Scott v. Federal Commissioner of Taxation

[1966] HCA 48
(1966) 117 CLR 514
(1966) 10 AITR 367

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(Judgment by: Windeyer J)

Scott
v.Federal Commissioner of Taxation

Court:

Judge:
Windeyer J

Subject References:
Income Tax (Cth)
Assessable income
What constitutes income
General principles
'Gratuity...in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by him'
Gift by client to solicitor
Deduction of gift duty where gift constitutes income
Income Tax and Social Services Contribution Assessment Act 1936-1961 (Cth), s. 26 (e).

Legislative References:
Income Tax and Social Services Contribution Assessment Act 1936-1961 - s 26(e)

Hearing date: 3-6, 10-13 May 1966; 24 August 1966
Judgment date: 24 August 1966

Sydney

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Judgment by:
Windeyer J

1. Leslie Gordon Scott (whom, following the terminology of the amended assessment of income tax dated 6th September 1963 in respect of his income for the year ended 30th June 1961. The question is whether a sum of 10,000 pounds, which the taxpayer received from one Mrs. Freestone, formed part of his assessable income. (at p515)

2. The taxpayer in other proceedings appealed against the disallowance by the Commissioner of his claims that certain disbursements - 150 pounds in the year ended 30th June 1959, 250 pounds in the year ended 30th June 1960 and 250 pounds in the year ended 30th June 1961 - were allowable deductions as contributions to a superannuation fund. These objections involved a consideration of the affairs of two companies, Associated Provident Funds Pty. Limited and Belvidere Investments Pty. Limited, which had themselves appealed against assessments of income tax payable by them. All these matters, apart from the issue concerning the 10,000 pounds that the taxpayer received from Mrs. Freestone, were much involved with one another. Therefore I, with the assent of the parties, heard at one hearing all the evidence relating to all the appeals covering several income tax years ( 1966) 40 ALJR 265 . But the matter of the 10,000 pounds received from Mrs. Freestone is not in any way involved with the other question. It was the subject of a separate appeal (No. 47 of 1965) and was dealt with at the hearing as a separate matter. I am therefore giving judgment in it now, although a final determination of the amount of the taxpayer's taxable income for the year ended 30th June 1961 must, as to 250 pounds, await the determination of his appeal No. 46 of 1965. (at p516)

3. The taxpayer is a solicitor who has been practising his profession at Parramatta since 1937, except during war years. He also has an office at Epping. At the time with which I am concerned he practised under the firm name "L. G. Scott & Co." - but solely on his own account, although soon after the events on which the case turns he took a partner in his Epping practice. In addition to his legal practices he had considerable investments. He had interests in shop and business premises. Through companies and building societies which he had formed and controlled or with which he was associated, he had considerable interests in real estate generally. He is well acquainted with the real property market and with developments and possibilities in the Epping Parramatta and surrounding districts. (at p516)

4. Mrs. Freestone has long been one of his clients. She is a widow, her husband having died on 27th May 1958. He left an estate valued for probate at 190,000 pounds. Of this an amount of 173,975 pounds was attributable to real estate, being partly vacant land, partly houses and business premises. Mrs. Freestone was the executrix of her husband's will and his sole beneficiary. The taxpayer acted for her on the probate application and generally in connexion with the administration of the estate. She had known him for many years. He had acted for her in connexion with her father's and her mother's estates. Her husband, the late Mr. Charles Freestone, had served in the Royal Navy, in submarines, and afterwards in the Royal Australian Navy. He retired from the service in 1926 and started in business at Parramatta as a plaster manufacturer. In 1942 he sold this business. He then had a service station at Parramatta and was an investor in real estate. He and the taxpayer were associated in various business enterprises including a building society of which the taxpayer arranged that he be a director. (at p517)

5. The administration of Mr. Freestone's estate was not a simple matter. Death duties amounted to about 94,000 pounds. The liquid funds were far from enough to meet them. Various properties forming part of the estate were sold as opportunities offered ; and by arrangement the proceeds were paid direct to the Stamp Commissioner in reduction of death duty. The taxpayer acted for Mrs. Freestone in these transactions. A main asset of the estate was a parcel of vacant land on the Pennant Hills Road having an area of eighty-two acres. This land, known as "Greenacres", was at the time of Mr. Freestone's death in the green-belt and subject to the restrictions upon sale and subdivision that this entailed. Before his death Mr. Freestone had made representations to members of the New South Wales Government in the hope of having the restrictions lifted from this land. In this he was not successful. But after his death the possibility of the restrictions being lifted from lands in this part of the green-belt was being publicly canvassed. The taxpayer, acting professionally for Mrs. Freestone, made representations to the local planning authority with a view to obtaining approval of this. Towards the end of 1959 the restrictions were in fact lifted. At the time of probate "Greenacres", the total area of eighty-two acres, was valued by the Valuer-General at 15,500 pounds. In 1960, after it had been released from the restrictions, it became attractive to speculators and land developers, as they are called. Many inquiries with offers of purchase were received from estate agents and others. Most of these were made directly to L. G. Scott & Co., that is to the taxpayer at his office. He informed Mrs. Freestone of them : and she on her part told him of offers and inquiries that had come direct to her. I have no doubt that she sought and appreciated his advice at this time. He had become a close and trusted adviser. I have no doubt that his knowledge of real estate values was of much assistance to Mrs. Freestone. This is not to say that she did not make up her own mind in business affairs. I thought she shewed herself to be a woman of an independant mind and with a distinctly individual point of view on more than one subject. And she is clearly capable and, as both her memory and records, such as cheque butts, show, methodical in business matters. She had been her husband's confidante in his business activities. She herself had, and has, a gift shop in Parramatta. The taxpayer's services to her were such as a trusted family solicitor having special knowledge might be expected to give to a client of long standing with whose business and personal affairs he was well acquainted. Mrs. Freestone regarded him as a most helpful friend. Ultimately Mrs. Freestone sold forty-eight acres of the eighty-two acres to Consolidated Press Limited for the sum of 170,023 pounds. The contract of sale was dated 25th May 1960. There had been negotiations between that company and Mrs. Freestone a few months earlier. The company had proposed to buy the forty-eight acres for 137,500 pounds; and it had paid a deposit of 100 pounds, on the assumption apparently that its offer had been or would be accepted. But Mrs. Freestone had, it seems, become aware that she could get a better price ; and the taxpayer advised her that she had no legal obligation to sell for 137,500 pounds, there being no contract in writing. She therefore refunded the deposit and refused to go on with that proposal. Negotiations were however resumed, resulting in the sale for 170,023 pounds. In these transactions the taxpayer, acting for Mrs. Freestone, played a large part. He advised her in relation to the terms of a proposed contract, building covenants to be included, provision to be made for ways of access to other land that she owned and so forth. He and she no doubt both regarded the sale at a sum of 170,023 pounds of a little more than half of an area which two years earlier had been valued at 15,000 pounds as a most satisfactory outcome of the negotiations. The sale was completed on 8th August 1960, when the purchase money was paid in full. Mrs. Freestone now had for the first time a large sum of money in the bank from her husband's estate with which she could do whatever she wished. Having heard her evidence and observed her attitude generally, I am firmly of the opinion that she is a benevolent and charitably-minded woman, moved at times by a perhaps impulsive generosity, and desirous of seeing her good wishes carried into effect according to her intent. In 1960, having now money from her husband's estate with which she could give effect to her generous thoughts, her mind turned to members of his family, to persons whom he had known and who had been helpful to her in connexion with the affairs of his estate and to projects in which he had been interested. She said in effect, and I believe her, that she, being mindful of the uncertainties of life and at this time somewhat apprehensive of sudden death, thought she would indulge a wish to be bountiful during her lifetime. Her husband during his lifetime had given a plot of land at Carlingford to be used as a public park and have in it a monument to commemorate his shipmates in a submarine, the K.13, which sank with much loss of life during the First World War. He had died before his plan had been fully accomplished, but regarding the task apparently as her tribute to him Mrs. Freestone carried the project to completion. The monument is well known to anyone travelling on the Pennant Hills Road. (at p519)

6. On 19th August 1960, when one may assume her thoughts were still dwelling upon her recently-acquired moneys, Mrs. Freestone went with the taxpayer in his car on some mission relating to her property outside Parramatta. Neither she nor he can recollect for certain whether their visit had been to the K.13 memorial park or to the residue of "Greenacres". As they were returning to Parramatta she told the taxpayer that she intended to distribute some of her money as gifts and that she proposed to give him 10,000 pounds. He was, he says, astounded by this. It was entirely unexpected. She confirmed this. He was "speechless". (at p519)

7. Her evidence may be summed up by quoting some passages from her cross-examination.

"Mrs. Freestone, coming back to this conversation, you say he was speechless. Did he say anything else ? - Yes. A little while afterwards he said, 'Mrs. Freestone, no one has ever given me anything before except my mother'.

"Did he say, did he protest any say 'You have no need to do that' ? - Yes, he did very much.

"What did you say ? - I said I still wanted to do it.

"Did you tell him, did you say any more about why you wanted to do it ? - I told him what I have already said, that I wanted to do things while I am well, while I am alive to do them, not wait until I am dead and leave them in a will.

"So you explained why you wanted to give him 10,000 pounds? - It was nothing to do with what he had done.

"That is not what I asked. Did you explain to him, or tell him why you wanted to give him the 10,000 pounds? - You explain to a person you regard as your very best friend, and I do regard Mr. Scott as my very best friend . . . .

"Because he has helped you over the years ? - No, not because of that. That comes into it I suppose, but you get to know a person when you work with them very much.

"You are not suggesting the fact he was your solicitor for this long period had nothing to do with it ? - No, it was not an honorarium or anything like that. I gave it to him because I wanted to give it to him not because he did anything for me. I just gave it to him because I wanted to.

"Would you not agree with this, partly because he had been your solicitor over the years ? - Not necessarily because he has been my solicitor. He has been my friend.

"That friendship grew in part out of the attention he gave you as a solicitor ? - No, because he was my husband's friend. That is how I got to know him in the first place.

"But he had also been your husband's business associate ? - Yes.

"And he had helped your husband in business ventures ? - I suppose I would not have known him if he had not been my husband's friend. He helped me, I suppose. My husband was a capable person.

"He had given you capable help in relation to the administration of the estate ? - I regard Mr. Scott as an excellent solicitor, that is why I want him to do everything for me always.

"At that stage in August 1960 one of the factors that was operating in your mind was that he had been a good solicitor as well as being a good friend ? - No, I was not thinking about that at all. I made out these cheques to these people in England as well at the same time. All these people got the gifts at the one time." (at p520)

8. It is necessary to go back a little and relate in some detail what actually occurred. The story is a remarkable one. But I am satisfied that, except in one or two matters as to which their recollection was faulty, the events occurred as Mrs. Freestone and the taxpayer said they did. In its broad outline and essentials their evidence is corroborated by contemporary documents - cheques, cheque butts, and bank statements. (at p520)

9. Mrs. Freestone having told the taxpayer in the car that she wanted to give him 10,000 pounds - having, she said, "thought about it well beforehand", went on to tell him of other gifts she proposed to make. "I told him what my husband would want to do about his relations in England, because he had not bothered much about them and I said I would like to send his sister 1,000 pounds, his brother 500 pounds and a cousin over there 100 pounds just as a gesture, and he had three other cousins in Sydney and I would give them 100 pounds each, and also there was a man who used to work for my husband." The man she thus referred to was one Percy Newling. She proposed to give him 2,000 pounds. She said too that she would like to give a cousin of hers, one Eberling, a thousand pounds worth of shares in the Civic Arcade and Theatre in Parramatta, a project in which she was interested. She also told the taxpayer that a Mr. Stoner, who was the branch manager of a bank at Parramatta, should have 500 pounds: "I just said I thought I would like to leave it to him in the same way. I did not want to leave it until I was making a will or something like that. He was a very good friend of my husband's, and it was just sort of gesture of goodwill." By this time the motor car had been brought to a halt in Macquarie Street, Parramatta. She produced her cheque book ; and on her instructions the taxpayer wrote out four cheques, which in sequence in the cheque book are as follows : "L. G. Scott & Co.", 10,000 pounds; "John Stoner", 500 pounds; "P. Newling", 820 pounds 18s. 5d. and another for "P. Newling", 2,000 pounds. These she thereupon signed. The taxpayer retained his and the others went to the intended recipients. The taxpayer paid his into his private bank account at Epping. The gifts to the persons in England were effected some days later by means of overseas drafts which Mrs. Freestone procured through her bank. A cheque butt dated 26th September 1960 confirms that she paid for the shares that were a gift to Eberling. At about the same time as these gifts she also made, she said, some smaller gifts to unspecified persons for amounts from 25 pounds upwards. There are cheque butts which accord with this. (at p521)

10. The explanation given of there being two cheques for Newling is that he had continued to work for Mrs. Freestone after her husband's death, mainly in connexion with properties belonging to his estate. He had not been paid for two years for these services, being it seems content to wait until the estate had ready money. The cheque for 820 pounds 18s. 5d. for him represented wages overdue and a refund of some small sum for expenses which he had incurred : details of the computation appear on the cheque butt. How Mrs. Freestone knew these details at the time is uncertain. She said she probably had them on a slip of paper, and that seems not improbable. The cheque for 2,000 pounds for Newling was described on the butt as a gift. It is perhaps not without significance that Mrs. Freestone later gave him a motor car also. (at p521)

11. Counsel for the Commissioner asked me not to accept the evidence of Mrs. Freestone and the taxpayer concerning the occurrences of 19th August. The story was, he said, improbably and there were discrepancies in it. I believe, however, that the four cheques were in fact written in the motor car. I can see no reason for anyone inventing this story, still less for thinking that Mrs. Freestone and the taxpayer were falsely swearing. No inference either for or against the taxpayer can be drawn from the place being an unusual one for writing cheques - whether they were to pay for services or to make gifts. (at p521)

12. The taxpayer said that he accepted the money as a gift and told Mrs. Freestone that he would pay the gift duty. It never crossed his mind, he said, that it might have been prudent, and for his own protection proper, before taking a gift of 10,000 pounds from a client to have advised her to obtain some independent advice. This, it is suggested, should make me suspect that the transaction was not in fact a gift but was the consideration for services rendered. I am certainly surprised that any solicitor should not have been well aware of the presumptions against him that could arise in equity from his acceptance of a gift in this way. However, Mrs. Freestone made it quite clear by her evidence and her demeanour throughout these proceedings that she was under no influence except that of friendship, generosity and gratitude and that her action was in no way prompted by the taxpayer. I am unable to infer from the taxpayer's not counselling her to seek other advice that the transaction was not a gift ; and obviously it would not avail the Commissioner to say that the taxpayer was a trustee of the money for Mrs. Freestone. (at p522)

13. The four cheques dated 19th August do not, when closely examined, bear out all details of the events as Mrs. Freestone described them. The names and amounts in the cheques (and also the butts, on which "A/c Gift" appears) are all undoubtedly in the handwriting of the taxpayer, although there are variations in the script ; in one case it is in block letters in others cursive. The signatures are all undoubtedly by Mrs. Freestone. She said that the cheques were written by the taxpayer with his fountain pen which he handed to her so that she might sign them. In this she was to some degree mistaken, as the two cheques in favour of Newling are obviously signed with a different pen from the others, perhaps with a biro which she got from her handbag. But I see no reason to doubt that all were made out on the same day. Mrs. Freestone insisted that the one in favour of the taxpayer ought not to have been made out for "L. G. Scott & Co.", as it was meant for the taxpayer personally. It should, she said, have been simply "L. G. Scott", as indeed the butt is. She was even inclined to dispute the authenticity of the addition "& Co." on the ground that the ampersand was not of the taxpayer's usual style. If it does differ it is probably only because this cheque was written in block letters. The taxpayer did not dispute that it was his writing. It seems of little significance that he made out the cheque as he did, because L. G. Scott & Co. was himself. A close scrutiny of the cheques leaves unshaken the evidence that they were all written out by the taxpayer on 19th August and signed by Mrs. Freestone, and provides no ground for saying that the one in favour of the taxpayer was not a gift to him personally. (at p522)

14. The taxpayer stated that he applied the whole of the sum of 10,000 pounds given to him to his personal advantage. In answer to questions that I asked he said that there was not any understanding that he should disburse any of the money in any way on Mrs. Freestone's behalf and that he did not do so. He had himself, he said, no legal or equitable interest of any kind in the land or the proceeds of its sale. He said, and I accept his evidence, that the sum of 10,000 pounds went in part in reduction of his overdraft with the bank and in part for various purposes of his own including the construction of a swimming pool. (at p523)

15. A good deal of attention was given to the bills of costs which the taxpayer rendered to Mrs. Freestone. I do not think it necessary to go into all of this. It is enough to say that I am satisfied that Mrs. Freestone expected the taxpayer to charge his ordinary professional costs for all work that he did for her. There was some delay in the taxpayer's office in rendering his accounts. But this was explained. Until the sale of "Greenacres" no bill of costs had been prepared, it being known that the whole proceeds of the realization of other properties earlier had been paid in reduction of death duties. When "Greenacres" was sold Mrs. Freestone was informed by letter that a bill of costs "for the various sales and the probate application generally" would be prepared "as soon as practicable". In fact an account for a number of items totalling 895 pounds was rendered and paid in November 1960. This was after the gift of 10,000 pounds and some time before the Taxation Department had made any inquiries or raised any question concerning it. This payment and others made pursuant to accounts rendered later dispose, I think, of a suggestion that I ought to infer that the sum of 10,000 pounds was to be taken in substitution for or in satisfaction of professional costs payable by Mrs. Freestone to the taxpayer. Whatever the extent of his services to his client had been, 10,000 pounds must have greatly exceeded any charges that could properly be made for them. (at p523)

16. In short I think that the 10,000 pounds was a gift, in the sense that it was gratuitous, not made in discharge of an obligation and not taken by the recipient as discharging an obligation. But that, of course, does not end the matter. (at p523)

17. The case for the Commissioner is that the 10,000 pounds formed part of the taxpayer's assessable income, either as within the general concept of income upon which the tax is levied, or because it was brought into charge by s. 26 (e) of the Act. It was also argued that, independently of the rest of the Act, it could be regarded as brought into charge by the definition of "income from personal exertion" in s. 6. I am unable to follow the last proposition. It seemed to be based upon a misunderstanding of an observation by Dixon C.J. and Williams J. in Federal Commissioner of Taxation v. Dixon [1952] HCA 65; (1952) 86 CLR 540 , at p 555 . Their Honours there said that expressions used in the definition of "income from personal exertion" could, in an appropriate case, be used as an indication that a given receipt is income. The definition enumerates certain forms of income which, for the purpose of the Act, are "income from personal exertion". As Jordan C.J. pointed out in Scott v. Commissioner of Taxation (1935) 35 SR (NSW) 215, at p 220 , the definition of that expression is not a definition of income - for the simple reason that "the word 'income' appears on both sides of the equation". The definition does not I think bring anything into charge as income. It refers to what is already by its nature income. The distinction between income from personal exertion and income from property has, since 1954, ceased to be of any relevant importance. By describing what "income from personal exertion" is, the definition is indirectly indicative of what income is. That is all : but otherwise it is irrelevant. I reject the contention that of its own force it makes the receipt of 10,000 pounds income of the recipient. The answer to the question in this case depends therefore on a general conception of the nature of income, bearing in mind s. 26 (e). (at p524)

18. Section 26 (e) is as follows :

"The assessable income of a taxpayer shall include -

. . .

(e)

the value to the taxpayer of all allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted to him in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by him, whether so allowed, given or granted in money, goods, land, meals, sustenance, the use of premises or quarters or otherwise." (at p524)

19. (There is a proviso which is, however, irrelevant in this case.) Counsel for the Commissioner pointed to the wide words "in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by him" and said that they must be given their full meaning and effect. This of course is so. But what is their full meaning and effect? That is the question. It is no doubt an orthological question. But it is not to be answered by reading the words in the abstract with the aid of a dictionary. Their meaning and the limits of their denotation must be sought in the nature of the topic concerning which they are used. They are in an income tax statute. Dixon C.J. and Williams J. said in the judgment that I have mentioned, "We are not prepared to give s. 26 (e) a construction which makes it unnecessary that the allowance, gratuity, compensation, benefit, bonus or premium shall in any sense be a recompense or consequence of the continued or contemporaneous existence of the relation of employer and employee or a reward for services rendered given either during the employment or at or in consequence of its termination" (1952) 86 CLR, at p 554 . This remark was inverted in the argument for the Commissioner to support a proposition that if a payment could be said to be in any sense directly or indirectly a consequence of services rendered its receipt was income. But so put the proposition merely shifted the question into a new semantic area in which emphasis was placed upon the words "indirectly" and "consequence". It was said that if a testator left by will a legacy to a servant in his employment whose wages had been fully paid, and by his will expressed the legacy as given because of long and faithful service, it would be within the words of s. 26 (e) and thus be income of the legatee. I do not think that the words of s. 26 (e) compel that conclusion. And I do not think that a legacy given by a grateful testator to, say, his physician would ordinarily be income in his hands. And the position would, it seems to me, be no different if the same gifts were made, not by will but by the donor in his lifetime. That is not because the words of s. 26 (e) could not describe such gifts but because it stands in an Act the purpose of which is to impose a tax on income. To take another illustration: suppose members of a society made a gift to a man because he had rendered some special services to the society. In terms such a testimonial gift, whatever form it took, money or plate or a picture, although the product solely of the donors' appreciation of the donee's services would be within the words of s. 26 (e). But would it therefore necessarily be income of the recipient liable to tax? I think not. And would a person who on restoring lost property to its owner was given a reward for his services be taxable on the basis that the reward was part of his income? Again I think not, but again the words of s. 26 (e) would cover the case. (at p525)

20. As I read s. 26 (e) its meaning and purpose is to ensure that certain receipts and advantages which are in truth rewards of a taxpayer's employment or calling are recognized as part of his income. In other words the enactment makes it clear that the income of a taxpayer who is engaged in any employment or in the rendering of any services for remuneration includes the value to him of everything that he in fact gets, whether in money or in kind and however it be described, which is a product or incident of his employment or a reward for his services. If, instead of being paid fully in money, he is remunerated, in whole or in part, by allowances or advantages having a money value for him they must be taken into account. The enactment does not bring within the taxgatherer's net moneys or moneys' worth that are not income according to general concepts. Rather it prevents receipts of moneys or moneys' worth that are in reality part of a taxpayer's income from escaping the net. (at p526)

21. I may interpolate at this point that gift duty was paid by the taxpayer in respect of the 10,000 pounds. I asked as to the Commissioner's attitude as to this. In reply counsel at first said that, on his instructions, if the taxpayer were held liable for income tax the gift duty paid would be refunded. But there appears to be no reason for saying that there was not a gift of 10,000 pounds. If so, gift duty was payable; and I am not aware of any authority in the Commissioner to refund any duty lawfully exacted. A more correct view it seems would be that, if income tax be exigible in respect of a gift, the amount of income taxable is the amount of the gift less the amount of any gift duty which when the gift was made the donee undertook to pay. (at p526)

22. I return to the general concept of income. Whether or not a particular receipt is income depends upon its quality in the hands of the recipient. It does not depend upon whether it was a payment or provision that the payer or provider was lawfully obliged to make. The ordinary illustrations of this are gratuities regularly received as an incident of a particular employment. On the other hand, gifts of an exceptional kind, not such as are a common incident of a man's calling or occupation, do not ordinarily form part of his income. Whether or not a gratuitous payment is income in the hands of the recipient is thus a question of mixed law and fact. The motives of the donor do not determine the answer. They are, however, a relevant circumstance. It is apposite to quote here a passage from the judgment of Kitto J. in The Squatting Investment Co. Ltd. v. Federal Commissioner of Taxation [1953] HCA 13; (1953) 86 CLR 570 , at pp 627, 628 . His Honour said: ". . . it is a commonplace that a gift may or may not possess an income character in the hands of the recipient. The question whether a receipt comes in as income must always depend for its answer upon a consideration of the whole of the circumstances; and even in respect of a true gift it is necessary to inquire how and why it came about that the gift was made." An unsolicited gift does not, in my opinion, become part of the income of the recipient merely because generosity was inspired by goodwill and the goodwill can be traced to gratitude engendered by some service rendered. It was said for the Commissioner that if a service was such as the recipient was ordinarily employed to give in the way of his calling, and the gift was a consequence, however indirect, of the donor's gratitude and appreciation of that service, then it must necessarily be part of the donee's income derived from the practice of his calling, and caught by s. 26 (e). But as thus expressed, this proposition is, I think, a mistaken simplification. It was based upon the fact that in Hayes v. Federal Commissioner of Taxation [1956] HCA 21; (1956) 96 CLR 47 , at p 56 Fullagar J. regarded as decisive that it was impossible to relate the receipt of the shares there given to any income-producing activity on the part of the recipient. In the present case the taxpayer was engaged in an income-producing activity, his practice as a solicitor, to which it was said the gift could be related. But because the absence of a particular element was decisive in favour of the taxpayer in one case it does not follow that the presence of that element is decisive in favour of the Commissioner in another case. The relation between the gift and the taxpayer's activities must be such that the receipt is in a relevant sense a product of them. (at p527)

23. I was referred to sentences and phrases in judgements in other cases. I do not think that much is gained by this. There are decisions both here and in England which are helpful because they afford illustrations of considerations to be borne in mind in approaching the problem. Some of the English cases have turned on particular terms in the English legislation, on words and phrases which, although altered and elaborated by later enactments, have an ancestry which can, as Lord Macnaghten observed in London County Council v. Attorney-General (1901) AC 26 , be traced back to the Act of 1799, 39 Geo. III, c. 13, which spoke of "such income as shall arise from any profession, office, stipend, pension, employment, trade or vocation". The application of similar words in later English enactments - such as " emoluments", now defined to include " salaries, fees, wages, perquisites and profits whatsoever" - has no doubt contributed to the understanding of the nature of income as a subject of tax. I respectfully think that a passage in the judgment of Kitto J., to which I have already referred, is a wholly accurate and sufficient statement of the general principle which must govern this case and that I need do no more than quote it and adopt it. His Honour, speaking of the English cases, said: "The distinction those decisions have drawn between taxable and non-taxable gifts is the distinction between, on the one hand, gifts made in relation to some activity or occupation of the donee of an income-producing character . . . and, on the other hand, gifts referable to the attitude of the donor personally to the donee personally, . . . (1953) 86 CLR, at p 633 ." Here, as in England, the words of the statute must be read against the background of the same general idea. (at p528)

24. To analyse motives and seek the ultimate causes of conduct can seldom yield any single or simple result. Mrs. Freestone, I assume, would not have made her gift to the taxpayer if she had not appreciated his help to her and his friendship. If he had not acted for her as he did in relation to her husband's estate, if he had not been a friend of her husband, it probably would not have occurred to her to make him a beneficiary in her distribution of part of the moneys that she got from the estate. He no doubt was aware of this. Nevertheless I do not think that her gift to him was in a relevant sense given or received as a remuneration or recompense for services rendered so as to form part of his assessable income. (at p528)

25. I allow the appeal with costs and remit the matter to the Commissioner to amend the assessment accordingly. (at p528)