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Assessment of income tax on directors' fees claimed as deduction. Analysis: The case involved an appeal against the assessment of income tax made on the appellants by the respondent in relation to directors' fees claimed as a deduction for the year ending 31st March 1928. The appellants challenged the assessment as the respondent disallowed a portion of the claimed deduction, leading to the appeal process. The relevant statutory provisions under the Land and Income Tax Act, 1923, were examined, emphasizing the criteria for deductibility of expenses incurred in the production of assessable income. The statutory framework outlined the procedure for appealing against tax assessments, including the burden of proof on the taxpayer and the appellate process. The material facts of the case revealed that the company, engaged in manufacturing and selling a patent medicine, had two directors who were also shareholders. The directors' fees were fixed annually at general meetings, and the remuneration structure was governed by the company's articles. The directors resided in Melbourne and managed the New Zealand company remotely. The evidence presented highlighted the business operations and the involvement of the directors in decision-making processes, indicating a significant disparity in sales volumes across different company entities. The appellants advanced two primary contentions during the appeal process. Firstly, they argued that the resolution fixing directors' remuneration, along with payment vouchers, should suffice to establish the deductibility of the fees. However, this argument was deemed untenable. Secondly, they contended that the Commissioner could not challenge the amount paid as remuneration unless it was proven to be fictitious or not genuinely paid for services rendered. The appellants asserted that there was no evidence to support such a challenge. The respondent, while accepting the premise of the argument, maintained that the burden of proof lay with the appellants to demonstrate the excessiveness of the assessment, which they failed to do. The appellate court, considering the evidence before the Magistrate, assessed whether the directors' fees were exclusively incurred in the production of assessable income. The court found discrepancies in the evidence presented, particularly regarding the fixing of fees and the lack of cooperation from the directors in providing relevant information. Additionally, the allocation of a significant portion of profits to directors' fees raised questions about the genuine nature of the payments. Ultimately, the court held that the appellants had not sufficiently proven that the fees were exclusively incurred for income production, leading to the dismissal of the appeal. In conclusion, the appellate court upheld the judgments appealed from, affirming the assessment of income tax on the directors' fees and dismissing the appeal with costs. The decision was based on the insufficiency of evidence to establish the deductibility of the fees as exclusively incurred in income production.
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