Commercial Banking Co. of Sydney Ltd. v Federal Commissioner of Taxation

(1950) 81 CLR 263
24 ALJ 132
9 ATD 112
[1950] ALR 453

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(Judgment by: Latham CJ)

Between: Commercial Banking Co. of Sydney Ltd.
And: Federal Commissioner of Taxation

Court:

Judges:
Latham CJDixon J
Higgins J
Williams J
Webb J
Fullagar J

Subject References:
Income Tax (Cth)

Judgment date: 6 June 1950

Melbourne

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Judgment by:
Latham CJ

June 8.

The following written judgments were delivered:

These are two appeals from decisions of a Board of Review upon assessments to income tax under the Income Tax Assessment Act 1936-1944 of the Commercial Banking Co. of Sydney Ltd. in respect of the income year ended on 30th June 1944. I propose to deal, in the first place, with the appeal by the commissioner.

1. The Commonwealth Debt Conversion Act 1931 provided for the conversion of certain existing securities issued by the Commonwealth into "new securities." Section 20, in terms which require close examination, provided that the interest derived from such securities should be free from any future increases of income tax, and s. 3 of the Income Tax Assessment Act 1936-1944 provides that nothing in that Act shall affect the operation of the said Commonwealth Debt Conversion Act 1931. (at p287)

The Board of Review has held that, in respect of the whole amount of interest to which s. 20 applies, the taxpayer is entitled to be free of ordinary tax (6s. in the pound), super tax (1s.) and further tax (2s.) (see Income Tax Act 1944, s. 5 (7) and s. 6) to the extent to which the total of those taxes, namely 9s., exceeds the tax payable (1s. 4d.) which would have been payable if income tax had been imposed upon the taxable income of the taxpayer in accordance with the provisions of the Income Tax Acts 1930. The commissioner has assessed the bank upon the basis that the amount of such interest which (apart from s. 20) would be taxable in respect of the income year 1943-1944 is the amount of interest received, but reduced by an apportionment of deductions representing expenditure made in gaining the income of the company, including the interest to which s. 20 applies. The company contends that the Board has rightly held that under the terms of s. 20 no such deductions are permissible. (at p288)

Section 20 of the Commonwealth Debt Conversion Act 1931 is in the following terms: -

"(1)

Not withstanding anything contained in the Taxation of Loans Act 1923 or in any other Act or State Act, the interest derived by any person in any financial year from new securities exchanged for existing securities (other than interest which in accordance with the provisions of section fourteen of this Act is free from Commonwealth and State Income Tax) shall be free -

(a)

from any income tax payable under a law of the Commonwealth to the extent by which the total amount of income tax which but for this section would be payable in respect of that interest exceeds the amount of income tax which would have been payable in respect of that interest if income tax had been imposed upon the taxable income of the person in that year in accordance with the provisions of the Income Tax Acts 1930 (other than section 7A of that Act); and

(b)

from all income tax under the law of a State. (2) In determining, for the purposes of this section, the amount of income tax which would be payable in respect of interest to which this section applies, the rate of tax shall be applied to the whole amount of that interest included in the income of the taxpayer without any deduction except such part (if any) of the deductions allowable from the income of the taxpayer derived from property as, in the opinion of the Commissioner of Taxation, is properly attributable to the interest.

(3)

In this section 'income tax' includes any tax imposed in respect of income." (at p288)

In the relevant year the bank held securities which were new securities within the meaning of s. 20 amounting to 4,061,249 pounds, this amount representing the monthly average of the relevant stock held during the income year. The total amount of interest received upon such stock in that year was 151,371 pounds. The commissioner apportioned expenditure of the company between that interest and other receipts of the company from interest-bearing securities. In the first place, he made a deduction of estimated expenses of managing & c. the s. 20 securities at one-half per cent - 757 pounds. Secondly, in that year the bank paid in interest on deposits an amount of 586,537 pounds. These deposits provided moneys which the bank invested in, inter alia, "new securities". Accordingly the commissioner treated a proportion of the interest paid on deposits as expenditure incurred in gaining the interest on the "new securities." The Australian assets of the bank, averaged over the year, amounted to 84,472,435 pounds. The commissioner ascertained the part of 586,537 pounds attributable to the new securities by taking the same proportion of that amount as the proportion represented by the new securities to the total Australian assets, thus reaching a sum of 28,199 pounds. The total of 757 pounds and 28,199 pounds is 28,956 pounds. The commissioner treated this amount of the expenditure as incurred in the gaining of the interest on the new securities, with the result that only the balance of 122,415 pounds (i.e. 151,371 pounds less 28,956 pounds) was taken as the amount of interest which, apart from s. 20, would be taxed in respect of the income year 1943-1944. This (and not 151,371 pounds) was the amount which the commissioner treated as interest which was subject only to the 1930-1931 rate, that is to a tax only of 1s. 4d. in the pound.

2. Various difficulties arise when it is necessary to ascertain how much of the residual amount calculated by deducting one or more amounts from a gross amount, representing the addition of several amounts, is constituted by one of the items which enters into the calculation of the gross amount or, to put the same question in another form, how much of a particular component item is included in the residue left after making deductions from the gross amount. Such questions have arisen upon particular statutory provisions in Douglass v. Federal Commissioner of Taxation (1931) 45 CLR 95 and Carpenters Investment Trading Co. Ltd. v. Federal Commissioner of Taxation (1949) 79 CLR 341 . No general principle can be laid down which can be applied in all cases. It is necessary to consider the precise statutory provisions under which the question arises. (at p289)

In the first place, s. 20 (1) provides that "interest derived by any person" from certain "new securities" is to be free from a certain amount of income tax. Sub-section (3) provides that "income tax" includes any tax imposed in respect of income. Prima facie such a provision applies to the whole amount of such interest. (at p289)

In the second place, the application of the section requires the comparison of two amounts of income tax payable in respect of that interest. The interest is to be free from any income tax so payable to the extent by which the total amount of income tax which, apart from s. 20, would be payable in respect of that interest exceeds the amount of income tax which would have been payable in respect thereof if income tax had been imposed in accordance with the Income Tax Acts 1930. In order to apply the section, therefore, it is necessary to ascertain what tax was payable upon the interest under the 1930 Act, and then to ascertain what tax would be payable in respect of the interest under the income-tax legislation applying to the relevant financial year. The ascertainment of the amount of tax which would be payable apart from s. 20 in 1930 requires merely the application of the relevant rate (1s. 4d. in the pound) to the amount of interest. It would not be possible to ascertain the amount of tax payable at the 1930 rate in respect of that interest by looking at the assessments of any particular taxpayers who happened to hold securities of this class at the time when the Commonwealth Debt Conversion Act 1931 was passed. One taxpayer might have had an income consisting solely of interest derived from those securities. Another taxpayer might have had an income of the same amount derived from those securities but have incurred deductible losses in a business which he carried on which reduced his taxable income to an amount much less than the amount of such interest. Thus the taxable incomes of holders of these securities would vary very greatly. The ascertainment of the tax that would be payable in respect of the interest if income tax had been imposed upon the taxable income in accordance with the Income Tax Acts 1930 must therefore be construed as requiring an ascertainment of the income tax which would have been payable in respect of the whole of that interest apart altogether from any considerations affecting the assessment of an individual taxpayer. (at p290)

In the next place, it is necessary, in order to apply the section, to ascertain the amount which would be payable apart from s. 20 in respect of the interest in respect of the financial year as to which the question arises. The ascertainment of this amount necessarily involves the application of the provisions of a current Income Tax Assessment Act, such Acts varying, as we know, from year to year. This was disputed in argument, but for the purpose of determining what tax would be payable apart from s. 20 in respect of the interest it is in my opinion plainly necessary to apply the provisions of the Income Tax Assessment Act and Income Tax Act applying to the relevant year. Otherwise it would be quite impossible to ascertain the amount of tax which "would be payable." It is true that s. 3 of the Income Tax Assessment Act 1936-1944 provides that nothing in that Act shall affect the operation of the Commonwealth Debt Conversion Act 1931. This provision, however, is in my opinion plainly intended to secure the full operation of the 1931 Act, notwithstanding provisions contained in the 1936-1944 Act for increased tax. Section 3 cannot be interpreted as meaning that the provisions of the 1936-1944 Act are to be disregarded in applying s. 20 of the 1931 Act for the simple reason that s. 20 cannot possibly be applied except upon the basis of a comparison of the amount of tax which would have been payable at 1930 rates with the amount of tax which would be payable under the applicable statutes in respect of the year 1943-1944 or of any other year in respect of which the application of s. 20 arises. (at p291)

So far the section is dealing with the whole amount of interest. The calculation of the amount of tax payable in respect of the interest in accordance with the 1930 rates is plainly made by calculating tax at 1s. 4d. in the pound on the whole amount of that interest. There is no provision in the introductory words of s. 20 which makes it possible to apply that rate to some part only of that interest which is regarded as being included in the ultimate taxable income (that is assessable income less allowable deductions - Income Tax Assessment Act 1936-1944, s. 6) of a taxpayer who happened to hold in 1930 or 1931 the existing securities for which the new securities were substituted. So also the other element of the comparison, in this case the tax payable in respect of the interest received in the income year 1943-1944, is prima facie to be calculated by applying the relevant increased rate to the whole amount of interest derived by the taxpayer and not to some part thereof (which might be little or nothing) which is regarded as represented by portion of the taxable income of the taxpayer who then happens to hold the securities.

3. But this prima-facie construction of s. 20 is modified, but only to a certain carefully specified extent, by sub-s. (2). This sub-section confirms the prima-facie interpretation of the earlier provisions of the section by providing in the first place that in determining for the purposes of the section the amount of income tax which would be payable in respect of the interest to which the section applies "the rate of tax shall be applied to the whole amount of that interest included in the income of the taxpayer without any deduction." But a modification or limitation is introduced by the words following - "except such part (if any) of the deductions allowable from the income of the taxpayer derived from property as, in the opinion of the Commissioner of Taxation, is properly attributable to the interest." Therefore in applying the section no deduction from the whole amount of interest is to be made unless it is a deduction allowable from the income of the taxpayer derived from property, and then only if such deduction is in the opinion of the commissioner properly attributable to the interest. (at p291)

The bank derived income by way of interest from various sources - interest on overdrafts, interest on "new securities," interest on other Commonwealth securities for which the bank subscribed or which it purchased, and interest on a special deposit with the Commonwealth Bank. The bank derived income from property in the form of rents. Any deductions which were allowable from the income derived from rents obviously could not be regarded as properly attributable to the interest. The commissioner contends, however, that the interest was income derived from property. The bank contends that it was interest derived from personal exertion. (at p292)

The choice between these propositions depends upon the interpretation to be given to the definition of "income from property" contained in s. 6 of the Income Tax Assessment Act 1936-1944. "Income from property" is defined as meaning "all income not being income from personal exertion." "Income from personal exertion" is defined as meaning income consisting of earnings, salaries, wages and various other forms of income including "the proceeds of any business carried on by the taxpayer either alone or as a partner with any other person." This is the only category mentioned in the principal part of the definition of "income from personal exertion" which would include interest. The definition however, continues by providing that income from personal exertion "does not include - (a) interest, unless the taxpayer's principal business consists of the lending of money, or unless the interest is received in respect of a debt due to the taxpayer for goods supplied or services rendered by him in the course of his business." The bank asserts and the commissioner denies that the bank's principal business consists of the lending of money. If the contention of the bank is sound, then the interest received by the bank on the "new securities" was income from personal exertion, so that no deduction of expenditure attributable to the gaining of that interest can properly be made in applying s. 20.

4. In the inquiry whether the principal business of the bank consisted of the lending of money it is in my opinion proper to exclude from consideration interest paid by the Commonwealth Government upon stocks purchased in the market because such interest is not derived from "the lending of money". The purchase of stock on the market is not a money-lending transaction. A person who buys Commonwealth stock on the market does not lend money to the vendor or to the Commonwealth. The interest received on the part of the Commonwealth stock so purchased should therefore not be regarded as interest derived from the lending of money. It does not necessarily follow, however, for reasons to be stated, that this amount of interest should not nevertheless be regarded as income from personal exertion. It may be that, when the principal business of a taxpayer consists of the lending of money, all the interest received by him as the proceeds of his business will be income from personal exertion, even though some of that interest may itself not be derived from the lending of money. (at p293)

The income of the bank consisted principally of interest, even if interest received on purchased stocks is excluded. In the year 1943-1944 the amount of interest received on overdrafts, treasury bills, special war-time deposit and Commonwealth stock for which the bank had subscribed was over 1,700,000 pounds. The total income of the bank as returned, including these items and also exchange, commission, fees on current accounts, rents and some other small items, was 2,458,864 pounds. Thus about seventy-five per cent of the income of the bank was derived from the lending of money. (at p293)

It is advantageous to a taxpayer to be taxed at the lower personal exertion rates rather than at the higher property rates. The inclusion of certain interest in the definition of income from personal exertion is therefore intended to bring within a lower rate of tax income consisting of interest where the taxpayer's principal business consists of the lending of money. It has been argued for the commissioner that this provision can apply in favour of a taxpayer only when the taxpayer carries on several businesses, one of which can be identified as his principal business. A bank carries on, it is said, only one business, the business of banking and activities incidental thereto, and therefore the exception cannot operate in favour of a bank. But such an interpretation produces strange results. A person who conducted a large money-lending business and who combined with it some other negligible small business would receive the benefit of tax at personal exertion rates upon the interest received. On the other hand, a person who carried on a money-lending business of the same dimensions but no other business would be taxed at the property rate on the same amount of interest. A construction which produces such a result should not be adopted unless the words are compelling. (at p293)

I agree with the Board of Review that it is proper to regard the principal income-producing activity of the taxpayer as the relevant matter in determining whether the taxpayer's principal business consists of the lending of money. The exception introduced into the exclusion of interest from personal exertion does not mean that all interest received by a taxpayer having such a principal business is to be treated as income from personal exertion. It has the effect only of bringing back into the definition interest which would otherwise be excluded by the words "but does not include interest." Therefore in order that any interest should be included within the words of exception from the exclusion of interest generally, it must be interest which qualifies under the definition, that is as being income which is the proceeds of a business, there being no other heading in the definition which can apply to it. Two observations, therefore, can be made upon this provision. The words excluding interest in general, taken by themselves, exclude all interest, but the words of the exception from the exclusion bringing interest within the definition of income from personal exertion where the taxpayer's principal business consists of the lending of money only result in leaving within the definition such interest as is interest which, apart from the exception, would be income from personal exertion, that is, if it is the proceeds of a business. Interest which is not the proceeds of a business cannot be income from personal exertion even though it is derived by a taxpayer whose principal business consists of the lending of money. But interest which is the proceeds of a business, even though not derived from the lending of money (e.g. interest received upon purchased securities) is income from personal exertion. (at p294)

In determining whether the lending of money is the principal business of a taxpayer it is proper to look at the business of the taxpayer in relation to its proceeds, that is the income which it produces. In the present case seventy-five per cent of the income is interest derived from the lending of money and the activity of gaining that income is, from the point of view of proceeds of the business of the taxpayer, the principal business activity of the taxpayer. In my opinion, therefore, the Board of Review properly held that the principal business of the bank was the lending of money and therefore that the interest derived by the bank from the lending of money was income from personal exertion.

5. The commissioner, in applying s. 20, has made a deduction from the amount of 151,371 pounds of certain expenses and a proportion of the interest paid on the money which was invested in the securities which brought in the interest. These deductions may be properly attributable to the interest in question, but they are not allowable as deductions from income from property because that interest is not income from property. Accordingly I agree with the Board of Review that the deductions made by the commissioner were wrongly made.

6. What has been said deals with the decision of the Board of Review in relation to income tax and super tax but leaves outstanding the question of further tax under Part IIIA of the Income Tax Assessment Act 1936-1944. Part IIIA provides in s. 160B that further tax at the rate declared by the Parliament shall be levied and paid on that portion of the taxable income of a company which has not been distributed as dividends or applied in paying certain taxes or meeting certain losses. The rate declared by the Parliament in the Income Tax Act 1944 upon such portion of the income of a company was 2s. in the pound. Section 160C provides for the ascertainment of the portion of the taxable income of the company which has not been so distributed or applied. It provides (so far as material) that for the purpose of the further tax such portion shall be ascertained by deducting from the taxable income of the company (1) certain taxes; (2) losses incurred in carrying on business out of Australia, except losses of a capital nature; (3) the amount of dividends paid out of the taxable income of the year of income within a specified time. The following table shows the manner in which the commissioner applied these provisions in the present case in respect of the income derived from new securities to which s. 20 of the Commonwealth Debt Conversion Act 1931 was applicable. (The commencing figure of 122,415 pounds should, for reasons already stated, in my opinion be 151,371 pounds, but it is convenient to use the commissioner's figure for the purpose of explaining the method which was applied in the assessment.)

The commissioner therefore charged tax of 2s. in the pound upon 118,239 pounds. (at p295)

Section 160c requires certain deductions to be made for the purpose of ascertaining the undistributed income of a company for the purposes of the tax. The above table shows that the commissioner distributed these deductions as between, on the one hand, the amount of Commonwealth loan interest which he regarded as entitled to the freedom from tax provided for by s. 20 of the 1931 Act and, on the other hand, the rest of the taxable income of the company. It is not necessary in my opinion to consider the particular method of distribution of these three items of deduction from the Commonwealth loan interest and other income. The result of the calculations of the commissioner was that the amount of s. 20 income included in the taxable income was taken as 44,990 pounds and it was exempted from further tax, but that the balance of 118,239 pounds was treated as income subject to further tax. (at p296)

In relation to further tax, what the commissioner has done is to deduct from the s. 20 interest amounts representing a proportion of taxes, losses and dividends and to treat only the remainder of the interest as interest which would have been taxed apart from s. 20. (at p296)

In my opinion the statute gives no authority for these deductions because the only deductions which can be made under s. 20 from the whole amount of interest are deductions which are allowable from income from property. The deductions to be made under s. 160C have nothing to do with deductions from income from property. Section 160c is concerned simply with the ascertainment of a portion of taxable income irrespective of whether or not it is income from property. The balance, after the due subtractions have been made, is to be treated as undistributed income for the purpose of the imposition of further tax. No question arises in the application of s. 160c as to whether the taxpayer paid taxes or dividends or met losses out of any particular fund. If such a question had arisen it would have been necessary to consider the applicability of the principle stated in Symon v. Federal Commissioner of Taxation (1932) 47 CLR 538 . This is the principle that when, if a taxpayer makes a payment out of a particular fund, he obtains a benefit, and he in fact makes a payment out of a mixed fund, the payment should be regarded as made out of that part of the fund which would be most beneficial to the taxpayer. But in the present case for the purpose of making the three subtractions for which s. 160c provides no question arises as to the fund out of which the taxpayer made any payment. It is true that in the case of the third deduction, namely "the amount of dividends paid out of the taxable income of the year of income" within a certain period, it is necessary to ascertain the fund from which the payment was made, and in determining this question the principle of Symon's Case (1) may well be applicable. But, when the amount of such dividends has been ascertained, that amount simply becomes one of the items in the process of subtraction prescribed by s. 160c, and that provision, as already stated, does not involve any appropriation by the taxpayer company to any particular portion of the income. Thus the principle of Symon's Case (1932) 47 CLR 538 is irrelevant in the application of s. 160c to the present case. (at p297)

For the reasons which I have stated, in my opinion the commissioner had no authority to attribute any of the s. 160c deductions to the interest received from the new securities but should have assessed the taxpayer upon the basis that the whole amount of 151,371 pounds was free from further tax. Accordingly, in my opinion the appeal of the commissioner should be dismissed.

7. I now come to the appeal of the bank. This appeal relates to the application of the provisions of s. 160AB of the Income Tax Assessment Act 1936-1944. So far as relevant, s. 160AB is in the following terms: -

"A taxpayer shall be entitled to a rebate in his assessment for an amount of two shillings for every pound of interest which is included in his taxable income and which is derived from bonds, debentures, stock or other securities issued by -

(a)

the Government of the Commonwealth, except securities to which section twenty of the Commonwealth Debt Conversion Act 1931 or sub-section (2) of section fifty-two B of the Commonwealth Inscribed Stock Act 1911-1940 applies." (at p297)

When deductions are made from assessable income in order to determine taxable income the deductions are made from the whole of the assessable income and the balance is the taxable income. If it becomes necessary for some particular purpose to assign deductions to particular items of gross income, prima facie each item in that income must be considered as ratably reduced by all expenditure incurred in gaining it which is not definitely attributable to some particular component thereof and in the latter case that component should be considered as reduced by the amount so attributable. Where the general expenditure of a profit-making business is met out of all the receipts of the business, constituting a mixed fund, and no method of appropriation of expenditure to particular items is prescribed by law or lawfully applied by those in control of the business, each item of the mixed fund may properly be considered as proportionately reduced in order to arrive at that which must be deemed to be the part of each item which is left in the residue: see Resch v. Federal Commissioner of Taxation (1942) 66 CLR 198 .

8. There is no dispute as to the amount of the securities held by the bank from which interest was derived which were included in the relevant year in the description contained in quoted par. (a) in s. 160AB. The amount of interest derived therefrom in the year was 439,774 pounds. The commissioner applied s. 160AB in the following manner. He made a deduction at a rate of one-half per cent as representing a proportion of general management expenses - 2,199 pounds. He then took the amount of interest paid by the bank upon deposits - 586,537 pounds. He distributed this proportionately according to values between what may be called the rebatable stock in respect of which the rebate under s. 160A was allowable (20,179,473 pounds) and the total value of Australian assets of the bank (84,472,435 pounds), thus arriving at an amount of 140,117 pounds. This amount was taken as representing a fair proportion of the interest upon the deposits which provided moneys out of which the investments in interest-bearing securities were made. These two sums, making 142,316 pounds, were deducted from 439,744 pounds, leaving a balance of 297,458 pounds. This sum was treated by the commissioner as the sum in respect of each pound in which a 2s. rebate was allowable. The contention of the bank is that a 2s. rebate should be allowed upon each pound in the amount of 439,774 pounds. (at p298)

It was pointed out that the commissioner had used for the purpose of this calculation the value of all Australian assets irrespective of whether or not they produced income and that this basis was more favourable to the taxpayer than what might be regarded as a more justifiable basis, namely, taking the proportion of the value of the rebatable stock to the income-producing assets, or possibly taking the proportion of interest derived from the rebatable stock to the whole income of the bank.

9. The question is whether the commissioner was right in making a deduction from rebatable interest of amounts representing expenditure incurred in earning that interest. The answer to this question depends upon the interpretation of the words which introduce s. 160AB - "A taxpayer shall be entitled to a rebate in his assessment of an amount of two shillings for every pound of interest which is included in his taxable income and which is derived from" certain securities. It is argued for the taxpayer that the section applies in respect of every pound of interest, that is, in the present case, each and every pound included in the amount of 439,774 pounds. It is argued that this whole amount is "included in the taxable income" if it enters into the calculation of the taxable income. It was not explained how this interpretation could be adopted if, as might be the case, e.g. a taxpayer incurred large deductible losses, with the result that the taxable income was less than the amount of interest. But perhaps a sufficiently practical reply to this objection is provided by s. 160AD (a), which provides that "Notwithstanding anything contained in this or any other Act - (a) the sum of the rebates allowable under this Act shall not exceed the amount of tax which would otherwise be payable by the taxpayer." (at p299)

The argument for the taxpayer is that the whole of the amount of 439,774 pounds is included in the taxable income because it is taken into account in calculating that income and it is contended that Douglass v. Federal Commissioner of Taxation (1931) 45 CLR 95 established a general rule to this effect. But the decision in Douglass' Case (1931) 45 CLR 95 was a decision upon particular words which were difficult to construe and it was largely influenced by consideration of the policy of the Act, namely the avoidance of double taxation. It may further be observed in relation to Douglass' Case (1931) 45 CLR 95 that the deductions sought to be made in determining what part of certain dividends was included in the taxable income were in that case deductions which had no relation to the acquisition of that income. In the present case the Court is called upon to consider the precise words of s. 160AB and the deductions which the commissioner seeks to make are deductions which represent expenditure incurred in gaining the relevant income so that they may well be regarded as deductions properly made before the amount of that income which is included in taxable income can be ascertained. In my opinion Douglass' Case (1931) 45 CLR 95 should not be regarded as conclusive of the present case.

10. The taxable income of the company was 690,309 pounds. As already stated, the interest derived from rebatable stock was 439,774 pounds. The whole of this amount, it was said, was included in the taxable income of 690,309 pounds. An amount of 151,371 pounds was interest on other securities not rebatable. But reasoning identical with that submitted on behalf of the taxpayer would reach the conclusion that the whole of this amount of 151,371 pounds also was included in the taxable income. Accordingly upon that reasoning the sum of these amounts would be included in the taxable income of 690,309 pounds. The sum of those amounts (439,774 pounds plus 151,371 pounds) is 591,145 pounds. The balance of the taxable income was therefore 99,172 pounds. The assessable income was 2,458,864 pounds. If 591,145 pounds is subtracted from this amount of assessable income, the remainder is 1,867,719 pounds. The result, therefore, of the reasoning of the taxpayer is that of the amount of 1,867,719 pounds only 99,172 pounds was included in the taxable income, whereas, of the taxable income consisting of 591,145 pounds derived from Commonwealth interest, the whole amount was included in the taxable income. Such a result does not incline the mind towards accepting the reasoning which produces it. (at p299)

In my opinion this reasoning on behalf of the taxpayer in effect strikes out of s. 160AB the words "which is included in his taxable income" and treats the section as if it read "A taxpayer shall be entitled in his assessment to a rebate of 2s. for every pound of interest . . . which is derived from" certain securities. In other words the argument treats the section as applying to the amount of interest simpliciter without inquiring how much of the interest is included in the taxable income. No effect whatever is given by the argument to the words "which is included in his taxable income." (at p300)

When it is intended to give a rebate upon a specific amount of money received by a taxpayer the legislature made definite provision to that effect. I refer for an example in the first place to s. 160, which refers to concessional rebates. That section contains this provision - "A taxpayer shall be entitled to a rebate in his assessment of tax equal to an amount ascertained by applying - (a) to each of the amounts set forth" the rate of tax appropriate to taxable incomes from personal exertion or to a company, as the case may be. There can be no doubt as to the interpretation of this provision. The amounts specified are taken and then a rebate is ascertained by applying a rate of tax to that amount. Similarly, in s. 160AA provision is made that a taxpayer shall be entitled to "a rebate" in his assessment of the amount obtained by applying to the amount of certain calls a particular rate of tax. Here again it is clear that the rebate is applied to the whole of a particular amount. But s. 160AB is quite different in character. It does not provide that a taxpayer shall be entitled to a rebate of 2s. for every pound of interest derived by him from certain securities. The rebate is allowed only upon every pound of such interest which is included in his taxable income. In my opinion the only way in which effect can be given to these words in the process of ascertaining for the purposes of s. 160AB how much of the interest to which the section relates is included in the taxable income of a taxpayer is to make some apportionment of deductions from assessable income between that interest and other income. It is not denied that if any apportionment is permissible the particular method adopted by the commissioner is not unfair to the company. (at p300)

Accordingly I am of opinion that the appeal of the bank should be dismissed. (at p300)