Federal Commissioner of Taxation v Lewis Berger and Sons (Australia) Limited [1927] HCA 11

'The appellant on such an appeal is limited to the grounds of appeal in his notice of appeal, unless he obtain leave to amend the notice, =

Where the profits of a taxpayer's business include profits which are attrib able to sales to customers outside the Commonwealth, the question of portion of the profits attributable to such sales is derived directly or indir from sources in Australia is a question of fact, and the Commissioner of Tax is not entitled to apply to all such cases the same rigid formula,

Arrrat from the Board of Review. Lewis Berger & Sons (Austrelia) Ltd. having been as Federal income tax for the year 1919-1920 and the Commis

having disallowed an objection to the assessment, the decision of the Commissioner was referred to the Board of Review, which varied the assessment. From the decision of the Board of Review the Commis- sioner of Taxation appealed to the High Court, and the appeal was heard by Starke J., in whose judgment hereunder the material facts appear.

Starke J. delivered the following written judgment : -

_ This is an appeal by the Commissioner of Taxation from the 'decision of a Board of Review constituted under the Income Tax Assessment Act 1922-1925. Under sec. 51 (6) of that Act the appeal may be brought from any decision of the Board which, in the opinion of this Court, involves a question of law. The Board, in its proceedings, did not exercise the judicial power of the Commonwealth, it an administrative function, namely, that of reviewing the ioner's assessments for the purpose of ascertaining the taxable income upon which tax should be levied. The appeal

Sa proceeding in the original, and not within the appellate, jurisdiction of the Court. It follows, I think, that the parties

tothe matter. The material before the Board and its decision and sons should be brought before this Court, and the parties may

e Act, sec. 51 (2), in such proceedings, to the grounds stated in

H. ©. oF A. his objection to the assessment, and an appellant should be limi Loa Contes grounds of appeal stated in his initiating process in

Frperat Court, that is, his notice of appeal, unless he obtain leave to a

TAxaTION On this appeal the parties prepared a transcript of the proce

Lewis before the Board and used it before me. It thus appeared & Sons the respondent was assessed to Federal income tax for the vasa) 1919-1920, based on income derived during the year en staxey, 00 30th June 1919. The respondent carried on the business manufacturing and dealing in paints, varnishes and the like. total sales for the year amounted to £303,569, of which £51,443 we attributable to sales made to customers in New Zealand. expenditure for the year amounted to £42,069, of which £934 expended in New Zealand. The net profits of the business for the year from all sources amounted to £34,963 after excluding that were not allowable as deductions under the Income Tax A but it included the profits attributable to sales made to custom New Zealand. The Commissioner calculated or estimated the profits on thes as follows : - New Zealand sales 51,443 Total sales 303,569 £5,925, profit on sales in New Zealand. He considered, how that part of this profit (£5,925) was derived directly or indir from sources within Australia, This amount he calculated estimated as follows : - Expenditure in New Zealand 934 Total expenditure 42,069 Zealand) equals £132, profits not derived from sources in Australia. Deducting this sum of £132 from the total net profit of £34,963, the Commissioner arrived at the figure £34,831 as the taxable incom the respondent derived directly or indirectly from sources ¥ Australia, less a sum of £684 for certain losses and mortgages are immaterial for present purposes. The Board of Review was of opinion that the Commissio apportionment of this profit between Australia and New

was unreasonable and inadequate, and halved the total sum of 3- ete! As

There is no point of law that I can see in this decision of the Board. piste

• It depends upon business judgment and experience, applied to the normicg
• facts of the particular case, the nature of the business, and the mode ae vans

The Commissioner insisted that there was no evidence upon (oases which the Board could found its decision, or displace his assessment - _ Lp. (Income Tax Assessment Act 1922-1925, sec. 39 (1) (b)), but the - starke J.

i Board had as much and probably more information than the Commissioner, and was, in fact, in just as good a position as he

was, to apportion profits as between Australia and New Zealand.

The Commissioner's real aim is to elevate his formula into a fixed and rigid rule. It is not a rule of law however, and is at best a rule ofconvenience. It cannot be applied to all cases in all circumstances, and I am not surprised that the Board regarded it as unreasonable in the circumstances of this particular case.

In argument the learned counsel who appeared for the Commis- sioner insisted that the Board of Review had proceeded upon the view that only income directly derived from sources within Australia was subject of income tax, whereas the Act provided that income derived directly or indirectly from sources within Australia was assessable to tax. But the transcript of the proceedings before the Board shows, I think, that the parties agreed, or did not dispute, that the receipts from New Zealand sales - £51,443 - represented sales actually made in New Zealand f.0.b. Sydney. The Commissioner's representative distinguished Lovell & Christmas Ltd. v. Commissioner of Taxes (1), and claimed that the only point involved was to ascertain some reasonable basis of apportionment.

During his argument in reply, learned counsel applied to me for

• leave to call evidence for the purpose of showing that the sales to _ New Zealand customers were sales made in Sydney f.0.b. upon orders obtained in New Zealand (Grainger & Son v. Gough (2) ). In my opinion, however, the notice of appeal did not, and was not intended _ to raise any such case, and I refused to amend it. 'The assessment

H.C. or A. did not proceed on this basis, nor was the case made to the 1927. to this Court until the last moment. Consequently I

Feperat Teceive the evidence. coun The result is that the appeal is dismissed with costs.

Lr. Solicitor for the appellant, Gordon H. Castle, Crown Solicitor

the Commonwealth. i Solicitors for the respondent, Norton, Smith & Co.