Commissioner of Taxation (Cth) v Official Receiver

Commissioner of Taxation (Cth) v Official Receiver - [1956] HCA 24 - HCA 1956 case summary — Zoe

[4]

This is an appeal by the Deputy Commissioner of Taxation from an order of the Federal Court of Bankruptcy (Clyne J.) ordering the appellant to pay to the official receiver, the respondent on this appeal, the sum of £44 6s. 3d. and his costs of and incidental to the motion. The facts are very brief. The official receiver is the trustee of the estate of one John Travis whose estate was sequestrated on 24th February 1950. In respect of the year of income ending on 30th June 1954 the bankrupt earned salary or wages in respect of which his employer made in that year deductions for income tax and social services contribution and accounted to the Deputy Commissioner of Taxation in accordance with the provisions of Div. 2 of Pt. VI of the Income Tax and Social Services Contribution Assessment Act 1936-1953. In pursuance of the provisions of s. 221H (2) (b) of that Act (hereinafter called the Assessment Act), there is now due and payable by the Deputy Commissioner of Taxation the sum of £44 6s. 3d. being the amount of the excess of the sums deducted over the tax and social services contribution payable by the bankrupt in that year. The Deputy Commissioner of Taxation informed the official receiver, under what authority to make the disclosure we were not told, that he had this sum in hand and the official receiver claimed that it should be paid to him as the trustee of the bankrupt's estate. But the deputy commissioner refused to do so because he considered that it was necessary for the official receiver first to obtain an order under s. 101 of the Bankruptcy Act 1924-1950. The official receiver considered that no such order was necessary claiming that the amount of the refund became vested in him as after-acquired property of the bankrupt by virtue of s. 91 (i) of the Bankruptcy Act. He filed a notice of motion in the Bankruptcy Court, making the deputy commissioner the respondent, asking the following questions: "1. Whether the sum of £44 6s. 3d. due and payable by the Commissioner of Taxation in pursuance of the provisions of s. 221H of the Income Tax Assessment Act 1936 being the amount of the excess of the sums deducted by the employer of the said John Travis in the year ending 30th June 1954 over the income tax and social services contribution payable by the said John Travis in that year is property vested in the official receiver. 2. Whether the said sum is pay pension salary emoluments profits wages earnings or income within the meaning of s. 101 of the Bankruptcy Act. 3. If yea to 2 whether the said bankrupt is in receipt of the same within the meaning of s. 101 of the Bankruptcy Act. 4. Whether the said sum is now payable by the Commissioner of Taxation to the official receiver."

[7]

The general nature of these provisions is well known and it is unnecessary to go into detail. Section 221C (1) provides that for the purpose of enabling the collection by instalments from employees of income tax, where an employee receives or is entitled to receive from an employer in respect of a week or part thereof salary or wages in excess of two pounds, the employer shall, at the time of paying the salary or wages, make a deduction therefrom at such rate as is prescribed. Section 221G (1) provides that an employer who pays to an employee salary or wages from which he is required to make a deduction shall, in respect of that employee, keep a tax deduction sheet in a form authorised by the commissioner, and shall - (a) at the time of paying salary or wages to that employee enter in the spaces provided for the purpose on the tax deduction sheet the amount of the salary or wages before making any deduction and the amount of any deduction made. The section then goes on to provide for the purchase by the employer and the affixing in the space provided for that purpose on the tax stamps sheet of tax stamps of a face value equal to the amount of the deductions made by him from the salary or wages of that employee paid during that period and for the employer at the end of each year completing and signing the tax stamps certificate and delivering it, together with the tax stamps sheet, to the employee, and signing the tax check sheets for that year in respect of his employees and forwarding them to the commissioner, together with a summary, in a form authorised by the commissioner, of the salaries or wages referred to in the sheets. Section 221H provides (1) for an employee forwarding any tax stamps sheets issued to him in respect of deductions made in any year of income from his salary or wages to the commissioner with the return which he is required under s. 161 of the Act to furnish in respect of that year of income; (2) where the commissioner receives from an employee a tax stamps sheet in respect of deductions made in any year of income from his salary or wages and the tax payable by the employee in respect of that year of income has been assessed, the commissioner shall - (b) if that sum exceeds that tax - credit so much of that sum as is required in payment of that tax and any other tax payable by the employee, and pay to the employee an amount equal to any excess. Section 161 provides that every person shall furnish to the commissioner a return signed by him setting forth a full and complete statement of the total income derived by him during the year of income, and of any deductions claimed by him. Section 166 provides that from the returns, and from any other information in his possession, or from any one or more of these sources, the commissioner shall make an assessment of the amount of the taxable income of any taxpayer and of the tax payable thereon. Section 174 provides that as soon as conveniently may be after any assessment is made, the commissioner shall serve notice thereof in writing by post or otherwise upon the person liable to pay the tax.

[8]

The manner in which the system of collecting income tax by instalments from salary or wages dovetails with the general scheme of the Assessment Act as a whole is plain enough. The instalments are collected on account of the contingent liability of the salary or wage earner to pay income tax which will crystallise into an actual liability upon the making of the assessment. The instalments are collected in advance by the employer on behalf of the commissioner out of salary or wages payable by the employer to the employee. They partially discharge the obligation of the employer to pay the salary or wages. The employee is still under an obligation to furnish an income tax return to the commissioner under s. 161 and it is from that return and from any other information in his possession that the commissioner in accordance with s. 166 makes the usual assessment of the amount of the taxable income of the taxpayer and of the tax payable thereon. Too little or too much may have been collected in advance by instalments. If too little, the salary or wage earner must pay the deficiency to the commissioner. If too much, he is entitled to a refund of the excess. There are several sections in the Assessment Act which require the commissioner to make a refund where the taxpayer has paid a greater amount on account of tax than is exigible under the Act. Section 172 provides that where by reason of any amendment the taxpayer's liability is reduced, the commissioner shall refund any tax overpaid. Section 202 provides that if an assessment is altered on an appeal or reference to a board of review a due adjustment shall be made, for which purpose amounts paid in excess shall be refunded and amounts short paid shall be recoverable as arrears. Section 221YE provides that in the circumstances there mentioned the commissioner shall be liable to refund amounts paid by way of provisional tax to the taxpayer. Section 221H (2) (b) contains the special provision providing for a refund where the total sum collected by instalments from an employee in receipt of salary or wages exceeds the amount of tax he is liable to pay. The refund becomes payable when the tax payable by the employee in respect of the year of income has been assessed. It should therefore be repaid to the employee when he receives his notice of assessment.

[10]

These secrecy provisions in themselves, and a fortiori when considered in conjunction with the general scheme of the Act, point and point necessarily to the plain intent, to be gathered from the general structure of the Act and its specific provisions, that the Act should provide a complete and exhaustive code of the rights and obligations of the commissioner and other officers of his department to members of the general public who are subject to its provisions and of those members of the general public to his department. In particular there is the obligation imposed on individuals to make the return required by s. 161 of the Act and the obligation imposed on the commissioner to assess the taxable income of such individuals and the tax payable thereon and to give them notice of the assessment. It is the amount of tax payable on that assessment that the particular person becomes under an immediate liability to pay. The taxpayer may be satisfied or dissatisfied with the assessment. If dissatisfied, he has the rights of objection, of reference and of appeal conferred upon him by the Act. If as a result of the commissioner acceding to the objection either in whole or in part or of a reference or an appeal succeeding in whole or in part, the liability of the taxpayer is reduced it is the duty of the commissioner to refund any tax overpaid. A similar duty is imposed on the commissioner where he has been overpaid in advance by collections of instalments or of provisional tax. The wording of ss. 172, 202, 221H (2) (b) and 221YE differs slightly but the duty to make a refund which they each create is in essence the same. It is not a duty which confers on taxpayers a right to bring an action against the commissioner personally. If it created an ordinary chose in action, it could be assigned, the assignee could give the commissioner notice of the assignment and the commissioner would become subject to all the incidents of law and equity relating to choses in action which are assignable. The commissioner would be bound to disclose to the assignee information relating to the affairs of the taxpayer assignor which he is prohibited from disclosing by s. 16 and it is impossible to reconcile such a consequence with the very specific provisions as to secrecy imposed upon the commissioner and his officers by this section. Section 8 provides that the commissioner shall have the general administration of the Act. In administering the Act the commissioner and his officers are acting on behalf of the Crown in right of the Commonwealth. Section 208 provides that income tax when it becomes due and payable shall be a debt due to the Queen on behalf of the Commonwealth, and payable to the commissioner in the manner and at the place prescribed. Section 209 provides that any tax unpaid may be sued for and recovered in any court of competent jurisdiction by the commissioner or deputy commissioner suing in his official name. The obligations to the commissioner imposed on members of the general public by the Act are duties owed to him as representing the Crown. The taxes collected under the Act belong to the Crown. Likewise the obligations the commissioner and his officers incur under the Act towards members of the public are duties incurred on behalf of the Crown. The duty imposed on the commissioner to make a refund by the sections already referred to is a duty to do so on behalf of the Commonwealth. An action to recover such moneys could presumably be brought against the Commonwealth. The Act requires the commissioner to make the refunds. But it requires him to do so on behalf of the Crown. If the Commonwealth refused to make the necessary funds available for the purpose the commissioner would be under no personal liability to refund. There is no section in the Act corresponding to s. 209 enabling the commissioner or a deputy commissioner to be sued for a refund in his official name. The duty imposed upon the commissioner to refund by s. 221H (2) (b) is of this character. The amount of the refund could not be recovered in an action brought by the salary or wage earner against the commissioner personally or in his official capacity. Section 221U of the Assessment Act no doubt provides that all moneys received by the commissioner in pursuance of Pt. VI, Div. 2 shall form part of the Consolidated Revenue Fund, and there shall be payable out of that fund (which is, to the necessary extent, thereby appropriated accordingly) such amounts as the commissioner becomes liable to pay in accordance with the provisions of this division. But the mere fact that moneys are provided to enable the commissioner to fulfil the duty imposed upon him by the Act does not alter the character of the duty. The obligation to make the refund is simply one of a number of statutory duties imposed upon the commissioner by s. 221H (2). It is of the same quality as the other obligations contained in the sub-section. The commissioner is under a public duty to salary and wage earners to perform all of them, and to make and issue an assessment showing the state of account between him and them so that they will know whether they are entitled to a refund or not and be placed in a position to claim it. These are duties which could be enforced by mandamus: Reg. v. Lords of the Treasury [1] ; Reg. v. Commissioners for Special Purposes of Income Tax [2] ; Reg. v. Commissioners for Special Purposes of Income Tax [3] ; Commissioners for Special Purposes of Income Tax v. Pemsel [4] . If public funds are made available to the commissioner to enable him to fulfil his duty to make a refund he could presumably be ordered to make it by mandamus. But if the Commonwealth pursued the completely unlikely course of refusing to make such funds available the commissioner could not be ordered to repay the excess personally and the only course open to the taxpayer would appear to be to sue the Commonwealth. Accordingly the contention of the official receiver that the right of the bankrupt to recover the £44 6s. 3d. from the commissioner is a chose in action which vested in him as after-acquired property of the bankrupt is untenable, the duty of the commissioner under s. 221H (2) (b) of the Assessment Act is a duty to pay the refund to the taxpayer and to him only (or his personal representative) and the order below must be set aside on this ground alone.

[12]

But we heard considerable argument as to the meaning and effect of certain provisions of the Bankruptcy Act 1924-1950 and in particular of the extent to which the personal earnings of a bankrupt are after-acquired property which becomes divisible amongst his creditors under s. 91 (i) of the Bankruptcy Act. All property of a bankrupt which he acquires or which devolves upon him before his discharge does not necessarily become divisible among his creditors. Section 98 of the Bankruptcy Act validates all transactions by a bankrupt with any person dealing with him bona fide and for value, in respect of property, whether real or personal, acquired by the bankrupt after the sequestration, if completed before any intervention by the trustee. In addition to this general provision relating to intervention by the trustee there is also the very specific provision contained in s. 101. This section provides that subject to the Act, where a bankrupt is in receipt of pay, pension, salary, emoluments, profits, wages, earnings, or income, the trustee shall receive for distribution amongst the creditors so much thereof as the court, on the application of the trustee, directs. His Honour, having formed the opinion that the obligation of the commissioner to make a refund to the taxpayer was a chose in action deemed to be assigned to the official receiver, did not think it strictly necessary to refer to s. 101 but, "in deference to counsel", he made a brief reference to it. He said: "The after-acquired property of a bankrupt becomes vested in his trustee. See In re Pascoe [1] . To this statement of the law there are some qualifications, and one of these qualifications is contained in s. 101. Whether it is a matter of implication or a matter of assumption moneys of the various descriptions mentioned in s. 101 which are being received by a bankrupt and will in the ordinary course of things continue to be received by him can be retained by him unless the court orders that such moneys or a portion thereof should be received by the trustee for the benefit of the bankrupt's creditors. Section 101 is, I consider, an extension of the long established principle of the bankruptcy law that a bankrupt is entitled to retain out of the fruits of his labours sufficient for the purpose of maintaining himself and his family." This statement can broadly be accepted. The personal earnings of a bankrupt, including his earnings by way of salary or wages, are, on the literal reading of s. 91 (i), after-acquired property of the bankrupt. As such they would vest in the official receiver, as and when the bankrupt received them, and, subject to s. 98, would be part of the property of the bankrupt divisible amongst his creditors. But it has invariably been held that the vesting provisions of Bankruptcy Acts must not be read literally so as to vest the whole of the personal earnings of the bankrupt in his official assignee because to do so would mean that the assignee might, in the words of Lord Mansfield in Chippendale v. Tomlinson [1] : "let the insolvent out to hire, and contract himself for his personal labour": Williams v. Chambers [2] . In In re Roberts [3] , Lindley M.R., delivering the judgment of the Court of Appeal, said that the language of s. 44 (i) of the Bankruptcy Act 1883 Imp. (which corresponds to s. 91 (i) of our Act), "clear and express as it is, must not, be taken so literally as to deprive the bankrupt of those fruits of his personal exertions which are necessary to enable him to live. But, on the other hand, the necessity is the limit of the exception" [4] . His Lordship then referred to certain cases and continued: "Those cases are no authority for the proposition that property of a bankrupt acquired by his personal exertions since his bankruptcy and not wanted for his present support does not belong to his trustee. No such doctrine can be maintained in face of s. 44. After bankruptcy, and before his discharge, whatever property a bankrupt acquires belongs to his trustee, save only what is necessary for his support" [5] . These passages would at first sight suggest that the earnings of a bankrupt would automatically vest in his trustee except so much thereof as was required for the present support of himself and his family without the trustee obtaining an order of the court directing payment of the earnings or part thereof to him during the bankruptcy. But in the later case in the Court of Appeal of Affleck v. Hammond [6] , this judgment of Lindley M.R. was discussed and it was pointed out by Buckley L.J. (as Lord Wrenbury then was) that it was one of the facts in In re Roberts [1] "that the property was not wanted for the bankrupt's support or maintenance; the trustee would therefore be entitled to the whole of it" [2] . In Affleck v. Hammond [3] it was held that a bankrupt who earns salary or wages is entitled to have them paid to him and that he can, if necessary, sue to recover the whole of his personal earnings because, to the extent that they are required for his maintenance, the earnings do not vest in the trustee. Buckley L.J. said: "the trustee can only get the money upon an application to the court" [2] . In Nette v. Howarth [4] , Dixon J. (as he then was) said: "In the receipts enumerated in s. 101 the words "pay", "salary" and "wages" refer to remuneration earned by present service. "Pension" refers predominantly to payments which follow service. The time has passed when the idiomatic use of the word extended to non-recurring payments. But it may perhaps include in this section a succession of payments which are not the consequence of past service or the like. "Emolument" too is a word which has ceased to bear its original meaning of mere gain, profit, or advantage. It too relates to revenue, whether casual or constant, arising from an office, station, or situation. "Profits", "earnings" and "income" are wide words. They cover the fruits of labour and much more besides. For example, "income" in the analogous s. 51 (2) of the English Bankruptcy Act 1914 includes maintenance payable under an order in divorce (In re Landau; Ex parte Trustee [5] ). Decisions interpreting expressions reproduced in the Australian section which occur in s. 51 and corresponding previous British enactments will be found in that case (In re Landau [5] ) and in Hollinshead v. Hazleton [6] . But the English and Australian provisions alike appear to be directed at revenue receipts. Indeed, they are reminiscent of the rule long established in bankruptcy, that the personal earnings of a bankrupt do not pass to his trustee except to the extent that they are not required for the support of himself and his family" [7] . The law is stated in the same way in In re Walter; Slocock v. Official Receiver [8] where Tomlin J. (as Lord Tomlin then was) said: "the section (that is s. 38 of the Bankruptcy Act 1914) does not deprive the bankrupt of those fruits of his personal exertions which are necessary to enable him to live; in other words it is only the surplus over and above that which vests in the trustee" [9] . In In re Shine; Ex parte Shine [1] , Bowen L.J. said: "As the Master of the Rolls has already said, the original contract was for personal services, and the creditors are not entitled to the benefit of it by the law of bankruptcy; and, until this sub-section was put in force against him, by diverting to the use and advantage of his creditors that which was primâ facie up to that moment his own, he had a perfect right, although he was a bankrupt, to make any bargain he pleased with any person as to the remuneration which he was to receive for his personal services" [2] . These and other cases cited to us establish that the question whether any part and if so what part of the personal earnings of a bankrupt vests in the official receiver as after-acquired property is really academic. If the official receiver claims any part of these earnings, he must apply to the Bankruptcy Court for an order. He must intervene in this specific manner. In the absence of such an order the bankrupt is free to dispose of the whole of these earnings. The English cases were decided in relation to sections in succeeding English Bankruptcy Acts which provided that, so far as material, where a bankrupt is in the receipt of a salary or income the court upon the application of the trustee shall from time to time make such order as it thinks just for the payment of such salary or income, or of any part thereof, to the trustee during the bankruptcy. The sections in question are - in the Bankruptcy Act 1869 Imp., s. 90, the Bankruptcy Act 1883 Imp., s. 53 (2), the Bankruptcy Act 1914 Imp., s. 51 (2). Section 101 of the Bankruptcy Act Cth. includes more classes of property than the English Acts and it is also somewhat differently expressed. It provides that where a bankrupt is in receipt of pay etc. the trustee shall receive so much thereof as the court, on the application of the trustee, directs. It therefore provides in express terms that an order of the court is necessary before any part of such pay etc. can be recovered by the trustee and it is implicit in the section that in the absence of such an order none of the pay etc. vests in the trustee under s. 91 (i) of the Act. It is the order that effectively vests the pay or any part thereof in the trustee. It thereby becomes part of the property of the bankrupt divisible amongst his creditors. The order can only apply to pay etc. of which the bankrupt is "in receipt" and this means in actual receipt (per Bowen L.J. in In re Shine; Ex parte Shine [3] ). His Honour, in his reasons, said that it would be strange indeed that where a taxpayer has paid to the commissioner a sum which is more than sufficient to discharge his liability for tax, the excess amount which the taxpayer is entitled to receive back from the commissioner can be regarded as earnings or income of the taxpayer within the meaning of s. 101. But what is there strange about that? The instalments on account of tax that were deducted under the provisions of Pt. VI, Div. 2 of the Assessment Act were made from the salary or wages of the employee. Apart from these provisions the employer would have been bound to pay the bankrupt his salary or wages in full. It was part of these earnings that were appropriated for that purpose. But it was only a provisional appropriation. The commissioner is obliged to repay any sum found to be in excess of the required amount. The commissioner is obliged to restore the excess to the taxpayer and if the over collections were made out of salary or wages the restoration must be a refund of part of these salary or wages. It is a refund of part of the earnings of the bankrupt and money which he is entitled to retain in the absence of an order of the court under s. 101 of the Act. When he receives the refund and not before he will become for the first time in actual receipt of this part of his earnings. The official receiver may be able to obtain an order of the Bankruptcy Court under s. 101 of the Bankruptcy Act against the bankrupt for payment by the bankrupt of this sum or part thereof to him but it is not an order with which the deputy commissioner is concerned. It is the duty of the latter to pay the whole of the sum in question to the bankrupt and to make no disclosures about it to the official receiver. How otherwise could he comply with s. 16 of the Assessment Act.

[21]

It seems never to have been doubted that, in respect of a bankrupt's personal earnings after sequestration and before discharge, the absolute terms of s. 91 (i), which is s. 38 (a) of the English Act of 1914, must be read subject to a qualification. The qualification might have been regarded as arising from an implication to be found in s. 51 (2) (our s. 101). But in In re Roberts [1] , Lindley M.R. placed it on more general grounds. The Master of the Rolls said: - "The Bankruptcy Act of 1883, like its predecessors, excepts a bankrupt's tools and contemplates the acquisition of future property by a bankrupt, and he must live to use his tools and acquire such property. The present Act, like previous Bankruptcy Acts, must be construed so as to enable him to do so; and the language of s. 44" (our s. 91 (i)), "clear and express as it is, must not, therefore, be taken so literally as to deprive the bankrupt of those fruits of his personal exertions which are necessary to enable him to live" [1] . With regard to the extent of the qualification, two alternative views were open. It might have been held that personal earnings did not vest in the official receiver, and that his only right in respect thereof was to obtain an order under s. 51 (2) (our s. 101), which might be expected to give him so much of those personal earnings as were not required for the support of the bankrupt and of his family, if any. Or it might have been held that personal earnings did vest in the official receiver except to the extent to which they were required for the support of the bankrupt and his family. I should have thought myself, both prima facie as a matter of construction and on general considerations of convenience, that the former view was to be preferred. It is the latter view, however, that seems to have been accepted and established in England. Thus in the case, already cited, of In re Roberts [2] , the Master of the Rolls, after referring to a number of decisions, said: - "Those cases are no authority for the proposition that property of a bankrupt acquired by his personal exertions since his bankruptcy and not wanted for his present support does not belong to his trustee. No such doctrine can be maintained in face of s. 44" (our s. 91 (i)). "After bankruptcy, and before his discharge, whatever property a bankrupt acquires belongs to his trustee, save only what is necessary for his support. He may sue for and recover his earnings if his trustee does not interfere, but what he recovers he recovers for the benefit of his creditors, except to the extent necessary to support himself and his wife and family. The exception seems to include them" [3] . See also Williams v. Chambers [4] , nothing the form of the plea which was held good on demurrer, and In re Walker; Slocock v. Official Receiver [5] . In Nette v. Howarth [6] Dixon J. referred to "the rule long established in bankruptcy, that the personal earnings of a bankrupt do not pass to his trustee except to the extent that they are not required for the support of himself and his family" [7] .

[26]

Division 2 of Pt. VI of the Assessment Act has for its object the collection of income tax by instalments from "employees". For this purpose s. 221C requires the employer, at the time of paying salary or wages to an employee, to make a deduction therefrom at such rate as is prescribed. The amounts so deducted are, in effect, paid by the employer to the Commissioner of Taxation. Two alternative procedures are provided, the one of which involves the issue of a "group certificate", and the other of which involves the purchase and cancellation of "tax stamps", but these things are merely matters of machinery. It is obviously impracticable for the "prescribed rate" of deduction to take into account all contingencies which may affect the amount of tax which will actually be payable on the employee's income of any year. He may derive income other than his salary or wages - e.g. income from property, or income from a business or profession. Or, on the other hand, he may be entitled to make from his assessable income such "allowable deductions" as life insurance premiums or medical expenses. Section 221D authorises the commissioner in special cases to vary the prescribed deduction which the employer is to make when paying salary or wages. In due course the employee must furnish to the commissioner under s. 161 his return of income derived during the year. The tax payable by him for the year is then assessed. It may then appear that the amount which has already been paid by means of the deductions from salary or wages made by the employer during the year is equal to, or more or less than, the tax payable for the year. Section 221H (2) accordingly provides that the commissioner shall (a) if the sum of those deductions does not exceed the tax payable, credit that sum in payment or part payment of that tax; (b) if that sum exceeds that tax, credit so much of that sum as is required in payment of that tax and any other tax payable by the employee, and pay to the employee an amount equal to any excess; or (c) if he is satisfied that there is no tax payable by the employee, pay to the employee an amount equal to that sum.

[29]

The question is not, in my opinion, answered by saying that the "debt" arose out of a right to a refund of income tax overpaid by the bankrupt or on his behalf. That is the truth, but it is not the whole truth, and to say that payment of the sum of £44 6s. 3d. will be a repayment of income tax overpaid is not inconsistent with saying that that sum represents personal earnings of the bankrupt for the purposes of the Bankruptcy Act. In order to arrive at the reality of the position, it is necessary to inquire how the bankrupt became entitled to payment of the sum in question. By virtue of what acts or things done or promised by him did that sum become payable? It is not simply that he made, or somebody made for him, an overpayment of income tax. The truth can be expressed by saying that he worked for that sum of £44 6s. 3d. He worked for his employer. His contractual remuneration was £x. He was paid £(x-y), the sum of £y representing the amount of income tax which it was assumed that he would be in due course required by law to pay. If that amount could have been accurately foreseen, he would have been paid not £(x-y) but £(x-z), z being less than y. He is now to receive the difference between £y and £z - not indeed from his employer, but from a person to whom the amount of that difference has been paid. But it is immaterial that he receives it not from his employer but from that other person. If the statute had required the Commissioner of Taxation to pay the difference between £y and £z to the employer, and required the employer to pay that difference to the employee, the position could never have been in doubt. The fact that the statute, avoiding unnecessary circuity, requires direct payment by the commissioner to the employee may make the position less obvious, but does not alter its reality. The right to receive this sum of £44 6s. 3d. really is a right to receive money which the bankrupt earned. How else did he acquire the right to payment of that sum? It is not the price of an article sold by him, or an instalment of the rent of a house let by him, or a dividend on shares owned by him. His right to payment arises because, and only because, he worked for a remuneration which is found, on a contingency which was contemplated throughout, not to have been paid to him in full.

[45]

The duty which s. 221H (2) (b) in terms imposes upon the commissioner, with respect to any excess of the value of stamps on an employee's tax stamps sheet over the assessed amount of his tax, is to "pay to the employee" an amount equal to the excess. It has not been suggested, nor does it seem fairly open to argument, that when this duty arises in a particular case, reinforced as it is by the appropriation of the Consolidated Revenue Fund to the necessary extent by s. 221U, there arises no corresponding legal right in the taxpayer to have the duty performed. The right clearly exists; what is the appropriate procedure for its enforcement I do not stay to inquire. Neither is it material to consider whether notice to the commissioner of any purported assignment of the right by the taxpayer, or any charge over it which he has purported to give, will entitle the assignee or chargee to require the commissioner to pay the amount to him instead of to the taxpayer. Let it be assumed, as has been suggested (though I am not to be taken as agreeing with the suggestion) that the commissioner would be right in insisting in such a case that he must obey the statute according to its terms, and must therefore disregard the assignment or charge, unless (I suppose the suggestion must mean) the assignee or chargee were appointed expressly or by implication the taxpayer's agent to receive payment of the amount on his behalf. The assumption cannot affect the problem before us, for the unassignability of a right to be paid money does not necessarily exclude it from the category of property which vests in the official receiver under the Bankruptcy Act: Ex parte Huggins; In re Huggins [1] ; Hollinshead v. Hazleton [2] ; and cf. National Trustees Executors & Agency Co. of Australasia Ltd. v. Federal Commissioner of Taxation [3] . If the right we are considering is outside the category, that must be the result of an indication to that effect to be found in the Income Tax and Social Services Contribution Assessment Act.

[50]

But it seems to be said further that, at least when you consider the nature and complexity of the system which must necessarily exist for the administration of the Income Tax and Social Services Contribution Assessment Act, you should feel it to be improbable that the legislature would have meant the commissioner, when the occasion arises for making a refund under s. 221H (2) (b), to pay regard to anyone but the taxpayer himself. The improbability apparently stops short of excluding his legal personal representatives if he is dead, but not his official receiver if he is a bankrupt. With all respect to those who take this view, it is not clear to me why the suggested improbability should be thought to exist, or why, if it does exist, it should be thought a sufficient ground for placing upon the Act a construction different from that which it would otherwise bear. Many statutes provide for money payments to be made by public officials from public funds. Not infrequently the departments concerned are large and the persons entitled to payments are numerous. Yet it has never been held, as far as I am aware, that in considerations of departmental inconvenience or the like a sufficient warrant may be found for implying into a statute an exclusion of the right to receive such payments from the normal operation of the bankruptcy law. If such an exclusion were intended, an express provision effecting it would almost inevitably suggest itself at once to the draftsman; and in the absence of any provision on the point expressly made in the Income Tax and Social Services Contribution Assessment Act a court should, in my opinion, see a strong reason for declining to imply one, unless compelling reasons for doing so are to be found in the Act itself. I do not perceive, any more than the deputy commissioner appears to have perceived, any reason why, when the conditions have arisen in which a refund is payable under s. 221H (2) (b), the commissioner should be considered in a different position, so far as the bankruptcy law is concerned, from that which is occupied by anyone else in the community who is under a duty to pay money to a specified person on behalf of, or out of the funds of, a third party.

[52]

I turn to consider the case, therefore, on the footing, which both the deputy commissioner and the official receiver accepted in their correspondence, that the whole problem is one as to the application of the bankruptcy doctrine concerning personal earnings or the application of s. 101 of the Bankruptcy Act. The difficulty which led the official receiver to deny that the bankrupt could support a claim to the refund in competition with his own by relying on the doctrine as to personal earnings was that an amount which becomes payable to a person who is in fact an employee but in his character of taxpayer, not in pursuance of a contract of employment but in discharge of an independent statutory duty, by a person who is not his employer, and out of moneys which do not belong to his employer, differs in essential respects from that which is strictly comprehended in "personal earnings". But in considering the doctrine as to personal earnings we are concerned with a principle; and it would be inconsistent with the reasons which are the foundation of the principle if it were held that in the statement of it the expression "personal earnings" is used in so narrow a sense as not to include refunds of excess tax deductions which have been made from salary or wages. The principle insists that what a bankrupt earns by his personal labour, so far as it is needed to maintain his family and himself, forms no part of the property divisible amongst his creditors, because the Act is not to be construed as preventing him from earning his own living: Ex parte Vine; In re Wilson [1] . What must be considered in relation to a given sum of money is a question of substance and of fact, namely whether the money is in truth the reward, or part of the reward, for personal labour done by the bankrupt. Where a bankrupt has been employed at a salary or wages which, if paid to him in full by his employer, would constitute personal earnings in the relevant sense, that which he gets back from the commissioner by way of refund of tax deductions, no less than that which he has been paid directly by his employer, must necessarily be counted in any computation of the reward which his labour has brought him. It must therefore be covered by the principle.

[64]

The first question which arises upon the competing contentions referred to is whether the amount payable by the appellant constitutes wages or salary of the bankrupt. After referring to the relevant provisions of the Income Tax and Social Services Contribution Assessment Act the learned judge in bankruptcy formed the opinion that it does not. He observed that each periodical amount payable to the commissioner under those provisions constituted a debt due to the Queen on behalf of the Commonwealth (s. 221R (1)), that all moneys received by the Commissioner of Taxation in pursuance of those provisions are to form part of the Consolidated Revenue Fund (s. 221U) and that where, upon assessment, it is found that the aggregate of the periodical payments exceeds the tax payable by the employee an amount equal to the excess is to be paid to the latter out of that fund. But it is of importance to notice that the provisions of Div. 2 of Pt. VI of the Act do not impose upon an employee any obligation to make periodical payments to the commissioner; the obligation is directly imposed upon the employer to make deductions at the prescribed rate from the wages or salary due to an employee and to account to the commissioner for the amount so deducted in one of the methods provided by the Act. If an employer fails to make the appropriate deductions he is, nevertheless, liable to pay to the commissioner the amounts which he has failed to deduct (s. 221N), though it is true that the employer may in such a case, and after he has discharged his liability to the commissioner, recover from the employee any amount or amounts so paid. But at no stage prior to assessment is the employee directly liable to the commissioner to make periodical payments either as tax or on account of a future tax liability; the debt which is created is one which is owed by the employer to the Crown who has no recourse whatever against the employee. It may, of course, be said that the purpose of the legislation is to permit and, in fact, require the appropriation of some part of an employee's earnings to discharge an indebtedness of the employer and that, in this sense, a liability is imposed upon the employee. Again, it may be said that the employee's right to recover the residue of his wages or salary from his employer is extinguished and that after a deduction has been made he has no further interest, as wages or salary or at all, in the amount thereof. But his right is not extinguished by payment either to him or on account of any existing liability on his part. The substance of the matter, as I see it, is that the Act directs interception of portion of the wages or salary payable to an employee and authorises the retention by the commissioner of sums so deducted and collected in accordance with the provisions of the Act to answer the future tax liability, if any, of the employee. The fact that amounts received by the commissioner are paid into consolidated revenue and that excess payments are repayable out of this fund in no way affects the substance of the matter. Portion of the wages or salary of the employee is withheld and retained against his future contingent liability and if an excessive amount is withheld and retained the excess when paid to him is simply a deferred payment of portion of his wages or salary. This view would, I think, be inescapable if periodical deductions were made by the direction of the employee for the purpose of constituting a fund to meet a future unascertained liability and I can see no reason why the same view should not prevail where the deductions are made for this purpose under the authority of a statute. The legislative provisions are quite unlike those under consideration in Nette v. Howarth [1] where the view was taken that a refund of contributions paid pursuant to the Superannuation Act 1916-1930 N.S.W. was not a deferred payment of salary.

[65]

If, as I think, such payments constitute deferred salary or wages the question which next arises is whether the right to receive the sum in question in this case ever vested in the respondent. The first contention of the appellant on this point concedes that the wide language of s. 91 (i) of the Bankruptcy Act - "all property which belongs to or is vested in the bankrupt at the commencement of bankruptcy, or is acquired by or devolves on him before his discharge" - is adequate to embrace the personal earnings of a bankrupt but it asserts that the provisions of s. 101 are intended to deal exclusively with after-acquired property of this description. That section is in the following terms: "101. Subject to this Act, where a bankrupt is in receipt of pay, pension, salary, emoluments, profits, wages, earnings, or income, the trustee shall receive for distribution amongst the creditors as much thereof as the court, on the application of the trustee, directs: Provided that this section shall not apply to any pay, pension, salary, or wages which by any Act or State Act is made exempt from attachment or incapable of being assigned or charged." This provision, it is said, shows that after-acquired property of the character to which the section applies was not intended to vest in the trustee pursuant to ss. 60 (1) and 91 (i) and that the right of a trustee to resort to it, or to any part of it, depends upon the making of an appropriate order under the section. The argument was reinforced by reference to the decision in Williams v. Chambers [2] as an authority for the proposition that the right to sue for personal earnings accruing due after bankruptcy does not vest in a bankrupt's trustee. The observations of Lord Denman in this case rather suggest that in no circumstances could the assignee of an insolvent debtor sue to recover any part of the personal earnings of the debtor. But the case was decided on demurrer and for the purposes of the question of law involved it was common ground that the earnings which the assignee of the insolvent debtor sought to recover were not more than sufficient for the necessary support of the debtor and his family. In these circumstances I find difficulty in attributing to his Lordship any intention to decide that in no circumstances could the assignee of an insolvent debtor, under the relevant English legislation, sue to recover part of the personal earnings of the latter. (See also per Blackburn J. in Wadling v. Oliphant [1] ). Moreover, such a broad view would be quite inconsistent with later cases in England where provisions resembling those under consideration in this case have been reviewed on a number of occasions. In particular, as early as In re Roberts [2] , it was said: "It may be that a bankrupt's trustee cannot maintain an action for money earned by the bankrupt since his bankruptcy by his personal exertions, if such money is required by him for his personal support and maintenance: see Williams v. Chambers [3] , the pleadings in which, however, alleged promises to pay the assignees for work done by the bankrupt. The Bankruptcy Act of 1883, like its predecessors, excepts a bankrupt's tools and contemplates the acquisition of future property by a bankrupt, and he must live to use his tools and acquire such property. The present Act, like previous Bankruptcy Acts, must be construed so as to enable him to do so; and the language of s. 44, clear and express as it is, must not, therefore, be taken so literally as to deprive the bankrupt of those fruits of his personal exertions which are necessary to enable him to live. But, on the other hand, the necessity is the limit of the exception. This is in entire accordance with modern decisions: see Mercer v. Vans Colina [4] ; In re Graydon [5] ; Wadling v. Oliphant [6] ; Emden v. Carte [7] ; In re Rogers [8] ; Benwell's Case [9] ; and does not conflict with other cases. That case turns entirely on s. 53, and is only an authority for the proposition that a prospective order cannot be made impounding the future personal earnings of a bankrupt. Similar observations apply to In re Shine; Ex parte Shine [10] . Those cases are no authority for the proposition that property of a bankrupt acquired by his personal exertions since his bankruptcy and not wanted for his present support does not belong to his trustee. No such doctrine can be maintained in face of s. 44. After bankruptcy, and before his discharge, whatever property a bankrupt acquires belongs to his trustee, save only what is necessary for his support. He may sue for and recover his earnings if his trustee does not interfere, but what he recovers he recovers for the benefit of his creditors, except to the extent necessary to support himself and his wife and family. The exception seems to include them" [11] . So far as I can see the rule as stated in the second last sentence of these observations has never been doubted in England and has been referred to in Australia as "the rule long established in bankruptcy" (Nette v. Howarth [1] ).

[67]

The rule as stated, however, leaves much to be desired as a practical definition of the respective rights of a bankrupt and his trustee and in this circumstance, no doubt, is to be found the reason for the making of special provision - in England as early as 1869 - with respect to the salary and income of bankrupts. By the Bankruptcy Act 1869 "the property of the bankrupt" was defined in terms almost identical with and, certainly, as wide as the language employed in s. 91 (i) of the present Australian Act. But by ss. 89 and 90 of the former Act special provision was made relating to, first of all, the pay, salary, emoluments and pensions of bankrupts who were or had been officers of the army or navy, or officers or clerks or otherwise employed in the civil service of the Crown, or, who were in the enjoyment of any pension or compensation granted by the Treasury and, secondly, relating to the salary or income, other than as aforesaid, of persons becoming bankrupt. With respect to income of the former character s. 89 provided that "the trustee shall receive for distribution amongst the creditors so much of the bankrupt's pay, half pay, salary, emolument, or pension as the court, upon the application of the trustee, thinks just and reasonable, to be paid in such manner and at such times as the court, with the consent in writing of the chief officer of the department under which the pay, half pay, salary, emolument, pension or compensation is enjoyed, directs". But with respect to salary and income falling into the second category it was provided, by s. 90, that the court should "upon the application of the trustee from time to time make such order as it thinks just for the payment of such salary or income, or of any part thereof, to the trustee to be applied by him in such manner as the court may direct". In the main the first of these sections dealt with personal earnings which would not vest in the trustee of a bankrupt by force of the general provisions of the Act, whilst the second section was dealing with earnings which, to the extent to which they were not required for the maintenance of the bankrupt and his family, would so vest. Consequently the trustee's right to receive any part of personal earnings falling into the first category depended entirely on s. 89 whereas, it may be said, the trustee's right to earnings which fell into the second category did not entirely depend upon the provisions of s. 90; the latter section was quite capable of being regarded merely as providing a summary method of ascertaining the extent of the trustee's right to some part of a bankrupt's salary or income and as convenient machinery for enforcing the right when ascertained. With this in mind significant differences are discernible in the language employed in the sections. Appropriately enough s. 89 provided that "the trustee shall receive for distribution amongst the creditors so much" of the bankrupt's personal earnings "as the court thinks just and reasonable" for the section was enacted on the view that all or, at the least, a great part of the personal earnings referred to in the section would not otherwise become available to the trustee for distribution. Consequently an order made pursuant to its terms was to be the trustee's title to receive some part of them. Section 90 pursued a different form. It merely provided that "the court upon the application of the trustee shall from time to time make such order as it thinks just for the payment of" such earnings "or any part thereof, to the trustee". The presence of such a provision as this was not inconsistent with the notion that the trustee was, otherwise, entitled to such part of a bankrupt's salary or income as was not required for the maintenance of himself and his family. The difficulties in the way of giving practical effect to that notion furnish a ready reason for the provision of special machinery to enable the respective rights of a bankrupt and his trustee to be determined in one proceeding rather than in repeated and interminable proceedings from time to time. The later Bankruptcy Acts of 1883 (sub-ss. 53 (1) and (2)) and of 1914 (sub-ss. 51 (1) and (2)) contain provisions similar to those contained in the earlier Act and the distinction in verbiage in relation to the two categories of personal earnings is preserved. But s. 101 of the Act under consideration in this case presents features of a different character. Section 101 deals generally with income of the character therein specified subject to a proviso which makes it inapplicable to any pay, pension, salary or wages which by any Act or State Act is made exempt from attachment or incapable of being assigned or charged. With respect, however, to other personal earnings it expressly provides that "the trustee shall receive for distribution amongst the creditors so much thereof as the court, on the application of the trustee, directs." What has already been said is sufficient to indicate that these words are capable of a meaning which would give to the section an operation beyond that of a mere machinery provision designed to enable the extent of the trustee's right to be determined and enforced in a summary manner. It rather suggests that the title to the trustee's right to receive any part of a bankrupt's personal earnings after bankruptcy will be found in an order made under this section and that such an order will not constitute a mere quantification of the trustee's pre-existing right. The express statement in the section that the latter shall receive for distribution amongst the creditors so much thereof as the court directs strongly suggests that apart from the making of an order no part of the personal earnings are to be available for this purpose. Further, the language employed is that which for many years has been used in relation to personal earnings which, in the main, were not available to creditors without an order of the court and it has been chosen notwithstanding that language appropriate to a mere machinery provision had for many years been used in juxtaposition. Apart from any other considerations, however, I feel that there is great force in the contention that when the section says that the trustee shall receive so much of a bankrupt's earnings as the court directs it means that he shall receive the amount or amounts specified in an order and no more. The language used seems to me to indicate that it was intended that such an order should constitute the title of the trustee to receive such part of the bankrupt's personal earnings as the court should think ought to be made available for distribution amongst the creditors and that without any such order he should have no title to any part. Perhaps another way of stating the effect of the section is to say, as was said by Lukin J. in In re Howarth; Ex parte Official Receiver [1] , that the trustee's right to intervene in relation to after-acquired income of the character specified in s. 101, is restricted by that section to an application pursuant to its provisions. It is perhaps worthy of note that this view, though referred to, was not questioned in the subsequent appeal to this Court: Nette v. Howarth [2] . In my view the language of s. 101, particularly when it is considered in the light of the parallel provisions which have existed in England for so many years, is consistent only with an intention that its special provisions should operate exclusively in relation to the subject matter to which it applies and, accordingly, I am of the opinion that personal earnings of the nature specified do not pass to the trustee in bankruptcy under the general provisions of ss. 60 (1) and 91 (i).

[69]

What already appears is sufficient to dispose of the appeal but before parting with the case I should refer to the suggestion made during argument that the right of an employee to repayment of any excess moneys in the hands of the commissioner is not a right capable of assignment or one which will devolve upon his trustee in bankruptcy. But the fact that the payment is one required to be made by the Crown does not, of itself, lead to this conclusion: R. v. Brown [1] , nor was any such suggestion made; on the contrary reliance was placed on grounds of a rather more special character. Section 221H (2) provides that where the commissioner receives from an employee a tax stamps sheet or a group certificate, or both, in respect of deductions made in any year of income from his salary or wages, and the tax payable by the employee in respect of that year of income has been assessed the commissioner shall, if that sum exceeds that tax, credit so much of that sum as is required in payment of that tax and any other tax payable by the employee, and pay to the employee an amount equal to any excess. It is contended that this provision requires the payment of any excess amount to be made to the employee and to nobody else and this is so, it is said, whether or not the moneys payable represent salary or wages of the employee. It is not suggested that this result is produced by any express provision of the Act but rather that it follows from the personal and confidential nature of the relationship established by the Act between the commissioner and the taxpayer. In particular the secrecy provisions in s. 16 of the Act were referred to and it was suggested that it would be contrary to these provisions for the commissioner or an officer to disclose information to or deal with an assignee, whether voluntary or statutory, in matters touching a taxpayer's affairs. Indeed, it was said that the disclosure to the official receiver that a sum in excess of that required to discharge the tax liability of the bankrupt was held by the appellant may well be a breach of these provisions. But the answer is to be found in an examination of the provisions of s. 16. The prohibition which it is material to consider is to be found in sub-s. (2) which provides, in effect, that an officer shall not either directly or indirectly, except in the performance of any duty as an officer, and either while he is, or after he ceases to be an officer, make a record of, or divulge or communicate to any person any information acquired by him, by reason of his appointment, or employment, or in the course of that employment, respecting the affairs of any other person disclosed or obtained under the provisions of the Act or of any previous law of the Commonwealth relating to income tax. Of course, if the Act provided that the right to receive excess payments should not be assignable it would be improper for an officer to deal with a person who claimed to be an assignee of such a right. But if such a right be assignable it would be the plain duty of an officer to recognise and deal with an assignee and, indeed, in cases where there is a dispute as to the existence of a valid agreement, to notify both parties and, in substance, interplead. I find nothing in these provisions to indicate that s. 221H should be understood as creating a right which is not assignable; the provisions are neutral and throw no light on this point. I should add that so far as I can see there is no other provision of the Act or any consideration of public policy which should lead us to that conclusion. The section creates a right to payment, the right constitutes a chose in action and as such it is assignable. In these circumstances there is nothing in this independent argument to assist the appellant but for the reasons given earlier the order appealed from should be discharged.

At a glance

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Before

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Judgment (69 paragraphs)

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