Perpetual Executors & Trustees Association of Australia Ltd v Commissioner of Taxation

The appellants, who are the executors of the will of Christina Thomson, who died on 15th December 1944, have objected to the inclusion of the sum of £6,814 in the value of her dutiable estate for the purposes of Federal estate duty. This sum was paid to them by the Treasurer of the Commonwealth under the following circumstances. Mrs. Thomson was the holder of certain dollar bonds issued by the Commonwealth in the United States of America similar to the bonds which were the subject matter of the litigation in Magrath v. The Commonwealth [1] . She was assessed for and paid Federal income tax upon the interest derived from these bonds for the years ending 30th June 1939 to 30th June 1943 inclusive. The total amount of income tax levied and paid on this interest was £6,814. On 29th May 1944 the first question asked in the case stated in Magrath v. The Commonwealth [1] was answered in the affirmative. On 6th November 1944 Mrs. Thomson's solicitors wrote to the Commissioner asking whether, in view of the statement of counsel for the Commonwealth in Magrath v. The Commonwealth [1] that if the first question was answered in the affirmative the Commonwealth desired to honour its obligations, it was the intention of the Commonwealth to refund this sum to Mrs. Thomson. At the date of Mrs. Thomson's death no reply had been received to this letter and the further proceedings in Magrath v. The Commonwealth [1] relating to the second question referred to the trial Judge had not come on for hearing. On 10th May 1945 the appellants received from the Treasurer of the Commonwealth a cheque for £6,814 described in a covering letter as a refund of the income tax paid on the interest received on the bonds. In a notice of assessment under the Estate Duty Assessment Act 1914-1942, the respondent included the sum of £6,814 in the value of the dutiable estate of the deceased under the heading "Refund of Income Tax." The inclusion of this item in the assessment was objected to by the appellants on the ground that it was not received until after the death of the deceased and was not a debt owing to her at the date of her death. The respondent then amended the assessment by deleting the item as a refund of income tax but included the same amount in the value of the dutiable estate as a right of action for recovery of unliquidated damages valued at the sum of £6,814 paid to the appellants by the Treasurer of the Commonwealth. The appellants objected to the amended assessment but the respondent disallowed the objection, and the appellants then requested the respondent to treat the objection as an appeal and forward it to this Court.

1. (1944) 69 C.L.R. 156. 2. (1944) 69 C.L.R. 156. 3. (1944) 69 C.L.R. 156. 4. (1944) 69 C.L.R. 156.

Paragraph 25 of the case states that "the respondent advances the following contentions in support of the inclusion of the sum of £6,814 in the value of the estate for Federal estate duty (i) that the amended assessment in its present form is correct because at the date of her death the deceased had a right of action for the recovery of unliquidated damages which right was properly valued at £6,814 (ii) that the Commonwealth's contractual obligation to the deceased was to pay not only the principal and interest agreed to be paid but also the amount of any tax lawfully levied by the Commonwealth of Australia upon her in respect of the receipt by her of such principal or interest and that therefore the deceased at her death had a right of action to recover the sum of £6,814 as a debt due to her by the Commonwealth (iii) that the amounts of income tax referred to in par. 14 hereof were not lawfully levied and could have been recovered at law by the deceased during her lifetime (iv) that the deceased's claim to the repayment of £6,814 had such a high degree of probability of success and was so well founded in expectation that it should be treated as an asset in her estate and valued at the sum of £6,814."

The first question asked in the case is: "Are any of the second third and fourth of the contentions stated in paragraph 25 hereof open on this appeal and relevant to its determination?" It is the objection which is treated as the appeal (s. 24 (1) (b)). The present objection is in form an objection to the whole of the amended assessment. But the grounds show that the part of the amended assessment objected to is the inclusion of the £6,814 in what s. 15 describes as the amount upon which duty shall be levied in accordance with the Act. All the grounds of objection to this sum being included in this amount are open to argument by either side, and the present grounds are wide enough to include the second, third and fourth contentions stated in par. 25 of the case.

In my opinion the first question should be answered in the affirmative.

The second question asked in the case is: "Subject to question 1 ought the sum of £6,814 or any part thereof to be included in the value of the estate of the deceased for Federal estate duty?" The scheme of the Estate Duty Assessment Act is to impose a tax on the beneficial interest in all property owned by the deceased to which his personal representatives acquire a title on his death and on certain other property deemed to be part of his estate for the purposes of duty which he has disposed of during his life by dispositions which are regarded as substitutes for wills. The sum of £6,814 would therefore form part of Mrs. Thomson's dutiable estate if she had at the date of her death a legal right to recover from the Commonwealth a sum equal to the amount of income tax which she had paid on the income derived from the bonds. The bonds provided that all payments of interest should be made without deduction of any tax now or at any time hereafter imposed or levied by the Commonwealth of Australia, and the effect of the affirmative answer to the first question in Magrath v. The Commonwealth [1] is that in view of this provision it was a breach of contract for the Commonwealth to tax this interest on the bonds. The contract was binding on the Commonwealth because the issue of the bonds was authorized by the Loans Securities Act 1919. But the Parliament in 1919 could not fetter a future Parliament, if the latter Parliament thought fit to do so, from repudiating the promise that the bonds should be free of taxation; so that if, upon the true construction of the Income Tax Assessment Acts of 1922 and 1936, this exemption was abolished in the case of bondholders who were resident in Australia, the Commonwealth would be able to set up that the subsequent statute had made it impossible for the Commonwealth to continue to honour its promise to the plaintiff (Magrath's Case [1] ). Prior to the amendment of the Income Tax Assessment Act 1922 by the Income Tax Assessment Act 1930, Australian residents were only liable to pay income tax on income derived from a source in Australia. That Act made such residents liable to pay tax on income derived from any source. The Act in force during the period Mrs. Thomson was assessed was the Income Tax Assessment Act 1936 as amended. The Income Tax Assessment Acts 1922 and 1936 both contain sections exempting certain income from taxation. There are similar sections in the English Income Tax Act 1918. Sections 37 to 39 of that Act exempt from taxation the income or certain income of charities, friendly societies, trade unions, savings banks and other bodies. Sections 46 to 48 exempt from income tax the income on securities issued free of income tax. On the other hand s. 213 provides that no letters patent granted or to be granted by the Crown to any person, city, borough, or town corporate of any liberty, privilege, or exemption from subsidies, tolls, taxes, assessments or aids, and no statute which grants any salary, annuity or pension to any person free of any taxes, deductions or assessments, shall be construed or taken to exempt any person, city, borough or town corporate, or any of the inhabitants of the same, from tax, and all non-obstantes in any such letters patent or statute made or to be made to the contrary effect shall be void. But despite these special provisions, it has been held on several occasions that where property was exempted from tax in earlier Acts by provisions wide enough to include future income tax, the property was still exempt from income tax although it was not only not specifically exempted by the Income Tax Act 1918 but was caught by the literal meaning of its general provisions. The court has always held that the subsequent legislation must contain clear words before it should be construed as operating by way of repeal of exemptions granted in express terms. Some of the cases are cited in Magrath v. The Commonwealth [2] . To these may be added the recent case in the Court of Appeal of Wiltshire County Valuation Committee v. Marlborough & Ramsbury Rating Authority [1] . One of these cases is Cadbury Bros. Ltd. v. Sinclair [2] . This case was recently considered by the House of Lords in Inland Revenue Commissioners v. Australian Mutual Provident Society [3] , and there is no suggestion in the speeches of their Lordships that the case was not rightly decided. In Cadbury's Case [2] the land occupied by the company was the subject of an Act of Charles II. passed in 1660 which exempted the company as occupier from at any time thereafter being taxed to pay any sum or sums of money or to be otherwise charged in any way whatsoever for any manner of public tax whatsoever any law to the contrary notwithstanding. The company was assessed for income tax under Schedule D of the Income Tax Act 1918 which provides that tax shall be charged in respect of the annual profits or sums from any trade carried on in the United Kingdom or elsewhere. Schedule A provides that tax shall be charged in respect of the annual value of all land in the United Kingdom. Rule 5 of Cases I. and II. of Schedule D provides that the computation of tax shall be exclusive of the annual value of land occupied for the purpose of the trade if such lands are separately assessed and charged under Schedule A. The land occupied by Cadbury's was occupied for the purpose of trade but was not separately assessed under Schedule A because it was exempted by the Act of 1660. It was nevertheless held by the Court of Appeal that the annual value of the lands should not be included in the profits or gains from the company's trade for the purposes of Schedule D because this would be inconsistent with the provisions of the Act of 1660. Lawrence L.J. said: "If the contention of the Solicitor-General be right, that by reason of this exemption the annual value of the lands cannot be deducted for the purpose of computing the company's profits and gains, the result would be that the company as occupiers of the lands would be charged for and in respect of those lands within the meaning of the Act of Charles II, for unless the company, in estimating their profits and gains, are allowed to deduct the annual value of the land occupied by them for the purposes of their trade, the tax computed under Schedule D is larger than it would be if that annual value had been deducted, since the gains and profits of the company are increased by reason of the occupation of the lands" [4] . In all these cases the exemptions from tax were granted in statutes whereas in the present case the exemption was contained in a contract. But I can see no distinction in principle between an exemption contained in a statute and one contained in a contract. A future Parliament can repudiate the exemption either by repealing the statute in which it is contained expressly or by implication, or by putting an end to the contract by legislation which is expressly or impliedly inconsistent with its further existence. These cases are all illustrations of the maxim generalia specialibus non derogant, and their principles should in my opinion be applied to the present case and it should not be held that any sufficient intention appears in the Income Tax Assessment Acts of 1922 or 1936 to repudiate the promise contained in the bonds. These Acts do not contain any section similar to s. 213 of the English Income Tax Act 1918. It was therefore a breach of contract for the Income Tax Commissioner to include the income derived from these bonds in Mrs. Thomson's assessable income. She did not appeal against the assessments but paid the income tax. Section 177 (1) of the Income Tax Assessment Act provides that the production of the notice of assessment shall be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct. Presumably Mrs. Thomson had other income in addition to the income derived from the bonds and was therefore a person obliged to make a return by the Act. As she did not appeal, she would have had no defence to an action to recover the tax assessed and she did not in fact dispute the assessment but paid the amount assessed (St. Lucia Usines and Estates Co. Ltd. v. Colonial Treasurer of St. Lucia [1] ). The appellants contended that she had paid the tax assessed upon the income derived from the bonds under a mistake of law and that she could not therefore have brought an action to recover the amount which was subsequently refunded to the appellants. It is to my mind unnecessary to express any final opinion on this contention. If the Income Tax Assessment Acts of 1922 and 1936 did not operate to put an end to the immunity from income tax contained in the bonds or in other words did not impose income tax on the income derived from the bonds, then the levying of tax on this income was a breach of contract. As at present advised I fail to see how the provisions of the Income Tax Assessment Act 1936 or the voluntary payment of tax levied on the income derived from the bonds under colour of valid assessments could provide any defence to an action brought to recover damages for breach of a contract not to levy such tax. Such an action would be based on a separate legal right altogether outside the provisions of the Income Tax Assessment Act. Even if the voluntary payment of the tax would afford a defence to the action, the Commonwealth was under no obligation to plead such a defence and the probability that it might do so was at most an element in placing a value on the right of action at the date of death. But we now know that the Commonwealth did not dispute Mrs. Thomson's claim to the refund of tax and paid the claim in full. The value of the right however uncertain it may have been at the date of death was therefore subsequently fixed and determined. The cases cited by Dixon J. in Willis v. The Commonwealth [1] , to which may be added Attorney-General v. Quixley [2] which is very much in point, show that the courts prefer facts to estimates and will in such a case accept the subsequent quantification of the right as its value at the relevant time.

1. (1944) 69 C.L.R. 156. 2. (1944) 69 C.L.R. 156, at p. 183. 3. (1944) 69 C.L.R. 156, at p. 184. 4. (1948) 1 All E.R. 694. 5. (1933) 149 L.T. 412. 6. (1947) A.C. 605. 7. (1933) 149 L.T. 412. 8. (1933) 149 L.T., at p. 417. 9. (1924) A.C. 508. 10. (1946) 73 C.L.R. 105, at p. 116. 11. (1929) 141 L.T. 288.

In my opinion the second question should be answered by saying that the sum of £6,814 ought to be included in the value of the estate of the deceased for Federal estate duty.