Finance Facilities Pty. Limited v. Federal Commissioner of Taxation.

Members: Barwick CJ
McTiernan J
Windeyer J

Owen J

Tribunal:
High Court (Full Court)

Decision date: Judgment handed down 12 November 1971.

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Owen J.: This is an appeal against a decision of Gibbs J. dismissing an appeal by the taxpayer company against an assessment to tax for the year ended 30 June 1967.

The appellant was at all material times a private company and as such it was allowed a rebate under sec. 46(2) of the Income Tax Assessment Act 1936-1968. It claimed to be entitled to a further rebate under sec. 46(3) of the Act but its claim was disallowed by the Commissioner whose decision was upheld by Gibbs J.

Section 46(3) is in these terms -

``Subject to the succeeding provisions of this section, the Commissioner may allow a shareholder, being a company that is a private company in relation to the year of income and is a resident, a further rebate in its assessment of the amount obtained by applying the average rate of tax payable by the shareholder to one-half of the part of any private company dividends that is included in its taxable income if the Commissioner is satisfied that -

(a) the shareholder has not paid, and will not pay, a dividend during the period commencing at the beginning of the year of income of the shareholder and ending at the expiration of ten months after that year of income to another private company;

(b) where the shareholder has paid, or may pay, a dividend during the period -

(i) commencing at the beginning of the year of income of the shareholder; and

(ii) ending at the expiration of ten months after that year of income,

• to a company, being a private company in relation to the year of income of the company in which the dividend was, or may be, paid, the company has not paid, and will not pay, a dividend during the period -

(iii) commencing at the beginning of the year of income of the company in which the dividend has been, or may be, paid by the shareholder; and

(iv) ending at the expiration of ten months after that year of income,

to another private company; or

(c) having regard to all the circumstances, it would be reasonable to allow the further rebate.''

The appeal was argued by both parties upon the footing that the Commissioner was satisfied that the conditions set out in sec. 46(3)(a) were fulfilled and the appellant's first contention is that in these circumstances the Commissioner was bound to allow the rebate of which the subsection speaks. For the Commissioner it was submitted that even if he is satisfied that the requirements of one or other of the lettered paragraphs are fulfilled he may nevertheless in the exercise of his discretion refuse to allow a rebate. This argument is of course based upon the words ``may allow'' used in the

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subsection. An alternative submission made on behalf of the appellant was that assuming the Commissioner to have the discretion which he claims to have, he failed to exercise it according to law because he took into account extraneous and irrelevant matters in that he considered that ``even if and upon the basis that the conditions set forth in paras. (a) or (b) were met he had a discretion to refuse to allow the further rebate and in the circumstances which are in evidence before the Court he was of the opinion that the further rebates should not be allowed and, in so far as the provisions of sec. 46(3)(c) were concerned, that it was not reasonable to allow it because inter alia, the facts which are now before the Court disclose what was in his view a tax avoidance scheme aimed at avoiding liability to tax pursuant to the provisions of Div. 7 of the Act''.

The words I have quoted are taken from a statement placed before Gibbs J. on behalf of the Commissioner as being the reasons which led him to refuse to allow the rebate sought by the appellant. Both submissions made for the appellant were rejected by the learned judge of first instance.

Dealing with the first point his Honour was naturally impressed by a comparison of sec. 46(3), under which the Commissioner ``may allow'' a rebate in certain circumstances, with sec. 46(2), under which the taxpayer ``is entitled'' to a rebate in the circumstances set out in that subsection, and this is undoubtedly a matter of weight. The difficulty that I have felt in accepting that view lies in the existence of paragraph (c) in sec. 46(3). Put shortly, the appellant's argument is that if the Commissioner is satisfied that, having regard to all the circumstances, it would be reasonable to allow a rebate, it cannot be that in the exercise of some further discretion he could refuse to allow that which he is satisfied it would be reasonable to allow, and if he is bound to exercise his power to allow a rebate once para. (c) is satisfied, he must equally be bound to exercise it if the requirements of paras. (a) or (b) are fulfilled. I have come to the conclusion that this submission should be upheld. The words ``may allow'' are permissive; they empower the Commissioner to do that which he could not otherwise do. But when regard is had to the fact that the subsection contains para. (c), I am of opinion that, notwithstanding the difference between the wording of sec. 46(2) and that of sec. 46(3), the Commissioner is bound to exercise the power given to him by sec. 46(3) if he is satisfied that the requirements of any one of the three paragraphs are satisfied. The relevant principles are set out in the joint judgment of this Court in
Ward v. Williams (1955) 92 C.L.R. 496 at pp. 505-506 . There it was held that -

``... it is necessary to bear steadily in mind that it is the real intention of the legislature that must be ascertained and that in ascertaining it you begin with the prima facie presumption that permissive or facultative expressions operate according to their ordinary natural meaning. `The authorities clearly indicate that it lies on those who assert that the word `may' has a cumpulsory meaning to show, as a matter of construction of the Act, taken as a whole, that the word was intended to have such a meaning' - per Cussen J.:
Re Gleeson (1907) V.L.R. 368 at p. 373 . `The meaning of such words is the same, whether there is or is not a duty or obligation to use the power which they confer. They are potential, and never (in themselves) significant of any obligation. The question whether a judge, or a public officer, to whom a power is given by such words, is bound to use it upon any particular occasion, or in any particular manner, must be solved aliunde, and, in general, it is to be solved from the context, from the particular provisions, or from the general scope and objects, of the enactment conferring the power' - per Lord Selborne:
Julius v. Bishop of Oxford (1880) L.R. 5A.C. 214 at p. 235 . One situation in which the conclusion is justified that a duty to exercise the power or authority falls upon the officer on whom it is conferred is described by Lord Cairns in his speech in the same case. His Lordship spoke of certain cases and said of them `(they) appear to decide nothing more than this: that where a power is deposited with a public officer for the purpose of being used for the benefit of persons who are specifically pointed out, and with regard to whom a difinition is supplied by the Legislature of the conditions upon which they are entitled to call for its exercise, that power ought to be exercised, and the Court will require it to be exercised: (1880) L.R. 5 A.C. at p.225.''

Section 46(3) does, I think, give rise to a ``situation in which the conclusion is justified that a duty to exercise the power or authority falls upon the officer on whom it is conferred'' and I am therefore of opinion that the appeal should be allowed.

I should add that I think the appellant's second submission should also be upheld and for two reasons. One is that if, as is the case here, the Commissioner is satisfied that the requirements of para. (a) are fulfilled, I am of opinion that he cannot call para. (c) in aid to justify a refusal to allow a rebate since I think para. (c) can have no application to a case in which he is satisfied that the conditions of para. (a) or of para. (b) are fulfilled. Paragraph (c) is intended, in my opinion, to cover cases not falling within either of the two

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earlier paragraphs. Further, in the light of the decision of this Court in
F.C. of T. v. Casuarina Pty. Limited (1971) 71 ATC 4068 ; 45 A.L.J.R. 213 it does not seem to me that it was open to the Commissioner to conclude that the facts disclosed ``a tax avoidance scheme aimed at avoiding liability to tax'' under Div. 7 of the Act.

ORDER:

Appeal allowed with costs. Order of Gibbs J. set aside and in lieu thereof order that the taxpayer's appeal be allowed with costs and that the assessment be remitted to the respondent to be amended by allowing the appellant the appropriate rebate under sec. 46(3) of the Income Tax Assessment Act.