The Herald and Weekly Times Ltd v Federal Commissioner of Taxation
(1932-33) 48 CLR 1136 ALJ 314
(Judgment by: Evatt J)
Between: The Herald and Weekly Times Ltd
And: Federal Commissioner of Taxation
Judges:
Gavan Duffy CJ
Dixon J
Rich J
Starke J
Evatt JMcTiernan J
Judgment date: 30 September 1932
MELBOURNE
Judgment by:
Evatt J
Moneys were paid by the appellant Company for the purpose of meeting
- (a)
- damages awarded against it or agreed to be paid by it and
- (b)
- law costs, in respect of the publication in its newspapers of actual or alleged defamatory matter.
The question of decision is whether these moneys were "wholly and exclusively laid out or expended for the production of assessable income" (Income Tax Assessment Act 1922-1929, sec. 25(e)).
The sub-section has to be applied to the facts, and they are not really in dispute. The appellant is required to show that there is a definite relation between the moneys expended and "the production" of assessable income. The principal relation is expressed by the word "for," which is indicative of the object or purpose of the taxpayer in incurring the expenses claimed by him as a deduction. further, the word "exclusively" supposes that the sole purpose of producing assessable income must characterize the expenditure.
I do not think that it is necessary to trace a direct casual relationship between the expenses claimed and any part of the income of the taxpayer. But the statute commands that the moneys claimed must be laid out or expended with a view to securing some addition to the income of the taxpayer, must at least be devoted towards the production of income receipts. As in England, the words or the Legislature lay down a "stern rule," the Court has little discretion and must follow a "narrow path" (per Lord Hanworth M.R. in Thomas Merthyr Colliery Co. v. Davis). [F14]
In this case it is not possible to regard to moneys in question as answering the statutory description. It is true that the appellant's business was to publish and sell newspapers, and certain acts of publication and sale gave rise to actual or supposed liability to third persons for defamation. Between those persons and the appellant there existed no business or trade relationship. There is no evidence that the actual or supposed defamatory matters were themselves published for the purpose of increasing the sales, or the advertising revenue, of the appellant. On the contrary, the case presented to the Court is that occasional defamation is nothing more than an inevitable concomitant of evening newspaper production. The publication and sale of the articles did not necessarily carry in their train the payment of any of the moneys. No payment whatever was made until actions had been either threatened or commenced against the appellant. At law, the amount of damages payable in respect of the publication of libels fell to be determined by reference, not merely to the act of publishing and selling the newspaper, but to the appellant's subsequent behaviour towards the person injured. In the end, the appellant paid the moneys either because the Court gave a judgment against it or because the appellant considered it would be very expensive to defence, or further defence, the actions, threatened or commenced. No doubt, in each case, the gravamen of the cause of action consisted in what was contained in a part - a very small part - of the appellant's newspaper' and the systematic sale of its newspapers was the source of the appellant's assessable income. But the authorities show clearly that the statute is not given effect to, merely by showing that the taxpayer has met a liability which results from an act or omission in the course of his carrying on an income-producing business.
Would damages paid in respect of a nuisance caused by a smoking chimney on a taxpayer's factory premises, be regarded as moneys exclusively expended with a view to the production of his assessable income? Judging from the present case, the chain of argument in favour of allowing such deduction would be: - The factory is conducted for the purpose of earning assessable income; the chimney is an integral part of the factory; that they should smoke, is a characteristic of chimneys; and that persons injured by smoke should recover, or attempt to recover, damages for nuisance, is a usual characteristic of persons. Therefore, moneys paid by the factory owner to meet such claims are paid out or expended by him for the purpose of producing income!
The two purposes for which the moneys were expended by the appellant were
- (i.)
- that its assets, not its income alone, should be depleted as little as possible, and
- (ii.)
- that all liability arising from wrongful or supposedly wrongful publications should be discharged.
I think the judgment of Mann J. was right, and that it should be affirmed. It is in direct line with the reasoning of the Privy Council in Ward's Case. [F15] The words of the New Zealand statute there considered, bore a close resemblance to those employed in the Federal Act. The judgment appealed from has been subjected to some verbal criticism but his Honor's statement [F16] that "this expenditure, in my mind, is not in any sense productive expenditure directly or indirectly" seems to be unanswerable. This statement is borne out by the evidence, and it ought to be fatal to the appellant's success.
In my opinion the appeal should be dismissed.