Case A78

Judges:
JL Burke Ch
RC Smith M

Court:
No. 1 Board of Review

Judgment date: 12 December 1969.

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J. L. Burke (Chairman) and R. C. Smith (Member): During the years ended 30 June 1962 to 30 June 1966 inclusive the taxpayer, who was a specialist medical practitioner on his own account, was employed as a part-time medical officer by a State Public Health Department and remunerated on a salary basis. The salary payable to

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ATC 423

the taxpayer was reviewed from time to time by the Public Service Board in the light of agreements reached by it with the Public Medical Officers' Association. One such agreement was made on 8 July 1965, having retrospective operation to 1 July 1964, as a result of which the taxpayer became entitled to an additional £3.15.0 per week for 39 weeks worked during the year ended 30 June 1965. However, when the retrospective adjustment was being made in October 1965 the Public Health Department realised that due to an error in not applying the previous agreement reached on 5 June 1962, operative from 1 January 1962, the taxpayer had been short paid £3.15.0 per week for the period 12 January 1962 to 30 June 1965. In January 1966 the taxpayer was paid, in addition to his normal salary, an amount of £774.15.0 calculated as under-

   Period              Short Paid            Amount
   12.1.1962       24 3/5th weeks           L92. 5.0
     to                  at
   30.6.1962       L3.15.0 per week
   1.7.1962        52 weeks                 195. 0.0
      to                 at
   30.6.1963       L3.15.0 per week
   1.7.1963        52 weeks                 195. 0.0
      to                 at
   30.6.1964       L3.15.0 per week
   1.7.1964        39 weeks                 146. 5.0
      to                 at
   30.6.1965       L3.15.0 per week

                    Retrospective
                    Adjustment
   1.7.1964        39 weeks                 146. 5.0
      to                 at
   30.6.1965       L3.15.0 per week
                                           -----------
                                         L774.15.0
                                           -----------
        

2. On the evidence before us there is nothing to suggest that there was any crediting in favour of the taxpayer of the whole or part of the said amounts in the records of the Public Health Department prior to October 1965 and we decide the case on the basis that there was no such crediting.

3. The taxpayer has objected against the inclusion of the amount of £774.15.0 (we speak in the currency of the period) in his assessable income of the year ended 30 June 1966, claiming that the amounts set out above should be brought to tax in the years of income in which the services were rendered to which the payments relate.

4. When was the income in question ``derived'' for the purposes of sec. 25(1) of the Assessment Act? ```Derived' is not necessarily actually received, but ordinarily that is the mode of derivation'' (
F.C. of T. v. Thorogood (1927) 40 C.L.R. 454, per Isaacs A.C.J. at p. 458). In
C. of T. (S.A.) v. Executor Trustee & Agency Co. of S.A. Ltd. (1938) 63 C.L.R. 108 (Carden's case), Dixon J. at p. 155 quoted with approval the following extract from Shaw and Baker, Law of Income Tax-

``There is an important distinction between debts due to a trading company and unpaid in a particular year or period and other income which is not a trade receipt. Trading debts due but not yet paid must be included in arriving at the balance of profits or gains. With regard, however, to other income there must be something `coming in'; that is, for income tax purposes, receivability without receipt is nothing.''

5. Applying the above principle we are constrained to the view that the income of the taxpayer by way of arrears of salary was derived when received, namely, in the year ended 30 June 1966. In our opinion, there was no actual or deemed derivation of the subject amounts in the prior years of income. The bulk of the money in question (£628.10.0) was withheld from the taxpayer as the result of a mistake, without any direction on the taxpayer's part and not as the result of any conscious retention on the part of his employer. The balance (£146.5.0) was not paid because the salary agreement with retrospective operation was not reached until after the close of the year of income in which it is sought to have the income assessed. In these circumstances it cannot be said, we think, that there was a reinvestment, accumulation or capitalisation of the income or any part of it for the purposes of sec. 19 of the Assessment Act.

6. The taxpayer urged us to take an equitable view of the matter but, as we pointed out at the hearing, the Board, even though the result may be unfortunate for the taxpayer, must apply the law as it finds it.

7. We would uphold the Commissioner's decision on the objection.

Claim disallowed