This was a case stated for the opinion of this Court in an appeal by the Metropolitan Gas Company under the Income Tax Assessment Acts 1922-1929, and in certain proceedings on a rule nisi for a writ of mandamus obtained by the Company and directed to the Commissioner. The facts are fully set out in the case. Shortly stated, the Metropolitan Gas Company carries on the business of manufacturing and supplying gas to Melbourne and its suburbs, and employs labour on a considerable scale. By a trust instrument, a fund called "The Metropolitan Gas Company's Staff Superannuation Fund" was established. The Company and its employees contribute to this fund in accordance with the provisions of the trust instrument. The Company, in each of the financial years 1927-1928, 1928-1929, 1929-1930, contributed to this fund a sum of not less than £6,000. It claimed each of these sums as a deduction in the respective financial years in its return of assessable income pursuant to the Income Tax Assessment Acts 1922-1929. The Acts provide by sec. 23: - "(1) In calculating the taxable income of a taxpayer the total assessable income derived by the taxpayer from all sources in Australia shall be taken as a basis, and from it there shall be deducted ... (j) so much of the assessable income as is set aside or paid by an employer of labour as or to a fund to provide individual personal benefits, pensions or retiring allowances for employees: Provided that a deduction shall not be allowed unless the Commissioner is satisfied that the fund has been established or the payment made in such a manner that the rights of the employees to receive the benefits, pensions or retiring allowances have been fully secured."

The Commissioner disallowed the deductions claimed, and the Company, as already indicated, appealed to this Court, and also obtained a rule nisi for a writ of mandamus to the Commissioner directing him to consider and determine according to law the Company's claim to the deductions.

According to the argument presented to us on behalf of the Company, the function of the Commissioner under this section is merely to satisfy himself that the instrument creating a fund or regulating its administration also makes sufficient provision for securing to every beneficiary the benefits to which he is entitled under it, so that in law he may obtain that which the instrument purports to give him. It was conceded that the Commissioner was entitled to consider whether a fund was established bona fide, giving real and not merely visionary rights or benefits to employees, but it was said that he was not at liberty to consider the reasonableness or propriety of any condition, whether precedent or subsequent, affecting the right of the employee to receive the benefit, pension or retiring allowance.

In our opinion the argument is unsound. The question which the Commissioner has to consider and upon which he must be satisfied, is whether the rights of the employees to receive the benefits, pensions or retiring allowances have been fully secured. It is not whether the stipulated rights have been secured in due legal form, but whether the Commissioner is satisfied that the actual receipt of the individual personal benefits, pensions and retiring allowances from the fund to which an employer has made contributions from his assessable income is fully secured. The Commissioner has a wide discretion: it is part of his function to satisfy himself that employees shall in fact get the benefit of the fund, that they are protected against unreasonable deprivation of benefits from the fund, that the management and investment of the fund are properly safeguarded, and so forth. This leads to a consideration of the reasons assigned by the Commissioner for refusing the deductions claimed. The Court has not to consider whether in its opinion the rights of the employees to receive the benefits, &c., under the trust instrument were not fully secured, but only whether the Commissioner has acted within the limit to which an honest man, competent to the discharge of his office, ought to confine himself. It is the Commissioner that must be satisfied, not this Court; but he must act "according to the rules of reason and justice, not according to private opinion ...; according to law, and not humour": he must not act in a vague or fanciful manner, but legally and regularly (Sharp v. Wakefield[1]). The Commissioner based his view upon several clauses in the trust instrument, namely, 29, 30, 37, 38, 44 and 50. Clause 29 provides that upon the dismissal of a contributor he shall forfeit his right to a refund of all contributions made by him to the fund, and shall cease to have any right to participate in any of the benefits sought to be created by the trust instrument. In our opinion, the consideration of such a provision is within the function of the Commissioner. The dismissal is not conditioned upon misconduct, or any other cause, but forfeiture by the employee of his benefits follows simply upon the fact that he has been discharged from employment by the Company. An honest and competent man might consider that such a provision is unreasonable, and so be led to the conclusion that while it exists the rights of the employees are not fully secured. But we do not suggest such a conclusion. The question is one for the Commissioner to consider in all the circumstances of the case. Clause 30 declares that in case a contributor joins or takes part in a strike, he forfeits his right to a refund of his contributions or any participation in the superannuation fund. Strikes in connection with undertakings for the supply of light and water constitute a grave danger to the public (see Employers and Employés Act 1928, sec. 56), and involve serious losses to the undertakers. It is not an unreasonable stipulation that persons taking part in them should forfeit rights in any superannuation fund established by the undertakers. The Commissioner's objections to this clause cannot be supported. Clause 37 contains a power for the directors of the Company, with the approval in writing of the trustees under the instrument, to make and alter rules, including the rules relating to investment, scales of contributions, and the grant of benefits. Some such provision is necessary, but the objection is that the power is given to the Company, and that the trustees of the fund are the chairman and secretary of the Company. The trustees are, of course, in a fiduciary position under the trust instrument, and must exercise their powers honestly and reasonably in the interest of the contributors. Otherwise, we apprehend, they would be controlled by a Court of competent jurisdiction. The Commissioner's objection cannot be supported. Clauses 38 and 44 together provide that the chairman and secretary of the Company shall be trustees of the fund, and that, in the event of a difference of opinion arising as to a question submitted at a meeting of the trustees, the decision of the trustee who is chairman of the Company shall prevail. We can find nothing sinister or unreasonable in this clause. Trustees there must be, and it is difficult to understand why they should not be the chairman and secretary of the Company; or why the chairman's view should not prevail if there be a difference of opinion. The Commissioner's objection to these clauses cannot be supported. Clause 50 provides for the disposal of the fund on winding up. It is a necessary clause, but the Commissioner objects to the provision that any balance remaining after provision so far as possible of the benefits under the trust instrument to the then beneficiaries and payment to existing contributors of the amounts contributed with compound interest, shall be dealt with in accordance with a scheme to be determined by the trustees with the approval of the directors of the Company. The Commissioner has advanced the fanciful idea that the Company under this clause appropriates such balance to its own use. Again the reply must be that the trustees are in a fiduciary position, and in case of complaint would be under the control and direction of a Court of competent jurisdiction.

It only remains for us to indicate the formal answers that should be given to the questions stated in this case: - (1) Yes. (2) Yes. (3) Yes. (4) (a) and (b): The Commissioner did not act upon any wrong construction of the Act, but he wrongly applied the Act to the provisions of the trust instrument, in the manner stated in the reasons above set forth.

This was a case stated by Starke J. The substantial question out of which this proceeding arises is whether the taxpayer is entitled to deduct from its assessable income contributions paid by it to a staff superannuation fund. The fund was established by a trust instrument expressed to be made between the taxpayer company of the first part, two trustees of the second part and officers of the Company of the third part. The instrument provided for a large contribution from the taxpayer company, portion of which was payable at the rate of £3,000 per annum, and for contributions from the officers who should become contributors. Out of the fund so created, contributors are to receive pensions the amount of which is governed by age and length of contribution. Subject to a proviso upon which this case turns, sec. 23 (1) (j) of the Income Tax Assessment Act 1922-1928 provides for a deduction by a taxpayer of so much of the assessable income as is set aside or paid by an employer of labour as or to a fund to provide individual personal benefits, pensions or retiring allowances for employees. It cannot be denied that the contributions sought to be deducted were made to establish a fund which falls within this provision. No suggestion was made that the fund is illusory. Its reality and its correspondence to the description contained in the provision were uncontested. The taxpayer is, therefore, presumptively entitled to the deduction which must be made unless the prima facie right is defeated by the proviso. The proviso is as follows: "Provided that a deduction shall not be allowed unless the Commissioner is satisfied that the fund has been established or the payment made in such a manner that the rights of the employees to receive the benefits, pensions or retiring allowances have been fully secured." The Commissioner declared it to be his opinion that the fund had not been established in such a manner that the rights of the employees to receive the pensions were fully secured. Grounds were assigned for this conclusion which are explained and elaborated by means of a cross-examination of the Second Commissioner to which he was submitted. The question is whether the grounds upon which he appears to have acted are within the scope and purpose of the proviso and whether he exercised his discretion according to law. The grounds were stated in various ways, as is only natural in a correspondence relating to such a question and in a cross-examination, but in substance they come down to four clauses of the deed. Clause 37 of the instrument is as follows: - "The directors of the Company may from time to time with the approval in writing of the trustees make rules prescribing all matters required or permitted to be prescribed or necessary or convenient to be prescribed for carrying out or giving effect to these presents and in particular may make rules altering all or any of the regulations contained in these presents for the time being relating to the fund and may make new rules or regulations to the exclusion of or in addition to all or any of the rules or regulations for the time being relating to the fund and the rules or regulations so made and for the time being in force shall be deemed to be regulations in relation to the fund of the same validity as if they had originally been contained in these presents and shall be subject in like manner to be altered or modified by any subsequent rules similarly made. For the purposes hereof all the provisions herein contained in clauses 6, 8, 9, 12, 13, 14, 15, 16, 24, 25, 26, 34, 48 and 50, shall be deemed to be rules or regulations in relation to the fund." The Commissioner appears to have apprehended that under this clause the directors might, with the approval of the trustees, abrogate the substantive right of a contributor or a class of contributors. This view is founded upon an erroneous interpretation of the provision which, in point of law, confers no such power (Hole v. Garnsey[2]). It is not the purpose of the provision to enable the destruction of any substantive right to pensions, and an exercise such as is apprehended would be not unlike a fraud on a power (Vatcher v. Paull[3]). Clause 50 provided for the fate of the fund in the event of the winding up of the Company. The Commissioner feared that under this provision the rights of the contributors might be defeated and the Company might divert to itself benefits otherwise secured to them. Without discussing the provision in detail it is enough to say that there is no foundation for the fear. Clauses 29 and 30 are as follows: - "29. Upon the dismissal of a contributor he shall forfeit his right to a refund of all contributions made by him to the fund and shall cease to have any right to participate in any of the benefits sought to be created by these presents. 30. If a contributor join in or take part in a strike he shall forfeit his right to a refund of all contributions theretofore made by him to the fund and shall cease to have any right to participate in any of the benefits sought to be created by these presents." The Commissioner considered that these clauses militated against the security required by the proviso. Indeed in relation to these clauses as well as many other provisions of the deed which, during the progress of this controversy, have been relied upon by him with diminishing force, he appears to have regarded himself as called upon to exercise a discretion directed to requiring a scheme conferring rights absolute and independent and without qualification upon the beneficiaries under the deed. In this he has, in my opinion, mistaken the meaning of the proviso. He is entitled to be satisfied that the receipt or enjoyment of the rights conferred upon the employees is secured to them by appropriate means. But, once it is conceded that the rights actually given or purporting to be given by the instrument in respect of the fund are such as to come within the main part of the provision, he cannot under the proviso insist that the rights must be increased or enlarged or if qualified made absolute before allowing the deduction authorized by sec. 23 (1) (j). Clauses 29 and 30 of the deed merely provide conditions of the right conferred, and go only to the nature and measure of the benefit, pension or retiring allowance, and not to the security of the right to receive them. The remaining grounds mentioned by the Commissioner are subsidiary and did not need separate consideration. In my opinion, he misconceived his function under the proviso, and accordingly his discretion was not exercised according to law and the assessment cannot stand. The procedure by objection and appeal is appropriate to set aside an assessment so founded (Australian Mercantile Land and Finance Co. v. Federal Commissioner of Taxation[4]). The power of the Court to inquire into the validity of the purported exercise of the Commissioner's discretion is in my opinion unquestionable under sec. 51A of the Income Tax Assessment Act. But this does not mean that the Court will always allow him to be cross-examined upon the motives and reasons which actuated him. In my opinion, the facts and circumstances referred to in the case stated upon which he relied for the exercise of his discretion were irrelevant because, as to clauses 37 and 50 of the deed he was wrong in law in their effect and as to clauses 29 and 30 their effect was outside the scope and purpose of the proviso. The fourth question in the case stated should be answered accordingly. The second question should be answered: Yes, in order to ascertain whether he exercised his discretion according to law. These answers I think are enough to enable the learned Judge to dispose of the appeal, and it is unnecessary to answer the first and third questions.

I have read the judgment of my brother Rich, and agree with it. The questions in the stated case should be answered in the manner stated in his judgment.

Order as set out at end of judgment of Gavan Duffy C.J. and Starke J.

Solicitors for the appellant, Malleson, Stewart, Stawell & Nankivell.

Solicitor for the Commissioner of Taxation, W. H. Sharwood, Crown Solicitor for the Commonwealth.

[4] [1929] HCA 8; (1929) 42 C.L.R. 145, at p. 154.