Revenue Commission V Duke 1936: Case Of Tax Evasion

In Inland Revenue commission V Duke 1936 case Duke instead of paying to his employee; a Gardener out of his post income tax, made an agreement with him to pay an equivalent amount at the end of a particular period. (Dale Pinto, 2018) This was the case by which Duke was trying to save the tax which was being paid by them to the government. On such intrusion, IRC challenge this arrangement because Inland Revenue commission was of the view that in this way Duke was overstating their expenses and consequently lower taxable income and thus tax evasion was the ultimate result of these arrangements. But IRC lost their case at that time and Duke was held successful in their defense and following were the Judge’s comments on this famous case of tax evasion.

Afterwards this ruling becomes attraction for the other persons who were in the sake of tax evasion and some legal grounds to prove their stance regarding taxation system. Judge force on this point that no one can force for paying increased tax when he has legal ground to justify his action or procedure to justify his method of tax calculation. We have seen in this 21st century as well that people are also trying to save the money and resources by tax evasion which is becoming more common now a days because people with high expertise and knowledge have become more specialized in such tactics by which they take support of legal points of different cases and take advantage of precedents set in previous rulings.

Tax evasion has become a deliberate action of taxpayers nowadays through following two ways:

  1. Understatement of income: In this method different techniques are opted by the companies through which they try to understate the income which is the first step in the calculation of taxable income, income may be understated in a number of ways, fake invoicing has become a popular technique now a days because in this way a thing which is actually sold at double rate is shown in the books of both buyer and seller at discounted rate and hence both the person get benefit from this understatement of income. The person who makes the sale show his income understated also by making complex transaction and reversing them back. In this way multiple parties got involved in this way and taxpayer get benefit from such condition though it has become more difficult now a days to make such complex arrangement because advancement ion technology has made it tough to commit such illegal crimes and tax authorities now have integrated system for evaluation of any transaction. For example sale of one person becomes purchase of other person instantly and taxpayer just have minimized role in this regard because all calculations are being made automatically by the integrated system.
  2. Overstatement of deductions: Other way of tax evasion is the overstatement of expenses, this has become the handiest approach for the tax payer now a days because in this way he can reduce his taxable income and thus the tax as well. Major example of overstated expenses is the entertainment expenses which are allowed as deduction in the business and allowed by the tax authorities as well and for which companies take advantage in tax calculation by overstating this head. Expense can also be overstated by recording excess depreciation in the books though the tax authorities may disallow this accounting depreciation and will allow tax depreciation. In the same way provision are also disallowed by the tax authorities and expenses are allowed on actual bases. In the same way tax authorities can also conduct the tax audit for specific companies and even the specific account head as well. For example provident fund is audited specifically by the authorities for the compliance purpose and tax authorities can also get benefit by the above mentioned integrated system because in this way expense of one company will be the income of other company and cross verification can discourage this duplication and overstatement.

So today in Australia, there are number of ways through which people take advantage of this precedent and also take tax benefits of this substance over form principle but government can reduce this negative impact and new legislation will be more helpful in this regard because it is the government responsibility to charge the correct amount of tax from each and every person and provide the best infrastructure to the deserving people. Taxation system of any county play a vital role in the growth of any country and of its departments as well because it is the major source of government income.

13 January 2020
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