Federal Commissioner of Taxation v Mitchum

(1965) 113 CLR 401
39 ALJR 23

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(Judgment by: Barwick C.J.)

FEDERAL COMMISSIONER OF TAXATION
v MITCHUM

Court:

Judges:
Barwick C.J.Menzies
Owen JJ.

Judgment date: 30 April 1965

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Judgment by:
Barwick C.J.

The respondent Robert Mitchum is an actor who prior to 15th June 1959 had acquired a considerable reputation in the motion picture industry and with motion picture audiences. He was not at any time a resident of Australia for the purposes of the Income Tax and Social Services Contribution Assessment Act 1936-1960 (the Act) and was at relevant times for the purposes of the Income Tax (International Agreements) Act 1953-1959 (Cth) a United States resident.

On 15th June 1959 he entered into a contract with a company incoporated in Switzerland under the name of Mandeville Films S.A. (the Swiss company), under which that company agreed to employ him to render his services as a consultant to the producer and to "advise in the connexion of the selection and suitability of principal members of the cast and to assist the producer in the selection, training and coaching of other members of the cast, and to consult with the producer in connexion with the revision and/or changes of the screenplay, and also to act, play, perform, and take part in two motion picture photoplays and in rehearsals etc. for and as directed by that company at such studios and places and on such locations as that company might from time to time designate." The respondent agreed to give his entire time and attention and devote his best talents and abilities, except as specifically provided in the agreement, to that company and/or such other persons, firms, and corporations as, when and where that company might direct during the term of agreement.

The agreement also contained a number of provisions by which the respondent agreed to restrict his activities in a number of directions. It provided that "in full consideration for the services to be rendered by the artist as consultant and/or as actor in and in connexion with each of two motion picture photoplays provided for under the agreement and for the rights and options granted to the Swiss company by the agreement and in complete discharge of the Swiss company's obligations under the agreement, that company agreed to pay to the respondent and the respondent to accept salary with respect to each of the two motion picture photoplays at the rate of $50,000 for each of such motion picture photoplays for a period of twelve weeks plus two weeks free." There were provisions for payment in the event the services of the artist were required for a period in excess of a total of fourteen weeks for a photoplay at the rate of $3,571.43 for each full week of services in excess of the said period of fourteen weeks and for periods of less than a week at the rate of one-sixth of the weekly rate.

The respondent was not to be entitled to any damages for the failure of the Swiss company to utilize his services but in that event if he should fully and faithfully perform all the terms and conditions on his part to be performed he would be paid the salary which I have mentioned.

On 8th July 1959 the Swiss company agreed to lend the services of the respondent to Warner Bros. Pictures Inc. of California to portray the role of Paddy Carmody in a photoplay entitled "The Sundowners" which it was contemplated would be produced partly in Australia and partly in England. The engagement with Warner Bros. Pictures Inc. of California (Warners (California)) was to be from September 28, 1959 and the services which the respondent was to perform, whilst primarily expressed as being to portray the character role I have mentioned, included a number of ancillary services including consultation in connexion with the production of the photoplay.

It was understood and agreed between the Swiss company and Warners (California) that a subsidiary of Warners (California), namely Warners Bros. Production Limited (Warners (London)) would produce the photoplay "The Sundowners" and it was agreed between the Swiss company and Warners (California) that Warners (California) should have the right to lend the services of the respondent to Warners (London) for the purpose of producing the photoplay. The Swiss company stipulated, however, that notwithstanding the loan of the respondent's services to Warners (London) he should be deemed to be rendering services under the agreement between the Swiss company and Warners (California) for and on behalf of Warners (California) to whom the Swiss company was to look for payment of the compensation provided in the agreement for the loan of the respondent's services to Warners (California).

The respondent endorsed this agreement with his approval and agreed to perform the services for which it provided: but he did not become entitled to be paid any sum by Warners (California) or by Warners (London) for his services.

Warners (London) did in fact produce the photoplay and the respondent came to Australia for a period of eleven weeks in 1959, during which time he acted in the character role as contemplated, under the production and direction of Warners (London), and it seems that he also gave some services to the producer of the play as a consultant in connexion with its production.

In December 1959 the Swiss company assigned to a company named D.R.M. Productions Inc., incorporated under the laws of California and having its offices in that State, the benefit of the agreement which had been entered into between the Swiss company and Warners (California). Subsequently, Warners (California) paid to D.R.M. Productions Incorporated the consideration which it had agreed to pay to the Swiss company for the loan of the respondent's services in connexion with the photoplay "The Sundowners" and D.R.M. Productions Incorporated paid to the respondent in America the sum of $50,000 in discharge of the Swiss company's obligations to him under the agreement of June 1959.

The Commissioner of Taxation assessed the respondent to tax on the sum of 16,675 pounds, being a sum calculated for the period the respondent worked in Australia in connexion with the photoplay at the rate of $3,571.43 per week. The basis of the Commissioner's assessment was that the sum of 16,675 pounds (A) was the gross income derived by the respondent directly or indirectly from sources in Australia (s. 25 (1) (b)) not being exempt income (s. 23 (r)).

The respondent objected to the assessment raising three grounds to assessability and one to the quantum of the apportionment of the amount payable by the Swiss company. The last ground was subsequently abandoned.

The respondent's grounds of objection to assessability were, firstly, that the moneys receivable by him in respect of the services performed by him in Australia were paid to him out of Australia and arose from contracts executed out of Australia, and that such moneys did not represent income derived from sources in Australia within the meaning of the Assessment Act. Secondly, that if such moneys did represent income derived from sources in Australia, the income was exempt because of the terms of s. 23 (c) (vii), that is to say, that the moneys receivable in respect of services performed in Australia were payable as salary for acting as a consultant in a manufacturing business during the first year of his visit to Australia, the income not being exempt from income tax in the United States of America of which he was a resident. Thirdly, that if the moneys did constitute income derived from a source in Australia, they were exempt from taxation by reason of Article IX of the Second Schedule to the Income Tax (International Agreements) Act 1953-1959, that is to say, that the respondent, a United States resident, was present in Australia for a period that did not exceed the stipulated aggregate under the Agreement and that the services which he then performed in Australia were performed for or on behalf of a United States resident, the income not being exempt from tax in that country.

The respondent's objection was disallowed by the Commissioner and, at his request, was treated as an appeal and sent to the Board of Review, which held that no part of the sum of $50,000 payable by the Swiss company under the agreement of June 1959 was derived from a source in Australia.

From this decision of the Board of Review, the Commissioner appealed to this Court on the footing that the Board's decision involved a question of law. He claimed that the Board had erred in law in having found that the source of the income which the Commissioner had attributed to the performance of services by the respondent in Australia was not an Australian source. Upon the appeal coming before a Justice of this Court, at the request of the appellant, he stated for the opinion of a Full Court a case in which the following questions were asked:

(a)

Whether on the facts appearing from this case and the annexures hereto -

(i)

I am bound to hold that the sum of 16,675 pounds referred to in par. 18 hereof was derived by the respondent directly or indirectly from a source in Australia within the meaning of s. 25 (1) (b) of the Income Tax and Social Services Contribution Assessment Act 1936-1960;

(ii)

It is open to me to hold that the said sum was derived by the respondent directly or indirectly from a source in Australia within the meaning of s.25 (1) (b) of the Income Tax and Social Services Contribution Assessment Act 1936-1960.

(b)

If the answer to question (a) (i) or (a) (ii) is in the affirmative, was the said sum, or any part thereof, exempt from tax under s. 23 (c) (vii) of the said Act?

(c)

If the answer to question (a) (i) or (a) (ii) is in the affirmative, was the said sum of 16,675 pounds, or any part thereof, exempt from income tax under Article IX (2) of the Convention between the Government of the Commonwealth of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income set out in the Second Schedule to the Income Tax (International Agreements) Act 1953-1960.

The respondent was duly served with the notice of appeal from the Board of Review to this Court and apprised of the contents of the case stated. He had participated in the hearing before the Board of Review but did not appear on the hearing of the stated case by this Court.

The Commissioner has submitted that the questions asked in the stated case should be answered as follows: 1. Yes; 2. No.; 3. No.; 4. No. and that his assessment should be confirmed.

The basis of the Commissioner's submission as to the first two questions is that the circumstances of the present case fall precisely within the decision and reasoning of this Court in the case of the Commissioner of Taxation v. French (1957) 98 CLR 398 , and that the only permissible conclusion from the primary facts of the case which I have already outlined and which were not in dispute is that the source of so much of the $50,000 agreed to be paid by the Swiss company to the respondent as was referable to the performance by the respondent of services in Australia as an actor and/or consultant was Australian and that the gross income which this portion of the sum of $50,000 represented was derived by the respondent directly or indirectly from sources in Australia within the meaning of s. 25 (1) (b) of the Act, and was not exempt under s. 23 (r) of the Act.

It has been said authoritatively that the question as to what is the source of income or whence it is derived for the purposes of the Act is a "hard practical matter of fact" and that the source of income is not so much a legal concept but that which a practical man would regard as the real source of income, see Nathan v. Federal Commissioner of Taxation (1918) 25 CLR 183 , at pp 189,190 . It would therefore be unlikely that there should be some rule of law which would compel the adoption of a particular conclusion where the facts themselves leave room for more than one view. However, counsel for the Commissioner sought to extract from the decision of this Court in the Federal Commissioner of Taxation v. French (1957) 98 CLR 398 a rule of law that where the consideration for the payment of the money which constitutes income from personal exertion is the performance of work or the rendering of services, the source of that income is the place at which the work is done or the services performed, unless there are special circumstances necessitating or at any rate warranting a contrary conclusion. He says there are here no circumstances which in point of law could be regarded as special. He therefore submits that the amount earned by the respondent by working in Australia necessarily constituted income derived from a source in Australia.

The Commissioner treats the agreement between the Swiss company and the respondent as providing for payment to the respondent not a global sum of $50,000 for his willingness to perform a variety of services and for the giving of several undertakings restricting his freedom of action, and for his performance of those services if required to do so, but of a salary at the rate of $3,5.43 per week for services actually rendered as an actor and/or consultant in, or in respect of, a photoplay in this instance, "The Sundowners". Having taken this view of the agreement, he extracts a conclusion that the respondent earned by working in Australia a weekly salary for each of eleven weeks during which he was on location in the filming of "The Sundowners" in Australia. The source of the weekly salary thus earned, he submits, must be held to be in Australia.

In my opinion, the submission of the Commissioner is unacceptable. The conclusion as to the source of income for the purposes of the Act is a conclusion of fact. There is no statutory definition of "source" to be applied, the matter being judged as one of practical reality. In each case, the relative weight to be given to the various factors which can be taken into consideration is to be determined by the tribunal entitled to draw the ultimate conclusion as to source. In my opinion, there are no presumptions and no rules of law which require that that question be resolved in any particular sense.

This Court in French's Case (1957) 98 CLR 398 , having received the appeal from the Board of Review on the footing that there was a matter of law involved in the decision of the Board of Review, was deciding for itself the ultimate question of fact as to the source of the income there in question. The Court treated the case before it as one in which the income only became due for work or services actually done or performed, see per Dixon C.J. (1957) 98 CLR, at p 405 and per Williams J. (1957) 98 CLR, at p 410 . Williams J., with whose reasons for judgment Dixon C.J. agreed, said that the principle to be derived from the cases relating to the source of income derived from the carrying on of a trade or business was that the source of income is "a practical hard matter of fact", "something which a practical man would regard as a real source of income" and that, where income was derived from a trade or business, it may be derived from more than one source, in which case an apportionment of the income is necessary. Having said this, he proceeded "If the principle of these decisions is applied to a contract of employment it would seem to require the conclusion that the locality of the source of the income must be the place where the duties of the employment are performed and that where these duties are performed in more than one place the income is derived from more than one source" (1957) 98 CLR, at p 411 .

He then gave reasons why the English authorities were not appropriate to the decision as to the source of income for the purposes of the Act, and concluded "There is no difficulty under the Australian Act in holding that, as in the case of a trade or business, so in the case of a contract of employment, the source of the income is where the duties of the employee are performed and that where they are performed in more than one place there should be an apportionment" (1957) 98 CLR, at p 413 .

I take his Honour in these passages to be saying no more than that in point of hard practical fact he thought that in a case of wages for work the place of performance of the work would be the source of the wages.

Kitto J. was not prepared to go further than to say that "in many cases the performance of the service is relevant and may indeed be decisive" (1957) 98 CLR, at p 418 . He was unwilling to decide the ultimate question as to the source of the income in that case because he felt he had insufficient information.

Taylor J., as I read his reasons, was engaged in deciding a question of fact deriving what assistance he could from the decided cases. He said, speaking, of course, of a case of wages or salary for work done or services performed - ". . . if, as the statute requires, I am compelled to select as the source of an employee's remuneration either the locus of the contract of service, or, the place where the remuneration is payable thereunder, or, the place where the services are performed which give rise to the right of remuneration I am content to conclude that, in the absence of special circumstances, this third element should be chosen" (1957) 98 CLR, at p 422 .

In so saying, his Honour was not, in my opinion, laying down a rule of law: he was expressing his reasons for the conclusion of fact to which he had come.

I do not feel compelled or persuaded by the decision of the Court in French's Case (1957) 98 CLR 398 to hold that in every case where work forms the consideration for wages or salary paid, the source of the income constituted by the wages or salary is in the place where the work is done.

In addition, in this case, a real question arises as to whether this is a case, as French's Case (1957) 98 CLR 398 was treated, of wages or salary for work. I have called attention to the terms of the agreement between the Swiss company and the respondent under which he received the sum of $50,000. But, as it is not my province to decide what was the source of the income of the respondent, I refrain from further pursuing that question or the question whether apportionment of the sum of $50,000 is permissible. It is sufficient for present purposes to say that neither French's Case (1957) 98 CLR 398 nor any other of which I am aware lays it down that for the purposes of the Act the source of wages, salary or remuneration for services performed is necessarily, in default of special circumstances, in the place where the work is done or the services performed. I would therefore answer question 1 No; and question 2 Yes.

In my opinion, the other questions do not presently arise: material which may bear on their resolution has yet to be placed before the Justice hearing the appeal and his conclusions therefrom have yet to be drawn. It would, in my opinion, be premature and unsatisfactory to answer these questions at this stage upon the material in the stated case.

The appellant has not succeeded in obtaining the answers it proposed. However, the respondent has not appeared. In my opinion, the case will be met by making no order as to costs of the case stated to this Court.