SuHEPHARD v THE

The moneys paid into court will be paid out to the plaintifis and deducted from the amount of damages awarded.

Solicitors for the plaintiffs, Cleland & Teesdale Smith. Solicitor for the defendant, W. H. Sharwood, Crown Solicitor for

the Commonwealth, by Fisher, Powers, Jeffries & Brebner. C.C.B.

Income tax (Cth.) - Assessment - Exempt income - Whether " income derived from sources outside Australia" and " chargeable with income tax in any country outside Australia" - Taxability of income in Great Britain - Questions affecting - Interference with decision of commissioner or board of review - Income Tax Assessment Act 1922-1931 (No. 37 of 1922 - No. 23 of 1931), sec. 14 (1) (9) (i) (1).

'The court can only interfere with the determination or decision of the Com-

missioner of Taxation or the board of review upon a question whether income included in an assessment to income tax is "income derived from sources outside Australia" and "chargeable with income tax in any country outside Australia" within the meaning of sec. 14 (1) (q) (i.) (1) of the Income Tax "Assessment Act 1922-1931, and is accordingly exempt income under that section, when it is affirmatively established that the exercise of the judgment or disere- tion reposed in the commissioner or the board of review has miscarried.

'The taxpayer, who was a director of a company incorporated in spent more than six months in each of the relevant years in Great Britain, p on pleasure and partly on the business of the company. He obtained fun England by means of an overdraft at the London branch of his At bank, His salary and other moneys were paid into his account at th bourne office of the bank. With these funds securities were purchased, wh the bank held. After his return to Australia these were sold and the pro used to extinguish the London overdraft. The taxpayer objected

and 1931 of certain portions of his income on the ground that they were income under sec. 14 (1) (q) (i.) (1) of the Income Tax Assessment Act 1922.19 He had not in fact been charged with income tax in Great Britain, The missioner and the board of review disallowed the objection,

affecting liability to taxation in Great Britain, namely, residence, remi of income and exercising in Great Britain the employment of a director, th appeal failed.

as amended hy the Finance Act 1922 (12 & 13 Geo. V. c. 17), sec. 18 (1), con sidered. }

The taxpayer, Charles Victor Robertson, objected to his assessm in respect of income derived from personal exertion during the y ending 30th June 1930 and 1931 on the ground that portion of th income assessed was "income derived from sources outside Au

tralia " and was " chargeable with income tax in" a " country outsid

The taxpayer was a joint managing director of a company porated in Victoria and was called the governing director at based his claim on the fact that he was resident in Great from March 1929 to January 1931 on business for his compan He claimed that he was resident in Great Britain for a exceeding six months, which made the income liable to assi under the British Income Tax and Finance Acts, thus making t salary referred to chargeable with income tax in a country outsi

Assessment Act 1922-1931. The commissioner disallowed objections on the ground that it had not been proved to satisfaction that the income was to any extent chargeable ¥ income tax in any country outside Australia. The

appealed to the board of review, which dismissed the appeal and H.C. or A. 1937.

confirmed the commissioner's decision. ae From this decision the taxpayer appealed to the High Court, the Roserrson questions of law involved being : - FEDERAL (1) Was the income, the subject matter of the assessment, as derived from sources outside Australia ? TAXATION. (2) Was such income chargeable with income tax in any country outside Australia ¢ (3) Was such income exempt from income tax by virtue of sec. 14 (1) (g) of the Income Tax Assessment Act 1922-1931 ? Pullagar K.C. and Knaght, for the appellant. O'Bryan, for the respondent. Cur. adv. vult. Drxon J. delivered the following written judgment : - Tuly 26.

Par. q (i) (1) of sec. 14 (1) of the Income Tax Assessment Act 1922- 1931 exempts from income tax income derived from sources outside Australia to the extent to which that income is proved to the satis- faction of the Commissioner of Taxation to be chargeable with income tax outside Australia.

The taxpayer appeals from a decision of the board of review refusing a claim on his part for exemption in respect of income from personal exertion derived during the years ending 30th June 1930 and 1931.

'The taxpayer is a joint managing director of a company incor- porated in Victoria and is called the governing director. The company act as consulting accountants, teach by correspondence and otherwise, and, as I gather, publish literature for use in business training and practice. Early in 1929 he visited Europe and was absent from Australia for two years.

The taxpayer's salary as governing director is substantial and he seeks exemption for the whole sum which, upon an apportion- ment, is referable to so much of the period of his absence as is included within the two years of income ending 30th June 1931. On his visit to Europe he combined business with pleasure and inquired into a number of questious in the interests of his company and conducted some business negotiations on its behalf. He had

H.C. or A. armed himself with a power of attorney. During each of the ti 1937.

x ment for British income tax, he spent in the aggregate more th

months ending 5th April 1930 and 5th April 1931, years of as

six months in England. He contends that during his absence the source of his salary outside Australia and that, in respect of the amount for which |} claims exemption, he was chargeable with income tax under th laws of the United Kingdom. In fact he has made no ret the British assessors of income tax and has not been asses such tax. The amount of the salary payable to the t depended upon a resolution of the board of directors passed son years before under an article of association and he held office an appointment made pursuant to another article. It does n appear to me to be altogether clear that the source of his remunt tion, during his absence, was outside Australia, but for some reas it was admitted on behalf of the commissioner that in respect o income in question this condition of the Commonwealth exemp was satisfied. At the same time it was denied that any part o salary arose from the exercise in the United Kingdom of his emp ment of managing or governing director. If it did so arise, taxpayer to that extent would be chargeable with British income t The commissioner maintained that upon no ground was any p of the income taxable in Great Britain. So far as he was con it was not proved to his satisfaction that any of the income there chargeable. The decision of the board of review was aj the taxpayer and from that, the commissioner said, it followed h it was not proved to the board's satisfaction. The prov conferring the exemption makes it depend on his or the Boa satisfaction. The court cannot, it was said, examine the corre of the conclusion. Further, before an Australian court, English k is a matter of fact and so, it was contended, the decision of the boat could involve no question of law and there is no appeal to the from a decision of the board of review unless it does involv question of law. { For a proper understanding of the manner in which these conté tions apply, I think it is necessary to know what are the consid tions upon which, under the British Income Tax Acts, the ta

liability depends. Unfortunately the not very simple system of British income tax is more than usually complicated in its application to such facts as the present. This arises in part from the uncertainty that must result when residence in a country is made a criterion of legal liability and in part from the fact that the income is derived from an employment and that the employment is that of a director. Tt is well to begin with the method of taxation of the remuneration of directors under the British Income Tax Acts.

The established practice appears to have been to treat the office of director of an incorporated trading company as an employment of profit within schedule E. The remuneration of a director was therefore charged under that schedule (See Berry v. Farrow (1) ; Barson y. Airey (2); Watson v. Rowles (3); Proctor v. Ryall (4) ). The schedule applied only to employments exercised within the United Kingdom, and, if the duties were performed elsewhere, it was necessary to bring the income derived from the employment within schedule D before it could be taxed (Pickles v. Foster (5) ). The territorial limitation upon the application of schedule E has occasioned some difficulties in relation to the office of director. In Proctor v. Ryall (4) Rowlatt J. took the question to be where the office was situate. He, therefore, held a director chargeable under schedule E because the company was incorporated in and managed from England where the board met, although the taxpayer himself resided abroad and, except for attending directors' meetings, per- formed abroad all his duties, which were those of a "foreign director" managing the foreign business of the company. In Barson v. Airey (6) the chairman of directors of an English company went to China on the business of the company and for his services there received additional remuneration. This raised a question whether the whole remuneration could be assessed under schedule E, a question answered in the affirmative on the ground that the remuneration all arose from the office of director, which was " within" the United Kingdom.

(1) (1914) 1 K.B. 632, at p. 637. (4) (1928) 14 Tax Cas, 204.

(2) (1925) 10 Tax Cas. 609, at pp. (5) (1913) 1 K.B, 174; 6 Tax Cas. 131. 635, 636; 42 T.L.R. 145. (6) (1925) 10 Tax Cas. 609; 42T.L.R.

The practice of bringing income derived from the office of d under schedule E was perhaps shaken by a decision upon that seh the reasoning of which appears to have run counter to long lished methods of assessment. If the law had not been altered it have produced effects upon settled practice highly inconvenient revenue. The decision was given by the House of Lords in 19 Their Lordships decided that the schedule was confined to offices employments that in some undefined way could be considered public and that, notwithstanding the express inclusion of 1 companies in the schedule, a fourth class railway clerk could not assessed under it because his office or employment was not " pub ic (Great Western Railway Co. v. Bater (1) ). Rowlatt J., who decid the case in the first instance, said that, in spite of the use of word "public" in the definition, as it had been applied it had practically disappeared (2). In the Court of Appeal, Lord Ste M.R. said that he could not agree with that, but what was true w that the word " public " had been interpreted in a very much m liberal sense than at first would, perhaps, seem to be its meaning. Scrutton L.J. regarded the chargeability of the clerk's salary schedule E as depending on the question whether he held an offi or employment of profit under a company. This he considered to be a question of fact and on that ground he refused to disturb commissioners' decision that the schedule applied. But he explaii

the fact that the Income Tax Acts are being worked under a systel of considerable antiquity, which in many respects has not be

certain amount, which i varied from time to time, are taxable either under schedule E or under schedule D. Whether they com under one schedule or the other has certain consequences, which T do not profess to enumerate exhaustively, but some of them are: If they come under schedule E, they are taxed on the income of the year of assessment and if they come under schedule D, they a

taxed on the average of the preceding three years' income, if the1

(1) (1922) 2 A.C. 1; 8 Tax Cas, 231. (2) (1920) 3 K.B., at p. 273; 8 Tax Cas.,at pp. 234, 235.

is such an average ; and that if they come under schedule D, they are assessed directly, and must fight out their battles with the income tax authorities by themselves; but if they come under schedule E they are assessed through their employer who has to pay to the income tax authorities, and then deduct the tax from the employee. Naturally under those circumstances it may make a difference to aman whether he is taxed under schedule D or under schedule E. Now schedule E itself taxes public offices or employments of profit. I do not know whether, looking at it by the light of nature, you would ever say that a fourth class clerk in the running depart- ment of the Great Western held a public office or employment of profit " (1).

In the House of Lords this decision was reversed. The ground of the reversal was that an office or employment to come within schedule E must have some attribute justifying the application of the description "public" or "of a public nature." But the judgments contain many expressions of opinion tending against the liberal manner in which this very vague requirement had been applied. In particular, Lord Wrenbury said that he disagreed with the view expressed in Berry v. Farrow (2) that the company director had there been rightly assessed under schedule E. He described him as "managing director of an insignificant limited company to which he had assigned a patent but which, in fact, had done no business" (3). But probably his Lordship adopted this dyslogistic description rather to illustrate the lengths to which the application of schedule E might lead than because he thought that, if the company had pursued a more active and profitable course and had attained importance or notoriety, its directors might properly have been assessed under the schedule. The practical tesult of the decision of the House of Lords would have been to place under schedule D many employments which under existing practice were dealt with under schedule E, the assessments being made upon the employer and the tax collected at the source. As might be expected, to avert such a consequence, a legislative change was made at once. It was done in the same year. The Finance Act

(1) (1921) 2K.B., at p. 139; 8Tax (3) (1922) 2. A.C., at p. 34; 8 Tax Cas, Cas., at p. 239. at p. 257. (2) (1914) 1 K.B. 632,

1922 includes the following provision : sec. 18 (1): "Such p ofi or gains arising or accruing to any person from an office, employm or pension as are, under the Income Tax Act 1918, chargeable t income tax under schedule D (other than the profits or gains ehi able under case V. of schedule D, or under rule 7 of the miscellanec rules applicable to schedule D), shall cease to be chargeable that schedule and shall be chargeable to tax under schedule , a1 the rules applicable to that schedule shall apply accordingly subj to the provisions of this Act."

Whether because of the uncertainty of the lengths to which th decision of the House of Lords might be pressed or for reasons 0 policy, this provision appears to be expressed very widely. were "employments" which had never been considered to under schedule E. Those holding or pursuing them had alwa been assessed under schedule D, It is for this reason that for proper understanding of the appellant's case I have thought desirable to set out above the history of the question. For, schedule D, a person residing in the United Kingdom is cha on the annual profits or gains from any trade, profession, empl ment or vocation, whether the same be respectively carried on the United Kingdom or elsewhere. Thus, if the appellant were ¢ person residing in the United Kingdom, it might, if there were 1 more, appear to follow that he was chargeable upon the remuneratic he received as a director whether or not what he did in the Unite Kingdom amounted to "carrying on" there the employment 0 director. He would be chargeable under schedule E because of thi transfer into that schedule of employments assessable under schedu D, although, because the office was situate out of the United Kin; schedule E would not otherwise apply. Further, schedule D- expressed to bring into charge the annual profits and gains arisil accruing to any person although not resident in the United Ki from any trade, profession, employment or vocation exercised with the United Kingdom. Apparently if what the appellant did England amounted to an exercise of his employment of directo then, even although he was never a resident, his remuneration, | least in so far as it arose or accrued from that exercise of sv employment would, by transfer from schedule D, be brought 57 CLR.) OF AUSTRALIA.

charge under schedule E. In other words, if there were no more in the legislation, liability might appear to arise from mere residence

on the part of the appellant or from the exercise of his director's Roserrsox

office or employment within the United Kingdom. But schedule D contains other provisions which make it impossible to deal with liability arising from residence in so simple or direct a manner. The schedule includes in the charge the profits and gains of residents arising or accruing from property whether situate in the United Kingdom or elsewhere. Tax under the schedule is charged under six specified cases, the first five of which describe the nature of the income comprised therein and the sixth of which catches the residue not contained in the others. Case I. relates to trade. Case II. consists of "tax in respect of any profession, employment or voca- tion." Case V. is " tax in respect of income arising from possessions out of the United Kingdom." The cases are further qualified by rules, some of which are applicable to one or more specified cases only and others generally. Case II.. for instance, is " to extend to every employment by retainer," a description which may not be inconsistent with the attributes of a directorate. For in Bater's Case (1) Lord Sumner. after saying that he had doubts whether every employment not by retainer is within E, makes a statement showing how he understood the expression. He says that. if it was so, then he thought that the employment of the railway clerk was "by retainer though annual, for he is not engaged to do a definite thing, to get it done in his own time and in his own way. but to do things of a definite class, as and when he is required. being paid whether his efforts are always required or not."

The second of the rules applicable to case V. provides that the tax in respect of income arising from possessions out of the United Kingdom shall be computed on the full amount of the actual sums annually received in the United Kingdom from remittances there payable, or from property imported, or from money or value arising from property not imported, or from money or value so received on credit or on account in respect of any such remittances, property, money or value brought or to be brought into the United Kingdom.

It is clearly settled that this rule limits the application of case V. to income actually received in some form or another in the United

Kingdom. If the language of the rule admitted of doubt on th point it would be removed by the circumstance that income a from stocks, shares or rent is excepted and the taxpayer is mi chargeable on the whole whether it has been brought to the Unit Kingdom or not, unless he satisfies the commissioners either th he has no domicil in the United Kingdom, or, if he isa British subjec that he is not ordinarily resident there. If he so satisfies them, th exception does not apply and he is taxed on so much of such ineon only as is remitted. It is apparent that a resident of the Unite Kingdom having a source of income abroad may find it much t his advantage to bring the source within case V., to have it classe as a "possession," and so pay tax not on the full amount which accrues from the source but upon so much only as is brought to United Kingdom. For instance, in the present case, if the appellar was resident in England, and his employment as a director, consid as a source of income, was a" possession out of the United Kingdom it is said that it would escape taxation in Great Britain becaus strictly none of the actual income was remitted to him. The advantage of assessment on actual remittances from forei sources of income was conceded to a much larger class of taxpay than those residents who fell within the first category enumerated in schedule D, namely, those deriving profits or gains from any kind of property. The word "possessions" in case V. was treated as far more extensive than " property." In the leading case of Colquhoun v. Brooks (1), Lord Macnaghten said that it was not a technical word. "Tt seems to me," he continued, " that it is the widest and mo comprehensive word that could be used. Why, for instance, s t 'possessions in Ireland' mean everything, every source of income that the person chargeable has in Ireland, whatsoever it ma y be." Lord Herschell said: - "1I cannot see why it may not fi be interpreted as relating to all that is possessed in Her Majesty dominions out of the United Kingdom or in foreign countries and which is a source of income. And if so I do not think any viole would be done to the language if it were held to include the int which a person in this country possesses in a business carried elsewhere" (2).

(1) (1889) 14 App. Cas. 493, at p. 516. (2) (1889) 14 App. Cas., at p. 50

For reasons upon which it is unnecessary to enter, reasons arising from the provisions dealing with the ascertainment of the amount of taxable income and with the machinery of assessment the strength of which cannot be felt without a study of the judgments, the House of Lords decided that the income of a resident derived from a business carried on abroad could not be assessed under case II., but fell under case V. Accordingly, a partner residing in London in a firm conducting a hardware business in Melbourne was held to be chargeable, not with his full share of profits, but only with so much as was actually remitted to him in London.

In the report, published last year, of {the Committee on Income Tax Codification, a work from which much enlightenment may be obtained upon the British law of income tax, Colquhoun v. Brooks (1) is chosen as one of two examples given of "the large body of authoritative expositions" contained in the law reports " not only of individual words, phrases and sections, but also of the scheme of the income tax system." It is described as governing the liability of British residents in respect of businesses carried on abroad. But the sentence that follows implies a limitation upon the authority of such a decision asa source of law. " Expositions such as these have in turn given rise to further discussion in later cases, and the difficulty of applying previous judgments to different facts has resulted in the necessity of interpreting those previous judgments themselves." Recently Colquhoun v. Brooks (1) has undergone this process ; the House of Lords has limited its application in a way which perhaps may be considered revolutionary by those deriving from abroad what in Australia we should call income from personal exertion. In G. W. Eaton-Turner v. T. McKenna (2), the taxpayer resided in England, that is. he possessed a residence there, but he derived income from an employment which he carried on exclusively outside the United Kingdom. His contract of service contained a condition that payment should be made as he directed and his direction was that payment should be made in England. No doubt because of the difficulty of describing as a foreign possession an employment the remuneration for which was payable in Great Britain, the assessment upon the taxpayer was made under so much of schedule

(1) (1889) 14 App. Cas. 493 (2) (1937) A.C. 162 ; 20 Tax Cas. 566.

D as was transferred to schedule E and not under case V. taxpayer, who presumably did not deny the correctness of the opi nic that his income did not fall within case V., contended that und Colquhoun v. Brooks (1) he was outside the other cases of schedule I To this view the courts declined to give effect.

of Lords had decided that, although an employment might Colquhoun v. Brooks (1) be a foreign possession within case V., y when the chief remuneration under a contract of employment w payable within the United Kingdom, the source of profit could not be said to be out of the Kingdom so as to be a foreign possession,

These decisions leave anything but a clear dividing line bet those employments abroad exposing a resident to taxation up the whole remuneration and those in respect of which the taxable fund is limited to actual receipts in the United Kingdom.

The report of the committee, to which I have already referre contains a section devoted to employments in the United Kingdom nd employments abroad. From it I shall quote in full a passage which upon this point appears to me to show the state of the law applicabl to the appellant. The passage is as follows : - '' The division | income into United Kingdom income and foreign income necessitati the determination of the circumstances in which income derived employments is to be treated as derived from a United Kingdom o from a foreign source ; there is no guidance to be found in the exis

In other cases tax was charged under schedule D, the general cha provision being that tax should be charged ' in respect of the a profits or gains arising or accruing . . . to any person in the United Kingdom from any . . . employment whether the same be . . . carried on in the United Kingdom elsewhere' (see rule 1 (a) (ii.) ). But this general charge is consist with a charge being made either under case II., which provides "the tax shall extend to every employment by retainer in al

(1) (1889) 14 App. Cas. 493. (2) (1913) 1 K.B. 174; 6 Tax Cas, 131.

character whatever,' or under case V., which charges foreign posses- sions. In 1922, by sec. 18 of the Finance Act of that year, profits or gains arising from employments chargeable under schedule D, 'other than the profits or gains chargeable under case V. of schedule D, were transferred from schedule D to schedule E. The exception effected by the words quoted is a clear indication that Parliament contemplated the possibility, at any rate, of profits and gains from some employments being chargeable under case V., but as to the circumstances in which they are to be so chargeable the Acts are silent. The case law on the subject is meagre. It is practically limited to the case of a single individual - Mr. Pickles. Mr. Pickles had entered, in England, into an agreement with an English company to take charge, in Africa, of the company's business there, and to devote the whole of his time to the business of the company. His salary and commission commenced as from the date of his sailing for Africa and terminated on the day upon which he gave up charge of the African business. Mr. Pickles had, at all material times, a home in England in which his wife and family lived and in which he was in the habit of residing when in England. Two attempts were made to charge Mr. Pickles - one for the years 1906-07 and 1907-08, the other for the year 1919-20. The only alteration in the circumstances which had occurred between the earlier years and the later year was that, in the earlier years, one half of Mr. Pickles' salary was paid to his wife in England, and the other half to Mr. Pickles either in Africa or England, whereas in the later year the whole remuneration was paid by the company into a banking account in England, on which his wife had the power of drawing. In the first case (Pickles v. Foster (1) ), it was sought to charge Mr. Pickles as the holder of a public office under schedule E of the Act of 1842 (for that Act was at the time still in force), but he was held not to be liable, on the ground that a public office the duties of which were performed abroad was not within secs. 146, 147 of the Act of 1842, unless the office was one which, though actually exercised abroad, was constructively exercised in the United Kingdom. In the second case (Pickles y. Foulsham (2) ) it was sought to charge Mr. Pickles in respect of a foreign possession under case V. of schedule D

(1) (1913) 1 K.B. 174 ; 6 Tax Cas, 131. (2) (1925) A.C. 458; 9 Tax Cas. 261.

we RoBERTsoNFeperan Commis- SIONER OF Taxation.

of the Act of 1918 (for that Act had in the meantime supe the Act of 1842). Again it was held that Mr. Pickles was not liab The grounds for the decision in the House of Lords vary, some of their Lordships being of opinion that this particular form of employ: ment did not constitute a foreign possession, and others that, tho it did constitute a foreign possession, there was no element of tance (upon which alone tax is charged) in view of the fact that the remuneration was entirely paid in this country. But Lord Cave in the course of his speech said 'I do not doubt that (to take two simple instances) a doctor residing in England and practisi France only, or a mining engineer having a residence here a wholly employed by a Spanish mining company in Spain, might b

The only other relevant case is that of McKenna v. Baton-Turner which came before the King's Bench Division in December 1934, and in which the decision has since been affirmed by the Court of Appeal. In that case Mr. Eaton-Turner, who was resident in tl o United Kingdom, had entered into an agreement with a Britis company to act for it as mines manager in West Africa. No part of his work or duties, according to the findings of the commissioners, fell to be performed or was performed in the United Kingdom; arrangement the main part of his remuneration was paid into a banking account in the United Kingdom. It was held that Mr. Eaton-Turner's employment fell within the charge to tax under schedule D, par. 1 (a) (ii.), and case IT., and that by virtue of sec. of the Finance Act 1922 it was brought within schedule E, which schedule he had been correctly assessed. As no clear g

inquiries as to what was the practice with regard to employment other than public appointments. We were informed that the tice of the Board, based on their interpretation of rule 1 (a) (ii.) (iii.) of schedule D, and the decision in Pickles v. Foulsham (2), is a8 follows : - A. Residents. (i.) Where the duties are wholly or partly per

schedule E ; (ii.) Where the duties are wholly performed al (a) the full emoluments, if the emoluments are normally

(1) (1936) 1 K.B. 1. (2) (1925) A.C, 458 ; 9 Tax Cas. 261.

wholly or in part, in the United Kingdom, are charged under schedule E; (0) the emoluments, if wholly received abroad, are, so far as they are remitted to the United Kingdom, charged under case V. of schedule D. An exceptional receipt of emoluments in the United Kingdom, e.g., when the employee is on leave here, is not treated as involving liability under schedule E. (It is to be noted that the decision in Pickles v. Foulsham (1) drew no clear distinction between employ- ment under a United Kingdom employer and employment under a foreign employer ; in practice the rule above stated under (ii.) (a) is applied only to service under a United Kingdom employer, a person in the service of a foreign employer who, though resident in this country, performs his duties wholly abroad being charged under case V., and not under schedule E, wherever his emoluments are received). B. Non-residents. (i.) Where the duties are wholly or partly performed in the United Kingdom, the emoluments, to the extent to which the duties are performed in the United Kingdom, are charged under schedule E. (ii.) Where the duties are wholly performed abroad, there is no liability."

To this extract it is, perhaps, desirable to add a reference to the interesting commentary made by the committee upon Cooper v. Cadwalader (2) and the effect thereon of McKenna v. Eaton-Turner (3), which appears at p. 43 of the report.

So far I have dealt with the effect on liability to the revenue produced by actual residence and by the application of the category "income arising from possessions out of the United Kingdom." To this category I have attributed a limiting operation. Given actual residence, it limits liability upon income falling under it to sums actually received in the United Kingdom. But liability under case V. may be incurred although the taxpayer's sojourn in England does not come up to the standard of full residence. In this respect case V. may enlarge liability. That it may do so is a consequence of the second of the miscellaneous rules applicable to schedule D. The rule is as follows: "2. A person shall not be charged to tax under this schedule as a person residing in the United Kingdom, in respect of profits or gains received in respect of possessions or securities

(1) (1925) A.C, 458; 9 TaxCas. 261. (3) (1936) 1 K.B. 1; (1937) A.C. 162; (2) (1904) 5 Tax Cas. 101; 12 Sc. 20 Tax Cas. 566. LTR. 449,

H.C. or A. out of the United Kingdom, who is in the United Kingdom for s 1937.

temporary purpose only, and not with any view or intent of estab lishing his residence therein, and who has not actually resided in the United Kingdom at one time or several times for a period equal i the whole to six months in any year of assessment, but if any si person resides in the United Kingdom for the aforesaid period he shall be so chargeable for that year."

In this provision the expression resides " at one time or several _ times for a period equal in the whole to six months in any year" is taken, I think, to require no more than actual presence for the necessary time. Although the word "reside" is used, it see evident that a distinction is drawn between establishing a residence and living or staying in Great Britain for six months as a visitor.

In Levene v. Inland Revenue Commissioners (1) Viscount Cave L.0, said: 'Similarly a person who has his home abroad and visits the United Kingdom from time to time for temporary purposes without setting up an establishment in this country is not considered to be resident here - although if he is the owner of foreign possessions or securities falling within case IV. or V. of schedule D, then if he has actually been in the United Kingdom for a period equal in the whole to six months in any year of assessment he may be charged with tax under rule 2 of the miscellaneous rules applicable to schedule D."

The provision applies only to income from possessions or securities. But it produces the consequence that to be in the United Kingdom for an aggregate of six months in a year of assessment exposes the visitor to tax upon remittances of income from such sources else- where. In its application to the appellant what I have set o may be summed up as follows : -

(1) As he was in England for more than six months, he would be - chargeable if both the following conditions were fulfilled: (a) If any of his remuneration were remitted to the United Kingdom during the relevant time, and (b) if his employment as a managing. ¢ director constitutes a possession outside the United Kingdom. be

(2) If his employment as a managing director does not constitute such a possession abroad, and he actually filled the description of

" person residing in the United Kingdom," he would be liable upon H- ©. or A-

(3) If he exercised within the United Kingdom his employment Rovertsoy

of a director, he would be liable on the remuneration arising there-

The question whether the appellant became a resident of Great TAxatroy.

Britain is said to be one of fact. In two cases in the House of Lords reported consecutively the conception has been elaborately discussed (Levene v. Inland Revenue Commissioners (1); Inland Revenue Commissioners v. Lysaght (2) ). The committee's report, already quoted, after saying that no one subject which arises in the applica- tion of the Income Tax Acts has been more prolific of dispute than residence, gives the following summary of the result (vol. 1, pp. 35, 36) : - '* Nor are the decisions of the courts very helpful, for it must now be taken to be settled law that the question of residence is a question of fact, on which the decision of the commissioners before whom the matter comes on appeal is final unless the courts decide that there was no evidence on which the commissioners could properly have come to the conclusion at which they arrived. Two principles, however, seem to be established by the decision : - (1) That a person may be resident in two or more countries. (2) That though the possession of an establishment available in this country may be good ground for finding the fact of residence here, the absence of such an establishment, even though coupled with the possession of an establishment abroad, is not incompatible with residence here (Lysaght v. Commissioners of Inland Revenue (3) ). The courts have also dealt with the question how far circum- stances existing before or after the year of charge can be taken into consideration. Rowlatt J. in Lysaght v. Commissioners of Inland Revenue says: 'I do not think that the position of this gentleman during the years 1922, 1923 and 1924, which are here in question, must be coloured by a reference to his previous life ' (4), but Viscount Sumner says in Levene v. Commissioners of Inland Revenue: '1 agree that the taxpayer's chargeability in each year of charge

(1) (1928) A.C. 217. at p. 60; (1928) A.C., per Viscount (2) (1928) A.C, 234, 'Sumner, at pp. 244, 245; 13 Tax (3) (1927) 2 K.B. 55, per Rowlatt J. Cas. 511, at pp. 516 and 528.

constitutes a separate issue, even though several years are included in one appeal, but I do not think any error of law is committed if the facts applicable to the whole of the time are found in one continuous story ' (1). On the whole, the commissioners seem now inclined to look at the course of the appellant's movements over a series of year For the assistance of visitors to the United Kingdom in ascertaini their position in relation to the question of residence, the Board of Inland Revenue have prepared a statement which is as follows ; - 'A visitor who maintains no place of abode in the United Kingdom and whose visits are not habitual but occasional only is not regarded as resident in the United Kingdom unless he has been in the United Kingdom for a period or periods equal in the whole to six months in the income tax year (beginning 6th April). If, however, he maintains a place of abode in the United Kingdom, available for his use, he is regarded as resident for any year in which he pays a visit, of whatever length, to the United Kingdom. _ Moreover, even though he does not maintain a place of abode in the United Kingdom available for his use, and does not stay for 4 six months in any one year, he is regarded as becoming resident if he visits the United Kingdom year after year (so that his visits become in effect part of his habit of life) and the annual visits are | for a substantial period or periods of time. The question of residence i in any particular case can only be determined by reference to the ' facts of the case. But it can be said that the Board of Inland a Revenue would normally regard an average annual period or periods - amounting to three months as "substantial" and the visits as having become "habitual" after four years. And, where the 4 visitor's arrangements indicated from the start that regular visits for substantial periods were to be made, he would be regarded as _ - resident in and from the first year.' " If I were the tribunal of fact whose duty it was to determine the question of residence in the present case, I should find that the taxpayer had not become a " person residing in the United Kingdom," although by reason of his spending in England an aggregate of six _ months in each of the two years of his absence from Australia he became chargeable in respect of profits or gains received in respect

of possessions out of the United Kingdom, if any such profits or H.C. or A.

gains were remitted to him. He clearly went to England as a

visitor. His settled home was in Australia and he was away from Hana

it only for the purpose of obtaining the advantages of travelling abroad. The advantages included the gathering of information for

use in his company's business and meeting people personally with Ta*T0N.

whom the company desired to enter into negotiation, as well as pleasure, relaxation and the enjoyment of the interests which other countries present. There was no purpose the fulfilment of which would require his presence in England for an unknown or indefinite duration of time. He did not take a flat or house there. Returning to the same hotel and leaving heavy luggage there shows little except that such a course appeared convenient at the moment. The use of a London office of an Australian bank as a postal address appears to me to have no significance. The two facts most in favour of residence are, first, the length of the period abroad and his repeated return throughout to England, and, second, his putting his children toschool there. These two facts are, no doubt, associated in purpose. Probably he did not desire to leave his children for two years and for that reason and because two years at school abroad might seem an advantage he took them with him. It was natural to choose England for their schooling and it does not appear that their presence there caused him to shorten the time he might otherwise have spent elsewhere. His case is unlike those in which the taxpayer, having always had his home in Great Britain, goes abroad for some purpose not necessarily permanent and returns to Great Britain at intervals. The retention of slight connections with the country has then appeared enough to found an inference of continued residence. Lysaght's Case (1) is a strong illustration. But, although my own inclination would be definitely against finding that the taxpayer became a person residing in the United Kingdom, it is quite plain that if commissioners for the purposes of the Income Tax Acts had made a finding that he did so reside, on appeal in England it could not have been disturbed. Further, the passage I have quoted from the Report of the Committee on Income Tax Codification perhaps suggests that the commissioners would regard the period of six

months as having an artificial importance beyond that assigned it by the Act which limits it to income from possessions and sect abroad.

Under the Commonwealth Income Tax Assessment Act 1922- sec. 14 (1) (q), as it is the Board of Review, who, when there is reference from the commissioner, must be satisfied that the incor was chargeable in the United Kingdom, it seems to follow that th question of residence was for them and is not for me finally to deci

Because the taxpayer was in England for an aggregate of months in each year, it becomes necessary to consider his liabilit under case V. In the present state of authority it is difficult ind

regarded as a " possession" out of the United Kingdom. I feel doubt that before the decision in Haton-Turner's Case (1) remit 0 of salary would have been charged with tax upon that basis. what was said in Foulsham v. Pickles (2) it appears that such source of income would be considered a " possession," and, if entirel "out of the United Kingdom," would expose the resident to only under case V. on remittances. In Cooper v. Cadwalader (3), taxpayer, who had a residence of two months annually in Scotl practised law in New York. He was taxed under cases IV. and V as on the income from securities and " possessions." The commil in their comment upon this case (p. 43), say : - It was not in that case suggested, and we understand that in practice it has ne since been suggested, that a taxpayer in Mr. Cadwalader's posi is chargeable on the full profits of a profession carried on ent abroad. It may be that it is considered that in such a case doctrine of Colquhoun v. Brooks (4) would apply, but having to the judgments in McKenna y. Eaton-Turner (5) it is by means clear that that doctrine is applicable to the case of a profes carried on by an individual."

On the whole, I think that the office of managing director of a Australian company, considered as a source of income, would b classed as a possession within case V.

(1) (1937) A.C. 162; 20 Tax Cas. 566. (3) (1904) 5 Tax Cas, 101; 12 (2) (1925) A.C., at pp. 462, 463, by L.T.R. 449, Viscount Cave L.C. ; at p. 466 by (4) (1889) 14 App. Cas. 493. Lord Dunedin, and at p. 468 by (5) (1936) 1 KB. 1; (1987)

After this judgment had been written a report came to hand of the decision of Lawrence J. in Bennet v. Marshall (1). In that case the taxpayer, a person residing in the United Kingdom, was vice-president of an American corporation and the question was how he was to be assessed in respect of the profits of that employment. His corporation. was a parent company having subsidiary companies in many parts of the world through which it operated. The taxpayer's duties were to supervise these foreign undertakings, including that in England. He spent only about eight weeks a year in America and over six months in the United Kingdom. Lawrence J. decided that the source of the income was not the work done by the taxpayer in the United Kingdom or in any other part of the world, but the contract with the American company, under which his income was payable outside the United Kingdom. Accordingly he was assessable not under schedule E but under case V. of schedule D upon the money remitted. This decision appears to me to cover the present case. It confirms the opinion I have expressed that the plaintiff's source of income is a possession out of the United Kingdom falling under case V.

The view I have adopted would raise the question whether the taxpayer's business activities in England brought any part of the source of income within the United Kingdom. The admis- sion on the part of the Federal Commissioner of Taxation that the income for which exemption is claimed was derived from sources outside Australia, if right, almost carries the consequence that the source was within the United Kingdom at least in part and for some of the time. But the admission was not intended to produce such a result and the issue itself was contested by his counsel as well as the kindred issue whether the employment of a director was exercised within the United Kingdom. For myself, I do not think that what the taxpayer did in the interests of his company in Great Britain amounts to an exercise of his employment in Great Britain, nor is it inconsistent with his office of managing director remaining a possession entirely out of the United Kingdom. The steps he took consisted in inquiry and discussion or negotiation. Without minimizing their usefulness and extent, I do not think they give his sojourn abroad the stamp of a business enterprise or

Ww ROBERTSON » FEDERAL Comis- SIONER OF 'TAXATION.

mission undertaken in the course of the duties of his office. Tt y no doubt, desired to take advantage of his intended stay in Engl

But, in doing this, he was not, in my opinion, executing his office managing or governing director in England. If these conclusions be correct it would follow that his liabilit British income tax is limited to remittances made of his dire remuneration. The cases of Kneen v. Martin (1) and Hall y. Maria (2) show that no liability is incurred from the remission of mon to the United Kingdom unless it is identifiable with or tra to the income of the possession. In particular "it is unsound contend that, if money is borrowed by a person who is entitl income from foreign possessions, whether the money is borrowed the security either of the capital or the income of the pos abroad or on other property, or without security at all, such a per must be taken, within the meaning of rule 2, to have received su in the United Kingdom. . . . To borrow money is not to income, and, prima facie, I think the only effect of so bo money here is to become liable to pay the sum to the credit this country. It is quite immaterial, as I think, that the which may lie behind either the borrowing or the lending is to some benefit to the taxpayer here or that it is due to the fact thi there is security abroad in any of the forms I have mentioned. say with regard to such a transaction that no income has b received, from possessions out of the United Kingdom, in country" (per Maugham L.J., Hall v. Marians (3) ). The taxpayer in the present case obtained funds in England means of an overdraft at the London branch of his Australian bi His salary and other moneys were paid into his personal accoun Melbourne. With the funds accumulating to his credit in # account securities were purchased which the bank held. After his return to Australia these were sold and the proceeds used to extit:

me to involve a payment or receipt of funds in the United King taxable under case V. The result is that, if I were the tribunal (1) (1985) 1 KB. 490; 19 Tax Cas, (2) (1988) 18 Tax Cas, 148; (1995) 1

Tax Cas. 582. (3) (1935) 19 Tax Cas., at pp. 603, 604.

decide the matters of fact upon which the taxpayer's liability to British income tax depends, I should make findings inconsistent with his present contention. But, as the duty is reposed, not in the court, but in the board of review, the taxpayer is entitled to the exercise of their judgment upon the facts. Upon such questions as whether a stay in a country amounts to residence, activities amount to the exercise of an employment, a fund in one place "represents" income in another, questions vaguely defined and depending on matters of degree, the exercise of the board's judgment, as distinguished from the court's, may be of much importance to the taxpayer. It is true that the decision of the board of review was against the taxpayer. But he is at liberty to attack that decision upon the ground that the board misconceived the true issues which should be determined. If he could establish affirmatively that it had done so, it would be necessary to send the case back to the board for their reconsideration. The commissioner's contention that the taxpayer has no remedy, even if the board had completely misappre- hended the British income tax law, is based at least in part on the view that sec. 14 (1) (g) (i.) meant to leave everything to the conclusive judgment of the commissioner subject to a reference to the board. But, apart from this extreme view, it is, I think, clear according to the view taken in this court of analogous provisions that the court can only interfere when it is affirmatively established that the exercise of the judgment or discretion reposed in the commissioner or board of review has miscarried. On this question, the written decision of the board has caused me some misgiving and I have had some doubt whether enough does not appear to entitle the taxpayer to arehearing. But, after examining the record of proceedings as well as the decision of the board, I have come to the conclusion that upon the three crucial questions of residence, remittance of income and exercising in Great Britain the employment of a director, it is not shown that the board failed to consider and determine them. For these reasons I dismiss the appeal with costs.

Solicitor for the respondent, H. F. EZ. Whitlam, Crown Solicitor for the Commonwealth.

1937, We Roperrson v. Frperav Commis- sIoNER oF TAXATION.