Between: Federal Commissioner of Taxation
And: Australian Mutual Provident Society

Judges: Dixon CJ
Williams J
Fullagar J
Kitto J

Subject References:
Taxation and revenue
Income tax
Assessment
Assessable income
Deductions
Mutual life assurance company

Legislative References:
Income Tax Assessment Act 1936 No 27 - s 6; s 50; s 51; s 113; s 115; s 160AB
Commonwealth Debt Conversion Act 1931 No 18 - s 20

MELBOURNE

Judgment by:
Webb J

I agree with the answers proposed; but not for exactly the same reasons as those given above.  

As to s. 160AB interest: in Commercial Banking Co of Sydney Ltd v Federal Commissioner of Taxation, ^[F21] I took the view that the expression "included in his taxable income" in s. 160AB of the Income Tax Assessment Act 1935-1942 was elliptical and meant "included in the calculation of the taxable income". For that view I relied on the rebate being in respect of "every pound of interest", and not merely in respect of income from the interest; and also on the decisions of this Court in Douglass v Federal Commissioner of Taxation ^[F22] and Carpenters Investment Trading Co Ltd v Federal Commissioner of Taxation. ^[F23] It followed that, in my opinion, the whole amount of the interest was included in the taxable income within the meaning of s. 160AB, which makes no express provision for a deduction. But this view was not taken by Dixon J. (as he then was) who delivered the judgment that prevailed in Commercial Banking Co's Case. ^[F24] As I now understand his Honour's reasons for judgment in Douglass Case ^[F25] -and, indeed, as I should always have understood them-he has never regarded the expression "included in the taxable income" as elliptical, and as meaning "included in the calculation of the taxable income", or, as Starke J. stated it in Douglass' Case, ^[F26] as "included in account in ascertaining the taxable income"; and so his Honour has felt obliged to hold that for the purposes of the rebate there should be subtracted from the whole amount of the interest what he described as "special deductions which, but for the inclusion of the interest in the assessable income, would not be allowable". I am, of course, bound by the majority decision, and I accept the explanation of the reasons for it given by their Honours who constituted the majority; otherwise I would have held that the class of "special" deductions included those provided for by ss. 113 and 115, as I would not have been able to see any distinction in principle between them for the purposes of determining the amount of interest on which the rebate is granted within the limits imposed by the expression "included in his taxable income" in s. 160AB, if that expression is not elliptical. It would have appeared to me that the amount of interest "included in his taxable income" was determined as much by the one deduction as by the other, as nothing in the terms of s. 160AB would have suggested any distinction to me. In fact, s. 160AB makes no express reference to any deduction of any kind. It would have appeared to me that there was no material distinction between s. 113 and s. 115, because the deduction under s. 115 is based on assets and not on income; as the assets include these Commonwealth securities, and as a result the amount of interest included in the taxable income would have appeared to be determined by the operation of s. 115 as well as by the operation of s. 113; and further that the one deduction would be as "special" as the other. After all the concession in s. 160AB is to the holder of the securities as such: it is not extended to the assignee of the interest coupons.  

The merit is in the investment of assets in the security. As Dixon J. (as he then was) pointed out in Commercial Banking Co's Case: ^[F27] "The assurance is held out to him in order to induce him so to invest, because it is to the public advantage that investments of that character should be made".  

So I have found it difficult to see how there could be a difference between special and general deductions for the purposes of s. 160AB: each appeared to me to have the effect of reducing the taxable income, and necessarily the amount of any interest included in it. Yet this difference must be insisted upon if the concession is to be regarded as a real concession: if general deductions were taken into account there would be no difference between s. 160AB interest and any other kind of interest or income. It was because of this difficulty that I was driven to conclude that "included in his taxable income" was an elliptical expression, as Starke J. also appeared to regard it.  

As to s. 20 interest: if ss. 113 and 115 deductions are not special deductions for the purposes of s. 160AB, I cannot see how they can nevertheless be regarded as attributable to the s. 20 interest.