Perpetual Executors and Trustees Association of Australia Ltd v Federal Commissioner of Taxation

(1948) 77 CLR 1

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(Judgment by: Starke J)

Between: Perpetual Executors and Trustees Association of Australia Ltd
And: Federal Commissioner of Taxation

Court:

Judges: Latham CJ

Starke JDixon J
McTiernan J
Williams J

Subject References:
Estate Duty

Judgment date: 22 September 1948

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Judgment by:
Starke J

Case stated pursuant to the provisions of the Estate Duty Assessment Act 1914-1942. (at p21)

That Act provides that estate duty shall be levied and paid upon the value of the estates of deceased persons. The estate of a deceased person for the purposes of the Act comprises inter alia the personal property wherever situate if the deceased was domiciled in Australia at the time of death. (at p21)

Christina Thomson was a resident of Australia. She died on 15th December 1944 domiciled in Australia. (at p21)

In August of 1945 the Commissioner of Taxation, in the assessment of her estate to duty, included the sum of 6,814 pounds which he described as refund of income tax. The executors of the deceased had advised the Commissioner of her receipt of this sum but stated that they took the view that the sum was "not an asset liable for payment of duty, since at the date of Mrs. Thomson's death the amount of 6,814 pounds could not be regarded as an asset in Mrs. Thomson's hands or in the hands of her executors." In June of 1946 the Commissioner advised the executors that although their objection was technically allowed yet he had altered the assessment so as to include the sum of 6,814 pounds as a "right of action for recovery of unliquidated damages, valued at the sum paid to the administrators by the Treasury." The executors objected to this assessment on various grounds but the objection was disallowed. The Commissioner was requested to treat the objection as an appeal and forward it to this Court, which he did, pursuant to the Act. (at p21)

It appears that the deceased had received interest under certain gold dollar bonds issued by the Commonwealth in the United States of America. She had been assessed to income tax in respect of the interest so received and had paid in respect of the amounts so included income tax amounting in all to 6,814 pounds. These dollar bonds stipulated that the principal and interest instalments due thereunder should be paid in New York in the United States of America in gold coin of the United States of the standard weight and fineness existing on 1st September 1927 without deduction for any taxes now or at any time thereafter imposed by the Commonwealth or by any taxing authority thereof or therein. (at p21)

It is not disputed that the interest was so paid. But the relevant Income Tax Assessment Act 1936-1944 of the Commonwealth provided that income tax should be levied and paid upon the taxable income (that is, the income remaining after deducting from the assessable income all allowable deductions) derived during a financial year by any person whether a resident or a non-resident. The assessable income of a taxpayer includes where a taxpayer is a resident the gross income derived directly or indirectly from all sources whether in or out of Australia. And it was pursuant to the Income Tax Assessment Act of the Commonwealth that the deceased had been so assessed to income tax. (at p22)

A question arose in an action Magrath v. The Commonwealth (1944) 69 CLR 156 relating to the obligation of the Commonwealth in respect of the dollar bonds so issued by the Commonwealth. The following question was stated for the opinion of this Court: - (at p22)

Whether by the bonds the defendant promised the plaintiff as holder that the interest, after having been paid to him in full, would not form part of his assessable income for the purpose of Federal income tax within the meaning of the Income Tax Assessment Act 1922, and the Income Tax Assessment Act 1936, as respectively amended, or any other Income Tax Assessment Act thereafter to be enacted although he was a resident of Australia and liable as a taxpayer within the meaning of those Acts. (at p22)

And it was answered by a majority of the Court in the affirmative. But it was not decided whether Magrath was entitled to recover from the Commonwealth by way of indemnity or damages the additional amounts of income tax which Magrath had become liable to pay or had paid. However some settlement was made in the action the terms of which have not been disclosed. (at p22)

On 6th November 1944 during the life of Christina Thomson her solicitors inquired of the Commissioner of Taxation whether in view of the decision in Magrath's Case (1944) 69 CLR 156 it was the intention of the Commonwealth to repay Mrs. Thomson the income tax paid by her as the result of the inclusion in her assessable income of interest received by her under the gold dollar bonds. (at p22)

On 10th May 1945 the executors of the deceased received from the Commonwealth a cheque for 6,814 pounds being refund of the income tax on interest received on the bonds. (at p22)

There is a provision in the Income Tax Assessment Act 1936-1944 that where by reason of any amendment the taxpayer's liability is reduced, the Commissioner shall refund any tax overpaid and that except as otherwise provided every amended assessment shall be an assessment for all the purposes of the Act (see ss. 172, 173). Unless the Commissioner concluded that the interest was wrongly assessed and amended or treated his assessment as amended no warrant or authority existed for refunding income tax to the taxpayer. (at p22)

The revenues of the Commonwealth cannot be applied by public officers at their discretion to meet what they consider just claims against the Commonwealth. Yet, the argument addressed to the Court is that the Commonwealth was under no obligation whatever to refund the tax to the taxpayer or her executors and did so as a matter of grace and must be treated as having made a gift to the executors subsequent to the death of the taxpayer. All parties, however, regarded the amount of the income tax paid by Mrs. Thomson on the interest received from the dollar bonds as an unauthorized exaction and the Commonwealth conceded its liability to refund the amount. The character of the refund was thus established: it was a repayment of moneys paid by the taxpayer to the Commissioner pursuant to an unauthorized exaction or assessment and so repayable to the taxpayer or her representatives. That the Commonwealth may have had a good defence to the claim made by the deceased and her executors is not decisive for the Commissioner admitted the claim and refunded the interest on the basis that it was wrongly collected and assessed (see Attorney-General v. Murray [1904] 1 KB 165 ). (at p23)

Another argument was that the reasons assigned by the Commissioner for the inclusion of the sum of 6,814 pounds in his assessment to estate duty are wrong and that he allowed an objection to the inclusion of the sum in the assessment as a refund of income tax. (at p23)

The Court rejected this contention during the argument. (at p23)

The short answer is that the sum of 6,814 pounds was included in the assessment as part of the estate of the deceased and that an erroneous description of the character of the property does not render it immune from estate duty if it is otherwise assessable. (at p23)

The provision in s. 26 (2) of the Estate Duty Assessment Act that the objector is limited on the review to the grounds which he has stated in his objection has no application to the Commissioner and s. 27 (5) enables the Court on the hearing of an appeal to make such order as it thinks fit, and it may be such order confirm, reduce, increase or vary the assessment. (at p23)

In my opinion, the questions stated do not require categorical answers. It is enough to say that the sum of 6,814 pounds is rightly included in the value of the estate of the deceased for Federal estate duty as a refund of income tax. (at p23)