whole amount payable for interest on any loan made anywhere in the world whenever any property situated in that State is included among the securities for payment of the interest. Thus a floating charge given by a ship-owning company over an undertaking extend- ing throughout many parts of the world and including many ships navigating the trade routes of the Empire would be brought under the definition if the undertaking happened to include a shelter shed for a tallyman on a Sydney wharf, and the whole interest on a huge debenture debt, although in no other respect connected with New South Wales, would be liable to New South Wales tax. It is said that the New South Wales legislature is empowered to impose a liability upon anyone who avails himself of the law of New South Wales to obtain any security or increase of security for the payment

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principal moneys and interest secured by the debentures. It also ae specifically charged in favour of the trustee certain real property in New South Wales (which was also the subject of a mortgage, hereafter mentioned), certain shares in a South Australian company, and in addition (but by way of floating charge only) all the undertaking and property of the company, both present and future, other than the specifically charged property and uncalled capital. The deben- tures were also supported by a mortgage, given by the B.A.L.M. Co. to the trustee, of certain lands in New South Wales. This instrument stated the consideration as the sum of £125,000 lent to the company by the trustee, but declared that the sum was the same as that secured by the debentures, and by it the company mortgaged to the trustee, for the purpose of securing the payment of the said principal sum and interest thereon, all its estate and interest in the said lands situated in the State of New South Wales, and covenanted to pay to the trustee the said principal sum and interest thereon. This mortgage was registered under the Real Property Act 1900 of New South Wales, and had effect as a security but did not operate as a transfer of the land charged (See Act. secs. 41 and 57). The appellant was a company incorporated in Victoria, but it was also registered as a foreign company in New South Wales, carrying on business there and elsewhere. It was the registered holder of several of the debentures issued by the B.A.L.M. Co., and kept them in Melbourne. It was paid interest in Melbourne by the B.A.L.M. Co. on the moneys secured by the debentures held by it during the income years already mentioned. It may be assumed that the interest was provided by the B.A.L.M. Co. out of funds available to it for the general purposes of its business, for there is nothing in the case suggesting that it issued from the lands in New South Wales charged or mortgaged for the benefit of the debenture holders. Now the Income Tax (Management) Act 1912 provides

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The proposed limitation upon the generality of the words involves the introduction of a qualification which the terms of the provision do not express or even insinuate. It would not avoid the taxation of interest in all cases where the source from which the income arises lies outside New South Wales, although it might lessen the frequency of such cases. For in many loan transactions, as, for instance, between banker and customer, the security provided and its situation has little or no bearing upon the locality of the source of the income derived by the lender. It ascribes to the legislature an intention of the most unlikely kind, namely, to tax if the security covers nothing but property in New South Wales, but to abstain from taxing if any other property whatever is included. Further, the phrase "secured by the mortgage of any property" seems to me to tend against the proposed construction because it refers to the act of mortgaging. In the provision making a mortgagor a representative taxpayer the expression is "' secured by a mortgage of any land." But this phrase again suggests that the existence of any mortgage and the inclusion of any land is enough. In my opinion the provision is not limited to cases where the money bearing the interest is secured over nothing but property in New South Wales. A quite different qualification is, I think, suggested by the argument based upon the introductory words in the definition of income which adopt source in New South Wales as the criterion, and upon the negative provision in sec. 10 (gy) which enacts that nothing in the statute shall apply to income derived from sources outside the State. For that argument appears to me to be founded upon the view that the requirement that the source of income shall not be outside the State is an over- riding one controlling the application of the special provision that interest upon money secured by the mortgage of property in the State should be deemed from such a source. The form of sec. 10 (g) clearly is that of a paramount exclusion and it ought to be so understood and applied. But in its application the question at once arises whether the locality of the source is to be determined entirely as a matter of fact and independently of statutory provision. Does it not rather depend on what the legislature has chosen to regard as a source of income? The paragraph relating to interest in the definition of income has the effect of determining that the

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H.C.or A due to non-residents in order to pay the tax for which they are ee liable, "a debenture holder or depositor in a company deriving Broken Hien income from a source in the State" is mentioned. It may be that fours Lr. the territorial basis intended by sec. 11 (i) is that the company Comms. derives income from a source in the State. Such a view would be Texans consistent with the history of the provision in the Commonwealth (N.S.W.). legislation (See Colonial Gas Association Ltd. v. Federal Commis- Dixon J. sioner of Taxation (1) ). If this is the meaning of sec. 11 (I), the debenture interest in the present case would fall within it. But a question would then arise as to its validity. For the fact that the company derives income from New South Wales affords little, if any, territorial connection between that State and the interest received by the debenture holders from the company. The existence of this special and express provision for the inclusion of interest upon debentures of companies in the assessable income of a person might perhaps appear exhaustive, so that it would be a wrong to treat the definition of income as covering such interest. But sec. 11 is framed to guard against any such construction. It does so by means of the words " without in any way limiting the meaning of the words," scil., "assessable income." Those words go back to the definition of "income." I think the same meaning as in the case of the analogous provision in the former Act should be given to the words in that definition, viz., "'and includes interest upon money secured by the mortgage of any property in the State." Unless a qualified interpretation be required in order to preserve the provisions from invalidity on the ground of extra-territoriality, I think that the definition of income covers the interest upon the debentures in the present case, so that it falls within the assessable income from which the taxable income is obtained. Perhaps it also falls within sec. 11 (9) if that provision is valid and is subject to no artificial limitation of meaning. Sec. 92 contains the now familiar provision requiring severance and restrictive interpretation when an enactment goes beyond power; a discussion of the effect of such provisions will be found in the note to Williams v. Standard Oil Co. of Louisiana (2) (See too Railroad Retirement Board v. Alton Railroad Co. (3) ). I do not see how sec. 17 of the Interpretation Act 1897

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