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CHAUDRI v FC of T

Members:
J Block SM

Tribunal:
Administrative Appeals Tribunal (sitting as the Small Taxation Claims Tribunal)

Decision date: 16 March 1999

J Block (Senior Member)

The objection decision in this matter is the disallowance by the Respondent of an objection dated 28 August 1997 against an assessment issued on 24

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October 1997, in respect of the year ending 30 June 1996 (``relevant year'').

2. The Applicant represented himself, while the Respondent was represented by Mr John Parsons, an officer of the Respondent; the Tribunal had before it the T Documents lodged pursuant to the Administrative Appeals Tribunal Act together with the following exhibits:

  • • Exhibit A1 is a batch of miscellaneous documents prepared by the Applicant for the purpose of presenting his case before the Tribunal; it is in effect a miscellany of contentions, rulings, reports of decided cases and other material;
  • • Exhibit A2 is a document entitled ``Statistical Profile of Child Labour in India 1961-1991'' by D.P. Chaudhri (and certain named assistants), the document being bound in a University of Wollongong binder;
  • • Exhibit A3 is a lengthy paper entitled ``A Policy Perspective on Child Labour in India with Pervasive Gender and Urban Bias in School Education'' by D.P. Chaudhri; the paper which was published in the Indian Journal of Labour Economics contains a footnote to the effect that it was an ``Invited Keynote Paper'';
  • • Exhibit A4 is a document entitled ``Research Project on Equity Driven Farm Sector Reforms in India'';
  • • Exhibit A5 is an extract from ``The Hindu'' of 6 January 1999 entitled ``Research Project on Farm Sector Reforms''; and
  • • Exhibit A6 is a copy of the Applicant's tax return for the relevant year.

3. (a) The Applicant is an academic economist who first became resident in Australia in July 1971; after lengthy periods at each of the University of New England and the Australian National University, he was appointed Professor of Agricultural Economics at Delhi University towards the end of 1986. He returned to Australia in 1990, he had, while in Delhi arranged an appointment to the Department of Economics (``Department'') at the University of Wollongong (``the University''). He was, at first, a visiting fellow; in 1991 he was appointed formally to the position of associate professor thereby acquiring tenure, and during the relevant year, he remained an associate professor. The Applicant said that he chose to take up an appointment at the University, which involved a demotion in rank and status from full professor to associate professor, in particular because his wife had contracted cancer of the reproductive system (from which she has since recovered) and that he desired an appointment which would give him access to the Royal Prince Alfred Hospital in Sydney, but which would not (for reasons of cost) require him to live in Sydney.

(b) The Applicant specialises in the economics of poverty; he referred to it as ``poverty and equity'' on the basis that ``equity'' in reality means ``inequity'' because it deals with the extent to which poor people are disadvantaged in relation to income and other benefits and entitlements. India, so he told us, has 300,000,000 people who fall into the class of persons deprived in this manner; a number are untouchables but this condition is by no means confined to any particular caste.

4. (a) The Applicant is an expert in his chosen speciality; he is the author of a number of books and papers on this and related subjects.

(b) In March 1995 the Applicant entered into a contract (styled an external collaboration contract) with the International Labour Organisation (``ILO''). Clauses 1, 2, 3 and 4 of that contract read as follows:

``(1) The External Collaborator will perform for the ILO the work described in detail below (including project code, dates of travel, countries of travel, as necessary) in accordance with the specifications and within the time-limits set out:

Dr DP Chaudhri will be responsible for preparation of a study entitled A Dynamic Profile of Child Labour in India, 1961-2001. The study will be based on Census, National Sample Survey and other secondary statistical data. It will attempt to capture the impact on the incidence of child labour of demographic transition and the pace and spread of productivity with the objective of identifying the major factors inhibiting progress in the resolution of the child labour issue. It will include:

  • • construction of a country profile of child labour and its dynamics during 1961-1991 and projections to 2001 AD to document the extent of the child

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    labour problem, and the change in the child labour profile, at the national, regional and broad industrial level with dis-aggregation by sex and by rural and urban areas;
  • • construction of separate state profiles of child labour and its dynamics for each of the states at state, selected district and broad industrial level with dis- aggregation by sex and by rural and urban areas.

(2) This work will be completed and delivered not later than 31 December 1995 on which date this contract shall expire.

(3) On completion of the work to the satisfaction of the Director-General, the ILO will pay to the External Collaborator the amount of US$9680 which shall be the sole remuneration and include provision for any incidental expenses such as stenographic expenses, etc. The External Collaborator shall not in any circumstances be entitled to any payments other than those expressly provided for above.

(4) Payment will be made as follows:

  • • 30% on signing of the contract;
  • • 40% on preparation of the draft report;
  • • 30% on completion of the work to the satisfaction of the ILO and submission of the final work.''

(c) The contract referred to in clause (b) was entered into following an exchange of correspondence between the Applicant and ILO (see in particular pages 54 and 55 of the T Documents).

(d) The term ``Project'' relates to the project referred to in the contract and entitled ``A Dynamic Profile of Child Labour in India, 1961-2001''.

(e) The anticipated budget for the Project appears at page 58 of the T Documents and reads as follows: 

    ``A DYNAMIC PROFILE OF CHILD LABOUR IN INDIA
                   1961-2001
                    BUDGET

1         Two full-time research
          assistants proficient in
          computer use & applied
          econometric procedures             Rs 144,000

          (July-Dec 1995) @ Rs 12,000
          per month

2         One full-time (equivalent)
          stenographer/secretary with
          skills in wordprocessing and
          computer literacy                   Rs 60,000

          (July-Dec 1995) @ Rs 10,000
          per month

3         Local travel and inter-city
          travel to some state capitals
          of India to access data
          unavailable through NIC & the
          Central Government offices          Rs 30,000

          (July-Dec 1995)

4         Computer stationery, purchase
          of some documents and
          related material                    Rs 20,000

5         Casual Research Assistant at
          the University of Wollongong
          for 100hrs @ A$20 per hour          Rs 48,000

          (April-June 1995)

          A$2,000 = Rs 48,000

          Total Cost                         RS 302,000

          Total cost in US Dollars =          $US 9,700

Note: The Department of Economics, University of
Wollongong, would manage finances without the standard
overhead charge. DP Chaudhri's services during July-
December 1995 would also be available to the project
free of charge. We may need to reallocate funds between
categories in the interest of efficiency if a need
arises without affecting the total cost.''

It will be noted that the anticipated budget cost in US$ was US$9,700; the contract provided for a payment in instalments of US$9,680 and so that, and prima facie, the Applicant would at best, and in approximate terms, break even. The Applicant said in his evidence that in fact his loss was greater than that contemplated, in particular because he found that he needed an additional research assistant in Delhi, and also because in the result, more work was performed in Wollongong than had been originally anticipated, and costs are higher in Wollongong than they are in Delhi.

(f) In preparing his tax return for the relevant year, the Applicant's then tax agent, Mr Russo, dealt with the contract payment of US$9,680 in the following terms:

``In addition Dr Chaudhri received a payment US$9,680 from the UN Agency, International Labour Office of the United Nations, this amount was for expenses incurred in carrying out a research project and did not represent earnings. The amount was fully expended.''

The Applicant said that his relevant year tax return was prepared on advice from Mr Russo; similarly, the incorrect reference in that return under the head of ``other work related travel expenses'' to Taxation Ruling IT 2686 was inserted by Mr Russo.

(g) The Applicant was a resident of Australia in the relevant year; on this basis his return should have reflected the contract sum as income and deductions in respect of all expenses incurred. Nothing very much turns on this; however, it is relevant to note that the Applicant did not expect to derive a profit from the Project although, by the same token, neither did he originally anticipate any more than a marginal loss.

5. (a) The Applicant entered into the contract on the basis that he would fulfil it during a sabbatical leave of 6 months to which he was about to become entitled. On 14 July 1996, the Applicant submitted an application entitled ``Application for Study Leave'' to the University; under the head of ``Objectives of the Leave'', and at page 38 of the T Documents he said:

``On an invitation from the International Labour Organisation (ILO), I have agreed to collaborate with the ILO, New Delhi office and prepare a Dynamic Profile of Child Labour in India 1961-1991 with projections to 2001 AD as part of their Child Labour Action Support Programme (CLASP). The objective is to assist policy makers in India to take appropriate steps for the elimination of Child Labour within a time bound framework. The knowledge and information generated would have ramifications for other countries in South and South-East Asia.

The work, in addition to improving my understanding of the welfare aspects of Economic Development Policy issues and my standing among the Policy Makers in Asia, would enable us (jointly with my colleagues Assoc. Prof. R. Castle and Assoc. Prof. C. Nyland) to pursue work on this subject for Asia as a whole.''

That application enclosed a statement which contains detailed information under the following heads ``Proposed Programme and Itinerary'', ``Academic Achievements Over the Past 3 Years'' and ``Conference Papers (to be published)''. It is not necessary for me to set out the detail in respect of the second two heads; suffice it to say that under both of the latter heads there are a number of significant entries.

(b) The University granted the study leave and, in addition, furnished the Applicant with certain financial assistance and in particular a contribution towards his airfare, together with one-half of his salary in advance.

(c) Subsequently, and on his return to Wollongong, the Applicant furnished the University with a Study Leave Report dated 24 January 1996; clauses 5, 6, 7 and 8 of that report (at pages 47 and 48 of the T Documents) read as follows:

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``5. Objective of the Study Leave:

  • (a) to prepare a `Dynamic Profile of Child Labour in India 1961-1991' with the Child Labour Action Support Project (CLASP) of the International Labour Organisation at New Delhi as an input into the policy making processes of the Government of India;
  • (b) improve my understanding of the welfare aspects of Economic Development Policy issues and strengthen professional links with the policy makers.

6. Programme and Itinerary

Spent the entire period at New Delhi. Itinerary was as follows: 

29 August 1995    Sydney/Bangkok
                  15.55/22.15 TG992

30 August 1995    Bangkok/Delhi 0005/0.25
                  TG914

18 January 1996   Delhi/Bangkok
                  02.20/0.7.25 TG915
                  Bangkok/Sydney
                  18.20/0720 TG991

While at Delhi completed the report Dynamic Profile of Child Labour in India with the assistance of four research assistants, one working at Wollongong and three working in Delhi. ILO met the research costs. While working on the project intensively interacted with the professional at the ILO, UNICEF, UNDP and the World Bank's New Delhi Offices, academics at the National Labour Institute, The Delhi School of Economics and the Institute of Economic Growth, University of Delhi. In addition had frequent meetings with the officers of the National Authority for the Elimination of Child Labour, Ministry of Labour and the Planning Commission of India.

Three formal presentations, on invitation from the relevant authorities dealing with the Economics of Child Labour were made. These are:

  • i. 22 September 1995 - Economics of Child Labour with Special Reference to India, National Labour Institute, New Delhi.
  • ii. 16 December 1995 - Statistical Profile of Child Labour in Haryana. An invited address to the participants of a one day workshop organised by the Government of Haryana.
  • iii. 21 December 1995 - Statistical Profile of Child Labour in India 1951-1991. Presentation at the ILO organised National Workshop at New Delhi on Policy for the Elimination of Child Labour , 21 & 22 December 1995.

In addition, attended a three day conference on Applied Development Economics at the Delhi School of Economics (8-10 January 1996). Acted as a discussant for papers on Education and Child Labour.

7. The objective of the study leave as stipulated in the Study Leave application was fully met.

8. Three major benefits of the above activities are:

  • i. the ILO and the Government of India are keen to see the work extended through development of a formal Policy Simulation Model dealing with supply and demand of child labour. A proposal, jointly with Professor AL Nagar of the Delhi School of Economics is under preparation;
  • ii. at least two papers and a monograph will be published within 1996 as a by- product of my work with the ILO;
  • iii. my courses in Development Economics - ECON303, ECON305, ECON908 and ECON910 would be richer due to inclusion of latest information and policy concerns about welfare aspects of economic development.''

6. (a) The Applicant said in evidence that he entered into the contract for the Project and performed it, in particular because the research involved fell squarely within his area of expertise, which he teaches both at under- graduate and at post-graduate level at the University; in addition, he was very much aware of the criteria for promotion at the University (and those criteria are set out in pages 6-10 of the T Documents), and he desired promotion to full professorial rank. He had, as set out previously, stepped down in rank when he returned from Delhi to take up a post at the University; he was aware of the fact that his prospects would be enhanced by publications

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(and the academic motto of ``publish or perish'' needs no elaboration). In particular, clause 3.1 of the University's criteria provides that:

``A staff member must have made an outstanding and sustained contribution to teaching, research and scholarship. The significance of the work done must be widely recognised both nationally and internationally, well documented and attested by a number of assessors external to the University.''

(b) The Applicant also had in mind that further research of this nature might lead to offers from publishers of book contracts. This aspect has achieved more importance in recent years because of his age (he is now 64) and the fact that his health is not good. He has in fact in recent times received book contract offers from both Oxford University Press and also Associated Press.

7. The Applicant's departure to Delhi to perform the Project was delayed due to a significant deterioration in his health. He suffers from hyperlipidimia, hypertension and glaucoma; in layman's terms, he suffered a stroke to the eye which resulted in blood disorders and cholesterol problems. It was for this reason in particular that his wife accompanied him to Delhi; in the past she has been reluctant to do so, partly because she resents the inevitable task of being an unpaid assistant and secretary and partly because she does not like to leave her children and grandchildren, all of whom are resident in Australia. She did accompany the Applicant on a similar trip some years ago and agreed to do so on this occasion only due to the Applicant's ill health and consequent need of her care.

8. (a) The Applicant has accommodation in Delhi. That accommodation was described by his new accountant, Mr Anwar Chowdhury, in a letter to the Respondent dated 19 May 1998, in the following terms:

``02. Delhi House

At Delhi Dr Chaudhri's office-cum residence was at 61 Vaishali, Pitampur Complex, Delhi - 110034, where he maintained a telephone, fax machine and work facilities for himself and three of his research assistants. The premises are owned by Dr Chaudhri. He purchased the block of land as a member of the Delhi University Teachers Housing Co-operative Society on instalment payment basis during the 1960s prior to his migration to Australia on July 1, 1971. The house was constructed during 1980-84 at a cost of Rs 2,37000 [sic] = A$40,000. Had he not built this house, he would have lost the Society's membership and the investment in land that is on lease to him. Under the contract he is not allowed to sell or rent this property. This is not a holiday home or an income generating property for Dr Chaudhri.''

(b) The property in question is a decidedly odd form of land title. It belongs to the Applicant but he cannot sell it or lease it. It stands empty except for those periods when he is in Delhi; in recent years his only significant stay in the Delhi property was that related to the Project.

(c) The property in Delhi is, in effect, a co- operative occupation right held by the Applicant together with some 250 other (and the Applicant referred to them as ``ageing'') academics. It is, so the Applicant said, in need of repair. For the Project it was fitted out as to a large proportion with work facilities such as computers, fax machines and the like for the Applicant and his three research assistants resident in Delhi.

9. (a) The research undertaken by the Applicant necessitated meals in hotels and restaurants. Mr Chowdhury said, in a letter to the Respondent dated 28 August 1997 that in respect of meals:

``Dr Chaudhri (and sometimes accompanied by one of the research assistants) needed, almost daily, to visit libraries of the Delhi School of Economics, Institute of Economic Growth, India International Centre, ILO and UNICEF's Documentation Centres and the National Resource Centre for Child Labour Studies at the National Labour Institute. These formed a rectangle - locations being 25-27 kilometres apart. A typical working day required triangular trips of about 80-90 kilometres.''

(b) Before leaving for India, the Applicant sought advice from Mr Russo as to substantiation requirements for meals. He said in evidence that he could not use credit cards for payments because bills would be received monthly and there would be no one at his home in Keiraville, near Wollongong, to receive them and pay them. (The Applicant's three children, two of whom are specialist doctors while the

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third is an academic in Melbourne live in their own homes). He, therefore, intended to use cash for this purpose. Mr Russo advised the Applicant that he should keep a diary specifying in respect of each meal its date, the amount spent and the name of the establishment; he said also that, in any event the Applicant was in much the same position as a public servant, and that Taxation Ruling TR 95/26 allowed a daily rate of $56 in respect of meals for public servants in Delhi.

(c) Further as to the meals, the Applicant made it clear that for health reasons, he was broadly confined to fish which is obtainable in Delhi (in realistic terms) only from better class hotels and restaurants.

(d) The Applicant did, indeed, keep records which reveal in respect of each relevant day whether the meal was lunch or dinner, its cost in rupees and the name of the establishment (those records are set out at pages 104-131 of the T Documents).

10. The Project was duly fulfilled. It led to an invitation to present the Invited Keynote Paper (Exhibit A3). Exhibit A4 commences with these words:

``The University of Wollongong has been commissioned by the Australian Centre for International Agricultural Research (ACIAR) of the Australian Government to co-ordinate and carry out a major research project in India. Professor D.P. Chaudhri, Professorial Fellow in the Department of Economics will be the team leader on Australian side.''

Similarly Exhibit A5 refers to a significant research project which involved the Applicant.

11. In the Department, the Applicant teaches development economics to third-year students; he also teaches development economics to masters degree students and supervises doctoral theses. Since his arrival in Australia, the enrolment in his Department has increased significantly. Moreover, enrolment from India (with significant on-flow financial benefits for the University) has increased considerably; there are currently some 135 students in the Department who have come from India to study economics at the University.

12. (a) After the Applicant had given his evidence and after cross-examination by Mr Parsons, Mr Parsons agreed that the evidence of the Applicant was altogether credible. My own view is that it was most impressive. Exhibit A1 is, on its own, worthy of comment. The Applicant having dispensed with Mr Russo's services, decided that he could manage this hearing on his own and downloaded relevant cases and other material from the Internet, all of which were in point. His diary notes referred to previously were meticulously kept; my overall impression is that he is a most impressive person who is clearly an expert in his field and, having regard to his recent promotion to full professor, plainly approved by his University.

(b) Some of his works have been translated into Vietnamese, while translations into various Indian languages are in progress.

(c) Moreover, as appears from Exhibit A4, the Australian Government is interested in funding his research in Asia.

13. (a) How then should one characterise the research? On one view it was undertaken for reward that being the contract sum, and so that his expenses were incurred in the derivation of that income. This is perhaps the correct view, but it does not seem to have been the manner in which the Applicant regarded it; Exhibit A6 is instructive in this regard.

(b) The proper characterisation must, in my view, be that it was self-education. It was undertaken by the Applicant to increase and improve his own expertise in a specialist area of economics which he teaches at both under- graduate and post-graduate level. He hoped that it would lead to promotion to full professorial rank and, at least to some considerable degree, it did. Furthermore, his work in Delhi appears to have raised the prospect of book contracts.

14. In
Brimo v FC of T 98 ATC 2338 I referred to some of the leading cases in this area, and in particular
FC of T v Studdert 91 ATC 5006,
FC of T v Finn (1961) 12 ATD 348; (1961) 106 CLR 60 and
Paramac Printing Co Pty Ltd v FC of T (1964) 13 ATD 418; (1964) 111 CLR 529. I also referred to Mr Donovan's minority decision in Case B78,
70 ATC 362. For convenience only, clause 7 of that decision is reproduced as follows:

``7. (a) It is convenient at this juncture to consider the legal aspects of deductibility of expenditure of this kind (open referred to as self-education expenditure) under section 51(1) of the Income Tax Assessment Act 1936 which provides:

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`All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income.'

(b) The decision of Hill J in FC of T v Studdert 91 ATC 5006 put to rest, once and for all, a previously held view that self- education expenses are deductible only if it could be shown that it would contribute, or would be likely to contribute, to increased income, and whether in consequence of promotion or otherwise. In Studdert's case, Hill J made it clear at pages 5013 and 5014 that this is not the case; see in particular the following passage from his judgment (and in respect of which emphasis has been added by the Tribunal) as follows:

`To fall within s 51(1) it is not necessary to show that a particular outgoing will, on the balance of probabilities, produce an increase in assessable income in the future . So much was decided by the High Court in FC of T v Smith 81 ATC 4114; (1980-1981) 147 CLR 578, where the payment of a premium by an employee on a loss of income policy was held deductible, irrespective of the fact that no income might ever be derived under the policy, and indeed, where presumably the employee might have desired that no income be derived under the policy. See too FC of T v Cooper [91 ATC 4396; (1991) 29 FCR 177] at ATC 4412; FCR 197. As I said in the latter case, the true principle is that enshrined in the famous passage from the decision of the High Court in Ronpibon Tin NL v FC of T (1949) 8 ATD 431 at 436; (1949) 78 CLR 47 at 57:

``In brief substance, to come within the initial part of the subsection it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income.''

In its reformulated form in later cases, eg Smith, the principle has been expressed as follows [at ATC 4117; CLR 586]:

``What is incidental and relevant in the sense mentioned falls to be determined not by reference to the certainty or likelihood of the outgoing resulting in the generation of income but to its nature and character and generally to its connection with the operations which more directly gain or produce the assessable income.''

Where an outgoing is shown to contribute or to be likely to contribute to increased income, it will normally be the case that the necessary connection will exist between the outgoing and the activities of the taxpayer which more directly contribute to the gaining or production of assessable income. Cooper is perhaps, on one view, an illustration of an exception to this general rule. However, it is not necessary for an outgoing to be deductible that a taxpayer be able to show a likelihood of increased income. In the present context, were this to be so, it would mean that a person who had reached the peak of his income- producing position, would never be entitled to a deduction for self-education expenses . Thus, the Commissioner of Taxation, having no public service office to which he could ordinarily expect to be promoted, could never obtain a deduction for a course of instruction that could be shown to better equip him in the performance of his duties as Commissioner. So to state the problem is to expose the fallacy in the argument. If the Commissioner were to undertake a course which would be objectively seen as improving or tending to improve his proficiency in his office, that would better equip him so to do, there is no reason to suppose that a deduction would not be allowable for expenditure which he incurred on such a course.'

It is clear, having regard to the decision in Studdert's case, that the Applicant need not show any connection or anticipated connection between the musical cost

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deductions and promotion or increased income.

(c) In FC of T v Finn (1960) 12 ATD 348; (1961) 106 CLR 60, the High Court dealt with the case of an employed senior design architect who claimed the costs incurred by him in respect of activities abroad devoted to architecture and its study. In the following quoted passages emphasis has also been added by the Tribunal. The deduction was allowed; at pages 68 and 69 Dixon CJ said:

`There remains the question whether the taxpayer's expenditure upon his journey in gaining improved and up-to-date architectural knowledge is to be considered as falling within the exception of losses or outgoings of capital or of a capital, private or domestic nature. This question should be answered by a definite negative. The money was laid out by the taxpayer in the acquisition of better knowledge of a skilled profession. The pursuit of information concerning the modernisation or improvements in an art is part of the constant process of keeping up to date which skilled professions call upon those who practise them to pursue, though sometimes in vain. Had he dwelt nearer to the sources of such knowledge and information he doubtless would have visited them from time to time in his career. As it was he had been able to do so only once before and in the meantime had depended on literature. It is simply a false analogy to treat him in his visit abroad as engaged in the equivalent of the acquisition of something of an enduring nature and therefore capital. You cannot treat an improvement of knowledge in a professional man as the equivalent of the extension of plant in a factory. Unfortunately, skill and knowledge of most arts and sciences are not permanent possessions: they fade and become useless unless the art or the science is constantly pursued or, to change the metaphor, nourished and revived. They do not endure like bricks and mortar .'

(d) In the same case (Finn's case) Kitto J said at ATD page 352; CLR pages 69 and 70:

`... It was therefore, I think, plainly incidental to the office that the respondent should avail himself of such opportunities as might arise to add, in the interests of the State even if also in his own interests, to his knowledge and understanding of architectural achievements and trends overseas, both in design and in construction, and of endeavours made and being made to solve architectural problems such as might from time to time confront his Government.'

(e) And, also in Finn's case, Windeyer J at ATD page 352; CLR page 70 said:

`... Generally speaking, it seems to me, a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling. Whether he be paid fees by different persons seeking his skilled services from time to time, or be paid a regular salary by one person employing him to exercise his skill, matters not in my opinion. Moreover, it would surely be wrong to assume that the Crown is so indifferent to the professional attainments of those whom it employs that their rights and prospects in its service are not affected by the true measure of those attainments. That was not so in this case. Outgoings incurred for the genuine purpose of acquiring or maintaining knowledge and skill in a vocation do not become an outgoing ``of a private nature'' simply because the taxpayer got pleasure and satisfaction in increasing his knowledge and attainments .'

(f) The case of Paramac Printing Co Pty Ltd v FC of T (1964) 13 ATD 418; (1962) 11 CLR 529 was concerned with visits to art galleries and other places of general tourist interest by certain persons. Owen J said at ATD page 422; CLR pages 537 and 538:

`... In his case, it was certainly a business trip. On the whole I think Mrs McWilliam's and Jan's journeyings should also be so regarded. They were

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members of the team of ``creative thinkers'' and to have had the opportunity of seeing for themselves what was being done overseas in the advertising and printing world would and did, I think, advance their own techniques, widen their minds and given them new ideas which would be of real benefit to them and to the business in which they were engaged.... It is not, I think, to the point to say of such persons that visiting overseas art galleries and exhibitions, and I give this as only one example of their activities abroad, is a usual tourist activity and that the expense incurred cannot therefore be treated as a deduction for income tax purposes whether the claim for a deduction be made by the individual concerned, as in Finn's Case, or by those who employ him to use his artistic and creative abilities.'

(g) In Case B78, 70 ATC 362 Mr A.M. Donovan delivered a minority decision in which he said at 364:

`... It is probably true to say that most callings require familiarity with a body of knowledge that is constantly undergoing change and enlargement. For a qualified person to keep abreast of such developments is an incident of his occupation, and the cost of so doing is deductible. On the other hand, it is also probably true to say that knowledge in a broader sense and outside the narrow field peculiar to a taxpayer's calling also assists him in the exercise of his professional skills. In these cases, however, it will usually be found that the connection between that knowledge and the taxpayer's income producing activities is tenuous, so that it is not in any real sense an incident of his calling. In such instances, the occasion of the expense incurred in acquiring such knowledge is not found in whatever is productive of the assessable income and the cost is not comprehended by sec 51.'

It is perhaps relevant to note that while Mr Donovan was in dissent in respect of Case B78, that part of his decision appears to have been (if only implicitly) accepted by Menzies J when the matter came before the High Court in FC of T v Hatchett 71 ATC 4184, a case in which the taxpayer succeeded in his appeal in relation to an amount of $71 paid for university fees, but was otherwise dismissed. The Tribunal considers that Mr Donovan's statement quoted above constitutes an admirable summation of the manner in which claims of this nature are to be approached.''

15. (a) The Respondent argued that food is essentially private in character and he referred me (inter alia) to the decision in Cooper's case (
FC of T v Cooper 91 ATC 4396), where a footballer was denied a deduction for additional food consumed by him to preserve his status as a first grade league football player.

The Respondent quoted at some length from Cooper's case in support of this proposition; note however the following comments of Hill J in Cooper (at 4415):

``Food and drink are ordinarily private matters, and the essential character of expenditure on food and drink will ordinarily be private rather than having the character of a working or business expense. However, the occasion of the outgoing may operate to give to expenditure on food and drink the essential character of a working expense in cases such as those illustrated on work-related entertainment or expenditure incurred while away from home .''

(emphasis added by the Tribunal)

(b) The Respondent also referred me to
Roads and Traffc Authority of NSW v FC of T 93 ATC 4508; in that case (at 4523), Hill J stated that ``An employee who had no private home and was employed indefinitely to work at a particular site and did in fact work for the whole of his employment at that site, might be said to have chosen to live at the site so that the cost of his accommodation there would be private''. The Respondent also referred me to Case Y8,
91 ATC 166 at 168 where Dr Gerber stated that ``No activity is more private than taking a meal''. Both of these cases are distinguishable on their facts from the present case. Roads and Traffic Authority was concerned with employees who had no private homes, which is not the case in this matter, while Case Y8 concerned a police officer who was claiming a deduction in the ordinary course of his duties and not as a result of expenditure based on work-related overseas travel.

(c) Furthermore, in referring the Tribunal to the decision in Roads and Traffic Authority, the

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Respondent did not refer to passages from that judgment which clearly support the view that expenditure incurred in respect of meals and accommodation in the course of work-related overseas travel may be deductible. In this respect, Hill J (at 4521) approved of the following comments made by Wilcox J in Cooper's case:

``Take the instance of a taxpayer visiting another city for business purposes. The taxpayer incurs expenditure for meals at his or her hotel. On one view, the essential character of the expenditure is the sustenance of the taxpayer. Such a purpose has no connection with the derivation of assessable income; other than in the broad sense - irrelevant because it is applicable to everyone - that one must eat to live and, therefore, to work and to earn assessable income. However, the expenditure may also be characterised as being the cost of sustenance incurred by the taxpayer because of his or her absence from home on business. The difference between the two characterisations is that the latter takes account of the occasion of the expenditure. When this characterisation is adopted, a work-connection immediately appears and a deduction is granted.''

(d) Finally, it should be noted in this respect that paragraph 88 of Taxation Ruling TR 98/9 (referred to below) also makes express reference to the fact that expenditure incurred on meals and accommodation while away from home overnight on work-related activities may operate to give that expenditure the character of an income-producing expense.

16. Having dispensed with the assertion that meals are always to be characterised as private, the Tribunal finds, as a matter of fact, that in relation to the Project the necessary nexus is clearly established and so that a deduction under section 51(1) of the Income Tax Assessment Act 1936 (``Tax Act'') is allowable, unless the negative limit applies or the substantiation provisions have been insufficiently dealt with. It is to these questions I now turn.

17. (a) It should be noted at this juncture that TR 98/9 is a Ruling (issued in 1998) which is expressed to be essentially an updated version of Taxation Ruling TR 92/8, and which was issued in 1992. Both are Public Rulings and in respect of which the Applicant is entitled to take advantage if the Ruling applies to his particular circumstances. We are here concerned with the relevant year and in respect of which the Tax Act applied. The Income Tax Assessment Act 1997 did not apply to the relevant year, although the Respondent, as appears inter alia from Document T1 of the T Documents, has erroneously assumed that it did; I accept though that nothing much turns on this, since for all relevant purposes the law is the same.

(b) Clause 41 of TR 92/8 is consistent with (although not the same as) paragraph 89 of TR 98/9; I do not think that there is any material difference; both paragraphs are set out in this Decision as follows:

``41. Fares and accommodation and meals expenses incurred on overseas study tours, on work-related conferences or seminars attended away from a taxpayer's home base or on attending an educational institution away from the taxpayer's home base are allowable under subsection 51(1). They are part of the necessary cost of participating in the tour or attending the conference, the seminar or the educational institution. We do not consider such expenditure to be of a private nature, because its occasion is the taxpayer's travel away from his or her home base on income-producing activities.''

``89. Where a taxpayer is away from home overnight in connection with a self- education activity, accommodation and meals expenses incurred are deductible under section 8-1. (Examples include an overseas study tour or sabbatical, a work- related conference or seminar or attending an educational institution.) They are part of the necessary cost of participating in the tour or attending the conference, the seminar or the educational institution. We do not consider such expenditure to be of a private nature because its occasion is the taxpayer's travel away from home on income- producing activities.''

(c) TR 92/8 does not, in its terms, contain any provisions which correspond to paragraphs 90, 91 and 93 of TR 98/9 and relating to the establishment of a new home. In particular, it is suggested that where expenditure is, in essence, of a private nature, a deduction will be disallowed. Paragraphs 91 and 93 proceed to expand on that concept. Those paragraphs read as follows:

ATC 2149

``91. In our opinion, the same principle applies when a taxpayer establishes a new home. In these circumstances, expenditure on meals and accommodation is private or domestic in nature and therefore not allowable under section 8-1.

...

93. The key factors to be taken into account in determining whether a new home has been established include:

  • • the total duration of the travel;
  • • whether the taxpayer stays in one place or moves frequently from place to place;
  • • the nature of the accommodation, eg. motel, motel, long term accommodation;
  • • whether the taxpayer is accompanied by his or her family;
  • • whether the taxpayer is maintaining a home at the previous location while away. The fact that the taxpayer did not maintain a home while away for an extended period was the decisive factor in characterising expenditure on accommodation and meals as private `living expenses' in a series of Board of Review decisions: Case N13 13 TBRD (NS) 45; 10 CTBR (NS) Case 98; Case N16 13 TBRD (NS) 65; 10 CTBR (NS) Case 99; Case N19 13 TBRD (NS) 76; Case N20 13 TBRD (NS) 79; and
  • • the frequency and duration of return trips to the previous location.''

(d) The Respondent (having regard to Mr Parsons' written submissions and Document T1 of the T Documents) plainly takes the view that, notwithstanding the fact that the objection decision in this matter relates to the relevant year, and thus prior to the publication of TR 98/9 (and in particular paragraph 93), TR 98/9 applies. Of course paragraph 93 of TR 98/9, which did not form part of TR 92/8, cannot be relevant in its terms to the relevant year. However, discussion of it took up a considerable part of the time devoted to this hearing; it may be that the Respondent takes the view that its content, or perhaps some part of it, was incorporated, through the case law, in the law applicable during the relevant year. (See in particular Case V15,
88 ATC 177; Senior Member Roach.) Accordingly, I propose to deal with paragraph 93 of TR 98/9 in all of its aspects and notwithstanding that I have reservations as to its relevance.

(e) The Respondent in his written submissions in respect of the key criteria set out in paragraph 93 of TR 98/9 contended as follows:

``Examining the applicant's circumstances in the light of this reveals:

  • • the total duration of the travel;

The applicant was engaged in the activity for a period of approximately five months (29/8/95 to 20/1/96). Although this period fall short of half a year, five months is not an insignificant period of time. It is a period of time far in excess of that usually involved with seminars and conferences.

  • • whether the taxpayer stays in one place or moves frequently from place to place;

The applicant principally stayed in one location. Except for the occasional overnight stay he lived for the period in a house that he owned and occupied with his wife in Delhi.

  • • the nature of the accommodation, eg, hotel, motel, long term accommodation;

The applicant lived in a house in Delhi that he has owned and maintained for a large number of years.

  • • whether the taxpayer is accompanied by his or her family;

The applicant was accompanied by his wife.

  • • whether the taxpayer is maintaining a home at the previous location while away;

The applicant maintained a house in Wollongong for the period. This issue should not be viewed in isolation however.

In Case V15,
88 ATC 177, Senior Member Peter Roach commented at paragraph 14,

`Clearly, continued ownership of a former house is not alone to qualify as tax deductible expenses incurred in maintaining other accommodation taken up in order to perform the duties of employment.'

ATC 2150

Notwithstanding this, the deduction was allowed although in this case, the deduction related to rent, not food or incidentals.

  • • the frequency and duration of return trips to the previous location;

The applicant stayed in India for the entire period.

In view of this, the respondent contends that the applicant effectively `moved house'. He set up a new residence in India. His meal expenses should be considered along the same lines as meals enjoyed whilst in Wollongong.''

(f) In respect of the Respondent's contentions, I note that it is my view that the whole thrust of paragraph 93 of TR 98/9 is directed towards to the question of whether a new home is established, and the other criteria are designed to elicit an answer to this question. The factor which will often be most relevant will be that of whether the taxpayer maintained a home in his previous location; in this instance, the Applicant clearly maintained his home near Wollongong and has returned to it. The Delhi house was merely accommodation of a kind which could be used conveniently and temporarily, and so that it obviated the need to resort to a motel or hotel. It was, as set out previously, the place where the three research assistants in Delhi did their work, and was as much office as it was residential accommodation.

(g) Paragraph 93 of TR 98/9 itself states that ``the fact that the taxpayer did not maintain a home while away for an extended period was the decisive factor in characterising expenditure on accommodation and meals as private `living expenses' in a series of Board of Review decisions''. As to the other criteria and taking them in order:

  • (1) there is (so far as I am aware) no formula requirement of six months duration; the period of five months involved was that utilised for this particular sabbatical, and the period involved does not seem to be unusual for an academic's sabbatical. It would have commenced earlier (and thus lasted rather longer) if the Applicant had not become ill;
  • (2) the fact that the Applicant spent his sabbatical mostly in Delhi is not in my view material;
  • (3) the nature of the accommodation is such that it is difficult to categorise it as a home in any conventional sense; it is no more than a co-operative right to live in accommodation, in need of repair, which cannot be sold or let;
  • (4) the Applicant's wife accompanied him in order to nurse him;
  • (5) the home near Wollongong is the Applicant's home;
  • (6) return trips to Australia were not feasible, so the Applicant told the Tribunal, in a period of this duration.

18. (a) The Respondent in his Reasons for Decision (T3 and T4) dealt with the paragraph 93 criteria as if they were separate tests and so that there is in the end a score which is somehow decisive. He said (and I am unclear as to precisely what the Respondent meant) at T3 that ``in Case V15, the taxpayer fulfils a maximum of two (being (iii) and possibly (v)) of the six criteria enumerated in TR 98/9''. Was the Respondent referring to the Applicant or the taxpayer in Case V15? In either event this is, in the view of the Tribunal, an inappropriate method of dealing with the criteria; to treat each one of them as if it were equal in importance and relevance to the others, cannot be the correct approach.

(b) In this matter the Applicant incurred the relevant expenses while in Delhi on a research sabbatical. He did not claim for the cost of food consumed in the Delhi house (eg breakfasts) but merely for meals in restaurants and like establishments and which arose from the fact that his research required him to travel 80 to 90 km per day. He confined his claim to the aggregate of $56 per day, amounting in all to $7,942, which was considerably less than the aggregate amount actually expended.

(c) If paragraph 93 of TR 98/9 is relevant, the Applicant in my view satisfies it. Moreover he satisfies the relevant paragraph being either, as relevant, paragraph 41 of TR 92/8 or paragraph 89 of TR 98/9.

(d) Senior Member Roach noted in Case V15,
88 ATC 177 at 181 that:

``The costs of providing for one's domestic shelter, like the costs of providing for one's sustenance, are ordinarily `private' in character as that term is used in sec 51(1) of the Act. However, it has always been recognised that sometimes it is appropriate to hold that the costs of shelter are allowable as deductions because the costs incurred in

ATC 2151

the provision of that shelter are more appropriately characterised as having the same character as the income-earning circumstances which caused the expense to be incurred.''

The taxpayer in Case V15 closed his residence in Australia before undertaking an extended trip overseas. The position of the taxpayer in Case V15 was not as strong, in this regard, as that of the Applicant; Senior Member Roach allowed him his deduction.

19. (a) I turn now to the question of substantiation. The Applicant did not comply with the strict requirements of section 82KZ of the Tax Act, in that, although he kept a detailed diary, he did not obtain the receipts or other suitable vouchers required by that section. It is in these circumstances that section 8-1 of Schedule 2B to the Tax Act becomes relevant; that section was introduced into the Tax Act to replace section 82KZAA and applies in respect of the relevant year. Section 82KZAA and section 8-1 of Schedule 2B are, in their terms, similar in some respects. Both sections apply in order to ameliorate the sometimes harsh results of a strict application of the requirements of section 82KZ. However, section 8-1 of Schedule 2B is more favourable to the taxpayer in that it dispenses with the requirement that the Commissioner have regard to the extent to which a taxpayer actually complied with the substantiation provisions and to whether the failure to do so was deliberate. Section 8-1 reads:

``Commissioner's discretion to review failure to substantiate

Not doing something necessary to follow the rules in this Schedule does not affect your right to a deduction if the nature and quality of the evidence you have to substantiate your claim satisfies the Commissioner:

  • (a) that you incurred the expense; and
  • (b) that you are entitled to deduct the amount you claim.''

(b) It will be noted that section 8-1 retains the explicit requirement that the Commissioner have regard to the `nature and quality' of the evidence proffered by the taxpayer. A number of Tribunal decisions which have considered the application of section 82KZAA thus remain relevant. In particular, Case 9/96,
96 ATC 186 indicates that a carefully retained diary may have a large bearing on the question of how the Commissioner is obliged to exercise the relevant discretion. In that case, Deputy President Forrest indicated that the Commissioner was obliged to exercise his discretion in favour of the taxpayer in that case; see in particular his statement at page 192 as follows:

``I accept that the taxpayer has attempted to comply with the substantiation requirements by providing a diary with details of the dates, locations and cost of meals for which a deduction is claimed. These dates coincide with the log book entries which he has signed recording each journey. The failure to strictly comply with the substantiation provision was inadvertent and not deliberate and I accept that he had a reasonably held belief that he was acting in accordance with the substantiation provisions...''

It may be noted that in deciding Case 96/6, Deputy President Forrest was required to have regard to all of the various matters as set out in section 82KZAA. Section 8-1 requires only that the Commissioner have regard to the nature and quality of the taxpayer's evidence. The Applicant and the taxpayer in Case 96/6 would appear to have maintained similar diaries.

As Mr Parsons agreed, this Tribunal, standing in the shoes of the Respondent, has the power to exercise that discretion. A common- sense approach requires that the Tribunal allow the Applicant a deduction in respect of the full amount of $7,942 claimed, noting that (as set out previously) it was based on a specified rate of $56 per day which was considerably less than the amount actually expended, and that the amounts claimed are directly referable to the Applicant's detailed diary entries.

(c) Finally, and while section 82KZAA (stricter in its terms) did not apply to the relevant year, it would have been my view, if it had applied, that the Applicant would have been entitled to relief under its provisions. The Applicant made a substantial attempt to comply with the substantiation provisions, and his failure to do so was not deliberate but rather inadvertent; the Applicant relied for this purpose on advice from his tax agent and had no reason to think that that advice was incorrect. Mr Parsons, during the course of his closing argument, submitted that a taxpayer is in some instances responsible for the errors of his tax agent; this may be so in certain respects, but there is no rule of law that the errors of a tax

ATC 2152

agent will be visited on his client in the context of a discretion such as that conferred by section 82KZAA (or for that matter section 8-1 of Schedule 2B) where the plain intention of the legislature was to ameliorate the strict requirements of the substantiation provisions. I refer in this context to Case W124,
89 ATC 975 (Senior Member Peter Roach); see also Taxation Ruling IT 2645 which specifies that each case must be considered on its merits and that a common-sense approach should be applied in determining whether to grant relief.

20. (a) The Applicant is quite obviously an honest and decent man who is well regarded in his field. The Project fell squarely within the Applicant's area of expertise, and was clearly and directly connected with his activities in his Department of the University. As the Applicant said during the course of his evidence, the University is not as well known in international circles as some other Universities in Australia; the Applicant, however, has, in this field at least, brought the University a degree of international recognition. The Applicant claimed a restricted amount which was less than the amount actually incurred, based on meticulously kept diaries all of which were produced to the Respondent.

(b) The Respondent appears to have founded his decision, in the main, on the basis that the Applicant had set up a new home; the Respondent appears in my view to have been unduly influenced by the fact that the Applicant had had the Delhi accommodation available to him for some considerable time. Yet the evidence is that the Applicant in fact resides in his home near Wollongong, in Australia. The Respondent appears to have formed the view that the Applicant had moved to a new home by applying paragraph 93 of a ruling, which was not applicable in respect of the relevant year, and through the application of an inappropriate points-scoring system. In view of the detailed nature of the T Documents, it cannot be said that the relevant evidence was not before the Respondent, in the sense that it only became available during the course of the hearing. The T Documents set out clearly that the Applicant incurred the expenses in the course of deriving assessable income, that he kept detailed diaries, that he restricted his claim for the relevant expenses based on advice from his tax agent, and that he used the Delhi accommodation substantially for the purpose of the Project.

21. In the circumstances the objection decision under review is set aside and the whole assessment is similarly set aside in full.


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