Commercial Banking Co of Sydney Ltd v Commissioner of Taxation

8. There is no dispute as to the amount of the securities held by the bank from which interest was derived which were included in the relevant year in the description contained in quoted par. (a) in s. 160AB. The amount of interest derived therefrom in the year was £439,774. The commissioner applied s. 160AB in the following manner. He made a deduction at a rate of one-half per cent as representing a proportion of general management expenses - £2,199. He then took the amount of interest paid by the bank upon deposits - £586,537. He distributed this proportionately according to values between what may be called the rebatable stock in respect of which the rebate under s. 160A was allowable (£20,179,473) and the total value of Australian assets of the bank (£84,472,435), thus arriving at an amount of £140,117. This amount was taken as representing a fair proportion of the interest upon the deposits which provided moneys out of which the investments in interest-bearing securities were made. These two sums, making £142,316, were deducted from £439,744, leaving a balance of £297,458. This sum was treated by the commissioner as the sum in respect of each pound in which a 2s. rebate was allowable. The contention of the bank is that a 2s. rebate should be allowed upon each pound in the amount of £439,774.

It was pointed out that the commissioner had used for the purpose of this calculation the value of all Australian assets irrespective of whether or not they produced income and that this basis was more favourable to the taxpayer than what might be regarded as a more justifiable basis, namely, taking the proportion of the value of the rebatable stock to the income-producing assets, or possibly taking the proportion of interest derived from the rebatable stock to the whole income of the bank.

9. The question is whether the commissioner was right in making a deduction from rebatable interest of amounts representing expenditure incurred in earning that interest. The answer to this question depends upon the interpretation of the words which introduce s. 160AB - "A taxpayer shall be entitled to a rebate in his assessment of an amount of two shillings for every pound of interest which is included in his taxable income and which is derived from" certain securities. It is argued for the taxpayer that the section applies in respect of every pound of interest, that is, in the present case, each and every pound included in the amount of £439,774. It is argued that this whole amount is "included in the taxable income" if it enters into the calculation of the taxable income. It was not explained how this interpretation could be adopted if, as might be the case, e.g. a taxpayer incurred large deductible losses, with the result that the taxable income was less than the amount of interest. But perhaps a sufficiently practical reply to this objection is provided by s. 160AD (a), which provides that "Notwithstanding anything contained in this or any other Act - (a) the sum of the rebates allowable under this Act shall not exceed the amount of tax which would otherwise be payable by the taxpayer."

The argument for the taxpayer is that the whole of the amount of £439,774 is included in the taxable income because it is taken into account in calculating that income and it is contended that Douglass v. Federal Commissioner of Taxation [1] established a general rule to this effect. But the decision in Douglass' Case [1] was a decision upon particular words which were difficult to construe and it was largely influenced by consideration of the policy of the Act, namely the avoidance of double taxation. It may further be observed in relation to Douglass' Case [1] that the deductions sought to be made in determining what part of certain dividends was included in the taxable income were in that case deductions which had no relation to the acquisition of that income. In the present case the Court is called upon to consider the precise words of s. 160AB and the deductions which the commissioner seeks to make are deductions which represent expenditure incurred in gaining the relevant income so that they may well be regarded as deductions properly made before the amount of that income which is included in taxable income can be ascertained. In my opinion Douglass' Case [1] should not be regarded as conclusive of the present case.

1. (1931) 45 C.L.R. 95. 2. (1931) 45 C.L.R. 95. 3. (1931) 45 C.L.R. 95. 4. (1931) 45 C.L.R. 95.

10. The taxable income of the company was £690,309. As already stated, the interest derived from rebatable stock was £439,774. The whole of this amount, it was said, was included in the taxable income of £690,309. An amount of £151,371 was interest on other securities not rebatable. But reasoning identical with that submitted on behalf of the taxpayer would reach the conclusion that the whole of this amount of £151,371 also was included in the taxable income. Accordingly upon that reasoning the sum of these amounts would be included in the taxable income of £690,309. The sum of those amounts (£439,774 plus £151,371) is £591,145. The balance of the taxable income was therefore £99,172. The assessable income was £2,458,864. If £591,145 is subtracted from this amount of assessable income, the remainder is £1,867,719. The result, therefore, of the reasoning of the taxpayer is that of the amount of £1,867,719 only £99,172 was included in the taxable income, whereas, of the taxable income consisting of £591,145 derived from Commonwealth interest, the whole amount was included in the taxable income. Such a result does not incline the mind towards accepting the reasoning which produces it.

1. (1931) 45 C.L.R. 95. 2. (1949) 79 C.L.R. 341. 3. (1932) 47 C.L.R. 538. 4. (1932) 47 C.L.R. 538. 5. (1932) 47 C.L.R. 538. 6. (1942) 66 C.L.R. 198. 7. (1931) 45 C.L.R. 95. 8. (1931) 45 C.L.R. 95. 9. (1931) 45 C.L.R. 95. 10. (1931) 45 C.L.R. 95.

In my opinion this reasoning on behalf of the taxpayer in effect strikes out of s. 160AB the words "which is included in his taxable income" and treats the section as if it read "A taxpayer shall be entitled in his assessment to a rebate of 2s. for every pound of interest which is derived from" certain securities. In other words the argument treats the section as applying to the amount of interest simpliciter without inquiring how much of the interest is included in the taxable income. No effect whatever is given by the argument to the words "which is included in his taxable income."

When it is intended to give a rebate upon a specific amount of money received by a taxpayer the legislature made definite provision to that effect. I refer for an example in the first place to s. 160, which refers to concessional rebates. That section contains this provision - "A taxpayer shall be entitled to a rebate in his assessment of tax equal to an amount ascertained by applying - (a) to each of the amounts set forth" the rate of tax appropriate to taxable incomes from personal exertion or to a company, as the case may be. There can be no doubt as to the interpretation of this provision. The amounts specified are taken and then a rebate is ascertained by applying a rate of tax to that amount. Similarly, in s. 160AA provision is made that a taxpayer shall be entitled to "a rebate" in his assessment of the amount obtained by applying to the amount of certain calls a particular rate of tax. Here again it is clear that the rebate is applied to the whole of a particular amount. But s. 160AB is quite different in character. It does not provide that a taxpayer shall be entitled to a rebate of 2s. for every pound of interest derived by him from certain securities. The rebate is allowed only upon every pound of such interest which is included in his taxable income. In my opinion the only way in which effect can be given to these words in the process of ascertaining for the purposes of s. 160AB how much of the interest to which the section relates is included in the taxable income of a taxpayer is to make some apportionment of deductions from assessable income between that interest and other income. It is not denied that if any apportionment is permissible the particular method adopted by the commissioner is not unfair to the company.

Accordingly I am of opinion that the appeal of the bank should be dismissed.

These are cross appeals from a decision of a Board of Review given by the Board upon an appeal by a taxpayer from an assessment. The taxpayer is the Commercial Banking Co. of Sydney Ltd. and the assessment is upon the income derived by the banking company during the year ended 30th June 1944. Section 20 of the Commonwealth Debt Conversion Act 1931 (No. 18) provided a protection from taxation for the interest upon "new securities" exchanged under the Commonwealth debt conversion plan for existing securities as defined in that Act: see s. 3. The banking company held a large amount of such securities during the financial year in question and the interest from those securities is included in its income. The protection from Federal income tax is not absolute. It is a protection to the extent by which the total amount of income tax which, but for s. 20, would be payable in respect of that interest exceeds the amount of income tax which would have been payable in respect of that interest if income tax had been imposed upon the taxable income of the person in the year of tax in accordance with the provisions of the Income Tax Acts 1930. The provision directs that, notwithstanding anything contained in any other Act, the interest derived by any person in any financial year from "new securities" exchanged for existing securities shall be free from any income tax payable under a law of the Commonwealth to that extent. It will be seen that to give effect to the provision it is necessary to ascertain the amount of income tax which would have been payable in respect of the interest if income tax had been imposed upon the taxable income in accordance with the provisions of the Income Tax Acts 1930. That having been done it becomes the limit, beyond which the interest upon the "new securities" is free of any income tax payable under a law of the Commonwealth. The expression "income tax" includes any tax imposed in respect of income. The limit having been fixed, therefore, it is to the advantage of the holder of the securities to bring as much as possible of the tax which, except for the operation of s. 20, he would pay as a result of his assessment under the words of exclusion or immunity, namely the words "free of any income tax to the extent by which the total amount of income tax which but for this section would be payable in respect of that interest exceeds" the limit.

But these words do not operate according to their natural meaning. They are subject to a special provision contained in sub-s. (2) of s. 20. That sub-section provides that in determining for the purposes of the section the amount of income tax which would be payable in respect of interest to which the section applies, the rate of tax shall be applied to the whole amount of the interest from "new securities" included in the income of the taxpayer without any deduction except such part, if any, of the deductions allowable from the income of the taxpayer derived from property as in the opinion of the Commissioner of Taxation is properly attributable to the interest. This provision deals explicitly, though artificially, with the problem necessarily involved in ascertaining how much of the taxable income represents interest included in the assessable income. Such a problem is inherent in a system which ascertains taxable income by massing all gross income on one side and all deductions on the other side and treating the taxable income as the excess of the former over the latter. Sub-section (2) deals with it simply. It takes the amount of interest included in "the income," that is, gross income, of the taxpayer and it forbids any deduction from that interest except deductions of the character the sub-section describes. It being to the advantage of the taxpayer to apply the limited immunity to as large a part of the taxable income as possible, it follows that his interests are best served by showing that there are no such deductions and the whole of the interest therefore obtains the qualified immunity.

Two of the questions in these cases arise from a contention of the commissioner that in ascertaining the extent of the freedom conferred deductions should be thrown against the interest upon "new securities" held by the bank. One contention concerns the assessment for the purposes of ordinary tax; the other for the purposes of the assessment of the further tax provided for by Part IIIA, that is ss. 160A to 160E. The deductions which sub-s. (2) of s. 20 authorizes by way of exception are such part of the deductions allowable from the income of the taxpayer derived from property as in the opinion of the Commissioner of Taxation is properly attributable to the interest.

The commissioner says that deductions of this character should be made falling under two heads. He says, first, that the general management expenses should be apportioned so that a small part should be attributed to the receipt of the interest. He fixes this at one-half per cent of the interest received. In the next place he says that as the bank obtains at interest a great part of the funds which are laid out in the securities in question as well as in the various investments and other employments of money by which the bank gains interest, a proper proportion of the interest paid by the bank should be thrown against the interest received by the bank on "new securities" as a deduction. The commissioner arrives at what he considers a proper ratio by taking that proportion which the amount of the "new securities" bore to the amount of the total Australian assets of the banking company. It, of course, produced a large deduction.

The question for consideration is whether this can be justified as a deduction allowable from the income derived from property. The meaning of the expression "income derived from property" in s. 20 (2) is perhaps not beyond dispute, but I think it must be taken to refer to the distinction made by the Income Tax Assessment Act applicable to any given year with reference to which an assessment must be made between income from property and income from personal exertion. It is true that that distinction is not relevant to the taxation of a company except during the times when a further tax was payable upon the taxable income derived by any person from property. It is also true that in one sense ultimately all deductions are allowable from the income of a taxpayer derived from property in the same sense as all deductions are ultimately allowable from his income derived from personal exertion. The distinction, however, must be made for the purposes of rate in the case of an individual. Obviously sub-s. (2) refers to a distinction existing for the purposes of administering the Income Tax Assessment Acts. The purpose of the distinction is immaterial. It is therefore necessary to turn to the definition of income from property contained in the Income Tax Assessment Act.

The definition is, of course, "all income not being income from personal exertion." That throws one back on the definition of "income from personal exertion." It includes the proceeds of any business carried on by the taxpayer. But there is a special exclusion of interest unless the taxpayer's principal business consists of the lending of money or unless the interest is received in respect of a debt due to the taxpayer for goods supplied or services rendered by him in the course of his business. I think that if a taxpayer is brought within what I may call the "unless" clause, that is the exception to the exclusion of interest, the result is simply that his case is not governed by the peremptory exclusion of interest from income from personal exertion. In other words, it is not an absolutely necessary consequence that the interest is derived from personal exertion. It just becomes a question to be decided by a proper application of the rest of the definition of "income from personal exertion."

In the present cases the bank claims that it does come within the "unless" clause because it is a taxpayer whose principal business consists of the lending of money. This the commissioner denies. The matter must in some degree depend on an analysis of the business of banking or of the business of this particular bank but in the end it depends less on this than upon a proper understanding of the meaning of the provision. It is, of course, true that the lending of money is a most important part of the general business of banking. It is also true that the business of banking considered as a separate business and not as forming simply one example of the business of lending money is not easily capable of definition. But the plain object of this particular provision of the definition is to allow a taxpayer the benefit of the rate for personal exertion where in truth the obtaining of interest is the substantial purpose of his business, if the interest is obtained by the lending of money. When, in ordinary understanding, what in point of law is interest is in substance a profit dependent upon the pursuit of organized business activities it is income from personal exertion. The word "principal" is introduced in order to exclude incidental and subsidiary activities in a business, but if the chief part of the business from which the profit is obtained consists of the lending of money that is enough. A banker's business may be said to be that of dealing in money. A great part of organized banking consists in the performance of services for customers which result in the banker having at his command large funds. But, extensive and important as those services are, and indispensable as they are to the acquisition of funds, if it stopped at that the banker would make no profit. The profit-making side of his activities is in putting out the money so as to increase it, and that substantially means to obtain interest. If attention is riveted upon the relations of the banker to his customer and the amount of work done in that respect it might be thought that to say that the principal business consists of the lending of money is to ignore all the business done with customers whose accounts are in credit as well as much else besides. But if attention is riveted on the activities of banking in which the money is used or laid out it would seem correct to say that the decisively profit-making side of the business is concerned with the lending of money. Doubtless the distinction is not irrelevant between advances on overdraft, the deposits with the Commonwealth Bank pursuant to the National Security Regulations and, after the period with which we are concerned, the Banking Act 1945, the discount of treasury bills, the taking up of Australian Government securities on issue and the purchase of them in the market. But of these various kinds of outlay to obtain interest I think the only one which does not amount to the lending of money in point of law is the purchase of Australian Government securities in the market. There a security representing money lent is purchased. But I do not think that because a business seeking its profit in interest does not stop at lending but also includes the taking over, so to speak, of a loan already made at interest, it can for that reason be said to be a business which does not principally consist of the lending of money. On the whole I think the Board of Review was right in holding that the taxpayer's principal business consisted of the lending of money.

I am therefore of opinion that the deductions made by the commissioner do not come within the exception expressed in sub-s. (2) of s. 20 of the Commonwealth Debt Conversion Act 1931 and do come within the prohibition contained in the words "without any deduction."

The problem of the application of s. 20 to the further tax under Part IIIA is affected by the conclusion I have stated, but it is not the same problem. Part IIIA levies a further tax at the rate declared by the Parliament on that portion of the taxable income of a company which has not been distributed as dividends: s. 160B. But again that is an artificially defined conception. The taxable income of a company not distributed as dividends is ascertained under s. 160C. It is done by taking the taxable income of a company and making from it prescribed deductions. The relevant deductions are (1) taxes paid in the year of income; (2) the net loss incurred in carrying on the taxpayer's business out of Australia; and (3) the amount of dividends paid out of the taxable income of the year of income before the expiration of six months after the close of that year. The further tax is paid upon the balance, that is to say the excess of the taxable income over these deductions. Clearly enough s. 20 gives an immunity from further tax so far as it relates to an amount of interest included in the income of the taxpayer and, having regard to what I have already decided, that must be without any deduction.

But it is not easy to apply the conception of s. 20 to a further tax on a part only of the taxable income. In terms s. 20 (2) forbids the making of deductions. It seems an easy solution to say that in applying the immunity given by s. 20 the deductions directed by s. 160C must therefore be ignored and in the end I have come to the conclusion that it is the right solution. But the view of the commissioner has been that it is necessary to trace into the taxable fund the interest which is entitled to the protection and that that is the first step. He accordingly places what he considers a due proportion of the loss incurred in overseas trading against the interest, a due proportion (somewhat differently ascertained) of the taxes paid in a previous year and an aliquot or proportionate part of the amount distributed in dividend. The rest of the interest, he says, is reflected in or represented in the taxable fund and is alone entitled to the limited tax immunity. In the case of the proportion of tax he takes that amount of tax which became payable in the previous year by reason of the possession of the same or like securities. The other two deductions are proportioned upon the basis that when deductions are made from a total fund a proportionate part is made from each pound in that fund. In my opinion this reasoning cannot be justified. There is, I think, a distinction between the dividend and the other two deductions. The dividend is a payment made by the company in whose choice it was to declare it out of any available source. In declaring it out of the taxable income from the year, as appears to have been done, an intention to declare it ratably out of each and every part of the taxable income may perhaps be presumed or imputed. The other two deductions are made by statute. That is s. 160C seems to have no intention except to prescribe an arithmetical sum consisting of the aggregation of a number of deductions and a subtraction thereof from a prescribed total, namely the taxable income. There is in my opinion no foothold for the commissioner's assertion that these deductions are to be imputed ratably to the interest as well as the other ingredients in the assessable income. The effect is to detract from both the policy of s. 20 (2) and the provision in which it is expressed by diminishing the amount of interest which is to obtain the advantage. There is more to be said for the commissioner's view in the case of the dividend for the reason I have given. As against it the taxpayer resorts to the alleged presumption that a taxpayer allocates payments in such a way as will not expose him to tax. I have expressed my views upon this presumption in Symon's Case [1] and Resch's Case [2] , and I see no reason to depart from the views I then expressed. But the presumption that the taxpayer intended to distribute the dividend ratably out of each and every part of the fund depends upon a legal principle which I do not think is applicable to the question that we have to decide. That question is not how much of the interest is contained in the taxable subject resulting from the application of s. 160C. It is how far the provisions of s. 160C are overreached by the provisions of s. 20 (2) of the Commonwealth Debt Conversion Act. On the whole I think that s. 20 (2) must be construed and applied according to its terms and therefore as forbidding the making of any deduction from the interest including the deduction of a ratable part of the dividend.

1. (1932) 47 C.L.R., at pp. 549 et seq. 2. (1942) 66 C.L.R., at pp. 229, 230.

I now turn to a third question covered by the appeals. Included in the assessable income is a large sum of interest upon securities which do not fall within s. 20 of the Commonwealth Debt Conversion Act 1931. It is therefore interest which is entitled to the benefit of a rebate under s. 160AB. That provision directs that a taxpayer shall be entitled to a rebate in his assessment of an amount of 2s. for every pound of interest which is included in his taxable income and which is derived from bonds, debentures, stock or other securities issued by the Commonwealth Government, except securities to which s. 20 of the Commonwealth Debt Conversion Act 1931 or s. 52B (2) of the Commonwealth Inscribed Stock Act 1911-1940 applies, or by the Government of a State or by certain other public bodies. In ascertaining the amount of interest included in the taxable income the commissioner has thrown against the interest deductions which he considers appropriate to it. Again he has taken an amount of the administration expenses and adopted one-half per cent of the amount received as a proper proportion. He has, however, made a very large deduction consisting of what he considers an appropriate proportion of the interest paid by the banking company on deposits bearing interest. He has arrived at this by taking the proportion which the total of the securities held by the bank to which s. 160AB applies bears to the total of the Australian assets. This proportion is applied to the interest paid on interest-bearing deposits. The theory is that some expenditure upon interest is a necessary result of the holding of the securities which produce the interest on which the rebate is claimed. The commissioner says that how much of the interest is included in the taxable income within the meaning of s. 160AB can only be ascertained by taking the interest contained in the assessable income and throwing against it deductions which are attributable to the interest. Only the residue of the interest is contained in the taxable income.

When it is asked how much of an item forming an ingredient in a gross sum from which deductions are made is "included" in the net sum the question must immediately be provoked - What do you mean by included? In Douglass' Case [1] I pointed out that there appeared to be two methods of answering a question how much of the item is included in the net residue and that it was a question of interpretation, dependent largely upon the subject matter and the context, which of the two methods was intended. One way is to treat the question as meaning by how much is the net residue increased by reason of the presence of the item in the gross sum. If that is the meaning of the question the deductions must be divided into two contrasted classes. There may be deductions which would not be allowable but for the inclusion of the item of assessable income in the assessable income. In other words they may be expenses which would not be allowable deductions were it not for the fact that the income is included. It is not easy to imagine any important expenses of that character in relation to interest. But let it be supposed that for some exceptional reason the taxpayer had employed an agent to collect interest on his Government securities. The commission or remuneration of the agent for so doing would not be allowable except by reason of the inclusion of the interest in the assessable income and, accordingly, would be indissolubly associated with it. That is one class of deductions. The other class of deductions would be all those that would be allowable against the assessable income independently of the presence in the assessable income of the given item (in this case interest). If the meaning of "included in the taxable income" is that stated, viz. a reference to the amount by which the net balance is increased by reason of the presence of the item in the gross sum, then the second class of deductions must be ignored. No part of them can be thrown against the item. The first class of deductions should be made from the item because the net balance is only increased by the inclusion of the net amount of the item.

The other possible interpretation to be attached to the word "included" is that it means the proportion of the given item of the assessable income which remains in the taxable income after all the deductions have been made. In arriving at that proportion the same division of deductions into two parts must be made, but for a different purpose. The first class of the deductions would be thrown altogether against the particular item. The remaining deductions would be dealt with as follows. They would be examined to see if any particular one of them was in like manner indissolubly associated with some other particular item of revenue included in the assessable income. If so, it would be thrown against that item. That process having been gone through, the deductions which were, so to speak, common to the whole would then be ratably apportioned.

It will be seen that the commissioner has not done exactly either of these things. He has not chosen one or other of the rival interpretations and applied it inflexibly. For myself I do not see a logical justification for the exact thing that he has done. I suspect that he has pursued a line of reasoning which is more in accordance with the first of the above-suggested interpretations, but in carrying it out has attempted to find a proportionate part of expenditure by the bank which he thinks the bank could not have avoided while at the same time retaining the interest-bearing securities. It is necessary to decide which of the possible interpretations is to be attached to s. 160AB when it uses the expression "which is included in the taxable income."

I think the decision must be reached on broad lines of statutory interpretation. The purpose of s. 160AB is to ensure to a taxpayer who invests in particular loans a definite rebate. The assurance is held out to him in order to induce him so to invest, because it is to the public advantage that investments of that character should be made. The purpose is in effect to say - If you make this interest from those securities a form of your income, from the tax upon that income you will obtain a rebate. The point of view both of the legislature and of the taxpayer who acted upon the assurance would more naturally be that he was to be assured of a rebate on the amount by which his income is increased by the inclusion of interest upon the specified securities. I construe s. 160AB as in effect meaning that a taxpayer is to be entitled to a rebate in his assessment of an amount of 2s. for every pound of interest by reason of the inclusion of which in his assessable income his taxable income has been increased. It will be seen that upon this meaning the rebate cannot be upon more than the taxable income which, of course, is obvious enough, and, further, that if there are any special deductions which, but for the inclusion of the interest in the assessable income, would not be allowable, they are to be thrown against it. None of the deductions, however, in the present cases are of this character. The result of the views I have expressed is that in my opinion two declarations should be made. The first is a declaration that for the purposes of s. 20 (2) of the Commonwealth Debt Conversion Act 1931, both in its application to the ascertainment of ordinary tax and of further tax, no deduction should be made from the amount of interest to which s. 20 applies. The second declaration is that for the purpose of ascertaining the rebate under s. 160AB upon the amount of interest to which s. 160AB applies derived by the taxpayer during the year of income the whole of the interest is to be taken to be included in its taxable income. I think that the taxpayer's appeal should be allowed with costs and the commissioner's appeal should be dismissed with costs.

In my opinion the taxpayer's appeal should be allowed with costs and the commissioner's appeal should be dismissed with costs.

On both these appeals I am in substantial agreement with the reasons of Dixon J. I also agree with the declarations which he proposes. In my opinion the appeal of the bank should be allowed and the appeal of the Commissioner of Taxation dismissed.

The bank's appeal: I am unable to distinguish this case from Douglass v. Federal Commissioner of Taxation [1] or Carpenters Investment Trading Co. Ltd. v. Federal Commissioner of Taxation [2] . As counsel for the appellant bank pointed out, the exemption in s. 160AB, is of interest, and not of income from interest, and to give effect to the exemption in those words it is necessary to treat the word "included" in s. 160AB as referring to the amount by which the taxable income is increased by reason of the presence of the interest in the assessable income. The choice is between regarding the expression "included in the taxable income" as elliptical, that is as meaning "included in the calculation of the taxable income," and attributing to the legislature the use of an expression that conveys that the items included in the aggregate sum from which the deductions are made continue to be identifiable in the remainder. But even if each pound of interest could be viewed as truncated or shrunken - to employ expressions used by the Chief Justice and counsel for the bank in the course of the argument - so as to be identifiable in the remainder I think the exemption would still be in respect of every pound of interest in its reduced form. However, I think that, even if there were no deductions from the interest, or other item of assessable income, it would not be identifiable in the single figure that represents the taxable income; you must go back further in the calculation for that. The interest then is included in the taxable income in the sense that it is to be taken into the calculation in arriving at the taxable income. But it is a rebate from the taxable income that is granted, and, of course, it is limited by the taxable income.

1. (1931) 45 C.L.R. 95. 2. (1949) 79 C.L.R. 341.

In Douglass' Case [1] and Carpenters Case [2] the Court gave the words their ordinary meaning: there was no straining of language to avoid double taxation. The words of exemption given their natural meaning secured that result.

1. (1931) 45 C.L.R. 95. 2. (1949) 79 C.L.R. 341.

The commissioner's appeal: I think the decision of the Board of Review was right, and I have nothing to add to the reasons for sustaining it given by the Chief Justice and Dixon J.

I have read the judgment of my brother Dixon in this case, and, as to all three of the questions involved in the two appeals, I agree with it. On two of those questions I do not wish to add anything. On the question arising under s. 160AB I wish to add two observations.

In the first place, the argument of the taxpayer did not, as I understood it, invite us to ignore the words "included in the taxable income" in s. 160AB, or to read the words "taxable income" as if they were "assessable income." I took it to concede that, for the purpose of calculating the rebate on the interest under s. 160AB, it would be proper to subtract from the gross amount of interest any amount which only became an allowable deduction from assessable income because of the inclusion of the interest in the assessable income. The average investor probably simply collects his interest or has it paid into his bank, and incurs no deductible expenditure in so doing. But there must be many cases in which an agent or trustee collects interest for a client or beneficiary and charges a commission for so doing. I should suppose that the commission so charged would be deductible both for the purpose of calculating the taxable income of the client or beneficiary and for the purpose of calculating his rebate under s. 160AB. Where, but only where, no expenditure can be actually attributed to the receipt of the interest so as to be deductible because of the receipt of the interest, the rebate is to be calculated on the gross amount of the interest.

The second observation I would make is this. Under our system taxable income is arrived at by subtracting allowable deductions from assessable income. In the "difference" which results from the subtraction the items which went to make up the assessable income have commonly lost their identity. There is, therefore, a degree of inaccuracy in speaking of an amount which entered into the assessable income as being "included in the taxable income": cf. the example given by Dixon J. in Douglass v. Federal Commissioner of Taxation [1] . But, as Starke J. said in that case [2] it has been "included in account," and it seems to me to be the natural and proper way of reading the critical expression in s. 160AB to read it as referring to the amount by which the taxable income is increased through the inclusion of the interest in the calculation. Any other paraphrase of words which cannot be applied with absolute strictness seems to me to depart from the meaning really conveyed by those words.

1. (1931) 45 C.L.R., at p. 105. 2. (1931) 45 C.L.R., at p. 103.

In my opinion, the appeal of the taxpayer should be allowed, and the appeal of the commissioner dismissed, and I agree that the declarations proposed by Dixon J. should be made.