Peyton v Commissioner of Taxation (Cth) [1963] HCA 33

High Court of Australia Kitto, Taylor and Owen JJ. Peyton v Commissioner of Taxation (Cth) [1963] HCA 33

ORDER Question in case stated answered No. Costs of case stated to be paid by appellant.

Cur. adv. vult.

The Court delivered the following written judgment:—

Aug. 30 Kitto, Taylor and Owen JJ.

This is a case stated under s. 18 of the Judiciary Act in an appeal by the taxpayer from the decision of a Board of Review disallowing an objection to an assessment of tax for the year ending 30th June 1957. In his return for that year, the appellant claimed to be entitled to a deduction of £3,864, under s. 80 of the Act, as being a loss incurred by him during the year ending 30th June 1956. Of this sum the respondent allowed £407 as a deduction but disallowed the claim to deduct the balance, namely £3,457, and the question is whether this deduction should have been allowed. This in turn involves deciding whether during the year ending 30th June 1956 this amount was, within the meaning of s. 51 (1) of the Act, a loss or outgoing incurred in gaining or producing the appellant's assessable income or was necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, not being a loss or outgoing of a capital nature. Although some reference was made by counsel for the appellant to s. 53 of the Act, his arguments rightly proceeded on the basis that if he could not show that the case fell within s. 51 (1), he could not succeed. It should also be mentioned that before the Board of Review and before this Court counsel disclaimed any intention to rely upon s. 85; and indeed he could not be allowed to rely upon it as to do so would be to travel beyond the grounds stated in the appellant's objection (see s. 190 (a)).

The facts are that by an indenture of lease of 30th December 1955 the appellant became the weekly tenant of Tooth & Co. Ltd. of a hotel at Cronulla. By the indenture the appellant covenanted that he would not transfer, sublet, mortgage or otherwise part with the possession of the premises without the written consent of Tooth & Co. Ltd. There was a proviso "that before such consent is given the Lessee shall carry out and complete to the satisfaction of the Architect of the Lessor all such repairs renovations painting and papering as shall be considered necessary in accordance with the report of the said Architect and in case the work is not completed prior to the transfer of the said License of the said Hotel the Lessee shall pay to the Lessor an amount to cover the estimated cost of the work in accordance with such report". The proviso went on to authorize Tooth & Co. Ltd. to deduct from any moneys held by it on behalf of the appellant an amount sufficient to cover the estimated cost of the work to which the proviso refers. The indenture contained further covenants by the appellant, in a form usual in such cases, to keep the premises in good and substantial repair and deliver them up in that condition on the termination of the lease. On 18th May 1956 the appellant agreed to sell to one Betts the lease, licence, goodwill and the furniture, plant and fittings of the hotel for £20,000, of which £10,884 represented the consideration for the sale of the goodwill. The agreement required Betts to pay £2,000 forthwith to the appellant's solicitors and this was done. The balance of £18,000 was agreed to be paid by Betts to Tooth & Co. Ltd. not later than three days before the application for the transfer of the licence of the hotel. Tooth & Co. Ltd. had been earlier notified by the appellant of the proposed sale to Betts and on 17th May 1956 its architect made a report in writing setting out a list of work required to be done pursuant to the terms of the proviso and estimating the cost thereof at £3,957. On 5th June 1956 the appellant ceased to carry on the hotel business and on the following day the licence was transferred to Betts who, on the same day, paid to Tooth & Co. Ltd. the balance of the purchase money. In fact there was no assignment of the appellant's lease to Betts. Instead, at the request of the appellant, Tooth & Co. Ltd. accepted Betts as tenant and granted him a weekly tenancy. On 27th June Tooth & Co. Ltd. paid to the appellant's solicitors the sum of £12,770 13s. 6d retaining the sum of £5,229 6s. 6d of which £3,957 represented the amount estimated by the architect as being the cost of the work specified in his report. On 4th July 1956 Tooth & Co. Ltd. paid a further sum of £500 to the appellant and this payment was treated as reducing to £3,457 the amount retained to cover the estimated cost of repairs. In fact some only of the repairs were carried out, the premises being later demolished, but this is not a relevant fact in these proceedings.