These are appeals against assessments of war-time profits tax for the financial years 1917-1918 and 1918-1919. The question at issue between the parties relates to the deduction to be allowed under sec. 15 (4) of the War-time Profits Tax Assessment Act in respect of payment of excess profits duty under the provisions of the Imperial Finance (No. 2) Act (5 & 6 Geo. V. c. 89). In a previous case between the same parties relating to the assessment for the year 1916-1917, it was argued on behalf of the Commissioner that the expression "paid in respect of the profits" in sec. 15 (4) should be construed as meaning "paid in respect of the war-time profits of the business." I decided against this contention and on appeal my decision was affirmed by a Full Court. The appellant relies on the reasons given in that case in support of its contention that the amount to be allowed under sec. 15 (4) is so much of the excess profits duty actually paid in England as is attributable to profits derived from its Australian business irrespective of any difference between the method adopted by the British revenue authorities and that prescribed by the War-time Profits Tax Assessment Act for calculating the amount of taxable profits. If, for instance, in assessing the amount of excess profits duty payable, the British revenue authorities take the profits derived from the Australian business for a given accounting period as equal to the profits derived from all other sources the appellant says that one-half of the amount paid for excess profits duty is paid "in respect of the profits" within the meaning of sec. 15 (4) and is therefore to be deducted from the gross profits of the business in determining the amount of the taxable profits of the business for the purposes of the War-time Profits Tax Assessment Act. The Commissioner, on the other hand, contends that the expression "the profits" in sec. 15 (4) means the profits of the Australian business which remain after making all deductions allowed by the War-time Profits Tax Assessment Act and before making the deduction allowed by sec. 15 (4). The result of this construction would be that if, as in these cases, the amount of the profits of the Australian business after making such deductions was less than the amount of the Australian profits as determined by the British revenue authorities, the taxpayer would be entitled to a deduction of part and not of the whole of the amount of excess profits duty paid by him in respect of Australian profits. In my opinion this construction of the sub-section is inconsistent with the opinion expressed by the learned Judges who decided the earlier case of Federal Commissioner of Taxation v. S. Hoffnung & Co. Ltd.[1] and the contention of the respondent on this point cannot be sustained. Sir Edward Mitchell, for the respondent, put forward two other contentions, namely, (a) that the provisions of sec. 15 (4) were directory not mandatory, and (b) that the payment by way of excess profits duty was subject to review in certain cases and therefore the amount of such payment could not be treated as a sum paid within the meaning of sec. 15 (4). In my opinion both these points are concluded by the decision in the former case to which I have referred, and that in D. & W. Murray Ltd. v. Federal Commissioner of Taxation[2], and, indeed, they were not seriously pressed.

For these reasons I am of opinion that in each case the appeal should be allowed.

The Court has been informed that the parties have agreed that the result of its decision is that the appellant is entitled to a refund of £6,709 10s. in respect of the assessment for the financial year 1917-1918 and £1,855 4s. in respect of the assessment for the year 1918-1919.

The order will be that the appeal be allowed, that the assessments for the financial year 1917-1918 be reduced to nil and the assessment for the financial year 1918-1919 reduced to £186 6s. 10d., and that the respondent do repay to the appellant the sum of £8,564 14s. The respondent is to pay the costs of both appeals.

The decision of this Court in Federal Commissioner of Taxation v. S. Hoffnung & Co. Ltd.[3] disposes of the main contentions presented by Sir Edward Mitchell, namely, that the profits mentioned in sec. 15 (4) of the War-time Profits Tax Assessment Act are the profits of a business after deducting the allowances authorized by the Act, and before making the deduction allowed by sec. 15 (4), and that the provisions of that section are merely directory and confer no right upon the taxpayer.

Another contention, that no sum had been paid in respect of the profits, on account of any war-time profits tax or similar tax imposed in England, because the English excess profits duty was open to review, is untenable, and could not in any case be sustained, having regard to the decision in D. & W. Murray Ltd. v. Federal Commissioner of Taxation[4].

Appeal allowed. Assessments reduced. Respondent to repay to appellant £8,564 14s. Respondent to pay costs of both appeals.

Solicitor for the respondent, W. H. Sharwood, Crown Solicitor for the Commonwealth.

[2] [1927] HCA 51; (1927) 40 C.L.R. 148.

[4] [1927] HCA 51; (1927) 40 C.L.R. 148.