Chesterman v Federal Commissioner of Taxation
32 CLR 362(Decision by: HIGGINS J)
Between: CHESTERMAN
And: FEDERAL COMMISSIONER OF TAXATION
Judges:
Knox CJ
Isaacs J
Higgins JRich J
Starke J
Subject References:
Succession
Estate duty
Exemption
'Charitable purposes'
Annuity
Legislative References:
Estate Duty Assessment Act 1914 (No 22) - the Act
Judgment date: 6 June 1923
MELBOURNE
Decision by:
HIGGINS J
It must be clearly understood that the first question in this case stated turns on the construction of the Estate Duty Assessment Act 1914, and on that only. Under s. 8 the Commissioner proposes to levy the duty on the whole of the estate of the testator Mitchell; and the executors object to pay duty on so much of the residuary trust fund as is called in the will "the Peter Mitchell Trust," because, they say, it is "devised and bequeathed ... for religious, scientific, charitable or public educational purposes," and is therefore exempted from duty by s. 8 (5). Taxing Acts frequently contain exemptions in more or less similar terms. I suppose the theory at the root is that as the tax is for the benefit of the public anything given by the testator for the benefit of the public ought not itself to be taxed. But, whatever the theory, the appellants have to show that the trust-or, rather, each or some of the trusts, as there are several separable trusts in the Peter Mitchell Trust-are for religious purposes or scientific purposes or charitable purposes or public educational purposes.
The testator has introduced his Trust by a long sentence which is very important as showing his motive and his object:
"Now I consider that though gifts for the weak failing and sick are highly praiseworthy and to be commended yet more lasting good is to be effected by providing means to encourage and help the capable healthy and strong to develop and bring to fruition their natural advantages and which will act" (sic)
"as an incentive to all sane normal and healthy persons of both sexes to improve so far as possible their natural mental moral and physical conditions and will enable the worthiest among them by a process of selection and by competitions whereby they shall earn the benefits hereby intended to still further better those conditions develop themselves broaden their outlook as citizens of the Empire and so provide a leaven of strong well balanced and self reliant individualities who mixing in daily intercourse with their fellows will tend by their example and by the magnetism of their bright and healthful personalities to benefit and assist those with whom they may so daily mix and will also in the natural course of events reproduce in future generations those qualities which they themselves possess."
There is more to the purpose, especially as to the cultivating the faculties of self-reliance and initiative, self-respect, personal cleanliness, in the military or partly military competitions prescribed; but I must leave the full terms of this part of the will for the reports. For such ends the income is divided into twenty-one parts, of which
- (1)
- seven are to provide prizes for fifteen young women per annum-in addition to other qualifications to be considered, the "main test" is to be that of nursing and rearing babies and young children; then
- (2)
- three parts are to provide prizes for men of the Commonwealth military forces in military or quasi-military competitions;
- (3)
- two parts are to provide prizes for members of the Commonwealth naval forces in naval competitions;
- (4)
- three parts are to provide prizes for members of the military forces of the British Empire (including the Commonwealth) in military or quasi-military competitions;
- (5)
- three parts are to provide prizes for members of the naval forces of the British Empire (including the Commonwealth);
- (6)
- one part is to provide prizes "as aforesaid" for competitions among members of the police force of New South Wales; and
- (7)
- two parts are to provide prizes for (second schedule) males under twenty-one, if British subjects, etc, who have fulfilled all Commonwealth military obligations, and can swim, ride, shoot with a rifle, etc
Some difficulty has been raised as to the trust for the police, on the ground that the nature of the competitions has not been specifically stated in the trust. But the trust is to provide prizes "as aforesaid" for military or quasi-military competitions, etc; and the testator declares that all competitions referred to in his will shall be held "subject to such regulations terms and conditions in all respects as my trustees shall decide upon." In my opinion, the trust for the police is on the same level as the other trusts.
For trusts 1 and 7 certain educational and other tests are prescribed; and in the educational tests the testator includes certain books of the Bible (including I. and II. Kings and the Song of Solomon), certain plays of Shakespeare, Smiles' Self-help, Uncle Remus, Tam O'Shanter, etc But, notwithstanding the references to the Bible, I am of opinion that trusts 1 and 7 cannot be supported as gifts for "religious purposes." The purposes are not "religious"; the purpose is rather to encourage the mens sana in corpore sano, a certain knowledge of certain books of the Bible being treated as a means to the end. The direct purpose is not the promotion of any form of religion, but rather the promotion of all-round competency and efficiency.
For these same trusts the testator prescribes that there shall be knowledge of elementary anatomy and physiology, and the main functions of the human body. But, for similar reasons, I cannot treat the trusts as for "scientific purposes" within s. 8 (5).
I shall assume, also, that none of the trusts can be fairly described as a trust for "public educational purposes." This point is, to my mind, more doubtful, as we may be justified in giving to education a broad sense as implying culture of body and mind and character in the sense of Plato, and not as confined to the book-learning of schools and colleges. But I am not prepared to say that the ordinary meaning of "public educational purposes" in current speech covers a sense so broad.
But are not the trusts for "charitable purposes"? They are not, if we have to read "charitable" as merely implying relief to the poor or needy; they are, if we have to read "charitable" in this legal document in its legal sense. It has not been contested that if we are to give "charitable purposes" this legal sense-the sense of the Statute of Elizabeth-the purposes of this trust are charitable. Learned counsel for the respondent expressed himself as prepared to concede that the trust constituted a good charitable gift in the sense of that statute. The purposes here are to benefit the public-the classes of competitors directly, the general public indirectly. Lord Macnaghten, in Commissioners for Special Purposes of the Income Tax v Pemsel, [F38] says: " `Charity' in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads." The Peter Mitchell Trust-or rather seven trusts-seem to me to come under this fourth division. I shall not venture to make an exhaustive definition of "charitable" in the legal sense; but, prima facie at all events, it seems to cover any gift intended for the benefit of the public at large, or of any indefinite and considerable part of the public. It has been held that a gift is charitable which is for the increase and encouragement of good servants, or to distribute gratuities to female servants in Wales, selected in a certain manner (Reeve v Attorney-General; [F39] Loscombe v Wintringham [F40] ); also a gift to the National Rifle Association to be expended by the council for the teaching of shooting at moving objects so as to prevent a catastrophe similar to Majuba Hill (Re Stephens [F41] ); also a gift of an annuity to a volunteer corps. (In re Lord Stratheden and Campbell [F42] ); also a gift upon trust for the officers' mess of a regiment, to be applied in maintaining a library, and any surplus in plate (In re Good; Harington v Watts [F43] ); also a gift to establish an institute for investigating and removing the causes of the potato diseases, etc (University of London v Yarrow [F44] ); also a gift to a society for the total suppression of vivisection, whether the Court approves of the objects of the society or not (In re Foveaux; Cross v London Anti-vivisection Society [F45] ). The real question is, ought we to give "charitable" its legal sense in s. 8 (5)?
Now, the word "charitable" is a technical word, and a technical legal word used must be taken in its legal sense unless a contrary intention appears (per Lord Macnaghten, Commissioners for Special Purposes of the Income Tax Act v Pemsel; [F46] Stephenson v Higginson [F47] , at p. 686). Where and how is the contrary intention disclosed in this Act? It is urged that "charitable purposes" cannot mean here charitable purposes in the legal sense of the words, because the words are associated with "religious," "scientific," "public educational," all of which (it is said) are included under "charitable" in the legal sense. The argument is that if the words were used in the legal sense the other words would not have been added. But not all religious purposes are charitable in the legal sense; for instance, a gift to an order of contemplative nuns, seeking to sanctify their own souls by religious exercises, is not a gift to a charitable purpose (Cocks v Manners, [F48] at p. 585; In re Delany; Conoley v Quick [F49] ). Nor are all scientific purposes charitable; a gift to one who keeps a private observatory for the upkeep thereof, would be a gift for scientific purposes, but not for charitable purposes. A gift to Edison to enable him to outdistance his competitors in research as to a certain subject would be in a similar position. A gift to the proprietors of a public school in aid of the funds of the school would come under the words "public educational purposes," but not under the words "charitable purposes." The most that can be alleged is that most religious purposes, most scientific purposes, most public educational purposes, are charitable. There is nothing in the form of the words used to indicate that they are meant to be mutually exclusive in meaning. If one speaks of conduct as "moral virtuous or unselfish," there is no implication that the word "unselfish" must be limited in meaning so as not to include either moral or virtuous conduct. In the Income Tax Assessment Act 1915-1918, s. 11 (1), there are numerous exemptions from the tax, and one is (j) "the income of any society or association not carried on for the purposes of the profit or gain to the individual members thereof, established for the purpose of promoting the development of the agricultural, pastoral, horticultural, viticultural, stock-raising, manufacturing, or industrial resources of Australia." I cannot believe that "pastoral" is to be shorn of its full meaning because "stock-raising" is mentioned, or that "industrial" has to be limited in denotation because "manufacturing" is mentioned. The four classes of purposes mentioned in this section of the Estate Duty Assessment Act frequently overlap in their denotation; but the natural meaning of the words is that if the purposes of a gift fairly come within any one of the four classes, whether they come within any of the three others or not, the gift is to be free from duty. I can find nothing in the phraseology used to prevent us from treating the words as expanding the exemptions, so as to comprehend all purposes which can come within any one or more of the four classes.
It is not sufficient to show that another meaning than the legal meaning is possible in the context-or even probable. This was put strongly by my brother Isaacs in Gutheil v Ballarat Trustees etc Co; [F50] and I should accept his position, that the technical meaning must be accepted unless the instrument excludes the technical sense "beyond all doubt." As Lord Redesdale said, in Jesson v Wright, [F51] at p. 56, "it is dangerous, where words have a fixed legal effect, to suffer them to be controlled without some clear expression, or necessary implication." This principle is applied even to wills; but surely it is applicable with double force to Acts of Parliament. Where a law-making body sets itself out to make a law for the community, it must be taken to use legal terms in a legal sense-unless it say to the contrary, "unless a contrary intention appears"; and the contrary intention does not "appear" if it be suspected to exist. Probably, this position would be freely accepted; but the difficulty lies, as usual, in the minor premiss, not in the major. The fallacy here-if I may be allowed to use the expression without meaning any offence-arises from the assumption that the word "charitable" in the Elizabethan sense includes all religious, all scientific, all public educational purposes, and it is then argued that the word "charitable" in s. 8 (5) cannot be used in the Elizabethan sense. I think I have shown that this assumption is wrong. Moreover, even if the language of the Act were equally capable of the other interpretation, it would be our duty, as this is a taxing Act, to accept the construction which is in favour of the taxpayer (Armytage v Wilkinson [F52] ).
There are, however, two decisions which seem to be worthy of special consideration. One is the case of Swinburne v Federal Commissioner of Taxation, [F53] in this Court. That case arose under the Commonwealth Income Tax Assessment Act, which allowed a deduction from the assessable income of the taxpayer of "gifts exceeding five pounds each to public charitable institutions in Australia." The taxpayer had given PD1,000 to a technical college where students paid for admission to the courses. It was held that the broad meaning of "charitable"-the meaning under the Statute of Elizabeth-did not apply to the words "public charitable institutions"; but the decision was based on a finding of the Court that in Australia "charitable institution" has a distinctive meaning in current speech, and is restricted to institutions where the poor or needy are relieved. No such distinctive meaning can be attributed to "charitable purposes"; indeed, the judgment recognizes that the expression "charitable purposes" has the broad Elizabethan meaning, and that the Courts must apply that meaning unless the context forbid it. A similar distinction between "institution" and "purposes" seems, indeed, to be suggested by s. 11 (1) of the same Act. For sub-s. 1 (d) exempts "the income of a religious, scientific, charitable, or public educational institution," whereas sub-s. 1 (f) exempts "the income of a fund established by any will or instrument of trust for public charitable purposes." There can surely be no doubt that the latter exemption applies to charitable purposes in the broad sense of the Statute of Elizabeth. The other case is that of Inland Revenue Commissioners v Scott, [F54] which is more complex. As corporations and such bodies do not die, and are not liable to probate or succession duties, an Act of 1885 imposed a duty upon the annual value of property vested in such bodies, but made certain exemptions-s. 11, sub-s. 2, of property legally appropriated for the benefit of the public at large, etc, or in any manner expressly prescribed by Act of Parliament; sub-s. 3, of property legally appropriated "for any charitable purpose, or for the promotion of education, literature, science, or the fine arts." Land called the "Intack," near York, was held in trust for the freemen of a ward of the city, and was under the control of pasture-masters, who applied the net profit to the benefit of poor freemen; but not under any Act. It was held by the Court of Appeal that in such a context the words "charitable purpose" could not mean a purpose charitable in the Elizabethan sense. The reason was that the whole of sub-s. 2 as to property for the benefit of the "public at large" would be wholly unnecessary if "charitable" had the Elizabethan sense in sub-s. 3; and the words "or for the promotion of education, literature, science, or the fine arts" would also be unnecessary. A trust "for the promotion of education" in that general form is charitable under the Act, and the Court would settle a scheme for the public benefit. Lord Herschell, who gave the judgment of the Court, adhered to what he had said in Commissioners for Special Purposes of the Income Tax v Pemsel, [F55] that little weight is to be attached to the mere fact that specific exemptions were found which would be covered by the wider general words; but each statute has to be considered by itself; and here the exemptions in sub-s. 2 as to the "public at large," could not have been inserted ex majori cautela. But in the Act before us, the words "religious," "scientific," "public educational," could obviously have been inserted for greater caution, to prevent the boundaries of the exemption from being narrowed by the decisions under the Statute of Elizabeth. There is nothing in the Act now under discussion to prevent us from treating the words as having been inserted for greater caution so as to prevent a narrow construction.
It will be seen that I have expressed my opinion on both the points necessary to be decided in order to answer question 1 of the special case-(1) what is the meaning of "charitable" in s. 8 (5); (2) if it means charitable in the technical sense, are these specific trusts charitable in that sense (the sense of the Statute of Elizabeth). I should like to adopt the course suggested by the Chief Justice-a course which has much to commend it, in some respects-and to refrain from deciding point 2, especially as we have been told that in February last an originating summons was taken out in the New South Wales Court to have it determined whether the trusts are charitable in the technical sense. If not, they are void for perpetuity; and apparently the next-of-kin would take the property under ordinary wills. But in this will the testator makes a special provision for the case of the specific trusts failing-provides that if they wholly or partially fail or be declared by any Court incapable of taking effect, then the trustees are to apply the property "upon trust for such non-sectarian charitable uses purposes or institutions as my trustees shall in their absolute and uncontrolled discretion decide upon." The arguments for the next-of-kin would, therefore, have chiefly to attack this gift over as not being charitable in the technical sense, in order to establish an intestacy. On the whole, it seems to me to be my proper course to simply answer question 1 fully as it stands on both points, and to let the answer stand for what it is worth. This course, also, relieves me of the necessity of considering the much more difficult question whether these specific trusts are comprehended within some non-technical, popular meaning of "charitable," as used in s. 8 (5). As Lord Macnaghten said, in Pemsel's Case, [F56] "no one as yet has succeeded in defining the popular meaning of the word `charity'."
2. In my opinion, under the gift of the annuity to the widow part of the estate of the testator passes to the widow, and duty is payable at two-thirds rate. In other words, the annuity is subtracted from and diminishes the value of the estate given to the residuary legatees; and the subtracted part is itself vendible property, part of the total estate.
3. Yes-Answer 2.
4. In my opinion, reg. 33 is invalid. The Act contemplates the true value for assessment of duty, and rule 33 errs in arbitrarily fixing a four and a half per cent, basis.
5. The true value of the annuity has to be ascertained by appropriate means. It is not a matter of law to say by what means; but usually an actuarial calculation is found necessary.