Between: The Herald and Weekly Times Ltd
And: Federal Commissioner of Taxation

Judges: Gavan Duffy CJ
Dixon J
Rich J
Starke J
Evatt J

McTiernan J

MELBOURNE

Judgment by:
McTiernan J

The following statement in the judgment of Mann J., from which this appeal is brought, precisely describes the matter in contention in this appeal. His Honor said: "The appellant (The Herald and Weekly Times Ltd.) "in this case claims to deduct from its income fro the purposes of the Federal Income Tax Act certain disbursements made during the year in question, arising out of the conduct of its business as the proprietor and publisher of an evening newspaper. The disbursements may be generally described as representing sums paid by way of compensation, either before or after judgment, to persons claiming damages in respect of libels said to have been published in the appellant's newspaper, and some other sums representing the costs of contesting those claims or of obtaining advice in relation to the best course to be followed with regard to claims of a similar kind. The Commissioner has disallowed those sums as deductions, upon the ground that the sums in question are not wholly and exclusively laid out or expended for the production of assessable income". ^[F17] The learned Judge added that, in his opinion, that decision was right.

The question whether these disbursements should be allowed as deductions is calculating the taxable income of the appellant turns upon sec. 25(e) of the Income Tax Assessment Act 1922-1929. It is not necessary that the terms of this provision should be again quoted. Mann J. was of the opinion that the deduction was forbidden by sec. 25(e) because the expenditure in question was, as found, a loss not in any sense productive of anything or tending to the production of anything by preserving the business or business connections or business assets of the appellant from depletion. But the learned Judge also found that the expenditure in respect of which the appellant claimed to make a deduction was an unavoidable loss arising as one of the consequences of carrying on the appellant's business of producing a newspaper.

The question propounded by sec. 25(e) must be decided as a matter of fact in each case (Federal Commissioner of Taxation v. Gordon). ^[F18] There is a material difference between sec. 25(e) and the provisions of the English Act upon which it is based, and care must be exercised in employing the English decisions in solving problems arising under sec. 25(e). In Gordon's Case Dixon J., having arrived at the conclusion that the expenditure in that case was made to secure certain advantages to the taxpayer's business by which his assessable income was earned, and for no other purpose, found that it was money wholly and exclusively expended for the production of assessable income. In deciding that the appeal against this decision should be dismissed, Starke J. said:- ^[F19]

"The question is really one of fact. The money was paid to secure to the taxpayer's business the benefits which flowed from membership of the association. It was from his business that his assessable income was derived, and the contribution was made to protect his interest in and his income from this business, and for no other purpose. My brother Dixon concluded that money so expended was wholly and exclusively laid out or expended for the production of the taxpayer's assessable income. Again, I see no reason for disturbing his finding, and concur in it."

In the present case the finding of the learned Judge as to the unproductive character of the expenditure, in the sense in which he described it, did not preclude a finding that the moneys with which this appeal is concerned were wholly and exclusively laid out or expended for the production of assessable income. the finding of the learned Judge may be said to embody one test only, and it may be gravely doubted whether a completely exhaustive test could be constructed by which the application of the section to any expenditure with respect to which the question as to the applicability of sec. 25(e) was raised should be decided (Strong & Co. v. Woodifield). ^[F20] It should, I think, have been concluded upon the finding that the expenditure was an unavoidable consequence of carrying on the business of printing and publishing the appellant's newspaper that the money in question was wholly and exclusively laid out or expended by the appellant to get its income. Indeed it would follow from his Honor's finding that the only condition that could have freed the appellant from the expenditure in question was that it ceased to carry on the business of printing and publishing a newspaper. the money, it is true, was paid out after publication. But the publication of printed matter was at once the act which produced the income and generated the liability which the moneys were expended to discharge. The amount of the liability was not fixed until after publication, but it was part of the true cost of publication. It was wholly and exclusively expended to print and publish the newspaper. This was the operation by which the Company produced its income.

The appeal should, in my opinion, be allowed, and a deduction of 3,131 pounds jade from the taxable income.