Federal Commissioner of Taxation v Official Receiver
(1956) 95 CLR 30030 ALJ 143
56 ALR 643
(Judgment by: Kitto J)
Between: Federal Commissioner of Taxation
And: Official Receiver
Judges:
Dixon CJ
Williams J
Fullagar J
Kitto JTaylor J
Subject References:
Bankruptcy
Judgment date: 6 June 1956
Judgment by:
Kitto J
During the year ended 30th June 1954, John Travis, an undischarged bankrupt, was in employment and earning salary or wages. (at p324)
As each amount of salary or wages became payable, the Income Tax and Social Services Contribution Assessment Act 1936-1953 (Cth.) bound the employer (as he was not, we are told, a group employer as defined in s. 221A) at the time of paying it to make a deduction (s. 221c), to enter on a tax deduction sheet the amount of the salary or wages and the amount of the deduction and to affix on that sheet tax stamps equal to the amount of the deduction (s. 221G (1)). It was his duty (s. 221G (2)) at a later date to deliver to the bankrupt the portion of the sheet provided for the affixing of tax stamps, called the tax stamps sheet (defined in s. 221A), and a portion of it which provided for the certification of the amount of the deductions made, called the tax stamps certificate (also defined in s. 221A). The bankrupt had to forward the tax stamps sheet to the commissioner with his income tax return (s. 221H (1)).
All these things were done; and when the bankrupt's income tax for the relevant year was assessed it was found to be less than the sum represented by the face value of the tax stamps on his tax stamps sheet. Thus the case fell within s. 221H (2) (b), which provides that in such an event "the Commissioner shall... credit so much of that sum as is required in payment of that tax and any other tax payable by the employee, and pay to the employee an amount equal to any excess". The amount of the excess which the commissioner thus became "liable to pay", - to use the phrase in s. 221U - became by virtue of that section payable out of the Consolidated Revenue Fund, which was thereby appropriated to the necessary extent. (at p325)
In these circumstances a difference of opinion arose between the Deputy Commissioner of Taxation in Melbourne and the bankrupt's official receiver. The deputy commissioner contended that he must pay the amount of the excess to the bankrupt taxpayer unless an order to the contrary should be made under s. 101 of the Bankruptcy Act 1924-1950 (Cth.). The official receiver, on the other hand, contended that the deputy commissioner should pay the whole amount to him without any order under s. 101 having been made, on the ground that the amount was property acquired by the bankrupt before his discharge, and, as such, was vested in the official receiver by the combined operation of ss. 60, 91 (i) and 99 (4) of the Bankruptcy Act. (at p325)
The official receiver then applied to the Bankruptcy Court for answers to questions which were involved in the controversy, and for an order that the deputy commissioner pay to him the whole of the amount in dispute (which would be the appropriate order if the right to the amount were vested in him by ss. 60, 91 (i) and 99 (4)), or an order that the deputy commissioner pay to him for distribution amongst the creditors the whole of the amount or such part of it as the court might direct (which would be appropriate if an order under s. 101 were necessary). The only parties to the application were the official receiver and the deputy commissioner: the bankrupt was not joined or served, and, notwithstanding r. 93 of the Bankruptcy Rules, he was given no notice of the proceedings. (at p326)
Clyne J. made an order, not answering any of the questions asked, but ordering that the whole amount be paid to the official receiver. This his Honour did, holding that s. 101 had no application to the case but that the official receiver was entitled to the amount by force of the vesting provisions of the Act. The order so made is the subject of this appeal. (at p326)
Two grounds have been suggested upon which it might be held that no right to the amount is vested in the official receiver as property acquired by the bankrupt before his discharge. One is, as I understand it, that on the true construction of the Income Tax and Social Services Contribution Assessment Act 1936-1953 (Cth.) the statutory duty of the commissioner to pay the amount imports no correlative right in the bankrupt constituting property which passes to his official receiver. The other is that the amount payable by the commissioner is saved to the bankrupt by the doctrine that the vesting provisions of the Bankruptcy Act, despite the generality of their terms, do not apply to personal earnings of a bankrupt which are needed for the maintenance of his family and himself. Of course, even if on either ground the official receiver should be held to have no title with respect to the amount by virtue of the vesting sections, that fact is no answer to an application for an order under s. 101: In re Shine; Ex parte Shine [1892] 1 QB 522 ; In re Saunders; Ex parte Saunders [1895] 2 QB 117 ; In re Garrett (1930) 2 Ch 137; In re Landau; Ex parte Trustee (1934) Ch 549. But before it can be held that an order under that section could be made, three questions must be considered. The first two are questions depending upon the construction of s. 101 itself, namely
- (1)
- whether the amount is of such a character as to be comprehended in any of the words of description used in the section; and
- (2)
- whether a bankrupt to whom such an amount becomes payable is "in receipt of" it within the meaning of the section.
The remaining question, which arises on the construction of the Income Tax and Social Services Contribution Assessment Act, is whether that Act expressly or by implication precludes the making of an order under s. 101 with respect to such an amount. (at p326)
It will be seen that the construction of the Income Tax and Social Services Contribution Assessment Act is involved both in the argument as to vesting and in the argument as to jurisdiction under s. 101. It is convenient, therefore, to turn to that Act at once. (at p327)
The duty which s. 221H (2) (b) in terms imposes upon the commissioner, with respect to any excess of the value of stamps on an employee's tax stamps sheet over the assessed amount of his tax, is to "pay to the employee" an amount equal to the excess. It has not been suggested, nor does it seem fairly open to argument, that when this duty arises in a particular case, reinforced as it is by the appropriation of the Consolidated Revenue Fund to the necessary extent by s. 221U, there arises no corresponding legal right in the taxpayer to have the duty performed. The right clearly exists; what is the appropriate procedure for its enforcement I do not stay to inquire. Neither is it material to consider whether notice to the commissioner of any purported assignment of the right by the taxpayer, or any charge over it which he has purported to give, will entitle the assignee or chargee to require the commissioner to pay the amount to him instead of to the taxpayer.
Let it be assumed, as has been suggested (though I am not to be taken as agreeing with the suggestion) that the commissioner would be right in insisting in such a case that he must obey the statute according to its terms, and must therefore disregard the assignment or charge, unless (I suppose the suggestion must mean) the assignee or chargee were appointed expressly or by implication the taxpayer's agent to receive payment of the amount on his behalf. The assumption cannot affect the problem before us, for the unassignability of a right to be paid money does not necessarily exclude it from the category of property which vests in the official receiver under the Bankruptcy Act: Ex parte Huggins; In re Huggins (1882) 21 Ch D 85, at pp 90, 91; Hollinshead v. Hazleton [1916] 1 AC 428 , at p 447; and cf. National Trustees Executors & Agency Co. of Australiasia Ltd. v. Federal Commissioner of Taxation (1954) 91 CLR 540 .
If the right we are considering is outside the category, that must be the result of an indication to that effect to be found in the Income Tax and Social Services Contribution Assessment Act. (at p327)
I have not been able to discover any such indication, nor do I see in the Act anything capable of being read as such an indication, unless it be the expression "pay to the employee" in s. 221H (2) (b) itself. Read not only literally but as if the Act took effect in a vacuum, these words no doubt would exclude payment to anyone but the employee. But the Act takes effect as part of a system of law which contains the Bankruptcy Act; and it would accord with sound principles of construction to hold that when Parliament creates a right to receive money it does so with the knowledge that general provisions applying to such rights in cases of bankruptcy have already been made, and intends, unless the contrary is indicated, that those provisions shall take effect with respect to the particular right created.
Accordingly I should regard it as a sound proposition that any statute providing for payments to be made to individuals, whether out of government funds or otherwise, should be read together with the Bankruptcy Act unless a positive intention is disclosed that the provisions of that Act shall not apply. Where the intention is not expressed, courts should, I think, be slow to imply it, bearing in mind that the Bankruptcy Act embodies the system which Parliament has set up for the purpose of ensuring that all the resources of bankrupts are applied for the benefit of their creditors and themselves in the manner which is considered generally most expedient, and that an exception is not likely to be intended unless there are reasons for it which are so special that they would lead almost inevitably to the making of an explicit provision on the point. (at p328)
In the Income Tax and Social Services Contribution Assessment Act I do not find such an intention disclosed, either by express words or by implication. In addition to s. 221H (2) (b), there are several other provisions in the Act for the repayment by the commissioner to taxpayers of moneys which have proved to be overpayments of tax. The others are ss. 172, 202 and 221YE. All are couched in such terms as one would expect to find in sections drawn so as to create rights subject to the operation of the bankruptcy law. Together with s. 221U, they entitle taxpayers to receive payments out of government funds in the events to which they respectively refer, and they give no hint of an intention that the law as to choses in action generally, and the bankruptcy law in particular, shall not be as applicable as it is to other kinds of government debts. (at p328)
Some reliance has been placed upon the secrecy provisions contained in s. 16, but the relevance of those provisions, I must confess, escapes me. By sub-s. (2) the commissioner and his subordinates are forbidden, subject to the section, to divulge to any person any information they have acquired, by reason of their appointments or employment or in the course of their employment, respecting the affairs of any other person, except in the performance of their duty as officers. The application of this provision depends upon a delimitation of their duty as officers. In the present case the deputy commissioner disclosed to the official receiver the fact that the amount in question had become payable to the bankrupt, and no doubt in doing so he conceived that he was acting within the limits of a duty which his own Act and the Bankruptcy Act combined to impose upon him. Whether he was right or wrong may be easier to say when this appeal has been decided; but I cannot see how the decision of the appeal is made any easier by a consideration of s. 16. The suggestion seems to be that s. 16 sets or confirms the tone of the Act, and that the Act should be construed as one which provides for an individual relationship between commissioner and taxpayer, to the exclusion of other people, each being required to do certain things in relation to the other without regard or reference to anyone else. But when, out of the communings of the commissioner and a taxpayer with each other, there has developed a situation in which nothing remains to be done except that an amount is to be paid to the taxpayer out of the Consolidated Revenue Fund, what is there so personal about the relationship as it then exists that from it an implication should be thought to arise that the taxpayer's right to receive the amount is not affected by his bankruptcy in the same way as his right to receive any other amount that may be payable to him? (at p329)
But it seems to be said further that, at least when you consider the nature and complexity of the system which must necessarily exist for the administration of the Income Tax and Social Services Contribution Assessment Act, you should feel it to be improbable that the legislature would have meant the commissioner, when the occasion arises for making a refund under s. 221H (2) (b), to pay regard to anyone but the taxpayer himself. The improbability apparently stops short of excluding his legal personal representatives if he is dead, but not his official receiver if he is a bankrupt. With all respect to those who take this view, it is not clear to me why the suggested improbability should be thought to exist, or why, if it does exist, it should be thought a sufficient ground for placing upon the Act a construction different from that which it would otherwise bear. Many statutes provide for money payments to be made by public officials from public funds. Not infrequently the departments concerned are large and the persons entitled to payments are numerous. Yet it has never been held, as far as I am aware, that in considerations of departmental inconvenience or the like a sufficient warrant may be found for implying into a statute an exclusion of the right to receive such payments from the normal operation of the bankruptcy law. If such an exclusion were intended, an express provision effecting it would almost inevitably suggest itself at once to the draftsman; and in the absence of any provision on the point expressly made in the Income Tax and Social Services Contribution Assessment Act a court should, in my opinion, see a strong reason for declining to imply one, unless compelling reasons for doing so are to be found in the Act itself.
I do not perceive, any more than the deputy commissioner appears to have perceived, any reason why, when the conditions have arisen in which a refund is payable under s. 221H (2) (b), the commissioner should be considered in a different position, so far as the bankruptcy law is concerned, from that which is occupied by anyone else in the community who is under a duty to pay money to a specified person on behalf of, or out of the funds of, a third party. (at p330)
It is not unimportant to remember that what s. 221H (2) (b) does is to give the taxpayer a right to a payment out of Commonwealth moneys in substitution for a right to a payment by his employer of which he has been deprived by the operation of the Act, and deprived unnecessarily, as it has turned out, in the sense that he has been thereby kept out of money not required to meet his tax liability. If he had not been deprived of his right against his employer, the law of bankruptcy would have applied to it, and it would have vested in his official receiver unless saved to him by the doctrine as to personal earnings, or by s. 101, or by some other principle or provision of the bankruptcy law. I should have thought it in the highest degree improbable that the legislature would have intended that the right given the employee in place of a former right which it had taken from him should be in a different position from that former right so far as availability for the benefit of creditors in bankruptcy is concerned. It would require clear words to convince me that Parliament really intended to give bankrupt taxpayers more opportunity to deprive their creditors of the benefit of tax refunds than they would have had to deprive them of the salary or wages which the refunds represent. (at p330)
I turn to consider the case, therefore, on the footing, which both the deputy commissioner and the offical receiver accepted in their correspondence, that the whole problem is one as to the application of the bankruptcy doctrine concerning personal earnings or the application of s. 101 of the Bankruptcy Act. The difficulty which led the official receiver to deny that the bankrupt could support a claim to the refund in competition with his own by relying on the doctrine as to personal earnings was that an amount which becomes payable to a person who is in fact an employee but in his character of taxpayer, not in pursuance of a contract of employment but in discharge of an independent statutory duty, by a person who is not his employer, and out of moneys which do not belong to his employer, differs in essential respects from that which is strictly comprehended in "personal earnings".
But in considering the doctrine as to personal earnings we are concerned with a principle; and it would be inconsistent with the reasons which are the foundation of the principle if it were held that in the statement of it the expression "personal earnings" is used in so narrow a sense as not to include refunds of excess tax deductions which have been made from salary or wages. The principle insists that what a bankrupt earns by his persnal labour, so far as it is needed to maintain his family and himself, forms no part of the property divisible amongst his creditors, because the Act is not to be construed as preventing him from earning his own living: Ex parte Vine; In re Wilson (1878) 8 Ch D 364, at p 366. What must be considered in relation to a given sum of money is a question of substance and of fact, namely whether the money is in truth the reward, or part of the reward, for personal labour done by the bankrupt.
Where a bankrupt has been employed at a salary or wages which, if paid to him in full by his employer, would constitute personal earnings in the relevant sense, that which he gets back from the commissioner by way of refund of tax deductions, no less than that which he has been paid directly by his employer, must necessarily be counted in any computation of the reward which his labour has brought him. It must therefore be covered by the principle. (at p331)
It seems probable, and may be assumed, that the salary or wages of the bankrupt in this case were personal earnings in the relevant sense. There is no evidence, however, as to whether the amount of the tax refund was needed by the bankrupt for purposes of maintenance. I do not think that in this state of affairs the assumption should be accepted which appeared to underly a part of the argument before us, namely that in these circumstances the dispute between the deputy commissioner and the official receiver should be decided by considering simply where the onus lay of proving that the amount was needed for maintenance. If, as I think, the right to the refund forms after-acquired property of the bankrupt, and therefore is vested in the official receiver save to the extent that it is excepted from the vesting provisions of the Act by the doctrine as to personal earnings, still it is clear law that the bankrupt is entitled to recover the whole amount from the commissioner unless the official receiver intervenes: Jameson & Co. v. Brick & Stone Co. Ltd. (1878) 4 QBD 208; Bailey v. Thurston & Co. Ltd. [1903] 1 KB 137 ,and that a purported intervention is effectual in respect only of so much of the amount as is not in fact required for the maintenance of the bankrupt and his family: Bailey v. Thurston & Co. Ltd. [1903] 1 KB 137 , at p 142; Affleck v. Hammond [1912] 3 KB 162 , at p 172. The official receiver, by claiming the amount from the deputy commissioner, has purported to intervene; but whether his intervention was effectual as to any and what part of the amount it was not competent for Clyne J. to decide, for the bankrupt was not before him and the proceedings were therefore not properly constituted for the determination of the question. His Honour thought that he had not to decide that question, but in this I think, with respect, that he was mistaken.
In my opinion the order which he made on the footing that the whole amount of the refund was vested in the official receiver cannot stand. (at p332)
So far, I have assumed that personal earnings of a bankrupt which are not required by him for maintenance may be recovered by his official receiver independently of s. 101. In Affleck v. Hammond [1912] 3 KB 162 , at pp 167, 170 however, Vaughan Williams L.J. suggested and Buckley L.J. held that the only way in which the official receiver may get any of the moneys covered by s. 101 is to obtain an order from the court, and as at present advised I should be disposed to take that view: cf. Ex parte Huggins; In re Huggins (1882) 21 Ch D 85, at pp 92, 94. But the question is probably academic, because the only practical course for an official receiver to adopt, when he learns that a refund under s. 221H (2) (b) is or is about to become payable to a bankrupt in respect of tax deductions made from salary or wages earned after the commencement of the bankruptcy (the bankrupt not consenting to the refund being paid to the official receiver) is to apply to the Bankruptcy Court, making the commissioner and the bankrupt parties, for a decision as to whether he should receive some or all of the refund for distribution amongst the creditors; and (at least if the salary or wages are within the concept of personal earnings) the amount which the court would think fit to fix under s. 101 is not likely to differ from that which it would hold to be preserved to the bankrupt by the doctrine as to personal earnings: see In re Rogers; Ex parte Collins [1894] 1 QB 424 , at p 431. If the official receiver presses the commissioner to pay the amount to him without any order of the court or consent of the bankrupt, and will not himself apply to the court, I should think the proper course for the commissioner to adopt is to apply to the court under s. 25; and on the hearing it would clearly be competent for the court to direct the official receiver to make an application under s. 101. (at p332)
On an application under s. 101, as I have already mentioned, it is immaterial to consider whether the right to the tax refund is property vested in the official receiver. Moreover, even if there were to be read into the Income Tax and Social Services Contribution Assessment Act a provision similar to the express provision which Farwell J. had to consider in the case of In re Garrett (1930) 2 Ch 137, to the effect that the right to receive a payment under s. 221H (2) (b) should not pass to any trustee in bankruptcy, that provision, as In re Garrett (1930) 2 Ch 137 shows, would not exclude the court's jurisdiction to make an order under s. 101 with respect to the payment. And the requirement of s. 221H (2) (b) to pay "to the employee" surely cannot exclude the jurisdiction either. It is precisely because money becomes, or is in course of becoming, payable to a bankrupt that it is possible to say, in the words of s. 101, that he is in receipt of it. If the point had actually occurred to the draftsman of s. 221H (2) (b) and he had formed a positive intention that tax refunds should be capable of interception under s. 101, I should hardly expect to find s. 221H (2) (b) differently expressed. It would not be likely that specific reference would be made to s. 101. No reference to the corresponding Imperial provision was found in the instruments which the House of Lords considered in Hollinshead v. Hazelton [1916] 1 AC 428 , or in the order of the Divorce Court which was considered by the Court of Appeal in In re Landau; Ex parte Trustee (1934) Ch 549, or in the Indian Pensions Act which was considered by that court in In re Saunders; Ex parte Saunders [1895] 2 QB 424 ; and there was no reference to s. 101 in the New South Wales Acts which this Court considered in Stuart-Robertson v. Lloyd (1932) 47 CLR 482 and Nette v. Howarth (1935) 53 CLR 55 .
Yet in none of these cases was the provision regarded as inapplicable because the amount in question was in terms made payable to a specified or ascertainable person. (at p333)
As to whether the conditions for the application of s. 101 are fulfilled where an amount becomes payable under s. 221H (2) (b), I do not think there is much room for doubt. Considered as the subject of a payment which the commissioner must make, the amount is not, of course, a payment for services, nor is it made under any contract, nor is it periodically recurrent or computed with reference to recurrent events. In these respects it has a superficial resemblance to the amount which was the subject of the decision in Nette v. Howarth (1935) 53 CLR 55 . For the purposes of s. 101, however, it is necessary to consider the character of the amount from the point of view of the recipient. To him, as I have pointed out, it is part of the fruits of his employment. The only difference between it and the moneys which his employer paid him directly as salary or wages is that the Income Tax and Social Services Contribution Assessment Act has operated to defer the time at which he was entitled to receive it, and to substitute for the obligation of his employer to pay it an obligation of the commissioner to pay it out of the Consolidated Revenue Fund. But neither the postponement of the date of receipt nor the change in the identity of the immediate payer can make any difference to the character of the amount from the taxpayer's point of view. If in strictness it should be denied the title of salary or wages, at least it must be conceded the title of income, even on the strictest application of the view that "income", in s. 101, is confined to receipts ejusdem generis with those described by the other words used. And it seems clear that the amount is part of the salary, wages or income of which the bankrupt is "in receipt". He is entitled to receive it, and it is about to be paid to him unless intercepted. That seems to me enough to make the expression entirely apposite to the case. (at p334)
For these reasons I am of opinion that the order of Clyne J. should be set aside, and that the matter should be remitted to his Honour to be heard as an application for an order under s. 101, notice being given to the bankrupt as required by r. 93 of the Bankruptcy Rules. (at p334)
To that end, I should allow the appeal. (at p334)