Case U4

Members:
P Gerber SM
KL Beddoe SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 8 December 1986.

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Dr P. Gerber and K.L. Beddoe (Senior Members)

In this case the applicant is a medical practitioner practising both as a specialist surgeon and in general practice. In 1976, an investigator employed by the Health Insurance Commission investigated the applicant in relation to claims made by the applicant under Schedule Item 920 of the Health Insurance Act (Cth), an item relating to estimation of respiratory function.

2. The investigator took the view, after looking at the spirometer and other equipment that the applicant used, that the appropriate item under the Schedule for the claims made was Item 919, which dealt with a simple procedure rather than the more complex one provided for by Item 920. After the investigator read out the specifications used by the Commission in determining the constituent elements of the two Items, that is, Items 919 and 920, the applicant readily agreed that Item 919 was the appropriate one, adding that these detailed specifications had not been spelt out for the guidance of practitioners under the Schedule provided for their assistance.

3. In the circumstances, the applicant decided that he should repay the amount of - for want of a better word - the "overcharge" on terms that he be allowed to repay the overcharge in two instalments. This was agreed upon and in due course an amount of $5,000-odd was paid in 1977 and the balance ($49,698) in 1978.

4. The respondent accepted the $5,000-odd as an allowable deduction in the 1977 tax year, but is now contesting the payment of the $49,698 paid in 1978. On the evidence, the applicant was quite clear that it was a voluntary repayment made as a result of a genuine misunderstanding. At no time was he under any threat of prosecution or, indeed, under a legal obligation to repay the overcharge. This was put to him in cross-examination, and again by Dr Gerber. He never wavered. In the circumstances we must decline the invitation to go behind the evidence and attribute a characteristic to the payment which the applicant himself denied.

5. The only evidence before the Tribunal is uncontradicted and unequivocal: the applicant felt under a moral and, indeed, commendable obligation to repay moneys to which he felt he was not entitled. In these circumstances we are unable to conclude that this payment comes under either limb of sec. 51(1).

6. Turning to the other disputed items, $4,531 for legal costs incurred in 1978, and $3,653 for legal costs incurred in 1979, these need some explanation. The applicant, in his obstetric practice used an echogram of foreign manufacture; an instrument not widely used in this country in the late 70s. Again, two Schedules are provided for; one for uni-dimensional echography, and the other for bi-dimensional echography.

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ATC 124

7. As a result of a subsequent investigation, the Health Commission formed the view that the applicant performed a uni-dimensional investigation, but charged for a bi-dimensional one. The applicant took issue with the respondent on this and, unlike the earlier occasion, did not settle his difference and defended himself against proceedings brought under sec. 129 subsec. (1), alternatively subsec. (2) of the Health Insurance Act 1973 (Cth).

8. The committal proceedings were dismissed, for reasons which need not concern the Tribunal here. Suffice to say that the two amounts of legal costs were incurred in defending these proceedings. Section 129(1) and subsec. (2) of the Health Insurance Act both provide for a penalty of $500 or imprisonment for 6 months for such offences.

9. The Tribunal was treated to a learned dissertation on the meaning of "incurred in", and "necessarily incurred in", as expounded in such cases as the
Herald & Weekly Times Ltd. v. F.C. of T. (1932) 48 C.L.R. 113,
Sun Newspapers Ltd. and Associated Newspapers Ltd. v. F.C. of T. (1938) 61 C.L.R. 337 and
F.C. of T. v. Snowden & Willson Pty. Ltd. (1958) 99 C.L.R. 431. However, in the end we need not concern ourselves with the subtleties raised by these decisions.

10. The respondent argued that no deduction could properly be allowed in respect of these outgoings by reason of their nature as payments for legal costs incurred in the defence of criminal proceedings, and were either private or domestic. This argument was advanced by the Commissioner of Taxation in
Magna Alloys & Research v. F.C. of T. 80 ATC 4542 and rejected for reasons which are not only compelling but binding on this Tribunal.

11. Notice was taken of the fact that if convicted, this applicant could have been fined or gaoled, and, if gaoled, the outcome would be automatic deregistration. It is not for us to speculate on the likely and, indeed, hypothetical outcome had the applicant been convicted. The outgoings were, in a real sense, directed towards preserving his earning capacity, and therefore readily distinguishable from Case N9,
81 ATC 56, relied on by the respondent, where a Taxation Board of Review was unable to find a perceived connection between the expenditure in any year in defending the charges laid against the taxpayer and his income earning activities as a director. The other case, Case N65,
81 ATC 335 relied on by the respondent, a decision of the No. 2 Board of Review, is one where the observation of the Board is clearly dicta on a finding that there was no evidence that the applicant had personally borne the legal expenditure for which the claim was made.

12. For these reasons the Tribunal varies the decision under review by allowing the costs of defending the proceedings in the two years under review. Save as to that, the decision under review is otherwise affirmed.