Case: Tinkler v Commissioner of Taxation (1979) 29 ALR 663
Outcome: referred to
SRSC supports Studdert J's reasoning and emphasises the distinction between the character of a payment and the manner of its calculation or quantification: Tinkler v Commissioner of Taxation (1979) 29 ALR 663 , at 672, per Deane and Fisher JJ. Mr Smark SC, who appeared with Ms McBride for SRSC, argued that the purposes of an award of general damages for defamation, where the plaintiff is a corporation, are to compensate for harm to reputation and to vindicate that reputation by establishing the falsity of the defamatory publications. Where a corporation claims that the defamatory publications have injured its reputation so as to affect its trade or business adversely, the damages award encompasses that form of harm. 40 In this case, so Mr Smark argued, SRSC complained of injury to its credit and reputation and sought damages for defamation, loss of business and economic loss. Its case before Studdert J concentrated on the loss of business it had sustained. His Honour rejected SRSC's claim for loss of business, insofar as it extended beyond 30 June 1999, and also rejected its claim for reduction in the value of the business. However, he awarded a lump sum (comprising three separate amounts for each defamatory publication) calculated by reference to lost earnings up to 30 June 1999. This method of calculation, so Mr Smark argued, does not alter the fact that SRSC received damages for injury to its business reputation. It follows that the damages award in favour of SRSC represents a receipt by it on capital account and is not income according to ordinary concepts. 41 The Commissioner submits that the Sum received by SRSC is to be regarded as income according to ordinary concepts for the purposes of s 6 -5 of the ITAA. According to the Commissioner, the test of whether an amount received by a taxpayer is ordinary income is whether the receipt in the hands of the taxpayer bears the character of income. The Commissioner relies on the proposition that the moneys recovered from any source representing items on revenue account must be regarded as income according to ordinary concepts. 42 In this case, SRSC made a claim for loss of profits as well as loss of business. Had the profits been realised, they would have been assessable as ordinary income. Thus the damages awarded by Studdert J represented items on revenue account and formed part of SRSC's assessable income. The case is analogous to a damages award for loss of profits, which is treated as income in the hands of the successful plaintiff, rather than a damages award for loss of earning capacity, which is characterised as a receipt on capital account. 43 Mr Hmelnitsky, who appeared for the Commissioner, acknowledged that the authorities seem to establish that an undifferentiated lump sum award, covering both economic and non-economic loss, cannot be dissected for the purposes of determining whether the whole or any part of the award should be treated as income in the plaintiff's hands. But SRSC had been careful in the Supreme Court proceedings to differentiate between its claim for loss of goodwill and its claim for loss of profits.