Reseck v. Federal Commissioner of Taxation.

Members: Gibbs J

Stephen J
Jacobs J

Tribunal:
Full High Court

Decision date: Judgment handed down 30 September 1975.

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Stephen J.: Upon one important question arising for decision on this appeal I have arrived at a conclusion different from that reached by the other members of the Court and this has led me to a result at variance with what will be the order of the Court; in the circumstances, I will indicate, as shortly as may be, the reason for my dissent.

The question to which I refer is whether an amount received by a taxpayer, conforming in all respects with the description of an allowance etc. in sec. 26(d) and which also possesses the quality of income in accordance with ordinary concepts, so as ordinarily to be assessable as income within sec. 25(1), is, by the effect of sec. 26(d), granted exemption from assessability as to ninety-five percent. The payments here received by the taxpayer were, as other judgments demonstrate, just such sums, being both allowances etc. within sec. 26(d) and also income in accordance with ordinary concepts; in my view, and whether or not, on the proper construction of sec. 26(d), they fall within its terms, there exists no ground for excluding them from the reach of sec. 25(1).

For the appellant to succeed in this appeal he must do more than show that sec. 26(d) applies to allowances etc. of an income nature; for present purposes I am content to assume that sec. 26(d) does apply to all allowances etc. of the character which it describes, whether they be of a capital or of an income nature. The appellant must further establish that sec. 26(d), in addition to performing its explicit work of bringing to charge as assessable income 5% of all allowances etc., also confers exemption from charge as assessable income, and hence removes from the general reach of sec. 25(1), the remaining 95% of such of those allowances etc. as are in the nature of income and would therefore otherwise fall within sec. 25(1).

Only in the case of para. (d) of sec. 26 does the question arise whether sec. 26 has any exempting function; this is because in no other of its thirteen paragraphs does sec. 26 operate to include in assessable income a percentage only of a receipt. It is this partial inclusion which sec. 26(d) effects which is said to give rise to an implied exemption from assessable income of the remaining 95%, whether or not it be in the nature of income according to ordinary concepts.

The general legislative pattern adopted for the determination of assessable income as described in the joint judgment of Dixon C.J. and Williams J. in
F.C. of T. v. Dixon (1952) 86 C.L.R. 540 at p. 555

``It begins with the general conception of gross income and specifies in sec. 23 what is exempt and in sec. 26 and other sections particular classes of income that are to be included. Sometimes these classes of income appear to be specified simply for greater certainty, sometimes because they do not fall within the natural understanding of gross income,....''

Section 26 performs the function thus assigned to it, as here described, by proceeding to

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enumerate various classes of receipts, many of which include, and some of which may consist entirely of, receipts of an income nature already brought into assessable income by sec. 25(1); familiar examples occur in sec. 26(a) and 26(e). It also includes, as in the first limb of sec. 26(a) and in sec. 26(d), some receipts which are of a capital nature according to ordinary concepts and which are, therefore, not already caught by sec. 25(1).

When, as occurs for example in sec. 26(a) and sec. 26(e), receipts of income already falling within sec. 25(1) are for a second time included in assessable income the consequence is not to submit them to assessment of tax twice over; they are assessed but once but there will be two provisions of the Act which will then justify their inclusion in assessable income. Similarly, I would suppose, with sec. 26(d); if it applies to allowances etc. both of a capital and of an income nature the latter run no risk of double assessment, as to 5% under it and again as to 100% under sec. 25(1). The only consequence will be that as to 5% of such amounts there will exist two provisions of the Act, instead of one only, ensuring their inclusion in assessable income. This operation of sec. 26(d) upon 5% of receipts which are of receipts which are of an income nature will be an unnecessary one, accomplishing nothing that sec. 25(1) would not accomplish unaided; but this, far from being a novelty, is a commonplace in the operation of sec. 26, as emerges from experience of the second limb of sec. 26(a) and of sec. 26(e). It does not, of itself, provide a ground for attributing any exempting operation to sec. 26(d). In the case of allowances etc. of a capital nature the legislation functions with a greater economy of effort, only by reason of the terms of sec. 26(d) will 5% of such allowances etc. be included in assessable income.

The working of sec. 26(d) may thus be seen clearly enough; it ensures that 5% of all such allowances etc. as there described are included in assessable income; it does not concern itself one way or another with the remaining 95%, which is either drawn into assessable income by sec. 25(1) and the general law if it bears the character of income or escapes assessability altogether if it bears the character of capital.

Nothing seems to me to emerge from what I have so far dealt with which would justify giving to sec. 26(d) any exclusory operation. In particular I see no scope for the application of the principle that specific provisions such as sec. 26(d) should prevail over general provisions such as sec. 25(1). Such a rule of construction has its place where contrariety is manifest -
Perpetual Executors etc. Ltd. v. F.C. of T. (1948) 77 C.L.R. 1 per Dixon J. at p. 29 et seq.,
Butler v. Attorney-General (Vic.) (1961) 106 C.L.R. 268 per Fullagar J. at pp. 275-276,
Fonteio v. Morando Bros. Pty. Ltd. (1971) V.R. 658 at p. 662 ; here however no conflict arises between general and particular unless there first be implied into sec. 26(d) an absolute exemption from assessability in respect of 95% of allowances etc. This rule of construction can hardly support such an implication when it itself will only apply if that implication be first made.

Section 26(e) is relied upon by the appellant; it is linked to sec. 26(d) by the reference to the latter in the proviso to sec. 26(e). This proviso serves to exclude from the inclusory operation of sec. 26(e) any allowance etc. which falls within sec. 26(d). Its presence no doubt strengthens the view that sec. 26(d) extends to allowances etc. of an income character; were it otherwise and if, as has been said in this Court, sec. 26(e) itself brings into charge no receipt which is not income, either according to ordinary concepts or by statutory definition, the presence of the proviso would be pointless. However the proviso appears to me to afford no support for the further proposition, essential to the appellant, that sec. 26(d) confers exemption from charge upon 95% of allowances etc. of an income nature. So long as there was thought to exist a possibility that the terms of sec. 26(e) might extend to allowances etc. of a capital nature, and the presence of ``directly or indirectly'' in sec. 26(e) may reasonably have lent colour to such a view, the presence of the proviso is immediately explicable. It serves to dispose of the possibility that sec. 26(e) might, contrary to the legislative intent, be treated as sweeping such allowances etc. into assessable income, whether or not of a capital nature.

Accordingly I find in the statutory context of sec. 26(d) no reason for regarding it as conferring any exemption from charge; nor are the words of sec. 26(d) itself susceptible of such a construction. Moreover the general legislative pattern, whereby exemptions are found in sec. 23 and the lettered sections which now follow it, whereas sec. 26 has quite different work assigned to it, is not one favourable to the giving of an exempting

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operation to sec. 26(d). It is for these reasons that I find myself unable to regard the payments received by the present appellant otherwise than as forming part of his assessable income within sec. 25(1).

In other respects, as will appear from what I have said above, I would respectfully agree with the reasons for judgment of the other members of the Court; I would, in particular, wish to associate myself with all that is said by Gibbs J. concerning the unchallenged findings of fact which are before us and the light which they must cast upon the propositions for which this case will be authority.

I would dismiss this appeal.