Commissioner of Taxation (Cth) v Armco (Australia) Pty Ltd [1954] HCA 49

High Court of Australia Dixon C.J. McTiernan and Fullagar JJ. Commissioner of Taxation (Cth) v Armco (Australia) Pty Ltd [1954] HCA 49

ORDER Question in the case stated answered—No. The appellant Commissioner of Taxation to pay the costs of the case stated.

Cur. adv. vult.

The Court delivered the following written judgment:—

Sept. 17, 1954 Dixon C.J., McTiernan and Fullagar JJ.

The question to be determined upon this case stated is whether certain interest credited by the taxpayer company to a corporation which does not "reside" in Australia but in the United States of America is interest credited on money lodged at interest in Australia with the taxpayer company within the meaning of s. 125 (1) (b) of the Income Tax Assessment Act 1936-1942.

Section 125 is concerned rather with the collection of tax than the incidence of tax. It deals with the case of non-residents to whom interest on money of a certain description is credited or paid and demands the tax upon the interest at the source by imposing liability upon the Australian debtor paying the interest. But its operation is limited. To begin with, it does not affect natural persons who pay or credit interest; only companies who do so. Then there is an exclusion of cases where the debtor can show that the creditor abroad can enforce the payment of the full amount of the interest without any deduction for tax. Where the company paying or crediting interest is liable to pay tax, the provision authorizes the deduction of tax from the interest credited or paid. Thus the incidence of the tax is meant to fall on the creditor abroad receiving the interest. But while this is so, the liability to the Crown of the company here is not secondary or collateral, but independent and primary. The reason is that those provisions which tax non-residents upon income from an Australian source may not always cover interest of the description to which the section relates or every person to whom it is credited or paid. The description of interest to which the provision applies forms another limitation on its operation and it is upon that limitation that the present case turns. For s. 125 (1) is confined to interest credited or paid by a company (a) on money secured by debentures of the company and used in Australia or used in acquiring assets for use or disposal in Australia or (b) on money lodged at interest in Australia with the company.