Case P122

Judges: HP Stevens Ch
JR Harrowell M

BR Pape M

Court:
No. 1 Board of Review

Judgment date: 15 December 1982.

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B.R. Pape (Member)

In this reference the only issue which falls to be decided by the Board is whether additional tax of $14,928.38 was correctly imposed by the Act and if it was, whether it should be further remitted to nil.

2. On or about 14 December 1978, the taxpayer who was at all relevant times carrying on practice as a medical practitioner, lodged his return of income for the year ended 30 June 1978. The return was verified by the taxpayer in accordance with the regulations. The taxable income disclosed by the return was $15,275 and was represented by -

                                                      $

      Net income from practice                     68,354

      Partnership loss (other)                     (3,076)

      Partnership loss (share

        trading)                                  (50,003)

                                                  -------

      Taxable income                              $15,275

                                                  -------
      

3. By a letter dated 17 January 1979, the taxpayer's agents requested that the taxable income should be increased to $67,214. The taxable income as returned was sought to be amended by the following adjustments:

                                                      $

      Taxable income per return                     15,275

      Add Partnership loss from

            share trading                           50,003

          Partnership loss - other

          Decrease from $3,076

            to $1,140                                1,936

                                                   -------

      Taxable income as sought to be

        amended                                    $67,214

                                                   -------
      

4. On 23 March 1979 the Commissioner issued a notice of assessment to the taxpayer in which he ascertained that the taxable income for the 1978 year was $67,204 and the tax thereon was $34,193.73. Also included was additional tax of $14,928.38 which was described as being imposed because of an incorrect return.

5. By a requisition dated 23 March 1979 the Commissioner sought answers to various questions asked of the taxpayer. On 6 April 1979 the taxpayer replied to this requisition.

6. On 10 April 1979 the taxpayer lodged a notice of objection against the assessment. This objection was disallowed by the Commissioner on 6 August 1981 and on 21 August 1981 the taxpayer requested the Commissioner to refer his decision to a Board for review.

7. The taxpayer gave evidence that he had entered into a partnership agreement on 31 March 1978 for the purpose of carrying on a business of trading in stocks and shares. The life of this partnership was some 53 days. His contribution to the capital of the partnership was $500. Upon its dissolution on 4 July 1978 he received the sum of $490. The partnership acquired 13,133,302 shares in a proprietary company X Pty. Ltd. A bonus issue of shares by X Pty. Ltd. resulted in the partnership acquiring a further 1,000,000 ordinary shares. These shares were sold. In calculating the partnership loss under sec. 90 of $1,000,055 a deduction of $1,000,000 was claimed for the par value of the bonus shares in accordance with the principles enunciated by the High Court in
Curran v. F.C. of T. 74 ATC 4296 ; (1974) 131 C.L.R. 409 . An amount of $50,003 was initially claimed as a deduction by the taxpayer under sec. 92(1). This claim was subsequently withdrawn by the taxpayer on 17 January 1979 some 65 days before the assessment was issued.

8. In response to the letters of 17 January 1979 the Commissioner selectively ignored the adjustment sought from share trading by imposing additional tax pursuant to subsec. (2) of sec. 226. No additional tax was imposed in respect of the amended loss of the other partnership of which the claim had been reduced from $3,076 to $1,140. The additional tax imposed was $59,713.52 but was remitted by 75% to $14,928.38 pursuant to subsec. (3) of sec. 226.

9. Because I am of the view that sec. 226(2) only applies to deductions for expenditure and not for deductions for losses under sec. 92(1), see reference No. 117/1982 ( Case P120,
82 ATC 604 ), the additional tax was not authorised by the section. Nevertheless if I had found that the additional tax was correctly imposed under sec. 226(2) I would still have remitted it down to nil. The decisive factor being that the taxpayer had withdrawn his claim under sec.

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ATC 627

92(1) on 17 January 1979 some 65 days before the assessment issued.

10. For the above reasons I would reverse the Commissioner's decision on the imposition of additional tax and reduce the assessment by $14,928.38.

Claim allowed in part