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Part A:
ANS (i).
FACTS OF BOTH THE CASES
In the case of FCT v Dixon (1952) 86 CLR 540, where the payment to taxpayer was
assessed as income the taxpayer was employed as a clerk. The clerk was employed by a firm
called Macdonald, Hamilton & Co [MH]. The company had in the assessment year ending
30
th
June 1943 had made a payment to the taxpayer for 104 pounds which was to make up for
his military pay up to the amount which he would have either received had he been
employed. (High Court of Australia, 1952) After the taxpayer was discharged, he assumed
that MH would wish him to resume with his work again and he would be joining the firm in
1946 but there was no undertaking by either parties for the same. Meanwhile the
commissioner included the amount of 104 pound as taxable income and the against party had
asked for a Board Review and the case was finally upheld to the court by the commissioner.
In the case of SCOTT v FCT (1966) 117 CLR 514, where the payment to taxpayer was not
assessed as income where the taxpayer was a solicitor and run his firm as “L. G. Scott & Co”.
The other party namely Mrs. Freestone has been one of his clients for long. Mr. Freestone
was directly associated with Mr. Scott and both were good friends. In the past years, Mr.
Scott has served on estate matters to Mr. Freestone and their family. Upon the death of Mr.
Freestone, the same services were rendered to Mrs. Freestone on the grounds of long
established relations with her. One fine day, Mrs. Freestone and Mr. Scott were travelling in
the car where Mrs. Freestone made a comment of gifting him 10,000 pounds as gift to which
Mr. Scott was utterly surprised. The whole case as assessed by the commissioner was that the
payments were made in favour of the services provided to her and not generally a gift. The
case was upheld by the court for the said matter. (High Court of Australia, 1966)
ANS(ii).
ISSUES RAISED AND LEGISLATION OF ITAA97
FCT v Dixon (1952) 86 CLR 540
The issues that were raised pertaining to the above case is as follows: -
 As per FULLAGAR J, the issue was that the payments were made solely to cover the
difference between the present rate of wages and the amount they are due to receive
out of their enlistment. The issue was clearly stated as payments not made in
connection with the salary neither the payments were made in relation to the
employment services. It was merely a substitute for salary which would have been
either made in the case if their enlistment did not take place. Even though the nature is
voluntary does not anywhere bound the payments to be non taxable. They are income
in nature. (High Court of Australia, 1952)
 As per the Income Tax Assessment Act 1997 – SECT 6.5 , the assessable income of
any person who is resident in Australia, will include all income received directly or
indirectly from all sources, whether in Australia or not during the income year. SECT
15.2, signifies that any amount received by an assessee as allowances, gratuities,
bonus, premiums, and compensation benefits, in relation to an employment whether
directly or indirectly (including any services rendered as a member of Defence Force)
is to be included in the total assessable income for that financial year. SECT 10.5
signifies that the assessable income of any person will include Accrued Leave
Transfer payment (15-5) and alienated personal services income (86-15). SECT 15.30
“Insurance or indemnity for loss of assessable income”, signifies that the assessable
income will include any amount received by way of insurance or indemnity for loss of
amount. Thus from the given case we can see that the assessee has received payment
to make up his military payments and thus it should be added to total assessable
income.
 As per McTIERNAN J, the issue which was raised was that the sum of the payment
made to the taxpayer was not made in any capacity as an employee. The sum was paid
to the taxpayer as a measure of relief for those who suffered financial after their
enlistment because of military pay being less than clerk wages.
In both the cases, the sum was assessed as income under section 25(1) and not anywhere
under section 26(e) as per ITAA97. The section 26(e) covers the payments for gratuity
and remuneration but the case was no where reflecting the taxpayer being an employee to
which the income was assessed under section 25(1) under the ordinary income.
(Commonwealth Consolidated Acts, 1997)
SCOTT v FCT (1966) 117 CLR 514
The issues that were raised pertaining to the above case are as follows: -
 The payments made to Mr. Scott by Mrs. Freestone was raised to be made out of
soliciting services provided by the solicitor in connection to the estate and...