Bank of New South Wales Savings Bank Ltd v Commissioner of Taxation [1962] HCA 43

High Court of Australia Dixon C.J. Kitto, Taylor, Menzies and Owen JJ. Bank of New South Wales Savings Bank Ltd v Commissioner of Taxation [1962] HCA 43

ORDER The question submitted for the opinion of the Full Court is answered that the appellant is entitled to a rebate in its assessment calculated in pursuance of Section 160AB of the Income Tax and Social Services Contribution Assessment Act upon the sum of £1,163,988. Costs of the case stated reserved to be dealt with by the judge disposing of the appeal.

Cur. adv. vult.

The following written judgments were delivered:—

August 29 Dixon C.J.

Section 160AB of the Income Tax and Social Services Contribution Assessment Act 1936-1960 Cth provides that 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 bonds, debentures, stock or other securities issued by the Government of the Commonwealth and the Government of a State and certain other bodies. There are certain exceptions, limitations and qualifications which are immaterial.

The appellant Bank is a taxpayer who in the year of income derived large sums of assessable income from the sources mentioned. The sums the taxpayer so derived greatly exceeded the amount of its taxable income. The reason is, of course, that the allowable deductions from its assessable income were sufficient to reduce the taxable income to an amount considerably below the aggregate sum received from interest on Commonwealth securities. The Commissioner of Taxation in calculating the rebate declined to treat the total interest contained in the assessable income as "included" in the taxable income. He took the view that no sum could be "included" in the taxable income which exceeded the amount of the taxable income. The taxpayer claims that, on the contrary, for the purposes of calculating the rebate of two shillings, the whole of the interest included in the assessable income is to be regarded as included in the taxable income. I have stated the argument advisedly in abstract terms but perhaps figures should be given in order to make it clear by illustration. Approximately the amount of the assessable income was £6,702,000. Of that, £3,021,000 consisted of interest received from Commonwealth securities. The allowable deductions amounted to £5,538,000. The taxable income was therefore approximately £1,164,000. The Commissioner calculated the rebate of two shillings in the pound, not on the sum of £3,021,000 as claimed by the taxpayer, but on the net figure of £1,164,000.

It appears to me that in doing so the Commissioner was demonstrably right. He was right for the simple reason that no more could be included in the taxable income than its total amount.

The argument for the taxpayer, needless to say, must depend on the word "included". It is a word that in different contexts may receive different applications. I discussed the word more generally in Douglass v. Federal Commissioner of Taxation [1] but I stated my view of the meaning of the word in s. 160AB definitely in Commercial Banking Co. of Sydney Ltd. v. Federal Commissioner of Taxation [2] in the following passage: "The purpose of s. 160AB is to ensure to a taxpayer who invests in particular loans a definite rebate. 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. The purpose is in effect to say—If you make this interest from those securities a form of your income, from the tax upon that income you will obtain a rebate. The point of view both of the legislature and of the taxpayer who acted upon the assurance would more naturally be that he was to be assured of a rebate on the amount by which his income is increased by the inclusion of interest upon the specified securities. I construe s. 160AB as in effect meaning that a taxpayer is to be entitled to a rebate in his assessment of an amount of 2s. for every pound of interest by reason of the inclusion of which in his assessable income his taxable income has been increased. It will be seen that upon this meaning the rebate cannot be upon more than the taxable income which, of course, is obvious enough [1] ". To the view thus expressed I adhere. It is true that I did not use the word "taxable" before "income" when I referred to "a rebate on the amount by which his income is increased by the inclusion". But reference could not have been understood as meaning anything but income liable to tax. Notwithstanding the argument for the taxpayer I still think that it is obvious enough that what is included in the taxable income cannot exceed the taxable income. It seems to me impossible that the words "included in the taxable income" should include the whole item of interest, however large, which was taken into account in arriving at the taxable income. "Taxable income" is used in its proper, and one may say technical, sense, in contrast to "assessable income".

1. (1931) 45 C.L.R. 95, at pp. 105-107. 2. (1950) 81 C.L.R. 263. 3. (1950) 81 C.L.R., at p. 309.

To say that, because an item or figure is contained in the assessable income and therefore was taken into account in arriving at the taxable income, it is "included" in the taxable income gives a meaning to the word "included" which in s. 160AB it cannot bear.

The question in the case stated should be answered accordingly that the rebate to which the appellant is entitled is of an amount of two shillings for every pound of the taxable income, viz. £1,163,988.

Kitto J.

I agree.

Taylor, Menzies and Owen JJ.

The appellant appealed against an assessment of tax for the year ended 30th September 1960 and in the course of the appeal this case was stated by Kitto J., at the request of the parties, for the opinion of the Full Court on a question involving the interpretation and effect of s. 160AB of the Income Tax and Social Services Contribution Assessment Act.

During the year in question the appellant's assessable income amounted to £6,702,006 which included an amount of £3,020,983 representing interest received by it from bonds, stock and other securities issued by the Commonwealth Government not being securities to which s. 20 of the Commonwealth Debt Conversion Act 1931 or s. 52B (2) of the Commonwealth Inscribed Stock Act 1911-1946 applied. The appellant's allowable deductions amounted to £5,538,018 and its taxable income was therefore £1,163,988. In assessing the amount of tax payable the Commissioner allowed a rebate under s. 160AB of £116,398 16s. 0d, that representing a rebate of 2s. for every pound of the amount of the taxable income. The appellant claims, however, that the section entitles it to a rebate of 2s. for every pound of the total amount of interest received by it, namely £3,020,963 and the question is whether this claim can be sustained. The rebate for which s. 160AB provides is a rebate for every pound of interest of the prescribed kind which is included in the taxpayer's taxable income. This presupposes, of course, that there is a taxable income, that is to say that the amount of the assessable income is greater than the amount of the allowable deductions from that income. In the present case the appellant had a taxable income but the amount of bond interest to which s. 160AB applied and which was included in its assessable income exceeded the taxable income. In such circumstances, the appellant contends, the whole of the bond interest is, within the meaning of the section, included in its taxable income. This means in the present case that the sum of £3,020,983 is, within the meaning of the section, included in the appellant's taxable income of £1,163,988. Ex facie the proposition is sufficiently startling but it becomes even more so when it is seen that it also involves the notion that the section authorizes a rebate of two shillings in the pound for every pound of bond interest received by the taxpayer notwithstanding the fact that many pounds of that interest have not attacted any tax liability at all. The basis of the appellant's submission is that interest is "included in its taxable income" if it is taken into account in the process of calculating that income. But the effect of this argument is merely to substitute for "taxable income" in the section the words "assessable income" and there is nothing to justify such an interpretation. In Commercial Banking Company of Sydney Ltd. v. Federal Commissioner of Taxation [1] Dixon J. (as he then was) said: "I construe s. 160AB as in effect meaning that a taxpayer is to be entitled to a rebate in his assessment of an amount of 2s. for every pound of interest by reason of the inclusion of which in his assessable income his taxable income has been increased. It will be seen that upon this meaning the rebate cannot be upon more than the taxable income which, of course, is obvious enough " [2] And in Federal Commissioner of Taxation v. Australian Mutual Provident Society [1] in the joint judgment of Dixon C.J., Williams, Fullagar and Kitto JJ., this passage was taken to have settled the meaning of the section.

1. (1950) 81 C.L.R. 263. 2. (1950) 81 C.L.R., at p. 309. 3. (1953) 88 C.L.R. 450, at p. 466.

Counsel for the appellant submitted, however, that because the appellant would have shown a loss for the year in question had it not been for the receipt of the interest and because portion of that interest offset the loss that otherwise would have been shown the whole amount of interest received must be treated as having increased the taxable income. This argument cannot be supported. It cannot be said of a taxable income of £1,163,988 that it has been increased by £3,020,983.

The question asked in the stated case should be answered by saying that the rebate to which the appellant is entitled is of an amount of 2s. for every pound of the sum of £1,163,988.