Federal Commissioner of Taxation v. Chapkhana.

Judges:
Wickham J

Court:
Supreme Court of Western Australia

Judgment date: Judgment handed down 7 October 1977.

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Wickham J.: This appeal involves a short point arising under sec. 51 of the Income Tax Assessment Act 1936-1974. The matter comes to the Supreme Court on appeal from the decision and order of Taxation Board of Review No. 2 under sec. 196 of the Act.

The Commissioner asked the Supreme Court to state a case to the Federal Court of Australia under the provisions of sec. 26 of the Federal Court of Australia Act 1976. The taxpayer opposed this motion, substantially on the ground that by sec. 8 of the Income Tax Assessment Amendment (Jurisdiction of Courts) Act 1976, a case may only be stated where the appeal is instituted in accordance with the provisions of sec. 197. After hearing argument, both on the motion and on the merits of the appeal, I decided that I should determine the matter myself. I said that I would make a decision in respect to the point relating to power to state a case, but upon reflection, I think that I should not decide a point which, having regard to the course being taken, is not necessary to decide.

As to the appeal itself, I think that the matter is largely a question of fact, although because of the discussion by the Board relating to the construction of sec. 51, a question of law is here involved.

The taxpayer was a qualified lawyer, employed full-time in the service of the Crown. In the year in question he paid to an insurance company premiums in respect of a contract of insurance described as a ``personal disability policy''. At the material time the policy provided for the payment to the taxpayer of $100 per week in the event of, broadly, injury by accident resulting in:

``temporary total disablement from engaging in or attending to usual profession, business or occupation.''

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ATC 4414

This benefit was payable for a period not exceeding 104 weeks in respect of any one injury.

There was also payable the sum of $100 per week in the event of illness resulting in

``temporary total disablement from engaging in or attending to usual profession, business or occupation for a period of not less than 7 days from the date of commencement of medical attention.''

This benefit was limited to a period of no longer than 52 weeks in respect to any one illness.

The taxpayer had other insurances and the premiums for those having exhausted his concessional deduction under sec. 82H he sought to deduct the premiums on this personal disability policy under sec. 51.

The claim for deduction was disallowed by the Commissioner and, an objection also being disallowed, the taxpayer caused the decision on the objection to be referred to the Board of Review. The Board upheld the objection of the taxpayer on the ground that the expenditure fell within the first alternative set out in sec. 51(1) of the Act and which provides that

``all losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income... shall be allowable deductions....''

In doing so, the Board followed and applied other decisions and dicta of its own and in particular, Case E38
73 ATC 330 and Case G52
75 ATC 371.

I have studied the reasoning in these cases and of the Board in the present case, as well as the other authorities referred to by counsel and I hope that I will not be thought discourteous in dealing with the matter shortly and without a detailed analysis of the most useful and instructive discussions to which I have been introduced.

In the absence of authority, I find the wording of sec. 51 in each of its two alternatives plain and unambiguous. The application of it to particular facts might be difficult in a particular instance not because the section is unclear but because in the maelstrom of human life and endeavour there are inevitably borderline cases. If the first part of the section requires any construction, it authoritatively has it in the words of the High Court of Australia in
Ronpibon Tin N.L. & Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at 56 where the Court said:

``For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words `incurred in gaining or producing the assessable income' mean in the course of gaining or producing such income... In brief substance, to come within the initial part of the sub-section it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income.''

The Court there expressly directed attention to the operation of the provision as stated in
W. Nevill & Co. Ltd. v. F.C. of T. (1937) 56 C.L.R. 290 at 305 where Rich J. used the phrase ``incidental and relevant to the operations or activities regularly carried on for the production of income''.

It was conceded by the Commissioner and assumed for the purposes of the appeal that if the conditions for receipt of benefits under the policy had been met and benefits received under the policy then those receipts would have been assessable income. That is not self-evident but I do not tarry to examine it. No such income was received in the relevant year and there is no sufficient reason for concluding that the occasion of the outgoing constituted by the premiums is such as would be expected to produce income. If the contingencies were satisfied money would be produced, but to say that an insured (specifically this taxpayer) expects in the circumstances of this case to produce income when he insures against the risk of loss or that the insurance ``would be expected'' to produce income is I think catachrestic. He recognises the possibility of loss if he does not insure, and a chance of gain or reduced loss if he does, but he does not expect to produce income from that source. Most policy holders hope that the risk insured against (in this case loss through illness or accident) will not eventuate. The extending words used, obiter, in Ronpibon Tin are apt in the context of a company which had been and might be in the future carrying on a particular branch of its business and was at the time carrying on another branch only, but they do not seem to me to have any application to this case.

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ATC 4415

In my opinion, applying to the facts of the case the words of the first alternative to sec. 51 in their plain and ordinary meaning the premiums paid were not outgoings incurred in gaining or producing the assessable income of the taxpayer and for that reason the appeal of the Commissioner should be allowed.