Commissioner of Taxation (Cth) v Watson

High Court of Australia|1953-07-01|Before: Webb J, Kitto JJ

High Court of Australia Webb J. Dixon C.J. McTiernan, Williams, Fullagar and Kitto JJ. Commissioner of Taxation (Cth) v Watson [1953] HCA 98

ORDER Appeal struck out as incompetent. No order as to costs.

Before and during the year 1941 the respondent taxpayer was a shopkeeper in Campbelltown, and sold, among other things, newspapers and periodicals, as well as tobacco, confectionery and ice cream. He disposed of the business in November 1941. His gross weekly takings at that time were £154, including £50 for newspapers and periodicals, £20 for tobacco, and £82 for other commodities. The sale price of this business was £3,428, including £1,644 expressed to be for "goodwill (including the vendor's interest in newspapers and other agencies)". The balance was for fittings, plant and stock. But the respondent also had a lease of the premises with five and a half years to run. This lease was taken over by the purchaser of the business and apparently assigned to him, but for no consideration, or further consideration.

The appellant commissioner treated the £1,644 as a premium for or in connection with goodwill attached to or connected with land, and included £280 of the £1,644 in the assessable income of the respondent for the year ended 30th June 1943 (based on the income derived for the previous year), arrived at by deducting from £1,644 the sum of £1,364 made up of two amounts which the respondent had paid for the goodwill of the premises when he acquired it as the result of two transactions at different dates. In so doing the appellant commissioner relied on ss. 83 and 84 (1) of the Income Tax Assessment Act 1936-1942. The respondent objected on the ground that the £1,644 was not a premium paid for goodwill attached to the land. If it was such a premium the assessment was correct. The Board of Review, to whom the objection was referred by the commissioner, upheld the objection, and the commissioner now appeals to this Court.

The evidence before the Board of Review was tendered here; but no further evidence was given. This evidence discloses that the purchaser was approved and the sale price fixed by a board representing the newspaper proprietors concerned, who, in accordance with their practice, had made that procedure a condition of the grant by them of the franchise consisting of the exclusive right to the respondent to purchase wholesale and to sell in the Campbelltown area the newspapers and periodicals produced by those proprietors. The sale price was fixed on the basis of units of circulation arrived at by taking into account not only the number of newspapers and periodicals sold but their respective prices. The price factor of this formula was controlled by the newspaper proprietors; but the sales and circulation factor was in fairness left by them to the newsagent, and its quantity depended in each case on his activities, including the wisdom of his choice of a shop, which would promote sales of the newspapers and periodicals if located in a busy section of the area, say near a railway station or post office. In this respect there is no difference between newspapers and periodicals and other commodities: in all cases there is the attractive force that brings in custom: Inland Revenue Commissioners v. Muller & Co.'s Margarine Ltd. [1] , that is to say, goodwill attaches to land. The sale of other commodities in the shop ordinarily intensifies this attractive force and so increases the sales of each commodity.

Now the £1,644 for goodwill was based solely on the total number of units of circulation of the newspapers and periodicals in the Campbelltown area at the time of the sale of the business in November 1941, without any dissection of that total. No other consideration was entertained by the proprietors' board or their valuers. But, in fact, out of a total of 11,000 odd units of circulation, 6,000 were sold in the respondent's shop, 3,500 were delivered to his customers at their addresses, and 1,500 were sold by his sub-agents and by newsboys in the streets. However these details were wholly disregarded in arriving at the £1,644 for goodwill. It follows that the existence of the shop and its particular location within the area, whether favourable for news-vending or otherwise, the existence of the lease and its assignment, and the sales of other goods in the shop were all completely disregarded, and in fact there was positive evidence to that effect.

In view of this method of valuation of the goodwill, the respondent contends that the £1,644 could not have been a premium paid for goodwill attached to land. But I think the evidence falls short of what is required to establish that contention. Not only were 6,000 units of circulation sold in the shop, but the sales of part of the remaining 5,000 to sub-agents and to customers to whom deliveries were made at their addresses could also have been negotiated at the shop. Further the shop and its location could have accounted for the circulation reaching 11,000 odd units. Without the shop the total circulation might have been less. In the absence of proof to the contrary it must, I think, be assumed that the shop played a part in securing sales of the newspapers and periodicals. In any event the onus of proof was on the respondent (s. 190 (b)) and not on the commissioner. It was for the respondent to show that the total sales would have been as high without the shop, or if the shop contributed to the sales, then that this contribution was not to the extent of 11,000 odd units of circulation, but to a lesser, and to what, extent. This onus the respondent failed to discharge. Giving the evidence the fullest credence and its maximum effect, it does not preclude the probability or counter the assumption that the shop possessed an attractive force which brought in custom as regards newspapers and periodicals, that is to say, that goodwill attached to it in relation to newsvending: see Inland Revenue Commissioners v. Muller & Co's Margarine Ltd. [1] ; Federal Commissioner of Taxation v. Williamson [2] .

(1901) A.C., at p. 224. 2. (1943) 67 C.L.R. 561, at p. 564.

I have not found it necessary to quote the evidence at length, or to make detailed findings. But I may say that I agree with the very comprehensive and clear statement in the first twenty-five paragraphs of the reasons of the Board of Review, and with the very full findings of fact in par. 26; but that I differ from the opinions expressed in pars. 27 to 29 inclusive.

The appeal is allowed, the decision of the Board of Review set aside, and the assessment restored and confirmed. The respondent will pay the appellant his costs of this appeal.

The Court delivered the following written judgment: -

March 3, 1953 Dixon C.J., McTiernan, Williams, Fullagar and Kitto JJ.

This is an appeal from an order of Webb J. made in the purported exercise of the jurisdiction conferred on this Court by s. 196 of the Income Tax and Social Services Contribution Assessment Act 1936-1952. The merits of the appeal depend upon the construction and application of ss. 83 and 84 of the Income Tax Assessment Act 1936-1952. The taxpayer during the year of income ended 30th June, 1942, sold a newsagent's business which he conducted at Campbelltown. Portion of the total price of the business included a consideration for or in connection with goodwill. The commissioner regarded this consideration as a premium within the definition of that word contained in s. 83 (1) and accordingly included it in the taxpayer's assessable income. The taxpayer being dissatisfied in this respect with the assessment lodged with the commissioner an objection in writing in accordance with s. 185. The commissioner disallowed the objection under s. 186 and the taxpayer being dissatisfied with the decision requested the commissioner pursuant to s. 187 to refer the decision to a Board of Review for review. The Board of Review exercising the authority conferred by ss. 192 and 193 gave a decision in writing under s. 195 upholding the taxpayer's objection and reversing the decision of the commissioner. The board directed that the assessment be amended in accordance with their decision. The commissioner thereupon appealed to the High Court pursuant to s. 196 (1) from the whole of the decision of the board on the footing that it involved a question of law. The appeal came before Webb J. who set aside the decision of the Board of Review and restored the assessment. The taxpayer then gave notice of appeal from the order of Webb J. to the Full Court of the High Court. The question arises whether such an appeal lies from the order of Webb J. It necessarily arises because sub-s. (3) of s. 196 provides that a decision of the High Court on an appeal from the Board of Review shall be final and conclusive. The objection that no appeal lay was not taken by the commissioner and his counsel addressed no argument to the Court upon the question. That, however, does not relieve the Court of the responsibility of applying s. 196 (3). Section 196 is as follows:

(1) The commissioner or taxpayer may appeal to the High Court from any decision of the board which involves a question of law.

(2) The board shall, upon the request of the commissioner or taxpayer, refer to the High Court any question of law arising before the board.

(3) The decision of the High Court on such appeal or reference shall be final and conclusive.

On behalf of the taxpayer it was submitted that sub-s. (3) of s. 196 did not prevent an appeal. The contention was that until the jurisdiction of the High Court, both original and appellate, had been exhausted, the decision of the High Court did not become final and conclusive within the meaning of the sub-section. Alternatively, it was contended that when sub-s. (3) referred to the High Court, it meant the Full Court of the High Court with the consequence that Webb J. had no jurisdiction to hear the appeal sitting as a single justice. On this view it was suggested that the High Court should, in the exercise of its appellate powers, set aside his decision as made without authority.

The constitutional basis of the authority of the Board of Review lies in its character as an administrative body having the duty of reconsidering or reviewing the assessments of the commissioner but not exercising any part of the judicial power of the Commonwealth: British Imperial Oil Co. Ltd. v. Federal Commissioner of Taxation [1] , affirmed sub nom. Shell Co. of Australia Ltd. v. Federal Commissioner of Taxation [2] . The appeal, therefore, given to the commissioner or taxpayer by s. 196, must be a proceeding in the original jurisdiction of the High Court. Although called an appeal it is a proceeding which, for the first time, brings into the Court a question between the Crown represented by the commissioner and the subject called upon to pay tax, that is to say a matter arising under a law of the Commonwealth under s. 76 (ii.) of the Constitution. Section 15 of the Judiciary Act 1903-1950 provides that the jurisdiction of the High Court may, subject to the provisions of this Act, be exercised by one or more justices sitting in open Court. By s. 20 of the Judiciary Act the appellate jurisdiction is, for the most part, to be exercised by the Full Court. But, except in applications under s. 74 of the Constitution, which must under s. 22 of the Judiciary Act be determined by a Full Court, it is generally true that the original jurisdiction of the High Court is exercisable by a single judge. It may, of course, be exercised by the Full Court either as a result of a reference under s. 18 of the Judiciary Act or as a result of an orginal proceeding coming before it by some other form of procedure. But prima facie it is exercised by a single judge. When s. 196 (3) speaks of the High Court, it is difficult to understand why it should not mean the High Court properly constituted in any manner for exercising the original jurisdiction. The Judiciary Act always speaks of the High Court independently of the manner in which it is constituted and uses the Full Court to mean the Full Court of the High Court. There appears to us to be no ground for construing the High Court as meaning the Full Court of the High Court. Whether an appeal from the Board of Review is heard by the Full Court must depend upon the manner in which the Court itself decides to exercise the jurisdiction. Under Order LIa., r. 13 of the High Court Rules the appeal is to be heard subject to s. 18 of the Judiciary Act before a single justice by way of an original hearing. This rule appears to us to be quite valid. When s. 196 (3) provides that the decision shall be final and conclusive, it appears to us to mean that there shall be no further appeals. If the question before the single judge merits the consideration of the Full Court, it is open for either party to request him to refer it to the Full Court and, unless he considers the matter to be one of fact or otherwise to be unsuitable for the consideration of the Full Court, doubtless he would make an order under s. 18 of the Judiciary Act. This has been a frequent practice. The suggestion that until the appellate power of the High Court is also exhausted, sub-s. (3) does not apply would, in effect, deprive it of any practical application. It would make it mean no more than that an appeal should not lie to the Privy Council except as of grace.

(1926) 38 C.L.R. 153. 2. (1931) A.C. 275; (1930) 44 C.L.R. 530.

It is true that s. 34 of the Judiciary Act provides that the High Court shall, except as provided by that Act, have jurisdiction to hear and determine appeals from all judgments whatsoever of any justice or justices, exercising the original jurisdiction of the High Court whether in Court or Chambers. The section does not add to s. 73 (i.) of the Constitution. Section 73, of course, contains the words "with such exceptions and subject to such regulations as the Parliament prescribes". The real function of s. 196 (3) appears to be to make such an exception in order to protect the taxpayer from further litigation and to that end to prevent an appeal from the decision of the High Court, if the matter has been treated as one proper to be referred to a Board of Review. There is a marked contrast when the taxpayer appeals to the High Court in the first instance from the commissioner under s. 187 (b). In that case the order of a single judge of the High Court is made final and conclusive, except as afterwards provided in the Act, and s. 200 expressly gives an appeal to the commissioner or the taxpayer to the High Court in its appellate jurisdiction from the order made by the single judge. When s. 196 (2) empowers the board to refer a question of law to the High Court there is no reason to treat the expression "High Court" as meaning the "Full Court" to the exclusion of a single judge.

No real support for the conclusion that s. 196 (3) applies only after an appeal has been heard from a single judge by the Full Court is given by our decision in the Minister of State for the Army v. Parbury Henty and Co. Pty. Ltd. [1] . The Court decided in that case that in s. 39 (2) (a) the decision of the Supreme Court of the State there made final and conclusive, except so far as an appeal may be brought to the High Court, meant the decision of the Supreme Court after its full powers had been exercised and not a decision of the single judge of the Supreme Court. But the reasons for that conclusion began with the known purpose of the provision, which was to bring Federal questions into the High Court so that an appeal to the Privy Council would only lie from a decision of the High Court, and then subject to s. 74 and only in the exercise of the prerogative. That purpose would be completely satisfied if s. 39 (2) (a) related only to the ultimate decision of the Supreme Court after processes by appeal within the Supreme Court had been exhausted and the Order in Council allowing an appeal to the Privy Council applied only to a decision of the Full Court of the Supreme Court. None of these considerations which were regarded as justifying that interpretation of s. 39 (2) (a) has any application to s. 196 (3).

The conclusion that the decision of the single judge upon an appeal from a Board of Review is final and conclusive obtains some support from the history of the provision. That history is a curious one. What has become a Board of Review was first established by Act No. 31 of 1921, the Income Tax Assessment Act 1921 under the name of Board of Appeal. By sub-s. (8) of s. 38 inserted in the Income Tax Assessment Act 1915-1918 an appeal was given to the High Court in its appellate jurisdiction from a decision of the Board of Appeal. This provision was repeated in s. 51 (8) of the Income Tax Assessment Act 1922. The provisions were, however, held invalid as attempting to give the Board of Appeal, as it was then called, part of the judicial power of the Commonwealth: British Imperial Oil Co. Ltd. v. Federal Commissioner of Taxation [1] . One of the reasons relied upon by the Court for the conclusion that the board was given part of the judicial power of the Commonwealth was that an appeal was given to the High Court in its appellate jurisdiction and not in its original jurisdiction. To overcome the effect of this decision the Board of Appeal was replaced by an administrative Board of Review and provisions much in their present form were introduced by s. 12 of the Income Tax Assessment Act 1925 No. 28. By s. 51 which was inserted in the Act of 1922 by this Act, a sub-section was included enabling the commissioner or taxpayer to appeal to the High Court from any decision of the board which, in the opinion of the High Court, involved a question of law. Nothing was said about the decision of the High Court being final and conclusive. Obviously, the provision meant the original jurisdiction of the High Court and the framers of the Act must have become very conscious of the distinction between the appellate jurisdiction and the original jurisdiction. It was, of course, common knowledge that the original jurisdiction was normally exercised by a single judge. Then by s. 22 of the Income Tax Assessment Act 1927 No. 32, words were added to the end of sub-s. (6) of s. 51. The words added were these: "and the Board shall, upon the request of the Commissioner or a taxpayer, refer to the High Court any question of law arising before the Board and the decision of the High Court thereon shall be final and conclusive". It may be conjectured that the framers of this amendment did not intend that the words "final and conclusive" should refer back to the decision of the Court on an appeal mentioned in the original provision so amended. Probably they did not do so grammatically. When, however, these provisions were redrafted in the consolidation of 1936, the provision was split up and in sub-s. (3) the words "shall be final and conclusive" were expressly attached to the words "such appeal" as well as to the word "reference". The result was that while under the Act of 1922-1935, if an appeal from the Board of Review was brought in the first instance to a single judge, an appeal would lie under s. 34 of the Judiciary Act and s. 73 (i.) of the Constitution from his order to the Full Court, yet the first decision of the High Court became final and conclusive under s. 196 (3). The Act of 1936 was not only a consolidation but a reconsideration of many provisions of the Income Tax Assessment Act, and it may be assumed that the framers of the Act of 1936 thought it was better that the taxpayer should not be exposed to so many legal proceedings.

For these reasons we are of opinion that the appeal from Webb J. is not competent.

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Judgment (23 paragraphs)

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