Federal Commissioner of Taxation v. Harris.Judges:
Supreme Court of Victoria
Murphy J.: The question arising in this appeal made pursuant to sec. 196 of the Income Tax Assessment Act 1936 as amended (hereafter termed ``the said Act'') is, ``Was a payment of $450 made on 21 April 1976 by the Australia & New Zealand Banking Group Ltd. (hereinafter termed `the Bank') to Geoffrey O. Harris (the `taxpayer') assessable income in his hands?''.
The taxpayer (respondent) had been a bank officer for many years, and at the time of the payment of the said lump sum to him, had been retired from the Bank for eighteen months. The payment was a voluntary gift, unsolicited by him, unexpected by him, and paid by the Bank to him, because he, like many other retired bank officers, was in receipt of a monthly pension from the Trustee of a pension scheme of which he was a member, the purchasing power of which pension had been so eroded by inflation that, in the Bank's opinion, if he relied upon it to support himself and his family, things might have been difficult.
The Commissioner (appellant) had adjusted the respondent's return of income for the year ending 30 June 1976 including as an item of income the said $450, and tax was assessed accordingly.
The taxpayer objected and the issue eventually came before the Taxation Board of Review No. 1. By a majority, the Board upheld the taxpayer's objection, and ordered that the assessment be amended by deleting the item of $450 from the taxpayer's assessable income for the year.
The appellant appeals to this Court pursuant to sec. 196 of the said Act on several grounds set out in his Notice of Appeal dated 15 June 1979.
The facts are not in issue, but the inferences to be drawn from those facts and the legal consequences flowing from them have to be determined. The material before me was tendered by agreement of the parties. No question of credibility appears to arise. See
F.C. of T. v. Students World (Aust.) Pty. Ltd. 78 ATC 4040 per Mason J. at pp. 4045-6; per Aickin J. at pp. 4051-2;
Farmer v. Cotton's Trustees (1915) A.C. 922;
Hayes v. F.C. of T. (1956) 96 C.L.R. 47 at p. 51 per Fullagar J.
The material facts as given in evidence are as follows:
1. The taxpayer is an accountant who joined the Union Bank in 1933. On its merger with another bank he was employed by the Australia & New Zealand Banking Group Ltd. until he voluntarily retired in November 1974, on a pro rata scale of pension. This was payable to him under the terms of a Trust Deed dated 23 June 1972 (Exhibit D), pursuant to the terms of which A.N.Z. Pensions (Overseas) Pty. Ltd. was the Trustee. The scheme was called the A.N.Z. Group (Aust.) Staff Pension Scheme (hereinafter termed ``the said Scheme''). The powers of the Trustee are set out in cl. 11 of Exhibit D.
2. Following his retirement from the Bank in 1974 the taxpayer worked for reward with a firm of accountants, and also received monthly, pursuant to the terms of the said Trust Deed, a pension from the Trustee.
By the terms of the Trust Deed, the Trustee had power and, on one view, was obliged to adjust pensions payable to members by increasing them in accordance with upward movements in the Pension Index as defined, such increases not to exceed 3% of the rate of pension fixed by the Deed itself.
In accordance with the Rules, contained also in Exhibit D, the Trustee was permitted (with the Bank's approval), and obliged (if requested by the Bank), to increase pensions payable above the 3% stipulated. This power was not exercised by the Trustee, and no request to do so was made to it by the Bank.
3. On 31 March 1976 a ``memorandum to Bank pensioners'' (Exhibit C(i)) was sent to the respondent by the Managing Director of the Bank. It read:
``Memorandum to Bank Pensioners Ex Gratia Cash Payment.
The Bank considered the problems caused by continuing high rates of inflation and has decided to make lump sum payment to the majority of members receiving pensions from the pension schemes.
The payments take some account of eligibility for Social Security Age Pensions. Cheques will be distributed as soon as possible.''
This memorandum was sent on a page bearing the Bank's letterhead and at its foot a roneoed signature appeared above the typed words ``Managing Director''.
4. The taxpayer had had no business relationships with the Bank after his retirement and the receipt of the memorandum was his first knowledge of the proposed payment by the Bank. The taxpayer was unaware of the Bank's reasoning in deciding to make the ex gratia payment to him.
5. The ex gratia payment by the Bank was not a payment made pursuant to the said Scheme as contained in the Trust Deed and Rules (Exhibit D). It was paid by the Bank and not by the Trustee of the said Scheme, who paid the monthly pension to the respondent.
6. The payment of $450 was made to the taxpayer on 21 April 1976. A Bank cheque for this amount was received by him, accompanied by a further memorandum (Exhibit C(ii)). The memorandum contained no further explanation of how the sum was arrived at, or why it was paid.
7. The payment was made by the Bank, (according to Mr. Williamson, Senior Manager of the relevant department of the Bank) ``in recognition of the continuing inflation in the community and of the effect this has had on the incomes of pensioners basically, in recognition of the difficulties of living on the pensions as payable from the scheme in some cases''.
The taxpayer appeared in person before the Board. This evidence was led from Mr. Williamson by the legal representative of the appellant, without objection. It was not objected to before me.
I take this statement to mean that the Bank made the payment because in its view continuing inflation, throughout Australia, had caused the pension income of those retired employees in receipt of pensions to have less purchasing power, thus making life more difficult in some cases, where pensioners happened to be living on the pension payable under the said scheme.
An individual assessment of the circumstances of the taxpayer was not made.
8. The payment was a voluntary payment. It was called an ex gratia payment. The evidence did not reveal how it was calculated. Not all former Bank officers, who were in receipt of a pension, received an ex gratia payment. The amount payable to those who did receive a payment varied. Some account was taken, in fixing the amount of the payment to individual pensioners, of the age of the recipient and of his entitlement to Social Security benefits, if over seventy years of age.
Pensioners receiving pensions above the sum of $9,000 per annum did not receive an ex gratia payment.
9. There was no promise made by the Bank of any further payment. There was no suggestion made by the Bank that the donee should expect further payment.
The taxpayer was not in need of the ex gratia payment to support himself and he paid the Bank cheque which he received into his account, which at all relevant times has shown a credit balance in excess of the amount received.
10. In other years, as it happened, the Bank did in fact make other ex gratia payments to pensioners. Prior to the 1976 payment in question, in 1975 ``a flat amount'' had been paid by the Bank to some pensioners, but the taxpayer did not receive a payment in that year. He did in fact receive subsequent ex gratia payments, in 1977 of $625, in 1978 of $550, and in 1979 of an unstated sum (in the same range), each such payment being made to him by the Bank and not by the Trustee of the said Scheme.
On the hearing of the appeal before me, the appellant was represented by Dr. Gavan Griffith of counsel and the respondent by Dr. I.C.F. Spry of counsel. I have found their submissions to be of great assistance.
At the outset, Dr. Griffith for the Commissioner stated that the appellant did not intend to submit that the amount of $450 in issue should be considered as assessable income of the respondent, falling within the terms of section 26(e) of the said Act, which reads:
``26. The assessable income of a taxpayer shall include -
- (e) the value to the taxpayer of all allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted to him in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by him, whether so
ATC 4386allowed, given or granted in money, goods, land, meals, sustenance, the use of premises or quarters or otherwise.''
However, Dr. Griffith submitted, the said sum of $450 fell within the general concept of income and was caught up by sec. 25 of the said Act, which insofar as relevant reads:
``25(1) The assessable income of a taxpayer shall include -
- (a) where the taxpayer is a resident -
- the gross income derived directly or indirectly from all sources whether in or out of Australia; and
which is not exempt income.''
Dr. Griffith submitted that the point at issue is a point of law as to the categorisation of a money receipt, having regard to all the circumstances. Hayes v. F.C. of T. (1956) 96 C.L.R. 47 at p. 51.
He submitted that although the Commissioner was appealing from the Board of Review, nonetheless sec. 190(b) of the said Act placed the burden of proving that the original assessment by the Commissioner is excessive, upon the taxpayer (respondent).
The section reads:
``190. Upon every such reference or appeal -
- (a) the taxpayer shall be limited to the grounds stated in his objection; and
- (b) the burden of proving that the assessment is excessive shall lie upon the taxpayer.''
It had been held that this section relates only to references and appeals by a taxpayer under sec. 187 of the said Act, and that, upon an appeal by the Commissioner pursuant to sec. 196 of the said Act from the decision of the Board, following a reference to a Board of Review (as in the instant case), sec. 190 had no application. It was not ``such reference or appeal'' to which sec. 190 applied. The Commissioner's assessment had, so the argument went, been replaced by an assessment made by the Board and the Board's assessment stood in place of that originally made by the Commissioner (sec. 193).
F.C. of T. v. Finn (1960) 103 C.L.R. 165 (Fullagar J.)
F.C. of T. v. Berry Motors Pty. Ltd. 78 ATC 4306 (Sheppard J.).
Subsequent to those decisions in
McCormack v. F.C. of T. 79 ATC 4111, the Full High Court considered a case turning upon disputed fact as applied to sec. 26(a) of the said Act and the majority of the Court, Gibbs, Stephen and Murphy, JJ. individually approved the dissenting judgment of Mason J. in
Gauci & Ors. v. F.C. of T. 75 ATC 4257; (1975) 135 C.L.R. 81. This judgment was to the effect that a taxpayer bears the onus of proving that an assessment is excessive on an appeal such as was being there considered. Thus, if there is no evidence led on the hearing of an appeal, involving sec. 26(a) of the Act, (i.e. broadly the question as to whether property was purchased by the taxpayer for the purpose of profit making) the taxpayer must fail.
The majority also held that sec. 190 applied to proceedings by way of appeal pursuant to sec. 196 of the Act to a Supreme Court from a Board of Review.
Dr. Spry submitted to me that Gibbs J. simply distinguished Finn's case (above) by saying that Fullagar J.'s remarks (at 103 C.L.R. p. 169) ``have no application to a case such as the present, where the Board has confirmed the assessment of the Commissioner''. He also submitted that I need not rule upon this matter in this appeal.
I do not accept the first of these submissions. It is not correct. Immediately following the words quoted above, Gibbs J. went on to consider further remarks in the judgment of Fullagar J. and disagreed with them, saying that in his opinion ``it is natural to conclude that it was intended that the Court of Appeal (viz. - `the Supreme Court') would apply no different rule as to the burden of proof from that which the Board was required to apply''. (See at 79 ATC 4190.) Furthermore his Honour approved the statement by Mason J. in his dissenting judgment in Gauci v. F.C. of T. 75 ATC; 135 C.L.R. where at pp. 4261; 89-90 his Honour said:
``The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with sec. 190(b) for it is a consequence of
ATC 4387that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.''
Stephen J. (at 79 ATC p. 4123), ``expressly'' agreed with what Gibbs J. had said concerning sec. 190(b), and also stated that he regarded ``as correct the statement of Mason J. concerning the operation of sec. 190(b)''.
Murphy J. expressed similar views and said (at p. 4132): ``In my opinion Mr. Justice Mason's dissenting judgment and reasons in Gauci & Ors. v. F.C. of T. 75 ATC 4257 at p. 4261; (1975) 135 C.L.R. 81 at pp. 89-90 are correct''.
Macmine Pty. Ltd. v. F.C. of T. 79 ATC 4133 similar opinions were expressed. In that case, cross appeals by both the taxpayer and the Commissioner were before the High Court, but the matter had not gone before the Board of Review, proceeding direct to Sheppard J. in the Supreme Court of New South Wales from the Commissioner's assessments.
Again Gibbs, Stephen and Murphy JJ. individually held that the statement referred to above, made by Mason J. in his dissenting judgment in Gauci's case, was correct and should be followed - see 79 ATC Gibbs J. at p. 4140, Stephen J. at p. 4146, Murphy J. at p. 4156.
Since those decisions, Jenkinson J. in an appeal to this Court by the Commissioner in
F.C. of T. v. Cadbury-Fry Pascall (Aust.) Ltd. (in vol. liq.) [reported at 79 ATC 4346] (Judgment delivered 19 July 1979), without dilating upon the matter, stated (at p. 4351), ``It is for the respondent to prove that the assessment is excessive: McCormack v. F.C. of T. 79 ATC 4111; Macmine Pty. Ltd. v. F.C. of T. 79 ATC 4133''.
Dr. Spry for the respondent has submitted that there is no question of onus of proof which is relevant in the present case and that therefore, I should say nothing on the matter. He sought to distinguish the abovementioned decisions.
I am of the opinion that they cannot be validly distinguished. In my opinion, in the present state of the law, the burden rests on the taxpayer, be he appellant or respondent in an appeal or reference, to prove that the assessment is excessive.
If the Commissioner chooses to appeal from the findings of the Board of Review on a reference, then (once again in this Court) the onus of proving that the original assessment of the Commissioner is excessive rests upon the taxpayer. It is as well that I should say this, because otherwise it might be thought that I had proceeded on a false basis.
Before me the Commissioner's file was by consent tendered (Exhibit A) along with the transcript (pp. 4-15 inclusive) of the evidence given before the Board of Review on 26 March 1979 (Exhibit B). Two letters from the Bank became Exhibit C, and the Trust Deed and Rules became Exhibit D.
References were made to the Decision and Reasons of the Members of the Board of Review, dated 17 May 1979, but these were not tendered. I have read the reasons of the Members of the Board from which this appeal comes to me.
There is in the Act itself no definition of ``income'', and therefore no helpful definition of assessable income, to be used in this case.
This led Jordon C.J. in
Scott v. C. of T. (N.S.W.) (1935) 35 S.R. (N.S.W.) 215, at p. 220 to say:
``The definition section, where it deals with income does not define it, because the word income appears on both sides of the equation. Nor does it define income from personal exertion.
It merely enumerates, by way of illustration, various forms of income which are to be treated as derived from personal exertion.''
These remarks and others contained in the same judgment appear to have led to the not infrequent references in the cases to the fact that ``income'' is not a term of art, and that whether or not a receipt is, or is not, ``income'' falls to be determined, ``according to the ordinary concepts and usages of mankind''.
Of course, ``the ordinary concepts and usages of mankind'' may well vary from generation to generation, as Dr. Spry submitted. He submitted that having regard to the fact that the Act has been ``passed and repassed again and again'', and that there have been a number of cases decided on particular facts as to the meaning of
ATC 4388``income'', regard must be had to these cases in order to see what are the categories of income, and then to consider whether this particular payment readily falls into any recognised category.
The categories of income were, in his submission,
- (i) income from property;
- (ii) income from carrying on business;
- (iii) income by way of remuneration for service or services;
- (iv) income in the nature of an annuity or pension.
He submitted that in the present case there was nothing which would lead one to place this payment in any one of these four categories, and that therefore ordinary concepts of income did not encompass it. Therefore it could not be assessable income.
Dr. Griffiths submitted that there were two possible approaches that emerged from a consideration of the cases.
First, that any particular payment being considered took on the character of that to which it was added (in the instant case, the pension). (cf.
F.C. of T. v. Dixon (1952) 86 C.L.R. 540 at p. 568 per Fullagar J.)
This appears to have been the view taken by the Chairman of the Board of Review (para. 8 of his reasons).
In Dixon's case, Fullagar J. had said, when considering the nature of payments made by an employer, week by week to an employee, who had joined up during the 1939-45 war, and which payments were designed to make up his Army pay to his notional pay had he not enlisted:
``What is, to my mind, decisive is that the expressed object and the actual effect of the payments made was to make an addition to the earnings, the undoubted income, of the respondent... it is... a substitute for... the salary or wages that would have been earned and paid... As such, it must be income, even though it is paid voluntarily, and there is not even a moral obligation to continue making the payments. It acquires the character of that for which it is substituted and that to which it is added.''
(See (1952) 86 C.L.R. at p. 568.)
Second, Dr. Griffiths submitted, there is a sufficient nexus with the past employment of the taxpayer to categorise the payment as income related to his past employment. All the circumstances must be considered, and in particular, how and by whom it was paid, and why it came about. (cf.
Squatting Investment Co. Ltd. v. F.C. of T. (1953) 86 C.L.R. 570, at pp. 627-8 per Kitto J.)
In that case, Kitto J. had said:
``... it is a commonplace that a gift may or may not possess an income character in the hands of the recipient. The question whether a receipt comes in as income must always depend for its answer upon a consideration of the whole of the circumstances; and even in respect of a true gift it is necessary to inquire how and why it came about that the gift was made.''
In my respectful opinion this statement made, apropos gifts, is extremely apposite to the present case. It poses the question to be answered, and states the matters to be considered, and upon which the answer to the question depends, without, if I may respectfully say so, suggesting the answer to be given in the present set of circumstances.
In the Squatting Investment Co. case, the payment received by the pastoral company which was still carrying on business, was a proportionate payment from the surplus realized on the sale of wool acquired at a fixed price from wool-growers throughout Australia during the war years. Although in law, there was no entitlement to the additional payment, and it was voluntary and a true gift, nonetheless its origin was the wool grown by the company.
The Privy Council when delivering its advice quoted with approval from
Ritchie v. Trustees Executors (1951) 84 C.L.R. 553 at p. 577 in which the High Court comprising Dixon C.J., McTiernan, Webb, Fullagar and Kitto JJ. had said:
``But courts should not be unmindful of the fact that administrative measures and understandings may, according to circumstances, raise an expectation almost as assured of realization as if rested upon a foundation of legal right.''
((1954) 88 C.L.R. 413, 424.)
The amounts distributed to wool-growers by way of voluntary payments were calculated as proportionate shares in the sum of money which had come into existence as a consequence of the sale of wool acquired from the wool-growers, and being the product of wool growing by, among others, the pastoral company (88 C.L.R. at p. 426). As such, in all the circumstances the ordinary concept of income would encompass such payments. It could well be said to fall within the concept of ``income'' according to the ordinary usages of mankind.
It is true that the Privy Council, in the Squatting Investment Co. case, appears to have relied on
Blakiston v. Cooper (1909) A.C. 104 at p. 107 (see also Cooper v. Blakiston (1907) 2 K.B. 688 at p. 703) to support the statement:
``... it is well settled that a voluntary payment may be subject to income tax in the hands of the recipient.''
(88 C.L.R. at p. 430.)
In the English case, which concerned voluntary Easter offerings of money by parishioners to the Vicar of East Grinstead, it was held that such money was assessable to income tax in the hands of the vicar as ``profits accruing to him by reason of his office'', as vicar.
As such they fell squarely within Schedule E rule 1 of the Income Tax Act 1842.
Lord Loreburn L.C. said at p. 107:
``In my opinion, where a sum of money is given to an incumbent substantially in respect of his services as incumbent it accrues to him by reason of his office.... Had it been a gift of an exceptional kind, such as a testimonial or a contribution for a specific purpose, as to provide for a holiday, or a subscription peculiarly due to the personal qualities of the particular clergyman, it might not have been a voluntary payment for services, but a mere present.''
The reasoning of Lord Loreburn L.C. was, in that case, specifically directed to the words of the Schedule upon which the Commissioner relied, and this reasoning with adaptations has been followed in England in many subsequent cases.
Moorhouse v. Dooland (1955) 1 All E.R. 93;
Temperley v. Smith (1956) 3 All E.R. 92;
Wright v. Boyce (1958) 2 All E.R. 703;
Benjamin v. Minister of Pensions (1960) 2 All E.R. 851;
Simpson v. John Reynolds & Co. Insurances Ltd. (1974) 2 All E.R. 545; (on appeal) (1975) 1 W.L.R. 617.
In Moorhouse v. Dooland an East Lancashire Cricket Club professional was held liable to tax for the proceeds of collections of money made on his behalf from supporters as the result of outstanding performances entitling him, according to the rules of the Club, to a collection.
Sir Raymond Evershed M.R. said (at p. 97):
``... if the question had been asked of the taxpayer at the end of the 1951 cricket season - what were his earnings as the East Lancashire Cricket Club professional? - an answer which ignored altogether the proceeds of the collections would, by ordinary standards of common-sense and accuracy, have fallen short of the truth.''
Seymour v. Reed (1927) A.C. 554 was distinguished, a case which concerned a Kent County cricketer, where Viscount Cave L.C. observed: ``The question to be answered is, as Rowlatt J. put it, `Is it in the end a personal gift or is it remuneration?'.''
In Temperley v. Smith, Vaisey J. held that an honorary of a hospital was assessable to tax on the surrender value of a policy for endowment assurance which had been taken out on the life of the honorary and given to him by the board of management of the hospital with the intention of giving recognition to honoraries for their voluntary services.
It was a benefit that accrued to him by virtue of his office as honorary. It was not a personal gift to him.
In Wright v. Boyce the Court of Appeal held that a huntsman, engaged by the master of the hunt on a weekly wage, who received annually, over seven years, Christmas gifts from supporters of the hunt, and who was a ``personality'', was nonetheless taxable on such voluntary gifts, made pursuant to custom, so that the gifts were received by virtue of his office as huntsman, even though personal considerations conditioned the amount of the gifts.
It was established that ``in most hunts in this country, and in the Bathurst and Woodland Pytchley hunts in particular'' it
ATC 4390was a well established practice to make presents to the huntsmen at Christmas. See
Jenkins L.J. (1958) 2 E.R. 705 at p. 705.
Again, it was the fact that the hope or expectation attached to the office or employment of the taxpayer as huntsman, that rendered him liable to tax on his Christmas gifts.
In Benjamin v. Minister of Pensions a different question was involved, namely whether an articled clerk, who by his articles was entitled to no payment at all, but who received from his grateful principal £100 in 1956 in recognition of his work, was an employed person for the purposes of the National Insurance Act 1946, during 1956. It was held by Salmon J., applying the principle in Blakiston v. Cooper (1909) A.C. 104, that he was, as the payment of the £100 was a payment for services.
In the opinion of Salmon J. under the English Acts, only personal gifts, say for a sick man, would be outside the ambit of a payment for services. The question for him was - ``Is it a personal gift or is it remuneration?'' (1960) 2 All E.R. at p. 856. Salmon J. decided that the £100 was ``not a present at all''.
In Simpson v. John Reynolds & Co., Pennycuick V.C. held that payments made by a customer voluntarily to a trader on the cessation of their trading connection could not, on proper principles of commercial accounting, be treated as a receipt in ascertaining the profits arising from the trade, since it was not received from activities carried on by the trader in his trade but was simply a windfall in the nature of a gift.
This latter case appears to me to have depended, as do all the English cases, not on an abstract consideration of the concept of ``income'' (which Windeyer J. termed ``an orthological question''), (see
Scott v. F.C. of T. (1966) 117 C.L.R. 514 at p. 524), but on the particular terms of various schedules to the relevant Income Tax Acts (see particularly in the judgments in the Court of Appeal).
The payment made was made ``in recognition of the long period during which you have acted as broker and adviser''.
His Lordship held that the considerations which apply when a gift is made to a person holding an office differ from the considerations applicable to gifts made to a person who held an office which at the time of the gift has ceased. This judgment was on appeal held to be a correct statement of the law.
In Australia, since Dixon's case was decided by the High Court in 1952, and the Squatting Investment Co. case in 1954, the decision of Fullagar J. in Hayes v. F.C. of T. (1956) 96 C.L.R. 47 and of Windeyer J. in Scott v. F.C. of T. (1966) 117 C.L.R. 514 have been delivered.
In Hayes' case, Fullagar J. at p. 54 said:
``A voluntary payment of money or transfer of property by A to B is prima facie not income in B's hands. If nothing more appears than that A gave to B some money or a motor car or some shares, what B receives is capital and not income. But further facts may appear which show that although the payment or transfer was a `gift' in the sense that it was made without legal obligation, it was nevertheless so closely related to an employment of B by A,... that it is, in substance and reality, not a mere gift but the product of an income-earning activity on the part of B, and therefore to be regarded as income from B's personal exertion.''
His Honour stated that the motives of the donor will ``seldom, if ever, be a decisive consideration'' (at p. 55) for ``the character of the receipt in the hands of the recipient'' must be determined.
His Honour accepted what Dixon C.J. and Williams J. had said in Dixon's case (supra) ``if payments are really incidental to an employment, it is unimportant whether they come from the employer or from somebody else''. (Dixon's case 86 C.L.R. at p. 540, Hayes' case 96 C.L.R. at p. 57.)
In Scott v. F.C. of T. (1966) 117 C.L.R. 514 Windeyer J. said ``... the $10,000 was a gift, in the sense that it was gratuitous, not made in discharge of an obligation, and not taken by the recipient as discharging an obligation. But that, of course, does not end the matter'' (at p. 523).
His Honour excluded from the ordinary concept of income, ``gifts of an exceptional kind, not such as are a common incident of a man's calling or occupation'' (at p. 526).
When considering the motives of the donor, his Honour stated that they are
ATC 4391relevant, but do not determine the answer to the question whether the gift is income in the hands of the recipient.
``An unsolicited gift does not, in my opinion, become part of the income of the recipient merely because generosity was inspired by goodwill and the goodwill can be traced to gratitude engendered by some service rendered.''
(at p. 526-527).
His Honour considered also the English cases and quoted from the judgment of Kitto J. in the Squatting Investment Co. case, saying that it contained a ``wholly accurate and sufficient statement of the general principle which must govern this case''. Kitto J. speaking of the English cases had said:
``The distinction those decisions have drawn between taxable and non-taxable gifts is the distinction between, on the one hand, gifts made in relation to some activity or occupation of the donee of an income producing character... and on the other hand, gifts referable to the attitude of the donor personally to the donee personally.''
(86 C.L.R. at p. 633).
Dealing with the gift by the client to her solicitor, his Honour concluded:
``I do not think her gift to him was in a relevant sense given or received as a remuneration or recompense for services rendered so as to form part of his assessable income.''
(at p. 528).
The second aspect of the argument presented by counsel for the Commissioner was that the payment was in the nature of an annuity or pension, and was accordingly income.
It was said that the payment was not an isolated one but was in fact repeated yearly. It was submitted that it went to augment the pension receivable from the ANZ group scheme and as such took on its character (cf. Fullagar J. in Dixon's case at p. 568).
Both counsel agreed that I should look at the subsequent payments as one of the circumstances, to be borne in mind when considering the nature of the gift made in 1976. I understand counsel to say that, insofar as the likelihood or actuality of subsequent payments might affect the characterization of the first payment, the fact that they did occur is relevant.
I find a little difficulty in knowing how exactly to treat this submission by counsel.
It is true that Fullagar J. in Hayes' case said, ``The test to be applied is an objective, not a subjective, test'' (see at 96 C.L.R. p. 55). But does this mean that in characterizing the payment as capital or income today, one can be influenced in such characterization by other events occuring after the payment was made, which events were not able to be expected, foreseen or forecast as probabilities at the time of the payment.
It is true that in compensation cases, where an assessment of damages has to be made as at a particular date preceding the date of the inquiry, and that assessment must include an item for the future based on the probabilities at the time, the tribunal can and should have regard to such events as have occurred up to the date of the inquiry, and to that extent treat as established facts what otherwise would have been mere possibilities or probabilities.
Bwlfa and Merthyr Dare Steam Collieries (1891) Ltd. v. Pontypridd Waterworks Co. (1903) A.C. 426.
In that case Lord Macnaghten said, expressively:
``Why should he listen to conjecture on a matter which has become an established fact? Why should he guess when he can calculate? With the light before him, why should he shut his eyes and grope in the dark?''
(at p. 431).
Hunter v. Chasemore (1959) V.R. 433 at p. 440 and cases there noted.
The problem in seeing just how the payments in subsequent years could bear upon the characterization of the first payment is, I think accentuated by my inability to see that there was any evidence suggesting any possibility in 1976 that the Bank would give pensioners any other payments at any future time.
It is true that they have done so, and I take this into account. But there was nothing that occurred either during the taxpayer's employment with the Bank, or afterwards, to lead to any expectation of such a payment, or payments. It was not a recognized perquisite of office.
Of course, the periodicity of payments may, in many cases, bear strongly upon their characterization. In Dixon's case, the weekly make up sum of money provided by the former employer, and its promised and expected continuity were important matters
ATC 4392for consideration. It may be that if payments of this sort continue year after year, so as to become customary and expected, that the weight and import attaching to such a consideration would alter.
I do not think, however, in the present case, that the fact of some three or four payments, each payment made annually (the recipient not knowing if it will be made or how any payment is calculated), bears the same or anything like the same weight as did the weekly payments in Dixon's case.
There is no evidence at all as to what, if any, calculation the Bank made when determining the amount of any payment. It may have had a lump sum available, from which the gifts could be made, and may simply have divided up, this available sum. It may have considered rates of inflation. One does not know.
The employment of the donee had ceased eighteen months earlier. There was nothing entitling him to except any such payment, or any future payment. There is no evidence to suggest (indeed it would be outside my understanding of affairs) that the donee could reasonably have expected that gifts would be made, or that a single gift would be made to him by the Bank, or anyone else, at the time. Such gifts were not an incident of his employment or to be expected, virtute officii. The huntsman may well expect his Christmas gifts, the vicar may fervently hope for Easter offerings, the professional cricketer may anticipate collections for outstanding performances, and the ball-boy may wait for his gratuities, but I know of no reason why, and there is no evidence to suggest that, a retired bank officer may, as such, expect gifts from his former employer.
The gift was a voluntary one. It was made by the Bank and not by the Trustee of the ANZ Group Pension Scheme of which the taxpayer was a member.
Each payment was of an arbitrary lump sum. There was no question of making up, in any known calculated manner, the difference between the loss of purchasing power of the fortnightly or monthly pension paid at any time to the taxpayer by the Trustee and the purchasing power of the pension sum at any other particular date.
Whether any future payment will be made, no one can say. Nor can it be said when it might be made.
The taxpayer was not in necessitous circumstances. He banked his gift and has not used it.
The payment was not related to any services then being rendered or likely to be rendered in the future by the taxpayer. In fact, he had voluntarily chosen to retire early from the Bank. He could have had no expectation of such a payment, either when performing his bank duties whatever they were, or when working privately after his retirement.
Nor is there anything to show any connection between the gift to the taxpayer and any income-earning activity of the taxpayer when employed by the Bank in the past.
It was submitted that the gift was related to his prior employment and that if he had not been a retired bank officer, he would not have received it.
But it could not be said, in my opinion, that the relation between the gift and the taxpayer's activities was such that the receipt was in a relevant sense, a product of them. (Windeyer J.)
Scott v. F.C. of T. (1966) 117 C.L.R. 527 at p. 527.)
Whatever motives the Bank had in making the gift, whether they were simply as stated by Mr. Williamson in his evidence, or whether one could speculate that the Bank had an element of ``secondary gain'' in mind, does not in my opinion, in the circumstances of this case, assist a great deal in arriving at a characterization of the gift as income or capital.
The purpose was a charitable one, to assist former employees who might have been finding things difficult. The question remains, what was the character of the receipt in the hands of the recipient?
In the hands of the recipient taxpayer, this gift did not, in my view, have the character of income, neither as that word is ordinarily used and understood, nor on applying the tests which have been laid down in the great number of cases which have turned upon the answer to be given to this vexed question.
It does not in my view form part of his assessable income within the meaning of sec. 25(1) of the Act. It follows that, I am satisfied that the assessment was excessive within the meaning of sec. 190.