Royal Australasian College of Surgeons
v Federal Commissioner of Taxation

Judges: Latham CJ
Rich J
Starke J
McTiernan J

Williams J

Subject References:
Taxation and revenue
Income tax
Assessment
Exemptions for scientific institutions

Legislative References:
Income Tax Assessment Act 1936 No 27 - s 23(e)

Melbourne

Judgment by:
Williams J

The question is whether, on the agreed facts as appearing in the body of the case stated and in the annexures and exhibits thereto, the proper conclusion in law is that the Royal Australasian College of Surgeons, which is a company incorporated not for profit under the Victorian Companies Acts, is a scientific, charitable or public educational institution within the meaning of s. 23 (e) of the Income Tax Assessment Act 1936-1941 (Institution of Civil Engineers v Commissioners of Inland Revenue ^[F25] , at p. 163; Royal Choral Society v Inland Revenue Commissioners ^[F26] , at pp. 102-103). If, however, the College is a scientific institution within the meaning of the sub-section, it will be unnecessary to discuss whether it is also a charitable institution, while, if it is neither a scientific nor a charitable institution, it would be difficult to establish that it is a public educational institution.

The first question is, therefore, whether it is a scientific institution within the meaning of the sub-section.

This depends upon whether the main and dominant object for which the College was incorporated is to promote the science of surgery (Keren Kayemeth Le Jisroel Ltd v Inland Revenue Commissioners ^[F27] , at p. 658).

Clause 2 of the memorandum of association contains fifteen objects but of these only six, namely, (a), (b), (c), (d), (e) and (g), should be described as objects, while the balance should be described as powers to be exercised in order to enable the objects of the College to be carried into effect.

The principal contention on behalf of the respondent is that the College has two co-ordinate main purposes, the one the promotion of the science of surgery and the other the advancement of the personal and professional interests of its fellows.

It is submitted that objects (a), (b) and (c) are, on their true construction, objects to achieve this second purpose. Object (a), "to cultivate and maintain the highest principles of surgical practice and ethics," would be calculated to promote the second purpose, but object (b) would include within its ambit investigations in order to ascertain what would be desirable improvements in the equipment and methods used in hospitals for surgical operations as well as taking steps to see that this equipment was installed and these methods were adopted, so that this object is equally consistent with the first purpose as with the second. Object (c) is in a similar position as the arrangement of adequate post-graduate surgical training at universities and hospitals could promote knowledge and skill in surgery just as it could promote the professional interests of surgeons. Objects (d) and (e) are objects the purpose of which is plainly to promote surgical knowledge and skill, and object (g) should also be placed in the same category.

But, in order to determine what is the main or dominant purpose of the College, it is a mistake to examine the objects contained in the memorandum in this disjunctive fashion. They should be examined in conjunction with one another and in the light of the circumstances in which the College was formed and of the manner in which the College is fulfilling the purposes for which it was incorporated.

The College holds examinations for candidates for fellowship and has a Board of Censors and an Ethics Committee which inquires into and reports to the Council, which is the governing body of the College, upon the personal qualifications of candidates for fellowship, but these examinations and inquiries are to ensure that the surgeons whom it admits as fellows are men of high professional skill and ethical standards. The College has no right to qualify any surgeon to practise or to disqualify any surgeon from practising his profession. The only disciplinary action which the College can take if a fellow fails to maintain the highest principles of surgical practice and ethics is to expel him from the College.

It has been held in several cases that it is permissible to examine the facts in order to see what are the principal activities which an institution is carrying on in accordance with its constitution. For instance, in Inland Revenue Commissioners v Yorkshire Agricultural Society ^[F28] , at p. 633 Atkin L.J. said: "The question you have to consider is whether at the relevant time you are dealing with the income of a society established for charitable purposes only, and in respect of that income also you have to consider whether the income is applied in fact to charitable purposes only." In Keren Kayemeth Le Jisroel Ltd v Inland Revenue Commissioners ^[F29] , Lord MacMillan, referring to the income tax code, said: "It looks at the nature of the transactions; it looks at the character of the activities; and it does not look behind these to what may be the motive which has prompted the formation of the company."

When the principal activities which the College has carried on since its incorporation such as the holding of periodical conferences of surgeons for the discussion and study of surgical matters and the dissemination of surgical knowledge, the collection and collation of records of clinical cases occurring in hospital and private practice, the giving of evening lectures in surgical subjects, the provision of a technical library upon surgical subjects, the publication and distribution of a quarterly periodical known as the Australian and New Zealand Journal of Surgery, and research work in surgery are examined, it becomes clear that the College is in fact essentially an institution engaged in the promotion of the science of surgery in both a theoretical and practical sense. It is for this purpose that it has exercised its powers to purchase land, erect buildings, acquire a library and print and publish a scientific journal and other works.

Under the corresponding English Act an institution, in order to obtain exemption, must prove that it is a body of persons established for charitable purposes only, but it has always been held that an institution qualifies for exemption if its main purpose is charitable, although as subsidiary and incidental to that main purpose its members derive some personal and professional benefit from being members of the institution (Inland Revenue Commissioners v Yorkshire Agricultural Society ^[F30] ; Institution of Civil Engineers v Inland Revenue Commissioners ^[F31] ; Royal Choral Society v Inland Revenue Commissioners ^[F32] ).

The present case is distinguishable on its facts from the Royal College of Surgeons of England Case ^[F33] , because the objects of that College included the examination of students and others to qualify for practice or honours in surgery and kindred subjects. Romer L.J., delivering the judgment of the Court of Appeal, pointed out that "these examinations by the College have always been of great importance, and the certificates given to those who passed have been highly valued in the surgical profession, and a large income has been derived by the College from the fees on these examinations" ^[F34] . The Court came to the conclusion that the facts "amply show the dual nature of the object and purpose of the College" ^[F35] . The facts also established the dual nature and purpose of other institutions referred to in other cases which were cited to us and which are collected in Halsbury's Laws of England, 2nd ed., vol. 17, pp. 56, 57, note u.

The facts in the present case are more close to those in the two cases relating to the Institution of Civil Engineers, Forrest's Case ^[F36] and Institution of Civil Engineers v Inland Revenue Commissioners ^[F37] . In Forrest's Case ^[F38] Lord Watson (in passages most of which are cited by Romer L.J. in the latter case ^[F39] ), said:"The mere fact that membership is confined to those who are actively engaged, and have attained some degree of eminence, in the profession, does not militate against the object of the institution being the advancement of engineering science; because they are really the only persons possessing the knowledge and practical experience requisite for the efficient promotion of that object. Membership is not required for admission to the profession of a civil engineer: it confers no rights or privileges in the practice of that profession, over which the institution neither has, nor professes to have any power of control. A writer to the signet, in carrying on his private business, and practically in no other form, exercises his rights and privileges as a member of the society to which he belongs; but a member of the Society of Civil Engineers does nothing whatever in his corporate capacity, except when he takes part in its proceedings within the walls of the institution. ... I do not doubt that membership is accompanied with a certain amount of prestige which may prove to be of service to the member in his professional career; but I believe that the same result would attend membership of any society which effectively promoted a branch of science intimately connected with the professional business in which the member was engaged. ... I have accordingly come to the conclusion that the income of the institution is, in fact, applied, not for the professional ends of individuals, but for `the promotion of science' in the proper sense of the words" ^[F40] . These passages apply most aptly, mutatis mutandis, to the present appeal, in which a similar conclusion should, in my opinion, be reached to that arrived at in the two cases relating to the Institution of Civil Engineers.

For these reasons I would answer the question asked by saying that the appellant is a scientific institution within the meaning of the sub-section.