Federal Commissioner of Taxation v. Brixius.

Judges:
Forster J
Fisher J
Spender J

Court:
Full Federal Court

Judgment date: Judgment handed down 6 November 1987.

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Forster, Fisher and Spender JJ.

This is an appeal by the Commissioner of Taxation ("the Commissioner") from a decision of the Administrative Appeals Tribunal ("the Tribunal") made on 23 March 1987. This decision upheld an application by the respondent Rotraud Annelie Brixius ("the taxpayer") for review of a decision by the Commissioner. The appeal was entered pursuant to sec. 44(1) of the Administrative Appeals Tribunal Act 1975 ("the A.A.T. Act") which provides that:

"(1) A party to a proceeding before the Tribunal may appeal to the Federal Court of Australia, on a question of law, from any decision of the Tribunal in that proceeding."

The Court has jurisdiction under sec. 44(3) to hear and determine such appeals, which are instituted in the original jurisdiction of this Court (sec. 19 and 20 Federal Court of Australia Act 1978) but which are required to be heard by a Full Court if the decision of the Tribunal was given by a Tribunal constituted by a presidential member. Such was the case in this instance.

The appeal arises in the following circumstances. In her return of income for the year ending 30 June 1984 the taxpayer, a fulltime employee of the Education Department of the State of South Australia, claimed to deduct from her assessable income the sum of $795 being rent paid by her in respect of a study. The claim was made for a deduction pursuant to the provisions of sec. 51 of the Income Tax Assessment Act 1936 ("the Act"). Claims were also made to deduct a portion of her expenditure on light and power, telephone and insurance. In an attachment to her return she set out the circumstances in which the claim was made. These circumstances were reiterated in the hearing of her application for review and her evidence was accepted by the Tribunal.

The Commissioner issued a notice of assessment on 14 September 1984 and by the adjustment sheet attached to and forming part of the notice of assessment increased the taxable income of the taxpayer by an amount of $795. This increase was in consequence of the disallowance of the taxpayer's claim that the rent was an allowable deduction in the circumstances abovementioned. Other deductions claimed as abovementioned were allowed. A notice of objection to this assessment dated 1 February 1985 was lodged but disallowed by the Commissioner by letter dated 1 March 1985. On 1 April 1985 the taxpayer's agent requested that the disallowance be referred to a Board of Review. Such a request was in accordance with the then provisions of sec. 187 of the Act. The Commissioner furnished a statement pursuant to reg. 35(1) of the Regulations under the Act wherein he indicated that his reasons for disallowing the claim were that no part of the amount of $795 claimed in the year of income as rent was allowable as a deduction under sec. 51(1) of the Act.

Before the matter could be heard by a Board of Review Parliament had enacted the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 ("the Transfer of Jurisdiction Act") whereby sec. 187 of the Act was repealed by sec. 80 of the Transfer of Jurisdiction Act and a new sec. 187 substituted. This new section enabled a taxpayer dissatisfied with a disallowance to request the Commissioner to refer the decision to the Tribunal or to a Supreme Court. Sections 222 and 223 of the Transfer of Jurisdiction Act are transitional provisions whereby a request to refer to a

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Board of Review which had not been referred and a request which had been referred but not heard by a Board were in each instance to be treated as if the particular request to refer was a request to refer the decision to the Tribunal.

As well as repealing sec. 187 and substituting a new section as abovementioned, the Transfer of Jurisdiction Act repealed sec. 196 which, prior to repeal, had provided, to the extent relevant:

"(1) The Commissioner or the taxpayer may appeal to a Supreme Court from any decision of the Board that involves a question of law."

(The emphasis has been added.)

Consequent upon the transfer from a Taxation Board of Review to the Tribunal of reviews of these decisions of the Commissioner, appeals from the Tribunal on these matters are now governed by sec. 44 of the A.A.T. Act. This section, to the extent relevant, provides as previously mentioned an appeal to this Court only on a question of law.

The taxpayer gave evidence before the Tribunal. She was the only witness and her evidence was accepted "unhesitatingly". This evidence and the Tribunal's finding are set out in some detail in their reasons and it will suffice if we refer only to salient features. The Tribunal found that for her to carry out her duties as an Acting Principal Education Officer in the Department of Education it was necessary for her to work out of hours. Her office in the Education Department closed at 6 p.m. on weekdays and she could not use that office after that time or on weekends. She also gave evidence, which was accepted by the Tribunal, that part of her work was in the field of music, which required her to listen to and play music on an instrument, either a piano or a violin. No piano was available within the Department and no soundproof room in which she could play the violin. She acknowledged that this work was not specifically prescribed by her employer. In order to attain a better level of concentration than was available to her in the Department she worked at home in a study set up to cater for these needs. This work at home was approved and encouraged by her employer.

In April 1983, at a time when she was employed as Acting Principal Education Officer, she rented a two bedroom unit, the largest room of which she set up and used as a study. This room was used by her both on the occasions when she worked at home during the day including about two hours each work day after 6 p.m. and on a number of hours each weekend.

The Tribunal correctly identified the issue before it as whether the rent payable with respect to the study was an outgoing incurred in gaining or producing assessable income within the first limb of sec. 51(1) and, if it was, whether it was an outgoing of a capital, private or domestic nature. All relevant authorities were referred to in the reasons of the Tribunal and it applied the correct test, namely to determine the essential character of the expenditure. The Tribunal found that it was satisfied that in the circumstances of the case the essential characteristic of the payment of rent for the study was an outgoing incidental and relevant to the performance of her work, from which she derived assessable income.

On the question whether the expenditure was of a private or domestic nature, the Tribunal again applied the appropriate test, namely to look at the essential characteristics of the expenditure and the use of the study. It found that because of the contents and use of the study, it was distinguishable from the other rooms in the home even though it had no separate entrance. The expenditure, the Tribunal found, was expenditure for her work and not for her domestic or private living. For these reasons the Tribunal found that her claim to deduct the sum of $795 should be allowed pursuant to sec. 51(1) of the Act.

The Commissioner appealed to this Court pursuant to sec. 44(1) of the Act from the Tribunal's decision. Order 53 rule 3 of the Rules of this Court requires an appellant to state, inter alia, the question or questions of law to be raised on the appeal. The Commissioner stated these questions as follows:

"(a) Whether a portion of the `rent' incurred by the respondent to lease domestic premises a part of which were also used by her as a study is an outgoing `incurred in gaining or producing the assessable income' of the respondent within the meaning of sec. 51(1) of the Income Tax Assessment Act 1936.

(b) Whether the whole of the said rent is an outgoing of a `private or domestic nature'

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within the meaning of the exception to sec. 51(1) of that Act."

That rule also requires an appellant to state briefly, but specifically, the grounds relied upon in support of the order sought. These grounds were stated by the Commissioner as follows:

"(a) The learned Deputy President and members of the Tribunal erred in law in that they wrongly decided that a portion of the rent incurred by the respondent to lease domestic premises a part of which were also used by her as a study

• (i) had the essential character `of an outgoing incidental and relevant to the performance of her work as an Acting Principal Education Officer, being employment from which she received assessable income'.
• (ii) was `not expenditure for her domestic and private living but for her work'.

(b) The learned Deputy President and members of the Tribunal erred in law in that they took into account irrelevant considerations when arriving at their decision, namely

• (i) that `because of its contents and use' the study was `distinguishable from the other rooms in the house'.
• (ii) that the respondent did not have an option to work after hours in the office provided by her employer.

(c) The learned Deputy President and members of the Tribunal erred in law in that they

• (i) failed to apply or wrongly applied the decisions in
  Thomas v. F.C. of T [72 ATC 4094] (1972) 46 A.L.J.R. 397,
  F.C. of T. v. Faichney [72 ATC 4245] (1972) 129 C.L.R. 38,
  F.C. of T. v. Forsyth [81 ATC 4157] (1980-1981) 148 C.L.R. 203 and
  Handley v. F.C. of T. [81 ATC 4165] (1980-1981) 148 C.L.R. 182.
• (ii) wrongly applied the decision in
  Swinford v. F.C. of T. [84 ATC 4803] (1984) 3 N.S.W.L.R. 118.

(d) The learned Deputy President and members of the Tribunal erred in law in that they ought to have decided that the said rent was not allowable as a deduction pursuant to sec. 51(1) of the Income Tax Assessment Act 1936 as it was not incurred in gaining or producing the assessable income of the respondent and was an outgoing of a private or domestic nature."

At the commencement of the hearing of the appeal counsel for the Commissioner was asked to identify, for the purpose of establishing the jurisdiction of the Court pursuant to sec. 44(1) of the Act, the error of law which he contended the Tribunal had made in arriving at its decision. He answered that there was no doubt a question of law involved in the appeal, namely the proper construction of sec. 51(1) and that this factor was sufficient to enable the Court to hear the appeal. His contention was that the Tribunal had wrongly applied the relevant law to the facts before it. He argued that in substance the Court had the same jurisdiction under sec. 44(1) as a Supreme Court had had under sec. 196 to hear an appeal from the Taxation Board of Review. There are however a number of decisions of the Full Court of this Court which indicate this is not the case and which contrast the scope of the two appeal provisions.

In
Committee of Direction of Fruit Marketing v. Australian Postal Commission (1979) 25 A.L.R. 221 Northrop J. at p. 233 compared the jurisdiction under sec. 44(1) with that under sec. 196(1) of the Act. He said, after referring to the fact that a question of law which is to be heard and determined by the Federal Court under sec. 44 arises from facts found by the Tribunal either before or after the Tribunal has given a decision:

"Under the latter provision (s 196), a Supreme Court is required to decided the appeal on the material the parties put before it including any evidence a party may be advised to lead. The appeal under s 44(1) of the Administrative Appeals Tribunal Act appears to be more limited."

The Full Court of this Court in a joint judgment in
Brown v. Repatriation Commission (1985) 60 A.L.R. 289 contrasted sec. 196 of the Act with sec. 107VZZH(1) of the Repatriation Act 1920 which latter section is in very similar terms to sec. 44(1) and which is as follows:

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"(1) An applicant in a proceeding before the Tribunal or the Commissioner may appeal to the Federal Court of Australia, on a question of law, from any decision of the Tribunal in that proceeding."

The Tribunal in this instance was the Repatriation Review Tribunal. On p. 291 the Full Court said:

"In our opinion there is a fundamental difference between appeals brought from decisions of Boards of Review to Supreme Courts pursuant to s 196 of the Assessment Act and appeals brought from decisions of the Tribunal to the Federal Court under the Act pursuant to s 107VZZH. In the former case the relevant provision (s 196(1)) provides:

• `(1) The Commissioner or the taxpayer may appeal to a Supreme Court from any decision of the Board that involves a question of law.'

Section 107VZZH(1) of the Act is cast in materially different language, namely:

• `(1) An applicant in a proceeding before the Tribunal or the Commission may appeal to the Federal Court of Australia, on a question of law, from any decision of the Tribunal in that proceeding.'

The language of s 196 supports the view that it is the whole decision of a Board of Review that is subject to appeal to a Supreme Court, provided the decision involves a question of law. This is the construction which the High Court has placed upon s 196 for many years, but we see no warrant for transferring that reasoning process to s 107VZZH which is couched in very different terms.

The existence of a question of law is not merely a qualifying condition to ground an appeal from a decision of the Tribunal; rather, it and it alone is the subject matter of the appeal, and the ambit of the appeal is confined to it. Although it is necessary in some appeals pursuant to s 107VZZH for this court to consider the evidence before the Tribunal (for example, where the alleged question of law is that there is no evidence upon which the Tribunal could reasonably support its finding) the court should be cautious before embarking on its own analysis of the evidence where the task of assessing facts has been placed by the legislature in the hands of specialist bodies such as the Tribunal and the Commission which are equipped to deal with them."

After referring to subsec. (5) of sec. 107VZZH(4) which is in similar terms to sec. 44(5) of the A.A.T. Act, the Court went on to say on p. 292:

"The language of sub-s (5) does not sit easily with the notion that the court conducts a general review of the Tribunal's decision; but it is entirely consonant with the view that the subject matter and scope of the appeal is limited to a question of law and does not operate as a rehearing of the whole matter.

A more apt analogy to appeals pursuant to s 107VZZH of the Act than appeals pursuant to s 196 of the Assessment Act is to be found in appeals to this court from decisions of the Administrative Appeals Tribunal pursuant to s 44(1) of the Administrative Appeals Tribunal Act 1975 which provides: `A party to a proceeding before the Tribunal may appeal to the Federal Court of Australia, on a question of law, from any decision of the Tribunal in that proceeding. That sub-section is cast in substantially the same language as s 107VZZH(1) of the Act.

It has been held that appeals under s 44(1) of the Administrative Appeals Tribunal Act 1975 are more limited in scope than those under s 196(1) of the Assessment Act:
Blackwood Hodge (Australia) Pty. Ltd. v. Collector of Customs (NSW) (1980) 47 FLR 131; Committee of Direction of Fruit Marketing v. Australian Postal Commission (1979) 25 ALR 221, per Northrop J, at pp 232 and 233."

More recently Brennan J. made reference in
Waterford v. Commonwealth of Australia (1987) 71 A.L.R. 673 at p. 689 to the provisions of sec. 44. He said:

"A finding by the AAT on a matter of fact cannot be reviewed on appeal unless the finding is vitiated by an error of law. Section 44 of the AAT Act confers on a party to a proceeding before the AAT a right of appeal to the Federal Court of Australia `from any decision of the Tribunal in that proceeding' but only `on a question of law'. The error of law which an appellant must

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rely on to succeed must arise on the facts as the AAT has found them to be or it must vitiate the findings made or it must have led the AAT to omit to make a finding it was legally required to make. There is no error of law simply in making a wrong finding of fact. Therefore an appellant cannot supplement the record by adducing fresh evidence merely in order to demonstrate an error of fact. As the purpose for which a document is brought into existence is a question of fact (per Jacobs J in Grant v Downs (CLR at 692)), the contents of document 29 are immaterial to the question whether the AAT has made an error of law on the material before it."

Lord Radcliffe in
Edwards (Inspector of Taxes) v. Bairstow (1956) A.C. 14 at p. 38 said in the context of an income tax appeal:

"... by the system that has been set up the commissioners are the first tribunal to try an appeal, and in the interests of the efficient administration of justice their decisions can only be upset on appeal if they have been positively wrong in law. The court is not a second opinion, where there is reasonable ground for the first."

Notwithstanding the fact that there is no limit on the power of a Full Court of this Court to review a decision of a single judge of the Supreme Court in income tax matters under sec. 200 of the Act (and now of a single judge of this Court), in our opinion we are bound to accept a limitation when the appeal comes from the Tribunal. It is perhaps incongruous that there exists this limitation when it is the taxpayer who has the option whether to seek a review of the Commissioner's decision by the Tribunal or to have his or her appeal heard by a single judge of this Court. This circumstance however does not justify an attempt, in the words of Davies L.J. (as he then was) in
R. v. Industrial Injuries Commission; Ex parte Amalgamated Engineering Union (No.2) (1966) 2 Q.B. 31 at p. 50, "to magnify or inflate questions of fact into questions of law...".

The question therefore which arises at the outset is whether the Commissioner is contending that the finding of the Tribunal is vitiated by an error of law. If not, this Court has no jurisdiction. Brennan J. indicated in Waterford's case at p. 689 the nature of such an error in that it "must arise on the facts as the A.A.T. has found them to be, or it must vitiate the findings made or it must have led the A.A.T. to omit to make a finding it was legally required to make". As he then said, "There is no error of law simply in making a wrong finding of fact".

In setting out the grounds in his notice of appeal the Commissioner did not point to any error of law, with one possible exception hereinafter referred to, but contended rather that the Tribunal came as a matter of law to the wrong conclusion or incorrectly applied the law to the facts.

The difficulty which confronts the Commissioner is that, once having identified the correct principles of law (a matter which was not challenged) the question for determination by the Tribunal is, in a matter of this nature, essentially a question of fact, or of fact and degree.

As a matter of law the question for determination on the first limb of sec. 51(1) is whether the outgoing has the necessary relation to the gaining of assessable income, that is, has it the essential character of an outgoing incurred in gaining such income? The Tribunal correctly identified this principle and the Commissioner did not contend to the contrary. Its task was then to apply the law to the facts as found. The application of sec. 51(1) in this manner is in the varied circumstances of each case very much a matter of fact and degree. These factors were so stated by Wilson J. who gave the principal judgment of the majority of the High Court in F.C. of T. v. Forsyth 81 ATC 4157; (1980) 148 C.L.R. 203. He said at ATC p. 4161; C.L.R. p. 210:

"The proper construction of sec. 51 has been discussed by this Court in a number of cases, and I think it is fair to say that its application in the circumstances of each case remains very much a matter of fact and degree."

Again at ATC p. 4163; C.L.R. p. 213 he said:

"In every case it is clearly a question of fact and degree whether the outgoing has the necessary relation to the gaining of assessable income."

Having stated at ATC pp. 4165-4166; C.L.R. p. 215 that "an important question is the relationship of the study and ancillary space

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to the home as a whole" he said on the same page [ATC p. 4166]:

"As I have said, in the last resort the question is one of fact and degree. Having regard to all the circumstances, I conclude that it is not open on the facts of this case to find that the outgoings in question were incurred in gaining or producing the assessable income, or were necessarily incurred in carrying on the taxpayer's professional business. The home was not his business premises."

Likewise in respect of the exception to sec. 51(1) the question is whether the outgoing has a private or domestic character. Murphy J. said at ATC p. 4173; C.L.R. p. 197 of Handley v. F.C. of T. 81 ATC 4165; (1981) 148 C.L.R. 182 when dealing with the domestic character of the outgoings, "These are all questions of degree". Mason J. said at ATC p. 4172; C.L.R. p. 195 of Handley's case:

"The application of the provisions of sec. 51(1) gives rise to difficulty in some cases. That is because there is an infinite variety of factual situations to which it may apply. It is not always easy to distinguish one case from another when, in order to apply the section, it is necessary to take a number of factors into account."

Both Forsyth and Handley were cases dealing with claims for deduction of rent or interest paid in respect of home studies. Earlier Rich J. in
Maryborough Newspapers Co. Ltd. v. F.C. of T. (1929) 43 C.L.R. 450 at p. 453 said of a like provision in an earlier Income Tax Act:

"All the cases emphasize the necessity of determining as a matter of fact, what the purpose of the expenditure was, and whether it was made wholly and exclusively for the production of assessable income."

In the circumstance that after identifying the relevant principle of law its application is very much a matter of fact and degree, it is necessary to turn to the Commissioner's grounds of appeal and the contentions he put before this Court. Ground (a) above-mentioned without doubt related to the Tribunal's decision upon the application of the correct principles to the facts. Likewise ground (c) complains of an incorrect application of the relevant authorities. Ground (d) complains of an alleged error of law in that it contends the Tribunal came to an incorrect conclusion. None of these grounds spell out any true error of law. Ground (b) could however amount to an allegation of an error of law in that it contends that the Tribunal took into account the irrelevant considerations there set out. However counsel for the Commissioner did not place any reliance or present any argument in support of this ground. Moreover it is impossible to contend that these considerations are wholly irrelevant and the weight which the Tribunal attached to them is a question of degree and of fact and a matter entirely for it. As Diplock L.J. (as he then was) said in
R. v. Deputy Industrial Injuries Commissioner; Ex parte Moore (1965) 1 Q.B. 456 at p. 488:

"If it (the evidence) is capable of having any probative value, the weight to be attached to it is a matter for the person to whom Parliament has entrusted the responsibility of deciding the issue. The supervisory jurisdiction of the High Court does not entitle it to usurp this responsibility and to substitute its own view for his."

It follows that in our view the Commissioner has not identified any question of law which affected the Tribunal's decision and in respect of which he contends it has erred. The decision of which he complains arises exclusively out of the application of the correct principles of law to the facts. As such, the matters which he would wish to argue before this Court are matters of fact and degree, and this Court has no jurisdiction. Therefore we acknowledge that we are not empowered to substitute our view for that of the Tribunal, notwithstanding the fact that we probably would not have been inclined to come to the same conclusion. In this regard all we feel entitled to say is that we are impressed by the significance attached by Wilson J. in Forsyth's case to the necessity to see the use of the premises as a business use, a view espoused by Professor R.W. Parsons in his recent textbook Income Taxation in Australia - Principles of Income, Deductibility and Tax Accounting at pp. 460-463.

The Commissioner's appeal must be dismissed with costs.

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The applicant pay to the respondent her costs of the appeal the same to be taxed if not agreed.