MoT FOUL. SPCR &/ Cian 45 O.L.R.] OF AUSTRALIA. {HIGH COURT OF AUSTRALIA.] PENROSE . 3 E ei e 4 i . APPELLANT; AND THE FEDERAL COMMISSIONER OF TAXATION ResponpEnv. Income Tax (Oth,)—Assessment—Income omitted from return—* Additional tax" — How caleculated—Income Tax Assessment Act 1922-1928 (No. 37 of 1922— No. 46 of 1928), sec. 67. In sec. 67 (1) of the Income Tax Assessment Act 1922-1928 it is provided that "any person who . . . (b) fails to include any assessable income in any retum . . . shall be liable to pay by way of additional tax the amount of one pound or double the amount of the difference between the tax properly payable and the tax assessed upon the basis of the return lodged, whichever is the greater." Held, that: sec. 67 of the Income Tax Assessment Act 1922-1928 contemplates and predicates a tax assessed upon a taxpayer's return which is less than the amount properly payable, and does not authorize the calculation of the additional tax on the difference between the return as lodged and adjusted by the Commis. sioner and the retum of income made by the taxpayer. Appnat from the Federal Commissioner of Taxation. In the return furnished by William Gould Penrose of income derived by him from all sources during the financial year ended 30th June 1928, he showed a gross income from personal exertion of £453, which by relevant deductions he claimed to reduce to £204, and a gross income from property of £1,204, reduced to £493 by relevant deductions; and from the total of these two net amounts he further deducted £428 (being insurance premiums paid £17, allowance for children £100, medical expenses £54, and dividends from companies £257), leaving £269 as the net amount of his income during the period under review. The assessment notice received Ree au H. C. or A, 1931. i) Sypyey, April 28; July 30, Starke J. H.C. oF A. 1931. YS PENROSE v FEpErav Commis- SIONER OF TAXATION. HIGH COURT by him from the Commissioner of Taxation, however, sho ed taxable income for the year in question as being £1,202 from p exertion and £645 from property, the tax payable thereon, g making a rebate in respect of income derived from certain sh being £113 3s. 8d.; to which amount "additional tax" in the of £220 18s. 4d. was added under sec. 67 of the Income Tax A ment Act 1922-1928, in respect of three items of income to £1,143 which the Commissioner contended belonged to Penros and not to his wife. In response to an inquiry by the taxpay the Commissioner of Taxation stated that the additional tax impose for omitted income represented double the difference between th tax as assessed and the amount which would have been payabl by accepting the figures returned by Penrose. In order to ascertait the amount which, according to the Commissioner, would have beer payable, the Commissioner accepted the figures supplied by Penro as to his gross income, but only allowed deductions to the extent £123 in respect of income from personal exertion, and £882 in of other deductions claimed. The taxable income so found, allowing statutory exemptions to the extent of £186, was £33 and £136 respectively, the average yearly taxable income for 1 five year period ended 30th June 1928 being £550, and accor to the Commissioner the amount of tax that would have payable thereon, after deducting a rebate of tax under sec. 16 (6) of the Act, was £2 14s. 6d. The taxpayer objected to the in in his return by the Commissioner of the three items referred t above on the ground that the money involved belonged to his wi by virtue of a settlement made by him, bona fide and absolut in her favour in 1925, but such objection is not material to | report except that the Commissioner's contention was up on appeal by Starke J. Penrose also objected to the additional ta on omitted income on the ground that no assessable income hat been omitted by him from his original return and, conversely, if the disputed items were on appeal held to be his income, ' particulars of same were not omitted from his return, but, at 45 C.L.R.] OF AUSTRALIA. 265 to the issuing of the assessment notice. He objected further that H. ©. or A. the penalty charged was excessive, resulting from an error in caleula- re tion. The objections having been disallowed by the Commissioner, Pexrosr they were, at the request of Penrose, treated as an appeal and pee forwarded for hearing to the High Court. Commas- SIONER OF TAXATION. E. M. Mitchell K.C. (with him Bowie Wilson), for the appellant. : ate Jordan K.C. (with him E£. F. McDonald), for the respondent. Cur. adv. vult. Srarke J. read the following judgment :— July 30, This is an appeal against an assessment to income tax for the year 1928-1929. [After dealing with other matters not material to this report the judgment proceeded :—] The last item to which objection was taken is— Additional tax on omitted income £220 18s. 4d. This question depends upon the provisions of sec. 67 of the Income Tax Assessment Act 1922-1928, which, so far as material are as follows :—'' Any person who . . . (b) fails to include any assessable income in any return . . . if a taxpayer to whom paragraph (6) . . . of this sub-section applies, shall be liable to pay by way of additional tax the amount of one pound or double the amount of the difference between the tax properly payable and the tax assessed upon the basis of the return lodged, whichever is the greater." Under sec. 35 the Commissioner causes assessments to be made for the purpose of ascertaining the taxable income upon which income tax is levied, but I think secs. 32 (2), 39, 40, 54, 57, 62 (3), (3D) and 67 show that ascertaining the rate and amount of tax is a function within the duty of assessment. If that were not the case, then, I suppose, no appeal would lie to this Court against the amount of tax calculated by the Commissioner, for sec. 50 is limited to objections against assessments; on that view, the rate of tax would be regarded as imposed by the Act, and the calculations of the amount would be matter of proof in proceedings taken to recover the tax based upon the assessment of taxable income made by the Commissioner. But in the view I take, the propriety of the VoL. XLv. 18 H.C. of A. 1931. — PENROSE FeperaL Commis- SIONER OF TAXATION. Starke J. HIGH COURT charge of additional tax upon omitted income falls for decis this appeal. Now sec. 67 predicates, to my mind, a tax assesse upon the basis of the return lodged. The Commissioner did n assess a tax upon the return lodged, or, in my opinion, upon t] basis of that return, but brought into his assessment the items which he alleged the taxpayer had improperly omitted, and thus ascertained the amount of the tax properly payable by the taxpayer in accordance with the provisions of the Income Tax Assessment Act. additional tax was calculated on the difference between the re as lodged and adjusted by the Commissioner and the return of income made by the taxpayer. The provisions of sec. 67 do no in my opinion, warrant any such proceeding: they contem and predicate a tax assessed upon a taxpayer's return which is less than the amount properly payable. No such assessment was evel tax is calculated on a basis unfair to the taxpayer, and the of of the Commissioner certainly said that if the average of the ex assessments were taken, the result would be favourable to tl taxpayer. But itis unnecessary, on the construction of sec. 67 whic I have adopted, to consider or express any opinion upon this of the case. The result is that the appeal will be allowed as to the additional tax £220 18s. 4d., and otherwise dismissed. The total amount of tax payable is reduced to £113 3s. 8d. The parties will abide their own costs of appeal. Appeal allowed on this point ; otherwise dismis Each party to abide his own costs. _ Solicitors for the appellant, Faithfull, Maddock & Oakes. Solicitor for the respondent, W. H. Sharwood, Commonw Crown Solicitor.