Case R45

Judges: MB Hogan Ch
P Gerber M

GW Beck M

Court:
No. 3 Board of Review

Judgment date: 11 May 1984.

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Dr. G.W. Beck (Member)

The question here is simply put but not so simply answered. Is income earned in Papua New Guinea by an Australian barrister from work performed in Papua New Guinea exempt from tax under sec. 23(qa)? There was no disagreement between the parties that the income was not exempt from tax in Papua New Guinea and that there was never in existence a master and servant relationship between the taxpayer and the parties paying the fees which made up the income. My colleague, Dr. Gerber, has reproduced in para. 2 of his reasons the words of sec. 23(qa). Reference to those words indicates that the essential question is whether the income was derived from employment.

2. Dr. Gerber has quoted Ridley J. in
Lecture League Ltd. v. L.C.C. (1913) 108 L.T. 924 where he observed that ``employment'' ``must surely mean more than the engagement of a servant, and more than the relationship of master and servant''. He has also quoted at some length from Rowlatt J. in
Davies v. Braithwaite (1931) 2 K.B. 628 where that learned Judge was dealing with the import of some rearrangements in Sch. D and Sch. E of the Finance Act 1922 and where, in effect, he has said that he considered ``the legislature had in mind employments which were something like offices and I thought of the expression `posts' as conveying the idea required''. If the legislature had in mind employments that are ``something like offices'' it is difficult to take issue with this statement by Rowlatt J. It does not necessarily follow, of course, that all ``employments'' are something like offices. It is difficult to seriously contend that an employee working at filling holes in the roads holds an office. Indeed, what I regard as particularly apposite to a consideration of the meaning of the word ``employment'' in the context of sec. 23(qa) is a statement by Rowlatt J. in
Great Western Railway Company v. Bater 8 T.C. 231 , more than a decade before Davies v. Braithwaite . The matter in issue was whether a clerk employed by the railway company was the holder of an office or employment for profit because certain duties had to be paid in respect of ``all public offices and employments of profit''. Rowlatt J. said (at p. 235) after pointing out that assessments were made for a full year regardless of changes in the personnel in the office or employment:

``Now it is argued, and to my mind argued most forcibly, that that shows that what those who use the language of the Act of 1842 meant, when they spoke of an office or an employment, was an office or employment which was a subsisting, permanent, substantive position, which had an existence independent from the person who filled it, which went on and was filled in succession by successive holders; and if you merely had a man who was engaged on

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whatever terms, to do duties which were assigned to him, his employment to do those duties did not create an office to which those duties were attached. He merely was employed to do certain things and that is an end of it; and if there was no office or employment existing in the case as a thing, the so-called office or employment was merely an aggregate of the activities of the particular man for the time being. And I think myself that that is sound.''

It seems to me two things are implicit in this statement. Firstly, an office or an employment will always create a master/servant relationship and, secondly, that persons can be ``employed'' outside that relationship. For example, ``employed'' - as Rowlatt J. says - ``to do certain things and that is the end of it''. One can, it seems, employ someone to cut one's lawn, prepare one's tax return or fight a case in Court; and after the allotted task is completed ``that is the end of it''.

3. I would find it difficult to accept that the word ``employment'' should be used only in the narrow sense of master/servant relationships for two other reasons. The Shorter Oxford English Dictionary defines the word as ``the state of being employed'' and ``that on which one is employed; business; occupation; a commission''. ``Employ'' according to the same source means simply ``to apply to a purpose; to make use of; to use the services of for some special business; to find work or occupation for''. Surely it is appropriate to merge these definitions into ``employment is the state of having one's services used by another''. As I interpret the statements of Rowlatt J. in Davies v. Braithwaite there is nothing in conflict with this. When he says

``where one finds a method of earning a livelihood which does not consist of the obtaining of a post and staying in it, but consists of a series of engagements and moving from one to the other... then each of those engagements cannot be considered an employment, but is a mere engagement in the course of exercising a profession''

((1931) 2 K.B. 628 at pp. 635-636)

he is saying no more than that professional people and tradesmen going from one ``engagement'' to another are not during each engagement in ``an employment'', meaning a master/servant relationship. But nowhere does he say that they were not in ``employment''. In fact he earlier said explicitly (at p. 634):

``When the word `employment' is used in connection with a profession or vocation in Sch. D it means the way in which a man employs himself. But `employment' in Sch. E means something different. In that Schedule it means something analogous to an office...''

There is, I suggest, no possible interpretation of the first sentence of this quotation other than that professional people are in ``employment'' as they go about their professional engagements.

4. The second reason for settling for the wider sense is to be found in the words used in the Act itself. In sec. 6 the Act states:

```income from personal exertion' or `income derived from personal exertion' means income consisting of earnings, salaries, wages, commissions, fees, bonuses, pensions, superannuation allowances, retiring allowances and retiring gratuities, allowances and gratuities received in the capacity of employee...''

Section 23(qa) makes exempt:

``income consisting of earnings, salary, wages, commission, bonuses or allowances derived from sources in Papua New Guinea from any office or employment...''

It must be asked why, if the legislature intended that the exemption apply only to employment in a master/servant relationship, the words ``from any office or employment'' were used in sec. 23(qa) instead of the words ``in the capacity of an employee''. After all, the words at the beginning of the sec. 6 definition were adopted virtually unchanged; either the draftsman had a bad day or he intended that the net be wider in sec. 23(qa). It is impossible not to accept the wider intention. Rounding out my acceptance is the fact that the word ``earnings'' is quite superfluous in sec. 23(qa) unless such wider meaning is adopted.

5. Before concluding I should say something about the context of the words ``office or employment'' and the claimed bearing that one word might have on the other. The Chairman (whose background knowledge of the Australian taxing statutes is indisputably greater than mine) has contemplated the source of the phrase ``any office or employment'' as used in sec. 23(qa) in

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para. 5 of his reasons. I come to the phrase, as it were, cold. Perhaps my approach is simplistic, but I have reasoned as follows:

• - the context of determining whether an assessment shall fall under Sch. D or Sch. E. of the English Act is a very different context to the determination of whether income is exempt or not;
• - the fact that the word ``employment'' was specifically moved from Sch. D (catering for self-employed taxpayers) to Sch. E and put alongside ``offices'' obviously created a context that had to be taken into account by Rowlatt J. and others:
• - nothing like that has happened here and the section says, quite explicitly, that certain income from (a) any office or (b) any employment, shall be exempt;
• - in the straight forward context of sec. 23(qa) I can find no reason why one word should be considered to bear on the meaning of the other.

6. The assessment should be amended to excise $7,646 of exempt income.

Claim disallowed