Commissioner of Taxation (Cth) v Angus

1. (1958) 98 C.L.R. 345. 2. (1959) 103 C.L.R. 632. 3. (1947) 73 C.L.R. 282. 4. (1958) 98 C.L.R. 345. 5. (1958) 98 C.L.R. 345.

For the Commissioner it has not been suggested, by argument or otherwise, that sub-s. (1A) of s. 44 can apply to the actual facts so as to exclude the application of s. 23 (q) if it otherwise applies, but the question remains whether upon those facts it does apply to give the protection or exemption claimed on the part of the taxpayer. The facts, as distinguished from the provisions of the Singapore Income Tax Ordinance, are soon stated. The taxpayer, Mrs. Ellen Constance Angus, is one of three children of the late C. F. F. Wearne of Singapore who died on 23rd July 1944 leaving a will which was admitted to probate by the Supreme Court of Western Australia. The probate was resealed by the High Court of the Colony of Singapore. He left surviving him his wife and his three children, that is to say, two sons and his daughter Mrs. Angus. He appointed his sons the executors and trustees of his will and he devised and bequeathed to them his property upon trust to convert the same, except his shares in Western Investments Ltd. After payment of liabilities and the like the proceeds of conversion and the shares were to form a trust fund. The trustees were directed to hold the trust fund upon trust to pay the income to the testator's wife for her life and after her death to pay the income of the trust fund to the three children in equal shares for their lives. There followed limitations in remainder after the death of each child with which we need not concern ourselves. The widow died on 14th January 1954, that is nearly six months before the commencement of the year of income to which the assessment under appeal relates. Some six years before her death she had by deed surrendered her life interest and thus accelerated the life estates of her children in remainder, but that perhaps upon her death became of no importance.

At the death of C. F. F. Wearne he held 406,973 shares in Western Investments Ltd. and his name stood upon the company's share register as the holder of those shares, though there was noted in the share register the fact and the date of his death and the grant of probate by the Supreme Court of Western Australia to his executors who were named and the reseal of the probate by the High Court of the Colony of Singapore. No change was otherwise made after his death in the register with respect to the shares and there they remain standing in the testator's name subject to the foregoing note. By the year of income they were the only assets remaining in the residuary estate. Some years before the trustees had apparently given directions that the taxpayer's proportion of the dividends should be paid directly to her by the company. The trustees, who reside and are domiciled in Singapore, were directors of Western Investments Ltd. and doubtless the directions were given to the secretary, who acted upon them in the year of income. The taxpayer in fact received during that year £17,378 6s. 6d. (in Australian money) representing her share of two dividends. The amount was the Australian equivalent of 119,379.33 Singapore dollars and that sum represented one third of the amounts of dividend of that year paid by the company in respect of the shares registered in the name of the deceased testator.

It is necessary to go now to the Singapore Income Tax Ordinance. By the terminology which the Ordinance employs a taxpayer's net income to be taxed is called the chargeable income, not as we call it the taxable income. The chargeable income of a company is taxed at the rate of thirty per cent: that rate applies also to the chargeable income of a non-resident person and moreover to the chargeable income of a trustee and an executor (s. 43). The identity of the rates in all three cases is rather a coincidence or accident; it has not always been so. A company resident in the Colony of Singapore is entitled (but not bound) to deduct from the amount of any dividend paid to a shareholder tax at the rate paid or payable by the company (subject to an irrelevant qualification) on the chargeable income of the year of assessment within which the dividend is declared (s. 44 (1)). Western Investments Ltd. had in fact made a deduction on account of tax. In other words it had not declared a "tax free" dividend. Without such a deduction the dividend paid to the taxpayer would have been %5B169,572.91. A company, whether making such a deduction or not, was bound upon payment of the dividend to furnish the shareholder with a certificate setting forth the amount of the dividend paid to the shareholder and the amount of tax which the company has deducted or was entitled to deduct in respect of the dividend (s. 44 (2)). The company furnished such a certificate or certificates to the taxpayer showing that %5B50,193.58 had been deducted. As a shareholder receiving dividends from a company registered and carrying on business in Singapore the taxpayer would be liable to include them in her chargeable income under the Ordinance. But as a beneficiary receiving the same moneys from a trust in Singapore holding the shares she was equally liable to include them in her chargeable income. At first she returned the dividends in the former character but later she corrected that and attributed them to the latter character. The taxation authorities in Singapore said that it made no difference. Now although she was bound to return the amount representing the dividends as part of her chargeable income, her liability to tax was met by a provision of the Ordinance which so far as material said that any tax (a) which a person (a word including a company) has deducted from any dividend or is entitled to deduct from any dividend under the provision already quoted; (b) applicable to the share to which any person is entitled in the income of a trust, should, when such dividend or share is included in the chargeable income of any person be set off for the purposes of collection against the tax charged on that chargeable income. (sec. 46). In the foregoing provision it seems clear enough that par. (b) describes an alternative case and means to refer to any tax applicable to a share of income of a trust as another subject of set-off. The liability of the taxpayer to tax upon the amount paid to her as dividends was in fact met or absolved by "the set-off for the purposes of collection" of the amount deducted from the dividend by the company. Nay more, for it chanced that by reason of a relief to which she was entitled from her full tax upon her chargeable income she obtained a right to a refund of part of the tax. Her chargeable income in fact included other items as well as the amounts representing the dividends of the company, and when the relief was calculated the operation of the set-off was to leave a balance in her favour. The tax authorities in Singapore made the refund.

It is in these circumstances that the question arises whether s. 23 (q) applies to exempt from tax the moneys which the taxpayer received as dividends. It seems reasonably plain that she ought not to be regarded as a shareholder receiving dividends but as a beneficiary of a trust. Although they have never been formally placed upon the company's register, it seems that the executors (or trustees) should be regarded as the shareholders for the purpose of payment of dividend and any consequent tax thereon: see Halsbury's Laws of England, 3rd ed., vol. 6, pp. 262, 263 and the cases there cited and A. L. Campbell & Co. Pty. Ltd. v. Federal Commissioner of Taxation [1] .

Notwithstanding the acceptance on the part of the Commissioner of the assumption that sub-s. (1A) of s. 44 cannot prevent the application of s. 23 (q) to this case if otherwise it be applicable it is not easy to avoid some uneasiness at the seeming anomaly that is occasioned. For apparently if the appellant had been entitled to the shares instead of an equitable life interest in them and had been registered accordingly she could have had no recourse to s. 23 (q); but because she has an equitable life interest only and is not the shareholder her recourse to s. 23 (q) is not barred by sub-s. (1A) of s. 44. The logical justification however lies in the fact that as a cestui que trust only she could never claim under s. 45, quite apart from Hughes' Case [1] . In the present case the taxpayer actually received her income directly but she received it as income from a trust estate, at all events considering it de jure. Had the trustees received it and held it for her without paying it over, possibly s. 97 (1) would have applied and she might have been taxable: sub-s. (2) of s. 27 would not have applied because presumably sub-s. (1A) of s. 44 would have operated to exclude the income of the trust estate from exemption, if otherwise s. 23 (q) could have been regarded as applicable to the net income of the trust estate. But as she received the income directly from Singapore the first question under s. 23 (q) seems simply to depend upon the application of the words of the paragraph "not exempt from income tax in the country where it is derived" to the income received by her in the character of a cestui que trust or in other words as the income to which she was entitled under the trusts the executors or trustees were bound to administer.

It is hardly necessary to say that the problem arises from the particular solution which the Singapore Ordinance gives of the difficulty which confronts every system of taxation of knowing how to deal with profits earned by companies and trusts but distributed to individuals who enjoy the full use of them, particularly if the tax upon the individuals is graduated. It may be remarked that speaking generally the tax upon the individual under the Singapore Ordinance is graduated but it so happens that a flat rate of thirty per cent is imposed upon the income of a resident abroad. It is a mere coincidence that the flat rate was at that time the same as the flat rate imposed upon companies. When the rates differed the operation of the Singapore system of set-off could be seen more clearly because the amounts set off were unequal. That is of course the case more often than not when the shareholder is a resident liable to a tax upon the graduated scale. The relief which is conceded by the Ordinance to a non-resident taxpayer if he is a British subject (s. 47) has a similar operation in bringing about in inequality in the tax which a company may deduct and the tax for which the shareholder is or may be liable. In this way it can be seen that the Ordinance takes the course of exposing the dividends received by a shareholder and income received by a cestui que trust including of course a non-resident shareholder or cestui que trust to tax in their hands but giving the shareholder and the cestui que trust a right to set off the tax payable in respect of those dividends or that income by the company or trustee. The identity of the subject of the tax is substantially maintained. The company is entitled to deduct from the amount of the dividend paid to the shareholder tax paid or payable by it on the chargeable income of the year within which the dividend is declared and it is the tax which has been or might have been so deducted which is set off (s. 44 (1) and s. 46 (a)). In the case of a trust it is the tax applicable to the share of income that is set off. (s. 46 (b)). That means thirty per cent for a trustee or an executor, a word defined to include any person administering the estate of a deceased person. (s. 43 (b): s. 2). Under this machinery the conclusion seems necessary that the income received by Mrs. Angus, the taxpayer, was exposed to Singapore tax and therefore was not exempt from income tax in the country where it was derived.

But another somewhat difficult problem arises under the proviso to s. 23 (q) set out at the beginning of this judgment. In terms it says that par. (q) shall not apply to exempt any income unless one or other of the two conditions it sets out is satisfied. The second condition, that lettered (b), can have nothing to do with this case and if it be right that the application of par. (q) is excluded unless one or other condition is fulfilled, the question is whether the condition lettered (a) can be said to apply or to be fulfilled. Condition (a) says where there is a liability for the payment of income tax in the country where that income is derived, the Commissioner is to be satisfied that the tax has been or will be paid. Condition (b) deals with the case where the outgoings incurred in producing the income exceed that income and requires that in that case the Commissioner shall be satisfied that the tax would have been paid if the income had exceeded the outgoings. It would seem that it was supposed that the two conditions would cover the whole ground. Yet reflection will show that they do not. For example the income might exceed the outgoings yet by so little that the minimum amount of taxable income in the country abroad is not reached. It may be that what the proviso meant to say is that where case (a) occurred the Commissioner must be satisfied of payment and where case (b) occurred he must be satisfied that payment of tax otherwise would have been made and that it meant to say nothing as to the application of par. (q) where neither case (a) or case (b) occurred but par. (q) on its terms was nevertheless applicable. The proviso is not expressed in a form which grammatically carries this meaning. To begin with not only the "unless" but also the prohibitive words are outside the two conditions. But in spite of the manner in which the proviso is constructed it may be found possible as well as proper to interpret it in that sense. However that may be, it is clear enough that condition (a) should not be narrowly construed. The liability for payment of income tax should be understood to include every description of liability which would be sufficient to make it true that the income was not exempt from payment of income tax in the country where the income is derived and the word "payment" should correlatively be construed as covering every kind of discharge of that liability which in that country was accepted as the equivalent of payment. After all what condition (a) is aiming at is ensuring that the foreign tax liability relied upon to bring the case within s. 23 (q) will be discharged. In the present case the discharge is by a statutory set-off which is a reality. An understanding of the machinery provided by the Ordinance shows it is a reality; witness the refund of part of the tax.

There is nothing in Hughes' Case [1] inconsistent with this view of the matter. Indeed Hughes' Case [1] in some respects adheres to the same reasoning. For one reason given for the conclusion that the companies in that case had not paid the dividends in full to the taxpayer so as to satisfy the condition expressed in s. 45 of the Income Tax and Social Services Contribution Assessment Act of the Commonwealth was that the company paid its own tax and not in a representative capacity so that the difference between the amount of the dividend paid by the company to the taxpayer could not be treated as paid as an agent for the taxpayer and on the taxpayer's behalf. It is quite consistent with that view that the dividends, regarded either as dividends or as trust distributions, should not be exempt from tax under the provisions of the Singapore Ordinance and that the process of setting off the rate of tax paid by the company against the taxpayer's liability was a sufficient "payment", whether it operated as a discharge in full as in this case or as a discharge pro tanto. The reasons of Menzies J. in Brohier's Case [2] analyse Hughes' Case [1] which his Honour applied in a way that brings out the same points. In Brohier's Case [2] the taxpayer was a shareholder and the question related to dividends received in that capacity. Sub-section (1A) of s. 44 therefore excluded s. 23 (q) and the question, like that in Hughes' Case [1] , necessarily arose on s. 45. There is nothing in the reasons of Menzies J. which has the least tendency against the conclusion that s. 23 (q) operates in the present case.

1. (1958) 98 C.L.R. 345. 2. (1958) 98 C.L.R. 345. 3. (1959) 103 C.L.R. 632. 4. (1958) 98 C.L.R. 345. 5. (1959) 103 C.L.R. 632. 6. (1958) 98 C.L.R. 345.

For the foregoing reasons the decision of the Board of Review in the present case was correct and the appeal accordingly should be dismissed.

This is an appeal by the Commissioner of Taxation under s. 196 of the Income Tax and Social Services Contribution Assessment Act 1936-1954 against a decision of a Board of Review. An order was made under s. 18 of the Judiciary Act that the case be argued before a Full Court. The question is whether certain income derived by the respondent taxpayer during the year ended 30th June 1955 is exempt from income tax by virtue of s. 23 (q) of the Act. Section 23, so far as material, provides: - "The following income shall be exempt from income tax (q) Income derived by a resident from sources out of Australia, where that income is not exempt from income tax in the country where it is derived." There is a proviso to this paragraph, which is of importance in the case, and to which I will refer later.

The respondent taxpayer, Mrs. Ellen Constance Angus, is the wife of Mr. Q. S. W. Angus. Both she and her husband were at all material times resident in Australia. The taxpayer is a daughter of Charles Frederick Foster Wearne, who died on 23rd July 1944, leaving a will dated 1st November 1941. By that will the testator appointed two brothers of the taxpayer, Walter John Wearne and Frederick Foster Wearne, his executors and trustees. The trustees were at all material times resident in the Colony of Singapore. As from 31st December 1947 the taxpayer and her two brothers, the trustees, in the events which happened, have been entitled under the will to receive, each for his or her life, one third of the income of the residuary estate of the testator.

The residuary estate of the testator at all material times comprised 406,973 shares in Western Investments Ltd., a company incorporated and resident in the Colony of Singapore. The only other issued shares of the company are two shares, one of which is held by each of the trustees. The trustees are directors of the company. The 406,973 shares still stand in the company's share register in the name of the testator, but nothing, I think, turns on this. During the year ended 30th June 1955 the company duly declared and paid two dividends. The taxpayer's one-third share of these dividends amounted to £A17,378, which is the amount in question in this case. The two sums making up this amount were paid not by the company to the trustees and by the trustees to the taxpayer, but directly by the company to the taxpayer. In the notices accompanying the remittances they were described as dividends. The practice of making such direct payments had been followed for some years in pursuance of a direction given by the trustees to the secretary of the company.

In making her return, for the purposes of Australian income tax, of income derived by her in the year ended 30th June 1955, the taxpayer, as she had done in former years, included the amount received by her as dividends paid by Western Investments Ltd., and the assessment proceeded on this basis. The true position was explained to the Commissioner in the taxpayer's notice of objection to the assessment. That position is not now in dispute. It is clear that the income in question was not dividend income. The taxpayer was never a shareholder in Western Investments Ltd. The income received by her was not dividend income, but income of a trust estate, in which she had a beneficial interest for her life, and it is on that basis that the question in the present case must be approached and decided. The position is the same as if the short cut had not been taken but the trustees had received the two dividends from the company, and had paid one-third of each to the taxpayer. A very important result of this is that the case is not governed by s. 44 (1) and (1A) and s. 45 of the Australian Assessment Act, and it will not be necessary to refer further to those provisions. It may be mentioned in passing that the Comptroller of Income Tax in Singapore was advised of the true position by letter dated 6th July 1956, and he replied on 31st July 1956 saying that no change was proposed regarding the method of dealing with the taxpayer's "share of income in respect of Western Investments Ltd.".

It is clear that the taxpayer was a resident of Australia, and that the income in question was derived from a source outside Australia, viz. from a source in Singapore. But the first question raised is whether it was "not exempt from income tax" in Singapore, and it is necessary now to turn to the Income Tax Ordinance of Singapore. The numbering of the sections of this Ordinance has been altered since 1955. I will refer to the sections as re-numbered.

Section 10 (1) provides that income tax shall be payable on the income of any person accruing in or derived from the Colony in respect of (inter alia) "dividends" and "rents, royalties, premiums and other profits arising from property". The Ordinance distinguishes between "statutory income", "assessable income" and "chargeable income". The statutory income corresponds with what the Australian Act calls "assessable" (gross) income. The assessable income under the Ordinance is the statutory income less certain deductions. The chargeable income corresponds with what our Act calls "taxable" income - the net income which is actually subjected to tax. It is the assessable income less certain further deductions, which correspond roughly with what our Act calls "concessional" deductions. It is necessary to refer only to sub-ss. (11) and (12) of s. 35. Section 35 (11) provides, in substance, that the statutory income of a trustee shall be computed in the same way as that of any other person. Section 35 (12) provides that the statutory income of a beneficiary under any trust shall be that share of the statutory income of the trustee which corresponds to the share of the trust income to which such beneficiary is entitled. These provisions correspond roughly, of course, to those of Div. 6 of Pt. III of the Australian Act. Section 40 (1) provides for what may be described as a partial rebate of tax in the case of an individual who is not resident in the Colony in the year of assessment and who proves to the satisfaction of the Comptroller that he is a British subject or a British protected person.

It is convenient to refer next to ss. 42 and 43, which deal with the rates of tax. Section 42 provides that every person other than (inter alios) a company and a trustee shall pay tax at the rates set forth in the second schedule. The schedule sets out graduated rates of tax. Section 43 is very confusingly drawn, but I think its effect, so far as material, is to impose (a) upon every company tax at the rate of 30% on its chargeable income and (b) upon every trustee tax at the same rate of 30% on chargeable income. It occurs to one that the identity between the company rate and the trustee rate provides the ultimate reason why the Comptroller in Singapore thought that the mistaken method of returning the taxpayer's income had made no practical difference.

Section 44 provides that every company which is resident in the Colony shall be entitled (it does not say "required") to deduct from the amount of any dividend paid to any shareholder tax at the rate paid or payable by the company. Section 29 (which seems curiously out of its appropriate place in the Ordinance) provides that the income of a person from a dividend payable by a company liable to tax shall, where such tax has been deducted therefrom, be the gross amount before making such deduction. Section 46 is another very awkwardly expressed section, but, so far as material, it provides that (a) any tax which a company has deducted or is entitled to deduct from any dividend under s. 44, and (b) any tax applicable to the share to which any person is entitled in the income of a trust, shall, when such dividend or share of income is included in the chargeable income of any person "be set off for the purposes of collection against the tax charged on that chargeable income". It is to be noted that, whereas the deduction of tax by a company from a dividend is expressly provided for, and it is also expressly provided that, where a company has deducted tax, the shareholder must return the gross amount of the dividend, there are no corresponding express provisions relating to trustee and beneficiary. The Ordinance, however, appears to contemplate that, if a trustee has to pay tax, he may deduct the amount thereof from a share of income which he pays to a beneficiary. Any tax so deducted may then be "set off" under s. 46, when the beneficiary includes in his chargeable income (as he would apparently have to do under s. 35 (12)) the gross amount of his share of income. Although they are not expressly worked out in precisely the same way, it would appear that the position as between trustee and beneficiary and the position as between company and shareholder are substantially the same. One speaks, of course, with diffidence in dealing with an unfamiliar statutory instrument, but this would appear to be so.

Section 51 of the Ordinance provides: - "The income of a married woman living with her husband shall, for the purposes of this Ordinance be deemed to be the income of the husband, and shall be charged in the name of the husband and not in her name nor in that of her trustee." The bald reference to "her trustee" seems surprising at first sight, but presumably what is meant is "nor in the name of the trustee if she has derived income as a beneficiary under a trust instrument". It is perhaps desirable to mention finally s. 53 (1) (c), which provides that a non-resident beneficiary of the estate of a deceased person shall, where the estate is being administered in Malaya, be assessable and chargeable in respect of the income received by him in the name of the executor of the estate. The application of this section to such a case as the present appears to be excluded by s. 51. Section 57 takes care of possible difficulties in collection of the tax.

It is now necessary to examine what happened in Singapore in relation to the income of the taxpayer which is now in question. It is, I think, on the effect of this that the case really turns.

The taxpayer's husband furnished to the Comptroller of Income Tax a return of income for the year ended 31st December 1955. In accordance with s. 51 of the Ordinance he included therein (along with some other income of his wife derived in Singapore) the equivalent in dollars of the £17,378. He described this sum as dividends, and he included also the sum of %5B50,193.58, which represented one third of the difference between the dividends actually payable to the estate and the gross amounts of those dividends. This was done in pursuance of s. 29 of the Ordinance, which, as has been seen, requires the gross amount of a dividend to be returned by a shareholder, although he has actually received only that amount less the tax deducted by the company. The husband himself had no income liable to Singapore income tax, and the relevant part of the return related only to income of the wife.

In the assessment which issued on this return the chargeable income was stated as %5B192,669 (which included, of course, the gross amount of the dividends received by the taxpayer), and tax at 30% (s. 42 of the Ordinance) was assessed at %5B57,800.70. From this was deducted the small sum of %5B8198.42, which was the amount allowed to the taxpayer as a non-resident British subject under s. 40 of the Ordinance. This left a balance of %5B49,602.28. The assessment then set off against this balance the sum of %5B54,122.52. This sum included the sum of %5B50,193.58, which has been mentioned above, being the difference between the gross dividends, returned in obedience to s. 29, and the amounts, reduced by the company's deduction of tax, actually received. The set-off, which was presumably made in pursuance of s. 46 of the Ordinance, had the effect of showing a credit in favour of the taxpayer of %5B4,520.24, and a cheque for the equivalent in Australian currency of this sum (£A658 11s. 6d.) was forwarded by the Comptroller in Singapore to the taxpayer's husband.

I have thought that the case could not be understood without a close examination of the facts and of the provisions of the Ordinance. That examination having been made, the questions which arise can, I think, be dealt with fairly shortly. It seems clear, as I have already said, that the two sums in question were income which was "not exempt from income tax" in Singapore, where it was derived. I have no doubt that the income of a beneficiary under a trust, though not mentioned eo nomine, is covered by the words "other profits arising from property" in s. 10 (1). That such income is intended to be chargeable with the tax is made clear by such provisions of the Ordinance as ss. 35 (11) and (12) and s. 46. Two arguments, however, were advanced on behalf of the Commissioner in support of the view that s. 23 (q) of the Australian Act was not applicable at all to the case.

It was said, in the first place, that the income in question was, however it might have been treated in the returns and assessments, in truth income of a beneficiary in a trust estate within the meaning of Div. 6 of Pt. III of the Australian Act. This is undeniable, but the next step was to say that Div. 6 of Pt. III provided a completely exhaustive set of provisions with respect to income of that character, and that no other provision of the Act could affect the liability to tax of such income. I can see no affirmative reason whatever for saying that this is so, and it would lead, as Kitto J. pointed out during argument, to extraordinary consequences. Section 23 (e) provides that the income of a charitable institution shall be exempt from income tax. But, if the argument is sound, income of such an institution derived under a trust in a will would presumably be taxable under s. 97 (1). In any case, s. 97 (2) expressly refers to "exempt income" of a beneficiary. I am quite sure that Taylor J., in using the word "exclusively" in Commissioner of Taxation v. Belford [1] , did not intend to convey anything resembling the argument under consideration. Nor do I think that Dixon C.J. had any such argument in mind when he said in the same case that he was not "disposed to describe Div. 6 as an exclusive measure of the liability" [2] .

1. (1952) 88 C.L.R. 589, at p. 605. 2. (1952) 88 C.L.R., at p. 603.

The other argument was that the income for which exemption is now claimed is income of the wife, and that it is the husband, not the wife, who is made liable by s. 51 of the Ordinance for the Singapore tax - although recourse may, "if necessary", be had to the wife for payment. The fact that recourse may be had to the wife is perhaps sufficient to justify saying that she is "not exempt", but, even if the tax could be recovered from the husband alone, it is the income, and not the person who receives the income, that is required to be "not exempt" by s. 23 (q). Whoever has to pay the tax in Singapore, tax is charged on the income, and the income is clearly "not exempt" in Singapore.

But it is not enough for the taxpayer to establish that the amounts received by her were not exempt from income tax in Singapore. For s. 23 (q) is subject to a proviso which reads: - "Provided that this paragraph shall not apply to exempt any income unless (a) where there is a liability for payment of income tax in the country where that income is derived - the Commissioner is satisfied that the tax has been or will be paid; or (b) where the outgoings incurred in producing that income exceed that income - the Commissioner is satisfied that the tax would have been paid in the country where it is derived if the income had exceeded the outgoings." Paragraph (b) of this proviso is plainly inapplicable, but the Commissioner relies on par. (a). His argument, which is, of course, put as alternative to the two arguments with which I have dealt, is, as I understand it, that there was a liability for payment of income tax in Singapore, but no tax has been paid, or will be paid, in Singapore. Neither the taxpayer nor her husband, it is said, paid anything to the revenue in Singapore: on the contrary, the husband received a cheque for £A658 from the revenue authorities there, and that was the end of the matter, for there will be no further demand in respect of the income in question.

The proviso presents difficulties, but its object seems clear. It is not to be enough to qualify for exemption under s. 23 (q) that any particular income should be chargeable with tax according to the law of the place where it is derived: the tax must in fact have been paid, or it must be shown that it will be paid. The true position in the present case is, in my opinion, that there was a liability for payment of tax in Singapore, and that the tax was paid within the meaning of proviso (a) of s. 23 (q).

The liability arose, I think, on the receipt of the income in question by the taxpayer. The two payments were made respectively in August and December 1954. The liability arose by force of s. 10 (1) (f), s. 35 (12) and s. 51 (1) of the Ordinance, and it was quantified by s. 43 (b). Section 10 (1) (f) brings into charge "profits from property" accruing in or derived from the Colony. It takes source, and not residence, as the criterion of chargeability, and several other provisions of the Ordinance show that the income of non-resident persons is subjected to tax. Section 35 (12) deals with the special case of a beneficiary under an instrument of trust, which is the present case. Section 51 (1) deals with the special case of a married woman, which also is the present case, and places the primary personal liability on the shoulders of her husband.

Then what actually happened amounted, in my opinion, to payment of the tax, liability for payment of which arose in the manner I have stated. The important provision of the Ordinance in this connexion is contained in s. 46. As I have said, the Ordinance does not appear to contain any express provision authorizing a trustee to deduct tax from a share of income of a trust estate payable to a beneficiary, but s. 46 contemplates that he may do so. It then provides, in its application to the present case, that tax applicable to a share of any person in the income of a trust shall, when that share is included in the chargeable income of the beneficiary be set off against the tax charged on that chargeable income. This provision was applied by the Comptroller in the present case, and its application, in the particular case resulted here in a small credit in favour of the taxpayer, the amount of which was paid to her husband on her behalf. It is true that the matter was dealt with throughout on a mistaken basis, because the payments to the wife purported to be made as dividends, and the relevant deduction was made by the company. But this merely means that what should have been done in two steps was done in one. Exactly the same position would, so far as I can see, have resulted if the company had paid the dividend, after deducting the tax, to the trustees, and the trustees had then paid one third of the amount received by them to the taxpayer. Section 46 would have had effect in precisely the same way if the short cut had not been taken.

I feel no doubt that the "setting off" which the Comptroller allowed in his assessment of the taxpayer's husband amounted to payment within the meaning of the proviso to s. 23 (q). It is trite law that a "payment" may be effected by other means than an actual transfer of money. All that the proviso is concerned with is that the liability shall have been discharged, and the liability was clearly discharged when the Comptroller set off the amount of tax deducted by the company, and paid or payable by the company, against the amount of tax payable by the taxpayer's husband.

The proviso to s. 23 (q) speaks not of a payment having been made, but of the Commissioner being satisfied that a payment has been made. But the case is not one of a discretion entrusted to the Commissioner, or of the formation by him of an opinion which is not reviewable by a court. The question whether payment has been made is a question of law.

In the year ended 30th June 1955 the respondent, a resident of Australia, derived income from a source out of Australia, namely a source in Singapore. She was a beneficiary in a trust estate and entitled as such to one-third of the income of the estate. The trustees of the estate were residents of Singapore, and the estate comprised shares in a company incorporated and resident in Singapore. One-third of the dividends declared in the relevant year on the estate's shares in the company was paid by the company to the respondent on the directions of the trustees. By virtue of s. 44 (1) of the Income Tax and Social Services Contribution Assessment Act 1936-1954 Cth, the income thus derived by the respondent was included in her assessable income for the purpose of the assessment of the Australian income tax payable by her in respect of income derived in the year, unless it was exempted by s. 23 (q). That provision applies, subject to a proviso which I need not set out, to "income derived by a resident from sources out of Australia, where that income is not exempt from income tax in the country where it is derived".

The expression "not exempt from income tax", like the expression "liable to income tax" which the Court considered in The Commonwealth v. State of Queensland [1] , must be interpreted with a recognition of the fact that "income tax is not by this Act or by income tax Acts generally imposed on, in the sense of being charged on or made payable out of, the income of the taxpayer or any particular portion of such income, but is merely a tax the amount of which is calculated by reference to the income of the taxpayer, who must pay it as best he can": per Knox C.J. [2] . As the learned Chief Justice went on to say in that case, such expressions would be inapt if construed literally as meaning merely that payment of income tax is exacted out of the income: they must be regarded as elliptical. In the case cited, counsel for the Commonwealth suggested two ways in which such expressions might be understood: either that the receipt of the income is made the criterion of liability to pay any sum of money whatever by way of income tax, or that the liability to pay a sum of money by way of income tax is made dependent on the condition that the taxpayer is in receipt of the income. Whichever of these explications may be preferred, it is clear that the receipt of income and the tax liability to which alone reference is being made are the receipt and the liability of the very taxpayer who claims the benefit of the relevant provision. In the same case, Isaacs and Rich JJ. said "We entertain no doubt whatever that the words "the interest shall not be liable to income tax under any law of the Commonwealth" are simply an elliptical but perfectly well understood mode of saying that "no person receiving the interest shall be compelled by any law of the Commonwealth to pay income tax by reason of receiving that interest" ". And they added: "Or, putting it more shortly, it means that interest shall be wholly exempt from liability to income tax" [3] . See also per Higgins J. [4] .

1. (1920) 29 C.L.R. 1. 2. (1920) 29 C.L.R., at p. 9. 3. (1920) 29 C.L.R., at p. 16. 4. (1920) 29 C.L.R., at p. 26.

I take it, therefore, that the question whether income which a taxpayer derives from a source out of Australia is "not exempt from income tax in the country where it is derived" must be answered by considering the income tax law of that country and deciding whether the taxpayer incurred any tax liability in that country by reason of or by reference to his derivation of the income. Now, on the admitted facts the respondent did not incur any income tax liability in Singapore in respect of the relevant year. This was because in that year she was a married woman living with her husband, and s. 51 (1) of the Income Tax Ordinance of Singapore (chap. 166) provided at all material times that the income of a married woman living with her husband should, for the purposes of the Ordinance, be deemed to be the income of the husband; and it added for good measure that the income should be charged (scil. with tax) in the name of the husband and not in her name or in that of her trustee. There was a proviso, enacting that that part of the total amount of tax charged upon the husband which bore the same proportion to that total amount as the amount of the assessable income of the wife bore to the amount of the assessable income of the husband and wife might, if necessary, be collected from the wife, notwithstanding that no assessment had been made upon her. The proviso, it will be seen, applied only "if necessary". It had no application in the present case, for the necessity did not arise: the respondent's husband was charged to tax in respect of the subject income and his liability was duly discharged without the respondent's being called upon.

The result is that the respondent's husband was taxed in Singapore as if it had been he who derived the income, and the respondent herself was not subjected to any relevant tax there at all. If the husband had been a resident of the colony in the year of assessment, the fact that his wife had been living with him in the preceding year (the year in which she derived the income: s. 35) would have had another and pro tanto compensating result under the Singapore law, namely that he would have been allowed a deduction of two thousand dollars in the ascertainment of his chargeable income: s. 39 (2) (a). This serves to emphasize that the only tax liability arising under the Singapore law by reason of the respondent's derivation of her Singapore income was a liability of the husband.

Is it possible to maintain that where A derives income from a source outside Australia but is not taxed in the country of derivation in respect of that income or by reference to it in any way, the fact that B is taxed in that country upon a statutory fiction that it was he who derived the income justifies the proposition that in relation to A, and for the purpose of his Australian tax, the income was not exempt from income tax in the place of derivation? In my opinion the proposition cannot be accepted, unless the construction of s. 23 (q) which I have stated be rejected. In my opinion the short answer to the respondent's reliance upon s. 23 (q) is that she was and is exempt from income tax in Singapore in respect of the income derived by her from that country.

The taxpayer, an Australian resident, received from Western Investments Ltd. (a company incorporated and resident in Singapore) during the year ended 30th June 1955 two payments totalling £17,378 6s. 6d. This sum, she claims, was income derived from Singapore which was not exempt from tax there and so is exempt from income tax in Australia by virtue of s. 23 (q) of the Income Tax and Social Services Contribution Assessment Act 1936-1954.

Although the payments were made to her directly by the company and purported to be dividends, the taxpayer was entitled to the money in question by virtue of the will of her father, C. F. F. Wearne, who died on 23rd July 1944, under which she was entitled for life to a one-third interest in the income of the trust fund constituted by the residuary estate of the testator, which fund in 1955 consisted of 406,973 shares in Western Investments Ltd. It is stated in the statement of agreed facts that the taxpayer's two brothers, who with her were life tenants of the trust fund, were at all times material executors and trustees of the will of the father, but it seems likely that by the time with which we are concerned they were no more than trustees of the fund in question. The shares still stand in the share register of the company in the name of the deceased. The payments in question were made to the taxpayer directly upon the direction of the trustees to the company, which was a family company in which the only other shares issued were two, one held by each brother. What the company did instead of paying the dividends to the trustees - as in strictness it should have done - was to divide them equally into three and pay one portion to each life tenant. Although it is necessary to recognize that the taxpayer was not a shareholder in the company and that what she received was in her hands part of the income of the trust estate and not dividends paid to a shareholder, there is no doubt that the income in question was derived from Singapore where the trustees were resident, and if s. 23 (q) of the Income Tax and Social Services Contribution Assessment Act can apply at all, the matter for determination thereunder is whether that income was exempt from income tax in Singapore. The Board of Review rejected a submission made on behalf of the Commissioner that s. 23 (q) had no application and concluded that because the income was not exempt from tax in Singapore it was exempt here. It is from that decision that the Commissioner appeals.

The question whether s. 23 (q) can apply at all can be disposed of shortly. The argument for the Commissioner was that Div. 6 of Pt. III of the Act, relating to trustees, deals exhaustively with the taxation of beneficiaries entitled to income of a trust estate, and by s. 97 (1) provides that "where any beneficiary is presently entitled to a share of the income of a trust estate and is not under any legal disability, his assessable income shall include that share of the net income of the trust estate." The argument ran that what is included in the assessable income of a taxpayer cannot be exempt income. It is, however, commonly found in the Act that the assessable income of a taxpayer shall include certain things: see ss. 26 and 44. This form of words, however, does not mean that special provisions such as s. 23 (q) can have no application, and indeed, the contrary was decided in Reid v. Federal Commissioner of Taxation [1] . The meaning of a general provision that something shall be included in the assessable income of a taxpayer is always subject to any particular provision which would exempt that income from income tax. It is, therefore, necessary to decide whether the income in question was brought to tax by the Income Tax Ordinance of Singapore.

Although the sum of the amounts which the taxpayer received from the company was £17,378 6s. 6d., that sum was arrived at by the company's deducting from the dividends which it declared, tax at the rate of 29.6 per cent. The tax was deducted in accordance with the authority given by s. 44 of the Singapore Ordinance. These deductions, as this Court decided in Hughes v. Federal Commissioner of Taxation [2] , did not constitute the payment of tax for or on behalf of the shareholder to whom the dividends were payable; it was the company's tax that was deducted and it follows that the mere fact that the taxpayer received dividends after the deduction of tax does not of itself warrant the conclusion that the shareholders receiving the reduced dividends were not exempt from Singapore tax upon the dividends. If, therefore, what the taxpayer received was brought to tax in Singapore, this was because of something additional to the deduction of tax from dividends authorized by s. 44 of the Ordinance.

The additional circumstances relied upon here were that in accordance with the Ordinance, the taxpayer's husband made to the Comptroller of Income Tax, Singapore, a return of his wife's income in which there was included, not the actual amounts which she had received from Western Investments Ltd., but the gross amount that she would have received had tax not been deducted in accordance with s. 44 (see s. 29) and that the tax assessed thereon was paid. The gross amount totalled 169,572 dollars as against the 119,379 dollars that the taxpayer received - a difference of 50,193 dollars. The tax payable upon the total income so returned (viz. 192,669 dollars) amounted to 49,602 dollars, but because of a credit of 54,122 dollars arising from the deduction of tax from dividends (including the 50,193 dollars deducted by Western Investments Ltd.), the taxpayer's husband received for the taxpayer a repayment of 4,520 dollars from the Accountant-General, Singapore. These figures, it was argued for the taxpayer, show that she paid tax in Singapore on the moneys received by her from Western Investments Ltd., because if those moneys had not been included in the husband's Singapore return, the repayment would obviously have been much higher than 4,520 dollars because, of the total income returned (192,669 dollars) not less than 169,572 dollars came from Western Investments Ltd. This was no doubt the case, and in the absence of complicating factors I would readily enough agree that Singapore law does impose a liability for tax upon a person in the situation of the taxpayer in respect of her Singapore income, including gross dividends, and that this liability is in most cases satisfied by deduction from what would otherwise be repayable to the taxpayer by reason of the deductions made by companies declaring dividends. The argument that the company's deductions prevented the taxpayer ever becoming liable to income tax is, I think, inconsistent with the fact that the repayment made to her was calculated by deducting "tax payable" (49,602 dollars) from "tax paid or deducted" (54,122 dollars). I do not regard the income upon which it was calculated that tax of 49,602 dollars was payable as not being brought to tax because there existed a credit of 54,122 dollars arising from deductions from company dividends. Had there been no tax, this amount would have been payable in full, but it was paid only to the extent of the difference between the credit and the tax payable. As to this, I adhere to the view that I expressed tentatively in Federal Commissioner of Taxation v. Brohier [1] , that what such an Ordinance does is to impose tax and provide for its payment by set-off. It is to be observed that under s. 46 of the Singapore Ordinance, tax deductions under s. 44 shall be set off for the purposes of collection against tax charged to the shareholder when the dividend has been included in chargeable income. This is hardly consistent with the idea that a sufficiently large deduction would prevent any liability for tax ever arising; rather the deductions pursuant to s. 44 provide a means for discharging the tax liability of those from whose dividends deductions have been made.

This, however, is not a simple case where a credit in favour of the taxpayer, arising by reason of deductions from dividends payable to the taxpayer, was used to pay the taxpayer's tax in Singapore, and there are complications here that require separate consideration.

The first is that it was not the taxpayer, but the taxpayer's husband, who was charged with tax in accordance with s. 51 (1) of the Ordinance, which is in these terms: - "The income of a married woman living with her husband shall, for the purposes of this Ordinance, be deemed to be the income of the husband, and shall be charged in the name of the husband and not in her name nor in that of her trustee: Provided that that part of the total amount of tax charged upon the husband which bears the same proportion to that total amount as the amount of the assessable income of the wife bore to the amount of the assessable income of the husband and wife may, if necessary, be collected from the wife, notwithstanding that no assessment has been made upon her." This, however, does not seem to me to involve the conclusion that the taxpayer's Singapore income is exempt from tax in Singapore. On the contrary, s. 51 merely provides a means for the taxation of her income and the collection of the tax.

Then it is said that although in the administration of the Singapore Ordinance it appears that a repayment is made when the tax that has been deducted pursuant to s. 44 exceeds the set-off that is availed of in accordance with s. 46, there is nevertheless no positive provision in the Ordinance which entitles the person whose dividends have been reduced by deduction under s. 44 to repayment of such an excess. This is a difficulty similar to that which was overcome in Federal Commissioner of Taxation v. Brohier [1] by an admission, but I am ready enough to deal with this case on the footing that the repayment was regularly made. I do not doubt that the taxpayer was, through her husband, entitled to the repayment that was in fact made. This is, however, not vital to my reasoning if it appears that there was here a payment of tax by virtue of a set-off made in accordance with s. 46.

This brings me to the difficulty created by the circumstance that in Singapore the taxpayer was treated as a shareholder of Western Investments Ltd., whereas in fact she was not. Had the regular course been followed, dividends after deduction of tax would have been paid by the company to the trustees with a certificate in accordance with s. 44 (2) of the Ordinance. The trustees would then have included the gross dividends as part of their chargeable income (ss. 29, 35 (11)). The tax would have been levied on the chargeable income of the trustees in accordance with the provisions of s. 43, and if tax were payable the trustees presumably would have been entitled to a set-off under s. 46 and to repayment of the amount whereby what had been deducted exceeded the tax payable. The statutory income (which is the first step in the calculation of the chargeable income) of the taxpayer as a beneficiary would not, however, have been what she received from the trustees; it would have been one-third of the statutory income of the trustees (s. 35 (12)). This she would have received not as dividends, but as a share of a trust income. Her share would then be included in her husband's chargeable income (ss. 37, 38, 51); and any tax applicable to that share which had been paid by the trustees would be set off for the purposes of collection against the tax charged on that chargeable income (s. 46 (b)). I do not profess to understand fully just how this would have worked out in practice, but it does seem reasonably clear that under the Ordinance tax is payable by a beneficiary under a trust upon the share of the statutory income of the trustees to which the beneficiary is entitled and that under s. 46 (b) there would be some set-off, and presumably if the tax applicable to the share of a beneficiary were to exceed the tax chargeable upon the taxable income of that beneficiary, there would be some repayment. Had the regular course been followed, it would seem, therefore, that the income of the taxpayer in question would have been charged with tax in Singapore. In these circumstances it does not seem to matter that the income that the taxpayer received was brought to tax somewhat differently.

The consequence of the foregoing consideration is that however the matter is looked at, the income that is now in question was not exempt from tax in Singapore.

It is still necessary, however, to consider whether the case comes within the proviso to s. 23 (q), because for the Commissioner it was argued that even if the income was not exempt from tax in Singapore, nevertheless tax was not paid thereon. The income with which we are concerned is strictly the share of the income of a trust fund; that income was, for the reason I have already given, not exempt from income tax in Singapore; as I have already shown, tax was paid in Singapore by means of the set-off provided by s. 46, but it was tax upon what the taxpayer received from Western Investments Ltd. which was in error treated as dividends. Although this creates a formal difficulty, I have reached the conclusion that it was the income with which we are now concerned that bore tax in Singapore, albeit it was taxed in the way in which it was returned (i.e., as dividends) rather than as a share of the income of a trust. For the taxpayer, it was argued that the case fell within par. (a) of the proviso to s. 23 (q) in one of two ways. The first alternative was to regard the Singapore Ordinance as not creating a liability for payment of the taxpayer's income tax in Singapore so that even if tax had not been paid that would be immaterial so long as the income was not exempt from tax. The second was to regard the Ordinance as creating such a liability which the facts show unmistakably was discharged by payment of the tax. The way in which the proviso is expressed (viz., that s. 23 (q) "shall not apply to exempt any income unless" par. (a) or par. (b) is satisfied) would, I think, make it difficult to apply s. 23 (q) to a case not coming within either par. (a) or par. (b), but however that may be, I consider that the account which I have given of what occurred does show that tax was paid in Singapore upon the taxpayer's income with which we are now concerned; it was paid by set-off pursuant to s. 46 of the Ordinance.

Accordingly, my judgment is that the decision of the Board of Review was correct and this appeal should be dismissed.

The facts out of which this matter arises and the contentions advanced are fully set out and discussed in the judgments that have been delivered and which I had the advantage of reading. I agree in the conclusions of the Chief Justice and of Fullagar and Menzies JJ. The income in question was in my view "income that is not exempt from income tax in the country where it is derived", that is in Singapore, within the meaning of s. 23 (q) of the Australian Act. And the effect of s. 23 (q) is not, in the circumstances, displaced by the proviso. The appeal should I consider be dismissed.