Case R45

Judges: MB Hogan Ch

P Gerber M
GW Beck M

Court:
No. 3 Board of Review

Judgment date: 11 May 1984.

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Dr. P. Gerber (Member)

In this case, the taxpayer (T) is a Queen's Counsel practising in one of the Australian States; he is also admitted as a barrister and solicitor in Papua New Guinea. In the 1981 tax year, T earned the equivalent of $A7,646 for work done in New Guinea as a barrister; the sole issue to be determined by the Board is whether this is exempt income pursuant to sec. 23(qa). It was common ground that the amount in issue was credited into T's bank account in Papua New Guinea and constitutes assessable income pursuant to the laws of that country on which tax is payable and will be paid.

2. The relevant provision states:

``23. The following shall be exempt from income tax -

• (qa) income consisting of earnings, salary, wages, commission, bonuses or allowances derived from sources in

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  Papua New Guinea from any office or employment (including employment... by a Government or an authority of a Government or as a member of the Defence Force) where the income is not exempt from income tax under the income tax laws of Papua New Guinea and, if there is a liability for payment of income tax under those laws, the Commissioner is satisfied that the tax has been will be paid;''

Mr. Davies Q.C., who, with Mr. Russell, appeared on behalf of the taxpayer did not seek to argue that the income was derived from an ``office'', the thrust of his argument being that it was ``earnings derived from employment''. Thus, it was submitted that ``employment'' in sec. 23(qa) means simply ``the way in which a man employs himself'' (
Davies v. Braithwaite (1931) 2 K.B. 628 at p. 634 ).

3. We were taken through the usual sojourn of dictionaries and decisions where the term ``employment'' has been used (these are usefully collected in Vol. 2 of Words and Phrases Legally Defined, 1969). Thus in
Lecture League Ltd. v. L.C.C. (1913) 108 L.T. 924 , Ridley J. stated (at p. 927) in relation to sec. 4 of the London County Council (General Powers) Act 1910:

``We have... to fall back upon the meaning of the word `employment'. That must surely mean more than the engagement of a servant, and more than the relationship of master and servant. One cannot use the word according to its proper meaning without admitting that it includes the employment of men and women who are delivering lectures. They are employed through an agency to do this, and that is the word which naturally lends itself to the description of what they are doing. I think one would use the word `employment' naturally for the employment of counsel, for instance, and in many other relations of life as a proper word.''

This use of the term ``employment'' was described by counsel as the ``wide'' sense; the ``narrow'' sense was claimed to describe the relation of master and servant. On this view, a barrister could never be said to be engaged in employment in the ``narrow'' sense. Much comfort was sought to be derived from the ``wide'' view taken of ``employment'' by Rowlatt J. in Davies v. Braithwaite previously referred to. In that case the question to be decided was whether an actress, who earned her living by accepting various engagements, should be assessed pursuant to Sch. D of the English Income Tax Act (from which Schedule the profits or gains from any employment were removed by sec. 18 of the Finance Act of 1922), or Sch. E (``tax under this Schedule shall be annually charged on every person having or exercising an office or employment of profit... in respect of all salaries, fees, wages, perquisites or profits...''). His Lordship concluded:

``I have to formulate some line of cleavage and it seems to me that what I must glean my inspiration from is the purpose of the change from Sch. D to Sch. E in the Finance Act 1922, sec. 18. I have to consider the effect of the change which was made in the different methods of raising income tax. It seems to me that when the Legislature took `employment' out of Sch. D, and put it into Sch. E, alongside `Offices', the Legislature had in mind employments which were something like `offices', and I thought of the expression `posts' as conveying the idea required. When a person occupies a post resting on a contract, and if then that is employment as opposed to a mere engagement in the course of carrying on a profession, I do not think that is a very difficult term of distinction, though perhaps a little difficult to apply to all cases. But I would go further than that and say that it seems to me that where one finds a method of earning a livelihood which does not consist of the obtaining of a post and staying in it, but consists of a series of engagements and moving from one to the other - and in the case of an actor's or actress's life it certainly involves going from one to the other and not going on playing one part for the rest of his or her life, but in obtaining first one engagement, then another, and a whole series of them - then each of those engagements cannot be considered an employment, but is a mere engagement in the course of exercising a profession, and every profession and every trade does involve the making of successive engagements and successive contracts and, in one sense of the word, employments.

In this case I think it is quite clear that the respondent must be assessed to income tax under Sch. D, because here she does not

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make a contract with a producer for a post. She makes a contract with a producer for the next thing that she is going to do, and then with another producer, and then a third producer, and at any time she may make a record for a gramophone company or act for a film. I think that whatever she does and whatever contracts she makes are nothing but incidents in the conduct of her professional career. Therefore, I think she is taxable under Sch. D.''

This decision was, in turn, explained in
Fall v. Hitchen (1973) 1 All E.R. 368 in these terms:

``In that judgment, Rowlatt J. holds that the word `employment' means a post, and distinguishes it from a succession of engagements made in the course of carrying on a profession. He then goes on to hold that, on the particular facts of that case, Miss Braithwaite did not hold any post and that none of her particular engagements could be treated as a post, but that on the contrary all her successive engagements must be treated as incidents in the conduct of her profession. The learned judge nowhere says that if an actor enters into a contract in such terms as to amount to what he calls a post, then that actor is not chargeable under Sch. E but under Sch. D. On the contrary, it is implicit in the whole of his judgment, it seems to me, that if a professional person, whether an actor or anybody else, enters into a contract involving what the learned judge calls a post, then that person will be chargeable in respect of the income arising from the post under Sch. E notwithstanding that he is at the same time carrying on his profession, the income of which will be chargeable under Sch. D. The instance of a musician puts that point very neatly.

I do not think most people today would use the word `post', which does not seem very apt to cover the countless instances of employment in the sense of a contract of service; but every word of that judgment is applicable as between the carrying on of a profession and an engagement in the course of carrying on that profession, on the one hand, and a contract of employment, on the other hand. The fact that an actor normally undertakes a succession of engagements in the course of carrying on that profession in no way involves the result that if an actor enters an acting employment in the nature of a post, then he is not assessable under Sch. E in respect of the income arising from that employment.''

I must freely confess that I have received little assistance from Davies v. Braithwaite . Historically, a barrister's fees, received as the result of being retained by various solicitors, would be taxed in the U.K. under Sch. D. However, I am unable to perceive that this affords much guidance in determining whether such fees earned in Papua New Guinea by Australian barristers constitute ``earnings from employment'' within the meaning of sec. 23(qa).

Mr. McGill, of learned counsel for the Commissioner, in a well researched submission, sought to persuade us that the word ``employment'', when used in conjunction with the word ``office'', should derive its main colour from the latter on the principle that words of a feather fly together. The term ``office'' has, by now, a well settled meaning, connoting something which is a subsisting, permanent, substantive position which has an existence independent of the person who fills it, and which goes on and is filled in succession by successive holders (
Great Western Railway Company v. Bater (1920) 3 K.B. 266 at p. 274 ). I find the argument that the word ``employment'' should be given a meaning noscitur a sociis with ``office'' unappealing. Whilst it is true that this interpretation found some support from Lord Atkin in
McMillan v. Guest (1942) A.C. 561 at p. 564 , it was rejected, albeit obiter, by Lord Salmon in
Edwards v. Clinch (1982) A.C. 845 .

4. Mr. McGill sought additional comfort from the decision of Mr. Fairleigh Q.C., sitting as a Member of Board of Review No. 1 in Case G57,
75 ATC 414 and his review of the law, undertaken therein with his customary thoroughness. The issue in that case was whether there had been a termination of ``any office or employment'' within the meaning of sec. 26(d). I am not wholly persuaded, that a transposition from sec. 26(d) to sec. 23(qa) is justified merely because the same terms are used. The result of giving the same legal interpretation to these words in the two provisions would result in giving sec. 23(qa) little effect. For example, it would be an unusual ``office'' which remunerated the holder by the payment of a ``commission, bonuses or allowances''. Historically, our definition of

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``income from personal exertion'' separated itself into two species of receipts: one class included, inter alia, earnings, salaries, wages, commissions, fees, bonuses, etc. received in the capacity of employee; the other embraced ``the proceeds of any business carried on by the taxpayer''. I am satisfied that the fees paid to a barrister are, in no sense, received in the capacity of employee. It remains merely to ask whether a barrister carries on ``business''. The notion is repugnant. Once again resorting to history, barristers were gentlemen and rendered their services - at least in theory - without remuneration; the handling of money was strictly ``trade''. Gentlemen learned in the law overcame this problem by artfully concealing a pocket, sewn on to the back of their gowns, into which solicitors ``surreptitiously'' slipped the golden guineas previously agreed to. It was a charming fiction but like the writs of aiel and besaiel, it fell into desuetude. In time, barristers, although continuing to be gentlemen, accommodated themselves to the changing times by employing clerks to handle the more commercial side of their profession. With the advent of the back-sheet, the two-thirds rule and the Law Council of Australia, barristers entered into business, different only in kind from the corner grocer.

5. In the result, I am satisfied that the term ``employment'' in the overall context of sec. 23(qa) applies and only applies to receipts received in the capacity of employee; it does not apply to a professional practising on his own account. If there is a contract between T and the various solicitors who retain him in Papua New Guinea, it is a contract for services. It follows that ``employment'' in sec. 23(qa) does not, in my opinion, apply to the engagement of a barrister in the course of the exercise of his profession.

6. I would uphold the Commissioner's decision on the objection.