Commissioner of Taxation v Dalco
[1989] HCATrans 199
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IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney Nos S225, S226, S227 and S228 of 1988 B e t w e e n -
THE COMMISSIONER OF TAXATION OF
THE COMMONWEALTH OF AUSTRALIA
Appellant
and
JEFFREY THOMAS DALCO
Respondent
MASON CJ
BRENNAN J
DEA..l'm J
DAWSON J TOOHEY J. GAUDRON J McHUGH J
Dalco(2) TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 6 SEPTEMBER 1989, AT 10. 19 AM
Copyright in the High Court of Australia
Cl Tl /1 /ND 1 6/9/89
MR K.R. HANDLEY, QC: In these appeals, if the Court pleases, I appear for the appellant with my learned friend,
MR D.B. McGOVERN. (instructed by the Australian
Government Solicitor)
MR D.F. JACKSON, QC: May it please the Court, I appear with my learned friend, MR P.M. WOOD, for the respondent
in each appeal. (instructed by J.C. Behm &
Associates)
MASON CJ: Yes, Mr Handley. MR HANDLEY: We have here our outline, Your Honours, together with the key sections of the 1986 Act which was
in force at the time the appellant's objections
were transmitted to the Court.
MASON CJ: Thank you. MR HANDLEY: If the Court pleases, I would seek to identify at the outset the principal findings of fact that
Mr Justice Yeldham - not the evidentiary facts
but his ultimate findings, and they can conveniently
be found on three pages of volume I of the appeal
book, page 157, firstly, commencing at line 12:
I am quite satisfied from the evidence as a whole that during the years under
consideration the taxpayer completely
disregarded corporate structures andentitlements or used them purely for
convenience in the lending of money and the
claiming of expenses, so far as CCS -
Corporate Consultants was one of the taxpayer's
controlled companies -
and the other companies with which he was
connected are concerned, and the entitlement
of "Sydney" to its share of the net proceeds.I consider that in each of the years of income
there was a derivation of income by the taxpayer that was dealt with at his direction with a disregard of corporate rights. Clearly he lived at a rate beyond his
disclosed cash income and had control of largesums of money in respect of which there was
no proper accounting or adequate explanation,and none has yet been given.
Going to page 158, line 22:
ClTl/2/ND 2 6/9/89 Dalco(2) MR HANDLEY (continuing): Much of his evidence I found unsatisfactorv.
At the very least he had the control and
benefit of the moneys which the Commissioner
has included as assessable income duringthe years in question or their equivalent.
It is plain from the auth~rities that
the onus is upon the taxpayer to demonstrate
that the Commissioner's figures in relation
to taxable income were excessive, by showing
the sources of that income year by year
and excluding all sources of income other
than those which he admits. That onus has not been discharged as there were funds
available to him from unexplained sources
year by year and shortages of income in eachyear that were and are unexplained in a
satisfactory manner.
Then at page 161, after some discussion of the
authorities, His Honour said, line 25:
Applying the foregoing principles to this case I am of the opinion that the taxpayer
has failed to prove that any relevant
assessment is erroneous or excessive.
The matter went on appeal, as Your Honours know, to
the Federal Court, where the appeals, by maiority, were
allowed, and if I could identify the key passages inthe reasoning of the ma.iority commencing at page 198,
line 9:
Where, as in the present case, an
assessment is a default assessment produced
by the operation of ss. 166 and 167 -
that is where the Commissioner assesses otherwise than
in accordance with the taxpayer's return and contrary
to the return - there is involved as a necessary step in the process of assessment the ma~ing by
the Commissioner of a "iudgment" as to
the amount upon which income tax ought
to be levied. ·
(Continued on page 4)
ClT2/l/HS 3 6/9/89 Dalco(2) MR HANDLEY (continuing): Accordingly, in a particular case, a
default assessment may be made, to adopt the
language of Taylor J, (in ..... McANDREW' s case) , in purported but not justifiable exercise of a statutory power, namely the power of the Commissioner to make an assessment of
the amount upon which in his judgment income
tax ought to be levied within the meaning of section 167; to apply the reasoning of
Dixon CJ, McTiernan and Webb JJ in the
same case ..... the making of a judgment
within the meaning of section 167 went to
the authority of the Cormnissioner toimpose the liability by default assessment. In due course, Your Honours, we will be submitting
that in that passage the majority misunderstood
McANDREW's case and decided in the teeth of
GEORGE's case. But, I would only wish before
proceeding to identify - go back and look at one
short passage in that section at line 11 where
Their Honours say:
There is involved as a necessary step in
the process of assessment -
Now, it is the process of assessment, in our
submission, which is shielded from judicial review
in the appellate process permitted by the Act which
narrows the issue, in our submission, to the
substantive liability of the taxpayer to tax so
that, in our submission, at this passage the majorityare also proceeding contrary to section 175 of the
Act which, as we will endeavour to demonstrate,
protects the process of assessment from judicial
review in the statutory appeal.
(Continued on page 5)
ClT3/l/JH 4 6/9/89 Dalco(2)
MR HANDLEY (continuing): Then going to page 200, line 16: The making of a purported judgment for the purposes of ss. 166 and 167 may also be
impeached if the Commissioner proceeds upon
a "wrong basis" or upon a "wrong principle",for example, by treating a taxpayer on an
earnings basis, when the taxpayer should have
been treated on a receipts basis. The taxpayer submitted that the Commissioner
proceeded upon a wrong basis in respect of
each of the years of income in question.
Your Honours, we do not challenge, in any way, the
power and the duty of a court hearing a statutory
appeal against an income tax assessment, in an
appropriate case, to set aside the assessment onthe basis that the Commissioner has proceeded upon
a wrong basis or upon a wrong principle. But, in
our submission, an essential foundation for that
exercise of jurisdiction is the establishment by
proof or by admission of the basic facts relevantto the assessment. If the taxpayer fails to
identify, by proof or by admission, what the basic
facts are it is nothing to the point that he can
entirely consistent with an assessment which has
suggest that there has been some error in the
not been shown to be excessive. And more of that in a moment. Line 25: If it appears that an assessment has been made
in purported but not justifiable exercise of
statutory power, so that it is excessive in the
necessary sense, then the appropriate course
is for the Commissioner to make a new assessment
in the light of the Court's decision.
(Continued on page 6)
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MR HANDLEY (continuing): In our submission, apart from the
very special case of amendments outside the prima
facie time limits in section 170, one cannot attack
an assessment of income tax on the basis that it
was made ''in purported but not justifiable exercise of a statutory power", if the notices of assessment are tendered in evidence as contemplated by
section 175. Their Honours go on:
Accordingly, the appropriate order is
for the remission of the assessment to
the Commissioner for re-assessment -
and then, over to 226, at the very end of their
judgment, at line 17:
His Honour -
that is the trial judge -
approached the matter by enquiring whether
Mr. Daleo had established that the income
he in fact received in each of the tax years
was below the amount of the assessment arrived
at by the Commissioner. On the facts of these
cases, we have concluded that the answer to thisinquiry will not necessarily be determinative of
what the outcome of the appeals should be. That
is because it was open to the taxpayer to endeavour to demonstrate that each of the assessments (that is, each of the processes of
assessment) was excessive in that it was notwarranted by law. It is that submission which
we have accepted, but we make it clear that wedo not find error in his Honour's findings of
fact that Mr. Daleo did not show that in fact his income for each of the tax years was less
than the figure arrived at by the Commissioner,
and did not show that his only income was
disclosed in his income tax return.
In those few lines, Your Honours, the majority have encapsulated the issue before this Court, because
no doubt, my learned friend will seek to support the
majority view at the bottom of page 226. We submit that is fundamentally wrong and that the majority,
having concluded that the trial judge could not be
challenged in his findings of fact on the appeal-
the inevitable result, in our submission, should have
been consistently with the statute and with the
decided cases, is that the appeal should have failed
to the Full Federal Court.
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MR HANDLEY (continuing) : Can I just remind Your Honours, briefly, of the
key sections of the Act. These have hardly changed
since 1936 and in 1936 they barely changed from
the position which·· had governed tax appeals since
1922. Sections 166 and 167-need f~rst to be
looked at. I gave Your Ronours the sections. Section 166: From the returns, and from any other information in his possession, or from any one or more of
these sources, the Commissioner shall make an
assessment of the amount of the taxable income
of any taxpayer, and of the tax payable thereon.
And 167 is the default assessment section. This
was the section used by the Commissioner in this case
because he amended assessments and the new assessments
diverged markedly from the returns made by thetaxpayer.
If -
(a) any person makes default in furnishing a return; or
(b)
the Commissioner is not satisfied with the return furnished by any person; or
(c) the Commissioner has reason to believe that any person who has not furnished a return
has derived taxable income,the Commissioner may make an assessment of the
amount upon which in his judgment income tax ought to be levied, and that amount shall be
the taxable income of that person for the
purpose of section 166.
And this Court in GEORGE's case considered the
operation of those sections in relation to the
appeal jurisdiction established by the Act. (Continued on page 8)
CIT6/l/CM 7 6/9/89 Dalco(2)
MR HANDLEY (continuing): Then we can go to section 175: The validity of any assessment shall
not be affected by reason that any of the
provisions of this Act have not been compliedwith.
And then 177(1):
The production of a notice of assessment, or of a document under the hand of the
Commissioner ..... purporting to be a copy
of a notice of assessment -
and those words pick up a notice of an amended
assessment as well as a primary assessment -
shall be conclusive evidence of the due
making of the assessment and (except in
proceedings on appeal against the assessment)
that the amount and all the particulars ofthe assessment are correct.
So that section 175, read with section 177 and
read with section 190, which is to come, in our
submission, shield from judicial review in the
statutory appeal any examination of the means by
which the Commissioner arrived at his decision
and focused the issue on the taxpayer's substantive
liability for tax.
The remaining section is section 190(b).
In proceedings under this part, on appeal to a
court:
the burden of proving that the assessment
is excessive shall lie upon the taxpayer.
(Continued on page 9)
C 1T7 /1 /ND 8 6/9/89 Dalco(2)
| MR HANDLEY (continuing): | One of the questions is whether |
"excessive" is limited to excessive in amount or
whether, as the Federal Court have held, "excessive"
is the result of an unauthorized judgment process,
or decision-making process, on the part of the
Coo:m.issicmer. I would like now, if I may, with the
benefit of those sections, to spend another moment
or two with the majority judgment commencing at
page 196. At page 196 and following the majority
are looking at the meaning of the word "excessive"
in section 190(b) and that appears from line 2, but
going down to line 14:
In McANDREW's case Taylor a.
dealt with a submission that to show that an
assessment was not in the circumstance
authorised at all was not to show that it was
"excessive"; the submission was that that
expression was limited to questions relatingto the quantum of the assessment, and did not
extend further. Taylor J. held that the
word "excessive" was capable of a much wider
meaning than that ascribed to it by thissubmission, and his Honour said:
"There is no reason for thinking that an
assessment, made in purported but not justifiable
exercise of a statutory power, may not properly
be described as excessive; it purports to impose
a specified liability and, upon appeal, the
claim of the appellant is that he is not liable
to pay any part of it. Whether the particular
ground upon which he seeks to escape or reduce
the liability merely touches the accuracy of the assessment or assails its validity as an
assessment, he is, in the words of s. 185,
"dissatisfied with" the assessment because it
purports to impose upon him a liability in
excess of that to which he may lawfully be
subjected and I can see no reason why, in
either case, his complaint may not be
accurately described as a complaint that his
assessment is excessive." Your Honours, it will be necessary to take the
Court, as briefly as possible, to McANDREW's case
but it is sufficient, at this stage, simply to say
that McANDREW's case was concerned with an amended
assessment and the taxpayer alleged, among other
grounds, that the assessment was out of time and
that the period within which the Corrmissioner could ammd
had expired , whereas the Commissioner asserted that
that period had not. This threw up the issue under
section 170(2). Your Honours will see that from
McANDREW's case in due course, that there were
apparently statutory conditions precedent in
section 170(2) to an amendment after the six-year
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| Dalco(2) |
period, namely, that the taxpayer had not made a
full and true disclosure of all the material facts
and there had been an avoidance of tax. The taxpayer's attack on the amended assessments included an
assertion:
that he did make a full and true disclosure -
and -
that there has not been an avoidance of tax.
That was with issue with which this Court grappled in McANDREW's case but it is important to
note, of course, that if the Commissioner could not
amend, because the statutory conditions precedent
had not been fulfilled, he was not entitled in law
to increase the taxpayer's original assessment by
as much as a single pound. So, by attacking the legal validity of the purported exercise of the
power to amend the assessment, the taxpayer was also
saying, "I don't owe, legally, any part of the sum
for which I have been assessed in the amended
assessment."
(Continued on page 11)
ClT8/2/DR 10 6/9/89 Dalco(2)
MR HANDLEY (continuing): So the challenge went to the quantum of the assessment and Mr Justice Taylor
picks that up in the passage quoted by the
majority at the bottom of page 196 at line 28:
the claim of the appellant is that he
is not liable to pay any part of it.
And McANDREW could show that by showing that the
statutory power to amend had not arisen because
the conditions precedent had not been fulfilled.
But, when we come to Mr Daleo, he was not able,in the process which was accepted by the majority
of the Full Court, to say that, "I am not liable
to pay any part of these amended assessments at
all"; all he was able to say is, "The Connnissioner
has gone the wrong way about assessing me".
And, it really shows that distinction - what we
have just put, in our submission, highlights the
difference between McANDREW's case, where an attack
on the power to issue an amended assessment went
directly to the excessiveness of that assessment,
on the one hand, and in DALCO's case, on the other,
where Mr Daleo has been allowed to attack the
assessment on legal grounds without showing that it
is excessive to any extent or that he is not liable
to pay any part of it.
If I could then go to page 198, line 9:
Where, as in the present case, an assessment is a default assessment produced by the
operation of sections 166 and 167 ..... there
is involved -
I read this passage to the Court already, I am sorry,
so I need not read that again and I need not
trouble Your Honours, I do not think, with the rest of the majority judgment; I think we have been able to isolate the key passages subject to anything that
my learned friend may say. Can I take Your Honours now to the dissenting judgment in the Full Court
of Mr Justice Wilcox and seek to identify the key passages there, connnencing at page 252, line 17:
It seems to me that these submissions
fundamentally misconceive the nature of
the task upon which this Court is engaged.
Because this question lies at the heart
of this case, and because my view
differs from that taken by -
the majority -
ic is necessary for me to discuss at some length the issue for the Court. It seems to me to be clear that the issue before
ClT9/l/JH 11 6/9/89 Dalco(2) this Court, like the issue before the
Supreme Court, is not whether the
particular assessments ultimately made
by the Commissioner in each year
evinced any error but whether, in
relation to any of the relevant years, the amount of taxable income for which
Mr Daleo was assessed exceeds his actual
taxable income.
We would respectfully adopt that view.
It is, of course, entirely possible that
an assessment which is in fact erroneous -
that is erroneous in the way in which the Commissioner
has gone about it -
will show a taxable income which is in
fact no more than the taxpayer's actual
income.
Then, dropping down to line 14:
In McANDREW V COMMISSIONER OF TAXATION
..... Dixon CJ, McTiernan and Webb JJ,
speaking of section 190(b), said that
"the word 'excessive' relates to the
amount of the substantive liability".
Therefore the task for the taxpayer, upon an appeal or a review under Part V
of the Act, is to show that the amount
of money for which tax is levied by a
particular notice of assessment exceeds
the actual substantive liability of
the taxpayer.
(Continued on page 13)
ClT9/2/JH 12 6/9/89 Dalco(2)
MR HANDLEY (continuing):
Most commonly the taxpayer will discharge
this burden by demonstrating that his or
her true taxable income is less than that
adopted by the Commissioner for the purpose
of computation of the amount of tax payable
by the taxpayer. But the taxpayer may discharge the onus by showing that, although
the figure adopted as taxable income is
correct, the Commissioner adopted an
incorrect tax rate; or made some error of
computation. Alternatively, as McANDREW points out, the taxpayer may demonstrate excessiveness by showing non-compliance with
statutory conditions precedent to the
imposition of a particular liability, so that
the liability purported to be imposed by the
Commissioner is one not lawfully able to be imposed.
And then, if I could turn to 261, the top paragraph:
Nothing in McANDREW derogates from the
principle that the onus lies upon a taxpayer
to demonstrate, not merely that an assessment
is wrong, but that it is excessive. In
McANDREW the contest between the parties
apparently turned upon the question whether
there had been a failure to make a full and
true disclosure and/or whether there had been
an avoidance of tax. Taking the view that
the Commissioner bore no onus to establish
the existence of s. 170(2) circumstances -
they are the ones just referred to~
each of the High Court Justices was concerned
to point out that, nonetheless, the matter
of compliance with the conditions specified
ins. 170(2) was a subject able to be
investigated upon the appeal, the onus lying
on the taxpayer to negative compliance. The matter of compliance with those conditions was able to be investigated, despites. 177, because it was a matter going to the
correctness of the amended assessment.
Then, over to 266, the last paragraph:
The present case is not one, like that
envisaged in McANDREW, of a demonstrated
failure of the statutory conditions precedent
to the imposition of liability. There is here no question about the entitlement of
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the Commissioner to issue the relevant
amended assessments. The question is merely whether the amounts of taxable income
shown in those assessments are excessive.
It is not enough for the appellant to raise doubts as to the correctness of the figures adopted by the Commissioner, or even to
demonstrate that Mr Kidd's reasoning is
faulty.
Mr Kidd was an investigator who wrote reports on
the taxpayer's affairs and which reports went into
evidence.
In respect of any particular year he must
show that the adopted taxable income exceeds
his actual taxable income.
And then, at 274, in conclusion, the last paragraph,
His Honour said:
I share the view of Yeldham J that the
appellant's assertion that his only income
in the relevant years was that declared in
his various income tax returns cannot beaccepted; at least in the absence of evidence
such as I have mentioned. The appellant failed to make out his case in the Supreme Court. His appeals were rightly rejected.
Your Honours, that sets the stage for a brief look
at the key decisions, prior decisions of this Court,
and would propose to take Your Honours to the
cas s referred to in our outline, GEORGE, McANDREW
and BLOEMEN, as briefly as possible in order to
demonstrate the divergence between the majority
view and the view hitherto accepted by this Court.
GEORGE's case is reported in 86 CLR 183.
It did not concern the hearing of an appeal against
a default assessment under section 167. The issue
before a Justice of this Court and then the Full Court was whether the taxpayer who had been
assessed - default assessed - under 167 was
entitled to an order for particulars but, in the
course of deciding that issue, this Court made
important observations on the true effect of the
sections of the Act which govern statutory appeals
against assessments.
I do not think I need trouble Your Honours
with the headnote or the facts beyond noting that
it was a case of a default assessment and a request
for particulars. And then, going to page 189 in
the judgment of Mr Justice Kitto, in the first
instance - there is a reference on the right-hand
ClTl0/2/ND 14 6/9/89
Dalco(2) (Continued on page 14A) margin to section 190(b) about a quarter of the
way down the page:
Buts. 190(b) places the burden of proving
that the assessment is excessive upon the
appellant; and in order to carry that burden he must necessarily exclude by his
proof all sources of income except those
which he admits. His case must be that he did not derive from any source taxable
income to the amount of the assessment.
(Continued on page 15)
ClTl0/3/ND 14A 6/9/89 Dalco(2) MR HANDLEY (continuing):
That will involve him, of course, in
accounting for the increase in his
assets, and it may well be that the
commissioner will direct his efforts
mainly or even wholly to endeavouring to
meet the evidence the appellant adduces
on this point. But the source of the increase in the assets is not the actual
issue in the case; even if it were proved, for example, that that source
consisted of winning bets on the racecourse,
the issue would still be whether or not
from any source the appellant derived as
much taxable income as the assessment
treats him as having derived.
Then I do not need to trouble Your Honours with the rest of that page, or the rest of the iudgment of Mr Justice Kitto. Going to the Full Gour~ at page 201, in the ioint iudgment commencing at the top of the page, Their Honours say: Section 190 provides that upon every
appeal to the Court the burden of proving
that the assessment is excessive shall lie
upon the taxpayer. With this provision must be reads. 177(1) which provides that the
production of a notice of assessment ..... shall
be conclusive evidence of the due making of
the assessment and (except in proceedings on
appeal against the assessment) that the amount
and all particulars of the assessment are
correct. The word "assessment" is defined bys. 6(1) to mean the ascertainment of the
amount taxable income and of the tax payable
thereon.
'1\scertainment", Your Honours, has been interpreted in this Court as not meaning the discovery but the
fixation, and fixation by the actual notice of
assessment, and more of that in due course: In conformity with this definitions. 166
directs the commissioner to make an
assessment ..... From these provisions both
in their present form and in their slightlydifferent earlier form, the law has always been taken to be that in an appeal from an
assessment the burden lies upon the
taxpayer of establishing affirmatively that
the amount of taxable income for which hehas been assessed exceeds the actual taxable
income which he has derived during the year f . o_ income.
There 1s a reference to the iustice of that burden:
ClTll/1/HS 15 6/9/89 Dalco(2) In the present case it might be
expected that the source of the largeincrease year by year in the appellant's
assets would be a matter peculiarly within
his own knowledge. If it is a form of gain
outside the very wide ambit of what is
assessable income, the proof of its
character will be enough to support thematerial grounds o: his appeals. It is
a fact outside any knowledge the
commissioner can have except from inquiry
into the affairs of the appellant and it
is not unreasonable that the onus of proof
sh o u 1 d be placed by 1 aw upon the 1 a t t er . Then at page 202 and following there is a discussion
of the question of whether section 167 creates a
statutory condition precedent to the power to
issue a default assessment and, in our submission,
the maiority have revived this doctrine which was
earlier dec1sively reiected in GEORGE's case by
the Full Court of this Court. If I could iust pick up a sentence at page 202 in ~h.e last paragraph:
The contention -
that is of Mr Barwick of King's Counsel, as he then
was, for the taxpayer -
is that before the commissioner may fix
the taxable income under s.167(b) two
conditions must be fulfilled and that,
in an appeal, the burden is upon him -
that is the Commissioner -
to prove their fulfilment.
I need not read on from there, but going to page 203,
Your Honours, about point 7 on the page - the words
"no foundation" are on the left-hand margin, and tl-ie
sentence above that: The assumption made - that is about these conditions precedent -
however, has no foundation. The formation of the iudgment as to what is the
amount of the income that ought to be taxed
is no condition precedent to the power to
assess. It is part of the very process of
assessment itself.
Of course, Your Honours, pausing there, as such it 1s
protected from iudicial review, in our submission,
in the statutory appeal by a combination of
section 175 and section 177(1).
ClTll/2/HS Hi 6/9/89 Dalco(2) MR HANDLEY (continuing): Section 166 ands. 167 do not
prescribe distinct duties or functions.
They combine to show what the commissioner
may or must do in performing his single duty
of arriving at an assessment.
I need not trouble Your Honours with the rest of
that page. Going over the page to 204, line 5: Just as under s.166 considered alone the
commissioner ascertains the amount of the
taxable income and thus assesses it so does
he under s. 167, used in aid of s.166,
ascertain the amount upon which, in his
judgment, income tax ought to be levied and
thus assesses it. By definition "assessment" means the ascertainment of the amount of the
taxable income, and of the tax payable thereon.
Pass over the next sentence.
The fact is that unless the taxpayer discharges
the burden laid upon him by s.190(b) of
proving that this ascertainment or judgment is
excessive, he cannot succeed and it can be no
part of the duty of the commissioner to
establish affirmatively what judgment he formed,
much less the grounds of it, and even less still
the truth of the facts affording the grounds. Yet that is what is involved when the demand for particulars of the sources alleged of the appellant's income is justified by reference to s. 167. It is an error to treat the formation by the connnissioner of a judgment as to the amount of the taxable income as if it were
not the ascertainment of the taxable income which
constitutes assessment or a necessary part of that
process and as if it were but the fulfilment of a condition precedent to the power or authority to assess. If, however, it were a condition
precedent the question would at once arise
whether the fulfilment of the condition was not part of "the due making of the assessment"
of which s. 177(1) makes the production of a
notice of assessment conclusive evidence.
And then going to pages 206 and 207 - the bottom of
page 206 the words "Department of Taxation appear
between the right and left-hand margins - TheirHonours go on to say:
But in any case the question whether the right
officer has applied his mind to the question
whether the taxpayer's returns are satisfactory
within s.167(b) is not a question left open by
s.177. As already has been said, ss.166 and 167
CIT12/l/CM 17 6/9/89 Dalco(2) are together concerned with the process of
ascertaining the taxpayer's taxable income and
the consequent tax. The clear policy of s.177 is to distinguish between the procedure
or mechanism by which the taxable income and
tax is ascertained or assessed on the one hand
and on the other hand the substantive liability
of the taxpayer. The former involves the due making of the assessment.
Going down to the last few lines of that long
paragraph:
Obviously the 'due making of the assessment"
was intended to cover all procedural steps,
other than those if any going to substantive
liability and so contributing to the
excessiveness of the assessment, the thing
which is put in contest by an appeal.
Mr Justice Fullagar added short reasons, although
he was a party to the majority judgment - I need
not trouble Your Honours with those. In our
submission, Your Honours, GEORGE's case establishes
that default assessment under section 167 does not
depend upon compliance with any condition precedent~
that in any event_ the question of such compliance
is protected from judicial review on the statutory
appeal because it forms part of the due making of
the assessment and it indicates that on the
statutory appeal the sole issue for the appellant
court, I realize it is not a tru2 appeal, is the
substantive liability of the taxpayer and the
statute sweeps to one side what I might call the
decision-making process.
Of course it is the decision-making process
which is central to the jurisdiction of the Federal
Court under the ADMINISI'AATIVE DEC.I:SIONS
(JUDICIAL REVIEW)ACT, but it is excluded from that
decision-making process, in our submission, apart
and the time limits is shielded from judicial from the very special case of amended assessments review by sections 175 and 177. (Continued on page 19)
CIT12/2/CM 18 6/9/89 Dalco(2)
MR HANDLEY (continuing): If we could now look at McANDREW's case in 98 CLR which seems to have
been the source of some of the confusion in the
majority judgments, with respect; McANDREW, 98 CLR 263,
I will read the headnote if I may:
When upon an appeal to the Court against
an amended assessment there is an issue as
to whether the condition stated in
section 170(2) ..... are fulfilled and a
regular notice of assessment is produced
..... the burden rests upon the taxpayer
of proving to the reasonable
satisfaction of the Court the particular
fact or facts which take the case
outside section 170(2).
I need not read the rest of that paragraph. The joint judgment: The word "excessive" ..... extends over the
area in which the conditions mentionedin section 170(2) find a place. If the
commissioner cannot amend consistently
with section 170(2) and so increase the
amount of the assessment then it must
be excessive.
Going to the joint judgment which was concerned with
other issues as well, onus of proof and the like,
we can pass over those matters. To the top of page 270, line 3: The ground over which section 177(1)
gives conclusiveness to the assessment is
described as the due-making of the
assessment and the correctness of the
amount and all the particulars of the
assessment. But that appears to us to comprise the whole ground. It is the
manifest policy, one may now almost say
the historical policy, of the legislation on the one hand to give to the taxpayer full opportunity on objecting to his
assessment of contesting his liability in
every respect before a court ..... but on the
other hand to require that in proceedings
for the recovery ..... The question whetherthe conditions laid down by section 170(2) are fulfilled so that the commissioner might amend the assessment is clearly within this policy.
And, Their Honours say that it would be extraordinary
if that could be raised in answer to a recovery
action. Then, over on page 271, the last seven or so
lines of the first paragraph:
C1Tl3/l/JH 19 6/9/89 Dalco(2) An appeal, however, is a proceeding
given by statute to a taxpayer for the
purpose of impugning an assessmentotherwise conclusively imposing liability
upon him. If there were no more than
that, it would be enough to cast upon
the taxpayer the burden of establishing
his objections. On ordinary principles
he must establish the facts which give him a prima facie title to the relief he seeks from the Court.
But there is more than that.
The reference to section 190(b).
"Excessive" is the word chosen to correspond
with the word "amount" in section 177 (1).
That is important, Your Honours, because the
majority in the Federal Court, in our submission,
have overlooked that basic fact by treating
"excessive" as covering an erroneous decision-making
process regardless of its effect on the quantum of
the assessment, it overlooked the fact that "excessive"
is a slightly inappropriate but, nevertheless,
clearly enough intended reference to the amount of
the assessment and what was allowed to be done by
the Federal Court in this case was to attack theassessment without attacking its amount.
BRENNAN J: Well, the distinction which is relevant is that in 170(2) we have conditions precedent to the
exercise of a power and in 167 we do not; was
that the situation?
MR HANDLEY: Yes, Your Honour. BRENNAN J: And, I suppose the problem is how to reconcile
that difference of approach to the two sections.
(Continued on page 21)
C1Tl3/2/JH 20 6/9/89 Dalco(2)
| MR HANDLEY: | Yes, Your Honour. | It really flows from the |
very text of the sections themselves, in our submission.
And the way in which the due making of the assessment -
in McANDREW's case what this Court said was that
the conditions precedent in 170(2) were not part of the due making of the assessment. Now there is some
tension in some of the language in these sections in
relation to the issue in McANDREW's case and the Court
was concerned to avoid two unpalatable results.
Firstly, that the onus was on the Commissioner and an
amended assessment could be challenged on conditions
precedent grounds in recovery proceedings, or inbankruptcy proceedings on the one hand, while on the
other hand, the taxpayer could not challenge
compliance with the conditions precedent at all, because
they were part of the due making of the assessment,
and the Commissioner could point to 175 and 177(1) and
say that the satisfaction of those conditions precedent
is outside the scope of the appellate jurisdiction of the Court
tm.der the various sections tm.der Part V. So between putting the onus
on the Commissioner on the one hand, and shutting the
taxpayer out on the other, the Court was able to
treat satisfaction of the conditions precedent as notpart of the assessment process and therefore open to
examination in the statutory appeal. Those considerations just have no part in section 167, both
on principle and on authority.
Reading on, if I may on 271, in McANDREW, after
the sentence dealing with "excessive":
The "amount" no doubt re::lects the
"particulars". It is perhaps not a good
choice. For the replacement bys. 190(b)
of the words which appeared in the
corresponding previous legislation in the
exception ins. 177(1) has perhaps causedthe difficulty. The words of the legislation
were "except in proceedings on appeal against
the assessment when it shall be prima facie
evidence only". But bearing in mind that the
word "excessive" relates to the amount of the substantive liability it is not difficult to see that it will extend over the area in which the conditions mentioned ins. 170(2) find a
place. For the fulfilment of those conditionsgoes to the power of the commissioner to impose the liability by amendment. If he
cannot amend consistently withs. 170(2) and so increase the amount of the assessment then it must be excessive - ie in amount. In the whole of that paragraph,
Your Honours, the joint judgment in McANDREW, is,
in our submission, inconsisteut with the view of the
majority of the Federal Court in this case, which
treated "excessive" as permitting an attack on an
| ClT14/l/FK | 21 | 6/9/89 |
| Dalco(2) |
assessment independently of an attack on its
quantum, and an attack on an assessment independently
of the true substantive liability of the taxpayer
to tax. Going to Mr Justice Kitto's judgment -he concurred - and we can go to 2 7 4, and then in the
first paragraph, commencing just below the rereren~ to section 170 ( 2) , in the middle of that paragraph, Mr Justice Kitto says:
For that reason an objection that the
amendment should not have been made, whether
it is based upon a contention that the
commissioner has fallen into some error in
the course of making it or upon a contention
that the commissioner had no authority to
amend in the circumstances of the case, is an
objection that it has resulted in anassessment fixing the taxpayer with a higher
liability than that which attached to him upon
a correct application of the Act as a whole.
It is therefore an objection that the amendment
has made the assessment excessive, whatever
the ground of objection may be.
(Continued on page 23)
| ClT14/2/FK | 22 | 6/9/89 |
| Dalco(2) |
MR HANDLEY (continuing):
In the absence of any other material
provision in the Act, this would mean that if a
taxpayer is to succeed in an appeal against an
amended assessment on the ground that the
amendment was unauthorised having regard to
s. 170(2), he must discharge the burden of
establishing one or more of four propositions
of fact.
Then, going to the bottom last three lines:
"Due making" in this context -
referring, of course, to section 177(1) -
is an expression which covers all procedural
steps, other than those (if any) which go to
substantive liability and so contribute to the
excessiveness of the assessment.
I do not think I need trouble Your Honours with page 275, but going to page 277, His Honour said -
at about point 6 on page 277 there is a reference
to "Pt. IV of the Act":
There is nothing to suggest an intention to
depart from the general policy, so clearly
evinced in Pt. IV of the Act (comprising
ss. 161 to 177) ands. 190(b), of making
all assessments unchallengeable except in so
far as the taxpayer may displace them on
appeal.
Then I think I need not trouble Your Honour with the
rest of Mr Justice Kitto's judgment. The majority
in the Federal Court took a great deal fromMr Justice Taylor's judgment and I would wish to
submit and spend a little more time on this, that
Mr Justice Taylor is not to be understood as taking
any different view from that of the other four
members of the Court. Page 279,in the third paragraph beginning with the word "Upon", going down six lines:
The contention is raised, however, that the word "excessive", when read in relation to an
amended assessment, is concerned only with the
amount of the assessment and, accordingly, itis said, the sub-section does not cast upon an
appellant the onus of disproving the existence
of facts, which upon a consideration of s. 170(2),
must be regarded as a condition precedent to the
power of the colillilissioner to amend.
Then, I need not trouble Your Honours with the rest
of that and going over the page to page 280,
ClT15/l/DR 23 6/9/89 Dalco(2) His Honour analyses the nature of the statutory
appeal and then looks at the matter from the point of
view of common law pleadings. The word "pleadings" appears about a quarter the way down the page:
if pleadings were necessary they would disclose
that what the appellant complains of is, not
some infringement of her personal or
proprietary rights which may or may not bejustifiable pursuant to some statutory power,
but, on the contrary, the purported exercise of
the statutory power itself which, unless denied,
will result in subjecting the taxpayer to a
monetary liability. In order to displace theassessment the appellant in this case admits the
purported exercise of the power but denies the
existence of those facts which make the power
exercisable. I should think that in those circumstances, and quite apart from the provisions
of the statute itself, it would be sufficiently
clear that an appellant would be bound to carry
the burden of denying the existence of those
facts.
Then, at page 281 the word "however" appears about
seven lines down on the right-hand margin:
In my view, however, "the due making of the assessment" does not involve the ascertainment
of the existence of a state of facts prescribed
as a condition precedent to the making of an
amended assessment.
Now, His Honour concludes that the fulfilment of
the conditions precedent and the ascertainment of
that fulfilment- is outside the scope of the protection
given by the section 177(1):
The process of ascertaining the existence of such
a state of facts is not in any real sense
part of the process of making the assessment and
this is the function to which the first limb of
the sub-section is precisely addressed.
I need not trouble Your Honours with the rest of
page 281.
(Continued on page 25)
| ClTlS/2/DR | 24 | 6/9/89 |
| Dalco(2) |
MR HANDLEY (continuing): And then, going to 282, towards
the bottom of the page, about point 8 - the word
"frequently" is in the left-hand margin:
But whether or not this is so the word
"excessive" is capable of a much wider
meaning than that ascribed to it by the
appellant's argument and there is no reason
for thinking that an assessment, made in
purported but not justifiable exercise of
a statutory power, may not properly be
described as excessive; it purports to impose
a specified liability and, upon appeal, the
claim of the appellant is that he is not
liable to pay any part of it.
And going to the top of the next page, line 3:
Upon this view of s. 190(b) it may be
said that its provisions cast upon an
appellant the burden of establishing hisobjections. That is to say, he is required
to establish the grounds upon which he seeks
to reduce or avoid the liability which the
assessment purports to impose upon him. But in doing this the section requires no more
of an appellant than the nature of the reliefsought and the form of the proceeding would,
otherwise, require.
And that throws one back to His Honour's analysis
of the position on common law pleadings which I
have already read to the Court.
It is clear, in our submission, Your Honours,
that when Mr Justice Taylor was speaking of a
'purported but not justifiable exercise of a
statutory power~ he was not dealing with any
situation other than the question of the
fulfilment or otherwise of statutory conditions
precedent which all members of this Court in
McANDREW's case held was outside the protective
ambit of the expression "the due making of the assessment".
Satisfaction of those conditions precedent
was not part of the due making of the assessment
so that it was not protected from examination on
appeal but, on the other hand, it was protected
from examination in recovery proceedings and the
appellant had the onus of proving non-fulfilment
of the conditions. Mr Justice Taylor was not directing his mind in any way to the question of
the legal validity of the decision-making process
of the Commissioner in any case other than thatin which statutory conditions precedent were involved
C 1 T 16 /1 /ND 25 6/9/89 Dalco(2) which lay outside the true scope of the assessment
process.
McHUGH J: But what is the different in principle between saying you can examine whether or not the tax should
have been raised from X to 2X by reason of
compliance with the conditions - by an examination
of the conditions necessary to make the amendment
and a case where you say the tax should not have
been 2X because certain factors were taken into
account which should not have been taken into account?
MR HANDLEY: Because, Your Honour, apart from m:re pure questions of statutory construction which I will not refer
to in my answer, in the second case that your
mentions where there is an attack on the decision-
making process of the Commissioner, that attackdoes not go to the substantive liability of the
taxpayer - the true substantive liability of thetaxpayer, for tax. What the taxpayer is saying
is, "You went about it the wrong way; you applied incorrect principles or you disregarded relevant
factors or you took into account irrelevant factors."And that is all part of the assessment process
which the Act says the Appeal Court is not to be
bothered with , it is to go straight to the question ''What
is the true substantive liability of this taxpayer
to tax?".
So it treats the assessment-making process
as something - to one side. It puts it to one side as not going to the substantive liability
of the taxpayer. And, indeed, it does not. (Continued on page 27)
ClT16/2/ND 26 6/9/89 Dalco(2)
MR HANDLEY (continuing): In iudicial review proceedings the Court does not ma~e the decision. It sends it
back - except in an extreme and clear case - it
sends it back to the decision maker to do it again
and do it properly without saying what the decision
necessarily ought to be, but in the statutory appeal,
provided the materials are present, the Court's
iurisdiction is to determine the correctness of the
assessment as a fact, legally and in fact, and the
process by which the Commissioner reached thatassessment is iust swept to one side.
The appeal is an action in the original
iurisdiction of the court. It is not an appeal in
~he strict sense where you look at the way in which
the primary decision maker went about deciding the
questions before him. It is an action in the original
iurisdiction of the court in which the Court is
concerned with the true substantive liability of thetaxpayer.
McHUGH J: Does it mean in a case like McANDREW that McANDREW could not ultimately have succeeded unless
he showed that the amount as~essed did exceed his
actual income? Does he still ultimately bear that burden as the bottom line?
MR HANDLEY: He had two burdens, Your Honour. McAndrew had
two burdens: the first was, she could succeed in her appeal completely by showing that the conditions
precedent to an amendment under section 170(2) were
not satisfied, and that, as it were, would cut the
assessment off at its base. But the Court could conclude that there had not been a full and true
disclosure of all material facts but then could go
on to dismiss the appeal on the merits because theassessment was otherwise incorrect factually or
legally. It was a two-stage attack. The taxpayer could totally succeed on either attack or totally
fail on both attacks, but the question of thesubstantive liability was involved, but as the Court
made clear in McANDREW, if you showed that the power
to amend did not arise because of non-fulfilment of the conditions precedent, you cut the amended
assessment back to zero by doing ~ust that.
DEANE J: What if the default assessment was pursuant to section 167(a) and the commission was mistaken in
that there had been a return?
MR HANDLEY: Your Honour, on the appeal the question would still be, in our submission, whether the assessment
was excessive and while the question of ignoring thereturn - in my submission, GEORGE's case covers that
as a matter of authority, and on principle it is also
covered by section 177(1) - the matter would be thrown
into very clear focus in terms of the assessment of
ClT17/l/HS 27 6/9/89 Dalco(2) the penalty for failing to make a return and
obviously in the challenge to the penalty thetaxpayer could show that he or she, or it, had
made a return and, if the return was a satisfactorv
one, that would automatically put an end to any ·
penalty tax assessed by the Commissioner.
DEANE J: That may, though, be a mid-way position, may i~ not, that is that one reads the sections as leaving open an attac~ to a default assessment if the conditions
precedent to power have not been fulfilled, that
is (a), (b) and (c)?
MR HANDLEY: Yes. DEANE J:
But foreclosing attack on the assessment process
once the power to assess has arisen?
(Continued on page 29)
ClT17/2/HS 28 · MR HANDLEY, QC 6/9/89 Dalco(2)
MR HANDLEY:
Yes, Your Honour, on that view it would be an open question whether 167(a) was a condition
precedent which did not form part of the assessment process, it being open to the view
and this Court having concluded in GEORGE's casethat 167(b) was not a condition precedent to the exercise of the power to raise a default assessment. BRENNAN J:
Mr Handley, I am not sure that I follow that. I thought your argument was that section 167 was
epexegetical of section 166. MR HANDLEY: That is what this Court said in GEORGE's case,
Your Honour. What Mr Justice Deane was putting to me, I think, was that there was an intermediate
position and that perhaps section 167(a) was a
condition precedent whereas (b) and (c) were not.
DEANE J: What I was really suggesting was that there was an intermediate position where (a), (b) and (c)
were all conditions precedent but, of course, (b)
and (c) are the sort of conditions precedent that
are very hard to attack because they are
opinion and not fact.
MR HANDLEY:
Yes, and they are also opinions which are intimately associated with the assessment process
whereas (a) is not. But there is no doubt, Your Honour, that section 167 is epexegetical of section 166. I would perhaps seek to head off any great discussion about section 167(a) by saying it does not arise in this case and it is not likely to be a major problem but in the end the onus would still be on the taxpayer of showing that if section 167(a) was a condition precedent that it
was not fulfilled and of showing that the
assessment was excessive. I would, I think, thinking on my feet, take the ultimate position, Your Honour, that section 167(a) is not a condition precedent
to the validity of an assessment under sections 166and 167. If the Corrnnissioner has made an administrative error in failing to pick up a return,
that really does not go to the excessiveness of
the resulting assessment. He may have got his assessment right and he may have under assessed, in fac~ because the return may disclose more income. The only issue on the appeal is, is the
assessment excessive and that involves a comparison
between the amount assessed and the true figure
and you would not displace the assessment by
showing that the taxpayer had made a return. It is
not the sort of condition precedent that we have
i~ section 170(2) where if you show that the power
has not arisen you displace the amended assessment
entirely. Here, by showing that the taxpayer had
ClT18/l/JH 29 6/9/89 Dalco(2) made a return, in fact, you would not go anywhere
towards displacing the assessment. I mean, GEORGE's case is, of course, clear authority that
section 167(b) is not a statutory condition
precedent.
Your Honours, I would seek now to go, if I
may, to BLOEMAN, 147 CLR 360, a more recent
decision of this Court.
(Continued on page 31)
ClT18/2/JH 30 6/9/89 Dalco(2)
MR HANDLEY (continuing): I will not trouble Your Honours
with the headnote, I wish to say this about the facts: that in that case the taxpayers sought,
within the confines of the statutory appeal, to
undertake an attack on the assessment by way of
judicial review and page 361, at about point 6, the
last couple of lines of the long paragraph:In a summons for directions in the appeal the company sought declarations in the
following terms:
1. A declaration that both the original and
amended assessments ..... were void and of
no effect in law in that:-
(a) they did not nor did either of them issue pursuant to and their issuance was not authorized by s.166 and/or s .174 .....
(b) they did not nor did either of them issue as a result of a bona fide exercise of the powers vested in the defendant pursuant to s.166 and/or
s.174;(c) each of them issued other than as a result of a bona fide exercise of
the powers vested in the defendant inan attempt inter alia to place the
defendant in a position; Ci) to support the issue of -
garnishee -
notices -
under -
s.218; (ii) to harass the plaintiff;
(d) they were not nor was either of them
an assessment within the meaning of the Act.
And there was an attack, as I say, on the validity,
as opposed to the correctness of the assessments on
those general grounds. In the middle of page 362: On the hearing of that summons the question
arose whether the Court had jurisdiction to
entertain the submissions in the context of a
statutory appeal. The company then filed an originating summons in the general jurisdiction
of the Supreme Court for the same declarations.
This was before the AD (JR) ACT, of course and:
CIT19/l/CM 31 6/9/89 Daleo ( 2) By consent both summonses were heard together.
So that there was an attack on the legal validity of
the assessments by reason of what had taken place
in the assessment process by way of exercise of
statutory power, within the confines of the
statutory appeal and within the general jurisdiction
of the s:.1preme Cburt. The joint judgment of Mr Justice Mason and Mr Justice Wilson was in fact
concurred in by Mr Justice Stephen and
Mr Justice Aickin and represented the clear majority
view in the Court. Can I go to page 371 in the
joint judgment. The new paragraph on the page
about eight lines down, says:
The argument turned very largely -
that is the argument of the appellants. Then Their Honours refer to particular sections and
I can pass over those. And going down to eight lines from the bottom: The word "assessment" is defined in s.6 to mean,
unless the contrary intention appears, the
ascertainment of the amount of taxable incomeand of the tax payable thereon. In
BATAGOL V FEDERAL COMMISSIONER OF TAXATION,
the Court considered the meaning of "assessment''
in the context of s.170 and the group of sectionswith which it is associated. Kitto J. observed
"Assessment- in the sens-e of mere calculation
produces no legal effect. No step that the
Conmissioner may take, even to the point of satisfying himself of the amount of the taxable income and of the tax thereon, has under the
Act any legal significance", until he serves
a notice of assessment. Then and then only has an "ascertainment" been made. The amounts of taxable income and tax are then rendered certain.
(Continued on page 33)
CIT19/2/CM 32 6/9/89 Dalco(2) MR HANDLEY (continuing): That is the meaning of the word "ascertain" and that is the meaning of the word
"assessment" and so when we come to section 19O(b),
despite slightly inappropriate language, one
finishes up with a view that the onus is on the
taxpayer appellant of showing that the amount of
taxable income and tax are excessive.
In this context, according to his Honour
"assessment" means "the completion of the
process by which the provisions of the Act
relating to liability to tax are givenconcrete application in a particular case
with the consequence that a specified amount
of money will become due and payable as the
proper tax in that case."
Other members of the Court agreed.
BATAGOL supports the view that the
process of assessment is completed when the
Commissioner inserts in the notice of assessment
which is served on the taxpayer the amount
of his taxable income and the amount of tax
payable there. There is nothing in BATAGOL
to suggest that the court will go behind the
assessment of a taxpayer's taxable income
and tax payable as expressed in the notice
of assessment served on him, unless it
appears from the notice or an accompanying
document that the notice is not in truth a
notice of assessment.
And then we can turn to 373. There is a reference
at the start of the second paragraph on that page
to GEORGE and McANDREW and, going down a few lines,
there is a reference to 17.7(1):
The d i s t inc t ion d r awn by s . 1 7 7 ( 1) i s be tween the procedure b¥ which the taxable income
is ascertained (the "due making" of the
notice of assessment is conclusive evidence) assessment of which the production of the and the taxpayer's substantive liability to
tax -
Reference is made to GEORGE's case. And then an analysis of McANDREW is commenced in the joint
judgment.
In McANDREW, Dixon CJ, McTiernan and
Webb JJ, noted that, although the existence
of conditions giving rise to the exercise of the power to amend an assessment might
be thought otherwise to be part of the "due
making" of an assessment, the consequence
of this interpretation would be to deny to
C 1T2O/l /ND 33 6/9/89 Dalco(2) the taxpayer the right to challenge
the exercise of the power.
And, hence, the Court strained to find that they
were not covered by the due making of the assessment.
And going over to the next page, 374, at the
end of the first long paragraph, about seven lines
up - the word "tax" appears in the left-hand margin:
There is no like reason for reading the
sub-section so as to allow the taxpayer to
context the making of an original assessment,
when a notice of assessment has been served,
and the making of that assessment is not
similarly conditioned -
that is, like the amended assessment was conditioned
by 170(2) -
the taxpayer being entitled to contest his
substantive liability to tax in Pt V proceedings,
without contesting the making of the initialassessment.
In other words, the interpretation which lay behind
McANDREW's case was one in which the Court sought to avoid two extreme positions in favour of either the taxpayer or the revenue but there is no such imperative when one comes to the rest of the Act.
And then, at 375, Their Honours refer to
Mr Justice Taylor's judgment in McANDREW:
An explicit and, in our view, correct
statement of the effect of s. 177(1) was made
by Taylor Jin McANDREW. For the reasons
there expressed his Honour concluded that
"s.177(1) was intended to make it impossible
for a taxpayer, in proceedings other than
appeal against it, to challenge an assessment
on any ground". He conceded that the word "excessive" in s. 190(b) was inappropriate. However, he considered that an assessment
"made in purported but not justifiable exerciseof a statutory power" could properly be
described as "excessive".
With ~ery great respect, Mr Justice Taylor, of course,
had also said that in the process the taxpayer was showing
that he did not owe any part of the tax the subject of the
amended assessment. So there one gets a reconciliation ofthe notion of the word "excessive". This is at the bottom
of page 282. Mr Justice Taylor said - it is part of the
passage referred to by Their Honours:
Upon appeal, the.claim of the appellant is that he
is not liable to pay any part of it.
ClT20/2/ND 34 6/9/89 Dalco(2) MR HANDLEY (continuing): This interpretation gives expression to the
policy which underlies, and is manifest in,
the statutory provisions. The effect of thispolicy is that, once the Commissioner takes
advantage of S. 177(1) by producing an
appropriate document, the taxpayer is precluded
from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities.
The taxpayer is entitled to dispute his
substantive liability to tax in proceedings
under Pt V.
Although s. 190(b) places the onus on a taxpayer .....
it enables him to contest his substantive liability
to tax.
Then at page 377, at the very top of the page line 2 -
referring to section 177(1):
Although the sub-section is evidentiary and begins to operate when an appropriate document
is produced in a court or board of review,
and not before, its effect is to put the making
of an assessment beyond challenge.
And then after reference to what fell from the
Chief Justice in BAILEY:
The Commissioner may be right or wrong in his view of the facts, but it would appear to be
incontrovertible that the figure on the notice of assessment which records the Commissioner's
view of the taxable income evidences that a
process of assessment was actually undertakenhowever cursory or inadequate that process
may have been.
Reference is made to GEORGE's case and then a
reference is made to TRAUTWEIN to which I will take
the Court:In our opinion, it must follow that a notice in proper form of an assessment necessarily compels the conclusion that there was an assessment made in fact. Then further down in the middle of that page, talking
about the "Bloemen notice of assessment", going to
the last four lines of that paragraph:
Its production will put beyond contention the
due making of the assessment so that the Court
ce.nnot find that no assessment was made or that,if made, it was made for an inadmissible purpose.
ClT21/l/DR 35 6/9/89 Dalco(2) Your Honours, it is our respectful submission,
that the combined effect of those three ·cases- is to totally
undermine the majority view in the Federal Court
and totally support the view of Mr Justice Wilcox.
I would seek to conclude our submissions by reminding
Your Honours, first of all, of an earlier dispute
in this Court as to the effect of the onus provisions.
I can do that very briefly because Mr Justice Mason's
judgment in GAUCI, although a dissenting judgment,it was later reinstated by Full Court decisions.
If I could go to GAUCI at 135 CLR 81. This
was a section 26(a) case and what the trial judge
had done, in the Supreme Court of Western Australia,
was to decline to accept the taxpayer's evidence as
to the purposes which actuated them when they bought
the land. Nevertheless, the majority of this Court
allowed an appeal from the decision confirming theassessment over the dissent of Mr Justice Mason, as
he then was.
Going to Mr Justice Mason's judgment at page 88,
at the start of the last paragraph:
The judge declined to accept the appellant's evidence as to their intentions in purchasing the land and the evidence of the land agent Graham
who acted for them.
Going to the top of page 89, line 4:
These findings must be accepted as correct,
involving as they did, an assessment of the
appellants' credibility. They constitute a
defect in the appellants' case which is in my
view fatal to their success.
(Continued on page 37)
| ClT21/2/DR | 36 | 6/9/89 |
| Dalco(2) | ||
| MR HANDLEY (continuing): |
Section 190(b) of the Act imposed on the appellants the burden of proving
that the assessments were excessive. The appellants relied on their evidence and
that of Graham in order to show that the
assessments were excessive. Once that evidence was rejected, the appellants'
case necessarily failed.
Making all allowances for the different facts in
the two cases, in our submission, once Mr Dalco's
evidence was rejected, in our submission, his
case necessarily failed.
The Act does not p-la.ce- any onus on the
Commissioner to show that the assessments were
correctly made. Nor is there any statutory requirement that the assessments should be
sustained or supported by evidence. The implication of such a requirement would be
inconsistent with S. 190(b) for it is a
consequence of that provision that unless theappellant shows by evidence that the assessment
is incorrect, it will prevail.
And, at the very bottom of page 89, the last three
lines:
The crux of the matter is that when in
as. 26(a) case an appellant seeks to overcome
the onus created bys. 190(b) by adducing
evidence as to his intentions with a vew to
establishing the purpose of the acquisition
was not as. 26(a) purpose and that evidence
is not accepted, he has not discharged the
onus which he bears. At best, from the
appellant's viewpoint, the evidence stands
in a situation in which it is equivocal, neither
establishing a S. 26(a) purpose nor denying the
existence of such a purpose. At worst, the judge may, in the circumstances, be able to infer the existence of as. 26(a) purpose. In either event the appellant fails to discharge the onus and his appeal fails.
Now, that minority view was, as I said, later upheld
by the Full Court of this Court, and I merely
give Your Honours the references to McCORMACK V
THE FEDERAL COMMISSIONER OF TAXATION, 143 CLR 284, and
MACMINE V THE FEDERAL COMMISSIONER, reported not in
the CLR, but reported only in the other reports,
53 ALJR 362.
| ClT22/l/FK | 37 | 6/9/89 |
| Dalco(2) |
What, in our submission, is demonstrated by GAUCI's case, apart from a, with respect, correct
view of the "onus" section, is that the first
task of a taxpayer on a Part V appeal is to
establish the relevant facts. It is possible that
the only dispute between the parties is a dispute as to the Jaw: the facts are agreed and the matter proceeds as a question of law. But, if the facts
are not agreed, the taxpayer's first step is to
establish what the relevant facts are, and if he
fails at that point, that is the end of the case.
And, to be able to say, "On other possible views of
the facts, the Commissioner made errors of law", is
just beside the point; it is an academic exercise,
in our submission.
We would seek to conclude our submissions by
taking Your Honours back to TRAUTWEIN V THE COMMISSIONER
back in 56 CLR, because it is our respectful submission
that much of this ground was, in fact, necessarily
traversed all those years ago in TRAUTWEIN under the old
Act. 56 CLR 63, and it is convenient - I will not worry Your Honours with the headnote - there were a
number of proceedings before the Full Court, one of
which was a case stated by Mr Justice Evatt, who had
heard appeals in the original jurisdiction of this
Court against tax assessments raised against Mr Trautwein,
and the facts stated by Mr Justice Evatt are
summarized - or quoted from the stated case, at page 78,
and the Commissioner's assessment process is there
exposed, as applied to Mr Trautwein:
In taking such report as a basis -
top of the page -
the commissioner proceeded in the following
manner. He determined the amount of the assets of the appellant as at 1st July 1920
and then determined the amount of such assets
as at 30th June 1927. The amount of assets as at the latter date exceeded the amount
as at the former date. Part of the amount of such excess consisted of assessable income of the appellant derived at some time or other during
the income years 1921 to 1927 inclusive.(Continued on page 39)
| C1T22/2/FK | 38 | 6/9/89 |
| Dalco(2) |
:MR HANDLEY (continuing):
The commissioner did not ascertain how much of such part of the excess was
derived by the appellant in each of
such years. He divided the total amount of such part equally between the
seven years under review by him and
then added such seventh to the assessable
income of each of the seven years which
for the purpose of his assessments he
treated as already ascertained. The various amounts of the assessable income
so treated as already ascertained, were
unequal.
From the materials and information in his possession at the time of the
assessments made by him in November 1931
it was not possible for the commissioner to
allocate to each of the seven incomeyears in question its precise proportion
of the relevant accretion. But it was possible for the commissioner in respect of each one of such seven years to adopt
the course of comparing the assets of the
appellant as at the beginning and as at
the end of each income year. Owing to the failure of the appellant to keep proper
books and accounts the latter course would
have entailed considerable labour and
expense. The commissioner could not have ascertained the assessable income for each
year from the returns and other information
and answers to requests furnished to him
by the appellant.That part of the amount of the accretion of assets which was due to income
earnings of the appellant was derived, not
equally but unequally, over the period of
the seven relevant income years. But the appellant has failed to prove during what
years that part of the accretionrepresenting income was earned and as a consequence has failed to establish affirmatively at what figure the income assessed against him in respect of each of
the seven years should be assessed. Thus
the amount of taxable income contained ineach of the seven assessments under the method adopted by the commissioner is in
fact incorrect and one or more mustnecessarily be excessive but the appellant has failed to establish affirmatively what is the precise amount of taxable income in each year.
ClT23/l/JH 39 6/9/89 Dalco(2) And, Mr Justice Evatt asked the Full Court
whether, in the light of those findings, he should
allow the taxpayer's appeal or dismiss it and the
Full Court held unanimously the appeals should be
dismissed. Going to page 87, in the middle of the page, the long paragraph concerns the then
relevant statutory provisions and some discussion
of earlier cases and I pass over that. Going to the last paragraph: In the absence of some record in the mind
or in the books of the taxpayer, it would
often be quite impossible to make a
correct assessment. The assessment would necessarily be a guess to some extent, and
almost certainly inaccurate in fact.
There is every reason to assume that the
legislature did not intend to confer upon
a potential taxpayer the valuable
privilege of disqualifying himself in
that capacity by the simple and relatively
unskilled method of losing either his
memory or his books.
Over the page:
The application of section 39 is not, in
my opinion, excluded as soon as it is shown
that an element in the assessment is aguess and that it is therefore very
probably wrong. It is prima facie right -
and remains right until the appellant shows
that it is wrong. If it were necessary to decide the point I would, as at present
advised, be prepared to hold that the
taxpayer must, at least as a general rule,
go further and show, not only negatively
that the assessment is wrong, but also
positively what correction should be made
in order to make it right or more nearly
right. I say "as a general rule" because, conceivably, there might be a case where it appeared that the assessment had been made upon no intelligible basis even as an approximation, and the court would then set aside the assessment and remit it to the commissioner for further consideration.
And then, going to page 89, His Honour there sets
out section 36 which was the equivalent in theearlier legislation of section 167 in the present Act.
But, it contained its own onus provision built in
which was not in the general provisions of the Act
and if Your Honours go to the last couple of lines of
section 136, one sees:
ClT23/2/JH 40 6/9/89 Dalco(2) the person assessed shall be liable
to income tax thereon, excepting
so far as he establishes on objection
that the assessment is excessive.
So, the assessments against Mr Trautwein were
section 36 amended assessments and so although the
general provisions of the Act at that time did not
put on the taxpayer the onus of establishing that
his assessment was excessive, that onus was placedon him in terms by section 36 in relation to
amended assessments.
(Continued on page 42)
ClT23/3/JH 41 6/9/89 Dalco(2)
MR HANDLEY (continuing): We then go to page 92, at the top of the page, the Chief Justice said:
Thus, in my opinion, both sec. 39 and
sec. 36 apply to this case. If so,
the taxpayer is liable to pay tax uponthe amount stated in the assessment as
that upon which income tax ought to be
levied, unless he displaces the prima
facie presumption created by sec. 39.Further, sec. 36 imposes the same liability excepting in so far as he
establishes on objection that the
assessment is excessive .....
It is at leasts clear that sec. 39
places upon the taxpayer the burden of
showing in relation to a particular year
under consideration, say 1921, that the
amount or some of the particulars of the
assessment are incorrect and that their
incorrectness operates to his preiudice.The same question arises separately in
relation to each year. Most probably all the estimates of the income of the taxpayer
are wrong, some in his favour, some against
him. But has the taxpayer shown that he is
prejudiced in relation to any particular year?
In my opinion he has not. Of course the
chances are that each particular year is
wrong, but,if each year is taken by itself,
all that the taxpayer has shown is that the
method adopted by the commissioner is such
that it is very unlikely that he has reached
an accurate result. He has not shown positively that the total amount, or that any
~articular item going to make up that amount,
1s wrong.
Then on page 93, just a few lines opposite the
reference to the Chief Justice's name in the margin:
The assessment for a particular year may or may not be so excessive. Upon the facts stated no one can say whether it is or not.
The result of the statutory provision isthat, as the taxpayer has not established,
in respect of any year, that the assessmentis excessive, he is liable (upon the basis of the facts stated, i.e., no more appearing
than those facts) to pay tax upon the
assessment for each year.
Then going to page 98, paragraph 10:
The court is asked in question 4 of the
case whether the assessments are invalid
by reason of the method adopted by the
comm1ss1oner -
Cl T24/l /HS 42 6/9/89 Dalco(2)
fl • fl
"invalid", not excessive - by reason of the method adopted by the
commissioner in distributing equally
between the seven years 1921 to 1927
the income which cannot be accurately
apportioned. The assessments in question against which the appeals are brought are
amended assessments. There is nothing in the case stated which shows that they were not validly made ..... It was, indeed, urged that
the method adopted by the commissioner in
arriving at his figures, the results of
which are described in par. 24 of the case ..... was such as necessarily to invalidate
the assessments. This, however, appears to
me to be plainly a matter of the correctness
and not of the validity of the assessments.
So the taxpayer's appeals failed. Mr Justice Star~e,
at page 103 iust one line below the reference to his
name in the margin:
The amount of taxable income contained in
each of the seven assessments under the method
adopted by the commissioner is necessarily
incorrect, but the taxpayer cannot establish
the precise amount of taxable income in any
year.
In the joint judgment of Mr Justice Dixon and
Mr Justice Evatt at page 111 and page 112 -there 1s a reference at the top of page 111 to section 37
just inside the left-hand margin about 10 lines down:
In our opinion the title of the taxpayer to be relieved against any of the assessments depends upon the question whether it is incumbent upon him to show no more than that the assessment is erroneous, or, on the other hand, to show
amount. If sec. 36 provides machinery which that it should be reduced by some ascertained may be availed of under sec. 37, it would, we think, result in imposing upon the
taxpayer the burden of showing that the
assessment should be reduced by some figure.For he is to be bound -
by the assessment -
excepting so far as he establishes on
obiection that the assessment is excessive.
But in any case the Act throws upon the
taxpayer the burden of obiecting to and
appealing .....
ClT24/2/HS 43 6/9/89 Dalco(2) MR HANDLEY (continuing):
The burden lies upon him in the judicial
proceedings which he is thus required to take of establishing that the assessment
or amendment imposes upon him a liability
to which the taxing provisions of the Act do not subject him. Within the limits of
his objection he must show that the assessment
is contrary to law or to fact. If so much
is established, the court may set aside the
assessment and remit it for reconsideration,
or may itself determine the amount of the
liability. But error or law or fact affecting the particular assessment must
appear .....
In respect of no one of the seven years
can it be correctly said that the taxpayer
has shown that the amount allocated thereto
from his aggregate gains of the seven years
exceeds that which was derived therein.
It is not enough for him to prove that in
one or more out of the seven this must be
so without identifying which it is. He does not show that he has been prejudiced by any
departure from legal standards and he does
not show that the facts assumed in any
particular year are not true of that year.Your Honours, Chief Justice Latham said - and I have already read the passage at the bottom
of page 87 - that the provisions reflected a view
that Parliament did not intend to allow taxpayers
to opt out of the tax system by the simple and
unskilled method of losing either his memory or
his books. If one were to update that to the
contemporary scene one would have to add something
to this effect, "By surrounding himself or herself
with a multiplicity of legal entities, trusts or
partnerships and then either failing to keep anyor any proper books or else losing his memory or
those books". The problem here is, in this case before the Court, simply an updated version of the problem
which this Court faced and solved in TRAUTWEIN
and, in our submission, making allowances for the
different facts of the two cases, a taxpayer cannot
merely by pointing to a multiplicity of different
entities surrounding him and his business affairs,
in effect, prevent the Commissioner from assessing
him to income tax on his apparent life style and
cannot discharge the onus of proof in appeal
proceedings by pointing to the confusion with whichhe has surrounded his affairs and saying that the
44- 6/9/89
Dalco(2)
Commissioner has applied an inadmissible approach
when he has completely failed to face head-on the
onus and the assessments and to prove what his
true income was.
So for those reasons, if the Court pleases,
we would submit the appeal should be allowed.
MASON CJ: Thank you, Mr Handley. Yes, Mr Jackson.
MR JACKSON:
Your Honours, may I hand to the Court copies of our outline of submissions and also copies of
a typed document which sets out the relevant
sections of the Act. Some are not covered in my learned friend's extract. MASON CJ: Thank you. MR JACKSON: Your Honours, may I, before turning to our submissions, say this first: this is a case where
the respondent was assessed over four years with
large sums of money being the taxable income.
The basis of those assessment was made clear.
The majority in the Full Court held that therewas nothing in the basis in respect of any one
of those years adopted by the Commissioner whenmaking the assessments and the correctness of the
majorities taking that view is not now in issue.
So that there remained, however, large assessments
in exact sums for which it was shown there was
no basis.Your Honours, the issue then was whether those assessments should yet stand because the respondent
had not proved what his actual income was or whether -
and in this respect the observations made in the
last passage referred to in TRAUTWEIN's case will
be relevant and I will come to that in a moment -
the case should, as the majority in the Full Court
said, there having been shown to be an error inthe assessment then go back to the Commissioner
for reassessment. (Continued on page 46)
ClT25/2/ND 45 6/9/89 Dalco(2)
MR JACKSON (continuing): Now Your Honours, having said that, could I come first to section 190 which is, in a
sense, the commencing point. May I say something
about it before going to its terms, and that is
that section 190 has played a very large part in
the argument on behalf of the appellant, but oneshould observe, in passing, that section 190 is
not the provision which itself confers a right to
appeal or con£ ers jurisdiction upon the court or
a tribunal to hear such an appeal or review.
What it does do is to regulate the issues which may
be agitated on the hearing of an appeal and also to
determine, in relation to those issues, who bears
the onus of proof.
Your Honours, the point of saying that is simply
that one should bear in mind the place which
section 190 occupies. It is a section which takes
its place together with other sections in relation
to the assessment and objection and review provisions,
but it is not the provision which itself is dominant.
Your Honours, it provides, if I could go to its
terms now, that on an appeal to a court two features
have to be borne in mind. And, Your Honours,I have limited myself to an appeal to the Court for the
moment. Two features have to be borne in mind. One is that:
the taxpayer shall be limited to -
what is described in section 190 as being -
the grounds stated in his objection;
Your Honours I will return to that, if I may. The other is that in those ·p-ro·ceedings -it is the taxpayer who bears - the burden of proving that the assessment is
excessive.
And Your Honours, those provisions in section 190 are the concluding provisions of a series designed
to result, in our submission, in there being defined
issues before the Court on the hearing of an appeal.
Your Honours, some guidance as to the nature as to
the proceedings in contemplation in an appeal. is to
be found, in our submission, from the two conceptsmentioned specifically in section 190, that is
objection and assessment. And Your Honours, may I
deal first with assessment and follow that through
and in the course of it deal with the other concept,
that of objection?
CIT26/l/CM 46 6/9/89 Dalco(2) Your Honours, in relation to assessment, one goes
first to section 166 which provides that:
the Cormnissioner shall make an assessment
of the amount of the taxable income of any
taxpayer, and of the tax payable thereon.
Now Your Honours, the term "taxable income 1' is
defined to mean in section 6:
"the amount remaining after deducting from the assessable income all allowable deductions" -
Your Honours, I suspect that that definition is not
included in those extracted passages. Can I give Your Honours, after lunch, one or two passages from
the definition section of the Act also. But simply, section 6 says 11 that it is the amount remaining
after deducting from the assessable income all
allowable deductions". So that the term "taxable income", used in section 166, is the result of a
calculation, namely a subtraction of what is contemplated
by allowable deductions from what is contemplated by
assessable income, both those terms themselves being
defined by section 6 as meaning respectively the
amounts which are assessable income as provided for
by the Act or allowable deductions as provided for
by the Act.
But Your Honours, if one could pause at that
point in relation to section 166, the disputes which
might arise between the Cormnissioner and a taxpayer
must relate to, leaving aside questions such as the
appropriate rate of tax, if that were an issue in
particular circumstances, must relate to such mattersas whether the taxpayer derived income in a year;
whether that income is assessable income, and if so,
to what extent; and whether the taxpayer has an entitlement to an allowable deduction and if so, its
amount.
(Continued on page 48)
CIT26/2/CM 47 6/9/89 Dalco(2)
MR JACKSON (continuing): Your Honours, I have expressed that broadly but within those various headings
there are, no doubt, discrete items which mightfall for consideration; for example, whether
a particular sum is an allowable deduction or
whether a particular amount is something which is
to be taken into account as being assessable
income.
Your Honours, if I could pause there in
relation to section 166 and move on to section 167,
Your Honours will see that section 167 is somewhat
differently expressed because what it says in its
concluding words is that:
the Conrrnissioner may make an assessment
of the amount upon which in hisjudgment income tax ought to be levied,
and that amount shall be the taxable
income of that person for the purpose of
section 166.
Your Honours, although the concluding words of the
section are differently expressed, the task upon
which the Conrrnissioner is engaged under section 167
is once again to arrive at taxable income by
recourse to the Act rather than, of course, by
recourse to whim. And, Your Honours, that that is so appears from two things; the first is that as
the Court said in GEORGE V FEDERAL COMMISSIONER OF
TAXATION, 86 CLR 183 at 203-204, Your Honours in
particular at the bottom of page 203, a passage to
which my learned friend has referred; at the
bottom of page 203 to the top of page 204, the
Court there said that:
Sections 166 and section 167 do not
prescribe distinct duties or functions.
They combine to show what the conrrnissioner
may or must do in performing his -
in the end - single duty of arriving at an assessment. And, of course, members of the Court used the expression that:
Section 167 is epexegetical to
section 166. It is not an independent
power.
Your Honours, that is the first matter in the
sense that what is being done under section 167 is to arrive at the same thing - if I can put it that
ClT27/l/JH 48 6/9/89 Dalco(2) way - as is contemplated by section 166; that is,
to arrive at taxable income.
McHUGH J:
But, Mr Jackson, there must be some cases where, on any
view,
the Corrrrnissioner can,
in effect, just pluck a figure out of the air.
Take the case of a prostitute. All he knows is
that somebody is a prostitute and has not got the
faintest idea of what hours or what she does at all.
Why cannot he say, "I will assess her at $50,000"?
MR JACKSON: Yes, Your Honour, I really was not intending
to convey otherwise, with respect. What I was simply seeking to do at this point was to say that
what he has to arrive at is what he regards as
being her taxable income and taxable income being
the amount for whic~ if there had been a return or
so on, she would be liable as taxable income. Now, it may be that in some cases the method of
arriving at the taxable income is one which theCorrrrnissioner adopts under section 167 does involve a comparison of gross earnings, if I could put it
simply, with likely allowable deductions. It may be
that it is simply based on what people in
comparable situations seem to have as
taxable income and it is not necessary for him in
every case to go through the process of calculation.
The point I am seeking to make about it, Your Honour,
is that what he is trying to arrive at is the same
amount as he would have arrived at under section 166
and it is the same concept; the method of doing it
might be slightly different depending on thecircumstances.
Your Honours, I was just going to say one other
thing about section 167. That it involves the notion that the amount to be arrived at is the
amount of taxable income is made apparent - is the
real amount of taxable income, if I can put itthat way - Your Honours, is made apparent by the
use in it of the word "assessment", a term which
itself means, as Your Honours will see in the definition of that term, the ascertainment of the
amount of taxable income and the tax payable on it.
(Continued on page 50)
C1T27/2/JH 49 6/9/89 Dalco(2)
| MR JACKSON (continuing): | Your Honours, there are observations |
to that effect also in GEORGE V FEDERAL COMMISSIONER
OF TAXATION at page 204. Your Honours, that appears
in about 10 lines from the top of the page on
page 204:
By definition "assessment" means the ascertainment
of the amount of the taxable income, and of the
tax payable thereon.
And so on. Your Honours, the concept of assessment was dealt with, or what is meant by "assessment", and
Your Honours I am sorry to labour the point a little
but what I am simply seeking to do is to indicate that
when one is speaking about the assessment in termsof section 190, in the end what is being spoken about
is something which is or may be a calculation and it
involves a number of steps. That is, it is a concept
involving what is the amount of taxable income asdistinct from a mere sum.
Your Honours, what is meant by the concept appears from references Your Honours have already been
given, I think, BATAGOL V COMMISSION OF TAXATION,
(1963) 109 CLR 243 at pages251-252 and page 257 and
also the passage in the judgment of Your Honour the
Chief Justice and Justice Wilson in
F.J. BLOEMEN PTY LIMITED V FEDERAL COMMISSIONER OF
TAXATION, (1981) 147 CLR 360 at 371-372.
| TOOHEY J: | Mr Jackson, what is the difference between the |
situations envisaged by paragraph (a) and (c) of
section 167?
| MR JACKSON: | I have some difficulty, Your Honour, in seeing |
a great· diffe-renee be-tween them,.. f>ne- can understand a degree of emphasis being involved in the expression
"default" in paragraph (a) where one would think
that, perhaps, it means that a person who knows that
he should, has not done so and, perhaps, in paragraph (c)
that element is not present. But, Your Honour, subject
to that there does not seem to be a great difference
between them.
| TOOHEY J: | It may have some relevance to the connection between |
section 166 and 167. For instance, in relation to
(c) there is an assumption that the Connnissioner has
some information which leads him to believe that a
person who has not furnished a return has derived
taxable income. In that event section 166, or in
that situation, I suppose, section 166 would provide
a sufficient authority of itself. If there was a
default in furnishing a return and the Connnissioner
had no information in terms of section 166 it might
suggest that section 167 was some independent
authority for making an assessment.
| ClT28/l/DR | 50 | 6/9/89 |
| Dalco(2) |
MR JACKSON: Yes, Your Honour, I suppose it is possible that there is an area not covered by section 166 that is
covered by section 167 but - - -
TOOHEY J: It would be a fairly unusual situation where there was not only no return but no information in the
possession of the Commissioner from which he could
even begin to make an assessment.
MR JACKSON: Yes, well, Your Honour, the situation which would then arise, one would think, would be that as soon as
he started to examine the matter one would think that
very•quickly he would become in possession of some
information.
TOOHEY J: Yes, well, one would expect so, that is why I say
it would have to be an unusual situation but I suppose
it is at least conceivable that there could be a
situation where there was no assessment and all he
knew was the name of an individual and knew nothing
about that individual.
MR JACKSON: Yes. TOOHEY J: Although I suppose you would say some inquiry would
then be made and you would end up with some information,
one would expect, from which he could make an
assessment.
(Continued on page 52)
ClT28/2/DR 51 6/9/89 Dalco(2)
| MR JACKSON: | Yes. | Your Honour, probably, if one just looks |
at the difference between (a) and (c), (a) probably
is designed to take care, at least, primarily of the
case where some one deliberately does not file a
return. (c) may well be there to cover a wider range of cases, but also to take care of cases where
people really might not know they have to file a
return, in a sense, might not be aware of it, for
example, young people working for a short period
might not be aware of a need to file a return, and
things of that nature.
| TOOHEY J: | But that would still constitute a default, would it |
| not? |
MR JACKSON: Well, Your Honour, it would in one sense, but it
just depends what is meant by "default" in that
sense.
| TOOHEY J: | You think it might have some pejorative overtones. |
MR JACKSON: It may have, Your Honour, yes. In that sense
perhaps (a), (b) and (c) seem to be in descending
order of fault, if I can put it that way.
Your Honours, once the assessment is made,
notice of it is required to be served under determination of taxable income referred to in the
section 174(1), and, Your Honours, it is the service
of the notice which imposes restrictions upon the
ambit of the rights of both the taxpayer and the
notice of assessment. Your Honours, the restrictions on the taxpayer, if I can deal with those first,
commence with section 177(1) which provides that:
The production of a notice of assessment .....
shall be -
on the one hand -
conclusive evidence of the due making of the assessment and -
on the other hand -
(except in proceedings on appeal against
the assessment) that the amount and all
the particulars of the assessment are correct.
And, Your Honours, I wonder if I could refer Your Honours for just a moment to F.J. BLOEMEN PTY LTD V FEDERAL COMMISSIONER OF TAXATION, 14 7 CLR 360, at page 375
where, in the joint judgment of Your Honour the
Chief Justice and Justice Wilson, the effect of these
provisions was referred to and, Your Honours, it
| ClT29/l/FK | 52 | 6/9/89 |
| Dalco(2) |
is in the first two paragraphs on page 375,
to which Your Honours have already been referred,
and Your Honours will see there, in the second
paragraph, the statement of the policy that the
taxpayer, once section 177(1) is used is:
precluded from contesting that the
Commissioner has made an assessment or
that in making the assessment he has
complied with the statutory formalities.
The taxpayer is entitled to dispute his
substantive liability to tax in proceedings
under Pt V.
And Your Honours went on to say:
Although s. 190(b) places the onus on a taxpayer upon a reference or appeal of proving that the assessment is excessive,
it enables him to contest his substantive
liability to tax. It is then for the
board upon a reference or the court on an
appeal, within the framework of the
taxpayer's objection -
that is a matter to which I will come -
to ascertain whether he is liable to tax
and, if so, in what amount.
And, Your Honours go on to mention the protection given
by the Part V procedures. Your Honours, that is the first restriction, section 177(1). The second restriction is that embodied in section 185, namely
that whilst the taxpayer,dissatisfied with an
assessment - he is given a right to object to an
assessment - the objection must itself state fully
and in detail the ground, or grounds, upon which the
objecting taxpayer relies. Your Honours will see that set out in section 185.
(Continued on page 54)
| C1T29/2/FK | 53 | 6/9/89 |
| Dalco(2) |
MR JACKSON (continuing): And, Your Honours, in relation
to amended assessments, Your Honours will see in
subsection (2) that there is again a further
restriction on the right to object.
Your Honours, the objection contemplated by
section 185(1) is an objection in writing against
the assessment and in relation to that assessment
the objection has to state fully and in detail
the grounds which are relied on as an objection
against that assessment. And, Your Honours, those expressionsmilitate, in our submission, against
the contention that it really does not matter very
much how the Commissioner arrives at the amount
of taxable income because what one is looking at
in the end is whether it has been established that
the overall amount is wrong.
Your Honours, if I could go back for just a moment to section 177(1), a somewhat similar
notion is conveyed by the concluding words of
section 177(1) because the effect of the words
"except in proceedings on appeal against the
assessment" means that one would think that
subsection (1) is contemplating that a matter that
may be the subject of review on the assessment
or may be the subject of evidence is not just the
amount but as section 177(1) says, the particulars
of the assessment, that is the correctness ofthe particulars of the assessment, as distinct
from just the amount.
Your Honours, if I could go back to the
objections. Once the objection has been lodged, the Commissioner is obliged by section 186 to
consider it and to either disallow the objectionor allow it in whole or in part and, Your Honours,
that is stated specifically by section 186(1).
And the Court's decision in TRAUTWEIN V THE
COMMISSIONER OF TAXATION, (1936) 56 CLR 63, in
two passages referred to the fact that the
Commissioner's decision on objections must be
explicitly stated. Could I take Your Honours to page 96. And at the bottom of page 96, in the last paragraph
on that page, the Chief Justice said, in the
fourth line:
Under sec. 50 the taxpayer is entitled to
a clear decision upon each separate objection.
The commissioner, in his decision, should
either disallow an objection, or allow it,
either wholly or in part. In this case it
is possible to interpret the commissioner's
decision as a disallowance of all the
ClT30/l/ND 54 6/9/89 Dalco(2) objections, so that the taxpayer has a
right of appeal in relation to all of
them - limited as already stated by other
provisions of the Act. But the commissioner's decision included a statement that it had
been decided to "admit your claims to the
extent indicated on" certain notices of
amended assessment. Those notices do not show in any definite manner to what extent
each objection has been allowed or disallowed.
Such a practice is confusing, as it tends
to defeat the object of the Act in failing
to present a clear issue to the court in theevent of an appeal.
And, Your Honours, at page 101, about half-way
down the page, in the lengthy paragraph, the fifth
line, Mr Justice Starke said:
(Continued on page 56)
C1T30/2/ND 55 6/9/89 Dalco(2) MR JACKSON (continuing):
It is the commissioner's duty to consider a taxpayer's objections, and either to allow
or to disallow them, wholly or in part. But to inform the taxpayer that he can discover
from an amended assessment the extent to which
his objections are allowed is no performance
of that duty, and still less is it so, where,
as in this case, it is quite impossible to
ascertain what items the commissioner has
allowed or disallowed. Much of the time of thiscourt might have been saved if the commissioner
had observed the plain directions of the
INCOME TAX ACTS.
Your Honours, both those references indicate what,
in our submission, is correct and that is that the
purpose of these provisions is so that in
the ehd clear issues arising on the objections
will be before the court on the hearing of the appeal.
TOOHEY J: I am not sure that I follow that,Mr Jackson. The obligation ~st up-on the Commissioner by
section 186 is to disallow an objection or to allow
it either wholly or in part. There is noth:ing in the section,
for whatever might be thought of the merit of doing it,which requires the Commissioner to provide reasons
for the dis allowance of the objection, is there?
MR JACKSON: No, I am sorry, I was not suggesting that,
Your Honour. What I was· . submitting was this , that Your Honour will see that section 186 says that
the Commissioner has to serve the taxpayer with a
written notice of his decision, and that is the
decision on the objections and,in our submission,
as TRAUTWEIN's case indicates, that provision means
that what the Commissioner has to do is to indicate
what objections have been allowed or disallowed so
that it is possible to see, at that point, whether
an objection has or has not been successful, with a view to limiting the matters which might be the subject of an appeal or might be agitated by the appeal.
TOOHEY J: I understand that. I thought you spoke of the processes in some way designed to ensure that
issues were clearly presented to the Court, but
that must be regarded as limited to the particular
objections and those which have been expressly
disallowed. In other words, there is nothing inthose sections which would point up for the Court
disallowed. the basis upon which an objection had been
CIT31/l/CM 56 6/9/89 Dalco(2)
MR JACKSON: No, but Your Honour, what I am seeking to make
about it is this: the taxpayer is obliged to state fully and in detail the objections. Now, that means that the taxpayer must do just that, of course.
What the Connnissioner has to do, by section 186, is to consider each objection and then give notice
of those which he has allowed or disallowed and
whether he has done so in whole or in part. That
means that, in respect of some of the objections
if they are allowed, that issue is no longer live,
in respect of an objection which has been allowed
in part, the issue is pro tanto no longer live,
and in respect of an objection which is disallowedit remains live the matter which can be the
subject of an appeal.
Your Honours, the taxpayer is given a right to
appeal or to a review by section 18 7 . .And if Your Honours go to section 187, what Your Honours will see is that
it provides that a taxpayer who is dissatisfied
with a decision under section 186, on an ob.i ection
may lodge either a request to refer the decision
to the tribunal or a request to refer the decision
to a specified supreme court. Now,Your Honours, the decision there referred to is the decision
referred to. in the opening words of the section and
that is a decision, under section 186, on an
objection.
Your Honours, the appeal which takes place
in consequence of that or the review, is an appeal
or review in relation to that decision, and that is
what the s.e.ctibn says. When I say ~hat is what the
section says, that is provided for, Your Honours, by
section 189 as well as by section 187.
(Continued on page 58)
CIT31/2/CM 57 6/9/89 Dcilco(2)
MR JACKSON (continuing): Your Honours will see in relation to section 189(2) in relation to a decision which
is to be referred to the tribunal that:
The referral of a decision on an
objection ..... be deemed to constitute
the making by the taxpayer of an
application to the Tribunal for review
of the decision.
The decision in question being the decision on
an objection which must take one back to
section 186 and, in particular, Your Honours, in
relation to the Court, Your Honours will see
under subsection (3) that:
The referral of a decision on an
objection to a Supreme Court constitutes
the instituting by the taxpayer concernedof an appeal against the decision, and
that appeal shall be heard -
and so on. Now, Your Honours, the appeal that is being contemplated there is the appeal against the
decision of the Commissioner not to allow the
objection or not to allow it in full. Now, Your Honours, in the case of an appeal, as
Your Honours will see from section 190(a), the
taxpayer is then limited to the grounds stated in
his objection when the Court is considering whether
the appeal against the disallowance of that
objection should succeed.
DAWSON J: There is only ever one objection for an assessment is there not, Mr Jackson, and that is an objection
that the assessment is excessive? There may be
various grounds for that objection and the grounds
may be allowed or disallowed and, therefore, the
objection allowed in whole or in part,,
but, there is only one objection ever and only one
objection in the sense that it is an objection that
the assessment is excessive. (Continued on page 59)
ClT32/l/JH 58 6/9/89 Dalco(2)°
MR JACKSON: Your Honour, with respect, my submission 1s that it is not right.
DAWSON J: That is the way the Act speaks of it: a single obiection and multiole grounds.
MR JACKSON: Your Honour, no doubt that is right - I am sorrv, Your Honour, I am putting it badly - that is correct
in the sense that one lodges an obiection against the
assessment. The obiection has to state the grounds and in that sense it is an obiection on a nu~ber
of grounds. When comes from that to section 186 - - -
DAWSON J: The obiection is, is it not, that the assessment is excessive?
MR JACKSON: Well, Your Honour, it may be. Your Honour, that is the result of it all, I think that is probably
right to say, although there are cases where the
contention might be on an objection, not that the
amount ultimately payable is too much in the
assessment, but that the assessment is done on a
wrong basis. Your Honour, I am putting that badly. What I am seeking to convey really is that there
are cases - and Your Honours, the name of the
particular one escapes me just for the moment, but
it was, I think, one of the three doctor cases
that Your Honours heard some years ago, PINCUS and
the two other ones. Your Honours, what can happen, of course, is that there is an assessment which is
done by the Commissioner on basis A which results in
there being a taxable income of X dollars. The taxpayer's contention is that in the particular year
the taxable income was higher than that becausea different basis should have been adopted.
Your Honours, no doubt it would have some
consequence in respect of other years and that would
be the reason for advancing that contention.
(Continued on page 60)
ClT33/l/HS 59 6/0/89 Dalco(2)
MR JACKSON (continuing): So that the objection really would not b~ if one looks at it just in terms of
amoun 4 that the amount of the assessment is
excessive but that the basis of the assessment
was incorrect.
DAWSON J: Well, in that case the objection would be that the amount was excessive or too little but it
would still be the single objection and then there
would be grounds for saying that.
MR JACKSON: Well, Your Honour, the - - - DAWSON J: And where it is excessive the onus is, of course, on the taxpayer.
MR JACKSON: Yes, Your Honour. Your Honour, what is contemplated, we would submit, by section 189(3)
and the preceding provisions to which I have
referred, is that - and if one looks also at
section 190(a) - whilst it is right to say that
in the end perhaps there may be only one objection,
that is, that the assessment is excessive, that
the provisions deal distributively with the grounds
of the objection and, Your Honours, if one looks
for example, at section 190(a), what it is
contemplating is that an appeal be limited to
those grounds of the objection which have not beendecided successfully in favour of the - - -
DAWSON J: Section 190(b) does not deal with them distributively; it deals with them in globo.
MR JACKSON: Yes, Your Honour, I am sorry, I was not suggesting in relation to this argument that was
what it did. Section 190(a) limits the taxpayer:
to the grounds stated in his
objection.
Now, Your Honour, the grounds stated in the
objection, if successful at an earlier point, would, oneWQll]_d expect, have had the result that
there has been some alteration in the assessment
and the assessment remaining to be dealt with is
one which is altered in some way in the sense that
(Continued on page 61)
ClT34/l/JH 60 6/9/89 Dalco(2)
DAWSON J: What I had in mind - I do not want to keep you any longer - is that you may establish a ground,
or more than one ground, but it may not establish
that the assessment is excessive. Therefore, if
one does not establish that, one does not
establish one's objection.
MR JACKSON: Your Honour, that may be so in some cases in the sense that one could well understand,
particularly since the advent of the word
processor, that objections can become terms of
art in a sense and have many grounds listed
and the fact that one ground might not be
sustained does not mean the same sum of money
would not form part of assessable income, or
not be an allowable deduction for some other
reason in the sense that it does not always
follow that for a ground to succeed it means thatthe amount will vary, but it frequently would. Your Honours, I referred earlier to the
fact that the service of a notice of assessment
imposes limitationsupon both the taxpayer and
the Commissioner and I have so far referred to
the limitations upon the taxpayer. Your Honours, the Commissioner, of course, is limited in his
powers to amend assessments once the notice of
assessment has been served and he may not do
just as he pleases. Your Honours, in that regard I would refer Your Honours to section 170
and to the limitations upon the Commissioner'spowers contained in it, and, Your Honours, to
the observations made by members of the Court
in that regard in BATAGOL V THE CO:t1MISSIONER
OF TAXATION, (1963) 109 CLR 243 and in particular
at page 253.
(Continued on page 62)
CIT35/1/JM 61 6/9/89 Dalco(2) BRENNAN J: Where is this leading us, Mr Jackson?
MR JACKSON:
Your Honour, what I am seeking to submit is this: that the proceedings on appeal are proceedings in
relation to issues which, by that point, have become defined. It may be that the definition results in
them still being broad but they are issues which aredefined and what I was seeking to do, Your Honour, was to say that one of the things that occurs in this
regard is that once the process of assessment iscompleted by the service of the notice of assessment that fact brings about limitations, both on the rights of the taxpayer and on the rights of the Commissioner. Your Honour, I have dealt with the limitation
on the rights of the taxpayer. I was going to deal with the limitations on the rights of the Commissioner
and the purpose of doing that, Your Honour, is toindicate, in the end, that with there being limitations,
as in section 170, it is unlikely, in our submission,
that the better interpretation of section 190 is
that the whole of the taxpayer's affairs, if I can
put it loosely, are then to be re-agitated in theappeal.
BRENNAN J: But is there not a fundamental difficulty in that? MR JACKSON: Well, I hope not, Your Honour.
BRENNAN J: I guess this comes back to what Justice Dawson was putting to you, and that is that the starting point of it all is the taxpayer's objections. So all the points that emerge through this process
and fall for consideration on appeal are points
raised by the taxpayer. The question must always be raised, "For what purpose?" and leaves unanswered
the question, "Is the purpose to determine whether
the assessment is excessive?"
MR JACKSON: Well, Your Honour, that assumes that one is
looking in the end for a purpose and then identifies
that as the purpose. What really one is doing - if I could say this, Your Honour: one really does start a stage earlier, Your Honour. Taxation is not yet,
I think, voluntary - in one sense, anyway.
(Continued on page 63)
ClT36/l/DR 62 6/9/89 Dalco(2)
MR JACKSON (continuing): To ma~e a person liable for taxation there has to be an assessment relevantlv
and by that I mean that there has to be a
calculation, in one way or another, of the amount
for which he is liable and then completed by the
service of a notice of assessment. Now, Your Honour, that really is the starting point and the notice
of assessment indicates the quantum of the liability.
Your Honour, that is the point at which the
Commissioner has committed himself, subject to
section 170, to his carrying out of the task
cast on him by the Act. Your Honour, in relation to that the taxpayer is given the right to
obiect and he is given a right to obiect to that
assessment of what is his taxable income,
"taxable income" being, of course, the defined term.
Your Honour, when one says he is given the right to
choose the grounds of objection that is true, but
unless he succeeds in relation to his obiections -
and, Your Honour, I am conscious of using that word
in the plural - unless he succeeds in relation to
his grounds of objection, then the result is that
the assessment will stand, so that it is not
really surprising that he is the one who, in effect,
selects the ground, such as there is, for there being
an attack on the assessment. But having said that, the assessment, of course, will stand, unless he
makes out one of the grounds on which he relies.
Now, he may make that after the satisfaction
of the Commissioner, in the first instance, or he
may not, but then make it after the satisfaction
of the court or the review. But, Your Honour, the
result of his contentions, or the acceptance of
his contentions will, no doubt, be, in almost every
case, that his liability for taxation is reduced.
But if one looks at the· words of the sections, in
our submission, they reflect that what the court
is doing is to examine whether the decision ofthe Commissioner not to allow an ob_iection which,
in the context, we would submit, means not to allow a ground of objection, was correct, the onus of
showing it was not lying on the taxpayer.
(Continued on page 64)
ClT37 /1/HS 63 6/9/89 Dalco(2)
MR JACKSON (continuing): Your Honours, to say that the whole purpose is to see whether the assessment was excessive is to take a provision, 190(b), which deals with how the burden of proof is to be allocated as between the parties in an appeal
is to take that provision and make it dominate
the nature of the appeal without looking first
at which the nature of the appeal is. I am sorry, that is a long answer to Your Honour's question.
Your Honour was asking me where was I going with BATAGOL, I think I have just about got there
now, Your Honour. At page 253, at the bottom of the page, Your Honours will see that Justice Kitto
says, having referred to section 170, in the last
six lines:
If this be correct, it follows that until
a notice of assessment has been served on
the taxpayer the Commissioner and his
officers neither need statutory authority
to go back over any or all of the steps that
have been taken in the office, and correct
anything they consider to be erroneous, nor
are disabled from doing so by anything in
s. 170.
Your Honours, what that suggests, in our submission
correctly, is that once the notice of assessment
has been served the Commissioner's powers are limited
and, Your Honour, to the same effect at page 256,
we would submit, about the middle of the page,
after references to section 170 and the whole ofthe first paragraph.
But, Your Honours, the nature of the
proceedings, on appeal, can be seen also, in our
submission, in the judgments of the members ofthe Court, in BAILEY V THE COMMISSIONER OF TAXATION,
(1977) 136 CLR 214.
MASON CJ: Mr Jackson, it may be convenient to go to that
case after the adjournment.
MR JACKSON: Yes, Your Honour. AT 12.45 PM LUNCHEON ADJOURNMENT
C 1T38/1 /ND 64 6/9/89 Dalco(2) UPON RESUMING AT 2.16 PM:
MASON CJ: Yes, Mr Jackson?
"t1R JACKSON: Thank you, Your Honour. Your Honours, I was about to refer to the judgments of members of
the Court in BAILEY V FEDERAL COMMISSIONER OF
TAXATION, (1977) 136 CLR 214. Your Honours, the
leading judgment in that case is that of
Justice Aickin with whose reasons the other
members of the Court agreed. Your Honours, the nature of the issue involved appears at page 225
commencing at about point 2 and the issue was
that there was a request for particulars of an~
arrangement under section 260 -
which was relied on by the Commissioner and some
matters which were ancillary to that. And the contention on behalf of the Commissioner appears
at point 4 on the same page, that is:
that the Commissioner is not required to
indicate in advance what case he
proposes to make out -
on an appeal -
so that the taxpayer can know what
evidence he should adduce.
Your Honours, at page 226 point 2, going through to
page 227 about point 3, His Honour referred to the
argument that particulars could only be ordered as
they had been in a number of previous cases where
the matter at issue in relation to which theparticulars might be given was something concerning
an opinion of the Commissioner as distinct from
matters of fact not turning on opinion. Then,
Your Honours, commencing at page 227, His Honour then went on to deal with the function to be
performed by particulars in an income tax appeal
and, Your Honours, the way in which His Honour dealt
with the matter and the terms which he used indicate,
in our submission, that the nature of the issues
involved on the appeal are those which we earlier
submitted were involved, namely, to decide the
matters not disposed cf by the decisions on the
objections.
ClT39/l/JH 65 6/9/89 Dalco(2)
| MR JACKSON (continuing): | Your Honours, the language used by |
His Honour, in our submission, is inconsistent with
the notion that the whole matter remains, as it were, at large. Could I go first, Your Honours, to point 3
on page 227, where His Honour said:
The purpose of particulars is to assist in
the defining of issues and there is in my opinion
no reason why in appropriate cases the Commissioner
should not give particulars where they are
necessary in order that both the appellant and the
court may understand the basis upon which the
assessment has been made.
His Honour goes on to say:
No doubt there are many cases in which the
return, the notice of assessment, the
alteration sheet and the notice ofobjection will reveal the issues with
sufficient certainty so that no particulars
are necessary.
His Honour referred in the next six or eight lines to
the fact that it was a section 260 case, and then
said in the fourth last line in that paragraph:
If no more is said the taxpayer and the Court
are left entirely in the dark as to critical
matters and the issues remain undefined
except as to the ultimate conclusion contended
for by each party.
Now, Your Honours, in the last paragraph on the - Your Honours,
perhaps I should say this, it is true to say that the
context in which those observations are found is in
relation to a question of particulars, but they do
indicate, in our submission, the underlying legal basis.
And His Honour goes on to say, at the bottom of the
page:
There is nothing in the policy of the
Act nor in general considerations of policy to require that the Commissioner should not inform
the appellant prior to the commencement of the
hearing of those details so that the case mayproceed in an orderly and comprehensible manner.
And, Your Honours, also at the bottom of the same
page:
The appellant should -
not -
have to speculate about, and adduce evidence to
negate, every possible kind of agreement or arrangement
and avoidance which the imagination of his advisers
can conjure up. Such a process is not merely time-wasting but is likely to obscure the real issues.
| C1T40/l/FK | 66 | 6/9/89 |
| Dalco(2) |
MR JACKSON (continuing): I would ask Your Honours to refer to the whole of the remainder of that
paragraph at the top of page 228 and Your Honours
will see there that what His Honours is
contemplating is that there are defined matters -
I am not using defined in the sense of a
statutory definition but issues which are defined
to be dealt with on the hearing of the appeal and,
Your Honours, if one goes to page 229, at
about - perhaps I should sa~ if Your Honours
look at the whole of His Honour's remarks from
the first new paragraph on page 228 through to
page 229, the tone of them is to the same effect.
And then, Your Honours, at page 229
His Honour says, in the first new paragraph:
It is in my opinion wrong to regard the
power of the Court as confined to cases where
the assessment depends upon some statutory
discretion or opinion of the Commissioner.Such cases are, in my opinion, no more than
illustrations -
In the next paragraph His Honour refers to
GEORGE's case but simply says:
there is nothing in the case which throws
any light on the question of particulars in
cases where the Commissioner states that the
assessment is based on s. 260.
And His Honour discussed other cases going through
then to page 230 and, in particular, about
page 230 point 7. Your Honours, at page 230, about the middle of the page, referring to TOMLINSON's
case, His Honour said that he agreed with the
proposition which appears half-way through,
page 230 about point 6:
He did, however, conclude his review of the
authorities by stating that in the exercise of its discretion the court will give paramountcy to the principle that the appellant should have the fullest particulars
necessary to him to enable him to appraise
the case which he has to disapprove and
should have access to documents necessaryfor the proof by him of this case.
(Continued on page 68)
C1T41/1/ND 67 6/9/89 Dalco(2) MR JACKSON (continuing): His Honour said he agreed with that.
His Honour then went on to say, at page 231,
Your Honours, at about point 3, that it was not:
a satisfactory resolution of the problem
of the need for particulars to say that it can
if necessary be dealt with when the appeals are
heard because that is to deprive the taxpayer of
an opportunity to prepare and conduct his case
so as to meet what is said against him. That
course has the practical defect -
which His Honour then refers to. Now, Your Honours, if one reads the whole of that paragraph and then to
the paragraph commencing at about page 231, point 7,
His Honour said:
there is no doubt that the court has power .....
under its inherent jurisdiction, to order theCommissioner to provide such particulars of the
process of assessment as are necessary to
enable the real issues to be ascertained before
the case comes on for hearing.
His Honour then goes on to elaborate upon that in the
next paragraph and over to the top of page 232 and,
again, Your Honours, in the first new paragraph on
page 232. Now, Your Honours, what is apparent from
that, in our submission, is that His Honour is taking
the view that the question of the items which go to
make up the assessment - I am putting tha4 to which go to make up the assessment,~ the assessment,
of course, being the process in which the
Commissioner has been engaged - are items which are,
themselves, the subject of consideration, or the
correctness of them, is the subject of consideration
on the hearing of the appeal to the Court.Your Honours, it is those matte~ in our submission, which are in issue.
(Continued on page 69)
ClT42/l/DR 68 6/9/89 Dalco(2)
MR JACKSON (continuing): Your Honours, could I indicate then the other reasons for judgment in the same case,
the observations of the Chief Justice at page 217,half-way down the page in the paragraph commencing
"Once these fundamental considerations are
observed", His Honour then goes on to deal with the
particular need arising in the case of particulars
in the case of section 260 cases, but goes on to
say in the last paragraph:
Quite clearly, the taxpayer is entitled to
know the basis on which the assessment has
been made. An ad~ustment sheet supplied with the notice of assessment can be
expected to state and should state that
basis. The taxpayer should be told the
taxable facts.
At the top of the next page His Honour adverts to
the fact that the Commissioner may adopt alternative
bases, but he says he must be specific in hisidentification in the end of the contract, and so
on. Then, Your Honours, His Honour said that GEORGE's case, so far as it dealt with particulars
at least, bore no resemblance or analogy to the
situation in the present case. Your Honours, Justice Gibbs, at the same page, page 218 at the bottom of the page,referred to the suggestion that:
the administration of the revenue laws
might be hampered if the Commissioner
were required to give particulars,
because the Commissioner might commit
himself to some view -
which was not the correct one, and then His Honour
went on to say in the first new paragraph on page 219
of the need for particulars and, Your Honours, the
way in which those observations are expressedsuggest that one of the matters which will be in
issue on the hearing of the appeal, is the
correctness of the manner of assessment and I should also say Your Honour, the present
Chief Justice, at page 220, in the middle of the
page said:
An order for oarticulars does no more
than require the Commissioner to furnish
in advance of the hearing particulars of the
case which he intends to present in court.
Such an order does not require theCommissioner to disclose the evidence ..... it
is the function of particulars to indicate
the nature of the case to be presented
at the hearing.
Cl T43 /J. /HS fi/9/89 Dalco(2) MR JACKSON (continuing): And Your Honour went on to say:
There is therefore no foundation for the notion that the Commissioner stands
apart from ordinary litigants in some
special position in relation to the giving
of particulars ..... To conclude otherwise
would result not merely in injustice to thetaxpayer, who will remain in doubt as to the
Commissioner's case until it is presented
at the hearing, but also in unnecessary
preparations and in a hearing of unnecessary
length as the taxpayer endeavours to deal
with matters on which, as it may subsequently
transpire, the Commissioner is placing no
reliance whatsoever.
And Your Honours said - if I could go on to the
last paragraph of the reasons for judgment:
Indeed, there is very much to be said
for the view that fairness to the taxpayer
demands that the Commissioner should be
compelled to give particulars of his
assessment when it issues so that the
taxpayer is adequately informed as to themanner in which the assessment has been
arrived at and may then determine whether
he will object to the assessment and
subsequently appeal.
What Your Honour then said, of course, is not
germane to the present problem, save that what
it does indicate, in our submission, is a
recognition, as is found in the reasons for
judgment of other members of the Court, that theprocess adopted by the Commission in arriving at
his assessment is a matter which is to be agitated
on the hearing of the appeal.
McHUGH J: Does it go that far? Surely it means no more
than that if the Commissioner is going to make
a positive case then he can be required to give particulars of it but even if he does make a positive
case , does th is case say anything as to where the
ultimate onus is?
MR JACKSON: Your Honour, the ultimate onus is provided for by section 19O(b), we accept. Nor does the case
say anything to contradict that, of course, as
one would not expect it to. But what does emerge from the case, Your Honour, is this, that it shows
two things: the first is that the hearing of an
appeal is not, as perhaps some of the roore widely expressed
views fran the earlier cases would suggest, is not something
in which the Carmissioner's assessment performs no greater
function than to give a number of dollars which have to be
knocked over one way or another.
ClT44/l/ND 70 6/9/89 Dalco(2)
MR JACKSON (continuing): The obverse of that of the second point is that it does show that one of the matters
to be determined, in looking at whether the onus
under section 190(b) has been satisfied, iswhether the particulars, if I could put it that way,
that go to make up the assessment, or the items
that go to make up the assessment, are ones which
were properly included in whatever way they were
included. Now Your Honour, the - - -
McHUGH J: Well, supposing in a 167 case the Commissioner
says "Well there is my assessment. I am not going to lead any evidence. You prove that it was excessive". On your hypothesis the Commissioner would still have to give particulars or might have to.
MR JACKSON: Your Honour, he might have to, but can I put it in this way, because - he might have to give
particulars of the basis of the assessment and,
Your Honour,that might be something which can be
relatively easily satisfied in the sense that
he might say, "Well, the basis upon which I had
made this assessment is that, first, I am unable to
say, with any certainty, what your taxable income
was during the particular year, therefore the
assessment has been based on, to put it shortly,
an assets betterment basis". That is one example.
Another example would be for the Commissioner to
be able to say that "I have formed the view that
a person occupying a similar position be yours or
engaged in a similar business would, in the ordinary
course of events, expect to have a taxable income
in a year of say $200,000 '\ So, Your Honour,
the particulars which he might have to give would be
particulars of that kind and would not, in that sense,
be onerous. In such a case the Commissioner would not
then have to do any more than to resist the appeal in
the sense that the taxpayer would call his evidence and
may or may not succeed.
But,Your Honour, if one has a situation where,as
here,the assessments which have been made by the
Commissioner are assessments which are based entirely on
saying a particular sum of money from a particular source
in a particular year is money which was yours and where
it is demonstrated that that is wrong, one is just left
then with a situation where all one has is the number
of dollars without the basis for it. That is really
the question that arises in the appeal.
CIT45/l/CM 71 6/9/89 Dalco(2)
| McHUGH J: | Well, I can understand that if the Commissioner |
elects to fight the case on a particular basis
and a c.ourt might say, "Well, we will hold you
to your case", but that was not what happened here,
was it? The Commissioner called no evidence at all,
did he?
| MR JACKSON: | Your Honour, I think that is right; yes, that |
is right, Your Honour. However, as is apparent
from the earlier pages of the transcript of the
hearing, what happened was that the basis of theassessment appeared in evidence at the start of the
case and the basis of the assessment was indicated -
they are exhibits E and F, Your Honour, and I will
give Your Honour that page in a moment where they
were but admitted - but they were admitted
without objection as showing the basis of the
assessment; page 78 it appears on, Your Honour.
| BRENNAN J: | Mr Jackson, in a | section 260 case, one is |
faced ordinarily, I imagine, with a situation where
it_ _ is common ground that the assessment is
excessive if it is not for the setting aside of an
arrangement, contract or whatever and, therefore,
one needs to know what it is that has been set aside.
Is no:li that all that happens under a BAILEY case?
| MR JACKSON: | Well, not really, Your Honour. With respect, |
what has happened in a section 260 case is that
particular arrangements, if I can put it that way,
are said by the Commissioner to be void against him.
The result of them being void is that it changes
the way in which the distribution of moneys or
claims to moneys will otherwise fall. Now, Your Honour, no doubt it is desirable that there be
particulars of how that happens; it does not always
result in there being m:,re mmey c11¢-GULLAND was the
particular case to which I wanted to refer earlier,
Your Honour; I will give Your Honours a reference
to that in a moment. But, Your Honour, there is no
more reason really why particulars would be given in one case than in another -
| BRENNAN J: | Well, except that one does not know whether the |
Commissioner has set aside any transaction unless he tells you.
| MR JACKSON: | Well, Your Honour, one might equally say that |
one does not know how the Commissioner arrives at,
say, a sum of $92,345, unless he tells you.
BRENNAN J: | We may not know how he arrives at it, but you would know what the application of the Act is to |
| the facts. But, you do not know what the application of the Act is to the facts in a section 260 case unless the Commissioner tells you. |
| ClT46/l/JH | 72 | 6/9/89 |
| Dalco(2) |
MR JACKSON: Your Honour, of course, section 260 is said to be self-executing and if it be self-executing
then one has as much deemed knowledge of
of one as of the other, with respect. But,
Your Honour, one is as much in the dark _ seeing
an assessment that contains a figure worked out
by the Commissioner in the Commissioner's judgment,
whatever be the basis for doing it and, Your Honour,
that really, in our submission, does not change the
nature of the appeal. I do not want to labour the point but in a section 260 case what one would be saying
would be that there had not been such a contract,
arrangemen4 et cetera or things that follow on
from that. Your Honour, if it were apparent that the basis upon which the assessment was a particular
figure was arrived at by the particular applicationof section 260, then one would think that is the
realissue of the case and if that succeeds, it
succeeds.
(Continued on page 74)
ClT46/2/JH 73 6/9/89 Dalco(2)
MR JACKSON (continuing): If there is something else that is not worked out in the case with a different result
then the Commissioner goes back to the Commissioner.
In relation to BAILEY's case, there was one further reference I was going to give and it is in the
judgment of Justice Jacobs at page 222, and for
practical purposes, the whole of His Honours reasons
for judgment on that page.
Your Honours, I was going to refer now to a number of submission made by my learned friend:
first was in relation to GEORGE V FEDERAL COMMISSIONER
OF TAXATION, (1952) 86 CLR 183. Now, Your Honours,
the particular passage in GEORGE's case is at page 201,
in the middle of the page. It is that, Your Honours, the part which is prima facie, at least, against us,
appears to be that part which says, at the middle of
the page:
that the amount of taxable income for which he
has been assessed exceeds the actual taxable
income which he has derived during the year of
income -
and that the taxpayer must demonstrate that.
Your Honours, in our submission, the view that the
whole of the taxpayer's affairs in respect of any
year must be re-agitated - and I am conscious Iam putting that contentiously in saying that - is, in our submission, not correct. We would submit a
number of matters in relation to it. The first is
that the scheme of the objection and review and
appeal procedure, we would submit, leads to an appeal
being an appeal in relation to issues which areunresolved by the decision on the objections.
Your Honours, in that regard, the second thing
we would say is that the view that one must see
whether there is any other source of income is, in
our submission, inconsistent with the notion that
the appeal is an appeal against a decision on the
objection.
against the decision disallowing the objection By that I mean, Your Honours, an appeal in particular respects, or not allowing at all.
The third thing we would submit, Your Honours,
is that that decision is inconsistent with the
nature of an assessment in the sense that, if the
view there expressed is correct, it would apply in
all cases, whether they be section 166 or section 167
cases, and in cases involving at least section 166,the position which would obtain, one would expect,
is that the assessment is, itself, not just a number
of dollars but it is the end result of a process,
the process, itself, being contemplated by the term
"assessment" as well as the result of the process.
| ClT47/l/DR | 74 | 6/9/89 |
| Dalco(2) |
And, Your Honours, in our submission, the view in that part of GEORGE's case does not, we would submit,
take into account sufficiently the policy of
section 170, namely that the Cormnissioner himself
is subject to some limitations in relation to
re-assessment.
(Continued on page 76)
| ClT47/2/DR | 75 | 6/9/89 |
| Dalco(2) |
| MR JACKSON (continuing): | Your Honours, there is not a direct |
conflict between them, but there is an element of
policy involved in section 170 which does not fit
too well, in our submission, with the concept
there provided, Now, Your Honours, we would submit that it is appropriate for the court to reconsider
that case because there is some tension, if I coulduse a sometimes fashionable word, between it and
BAILEY's case, where the approach, in our submission,
does appear to be different. The issue is obviously one of importance and is one, Your Honours, which
should be settled for the future if it is not settled
already.
In our submissio~ it is not sufficiently
clearly settled by the decision in GEORGE's case,
as indeed the difference in opinion in the court
below indicates. Your Honours, could I then turn to
our learned friend's submissions in relation to TRAUTWEIN's
case, 56 CLR 63, and, Your Honours, if I could go first
to the judgment of Chief Justice Latham. Che thing
that does appear from His Honour's reasons for
judgment is that he does not, in fact, in our submission,
decide the issue in favour of the appellant in this
case. Your Honours, in that regard, could I turn
first to page 87, and Your Honours will se~ about
point 4, a reference to the judgment of Sir Isaac Isaacs
in MOREAU V FEDERAL COMMISSIONER OF TAXATION, and
His Honour, there, is simply citing what was said
by Mr Justice Isaacs.
Then, Your Honours, at page 88, His Honour -
perhaps I should say at page 92, at the bottom of the
page and going on to the top of page 93, he leaves
open the correctness of that case and the observations
which he makes at page 88, to which I will come now,
and also again at page 93, to which I will return
in a moment, in our submission, again leave the matter
open. Your Honours, could I go first to page 88, point 3, where His Honour says:
I say "as a general rule" because, conceivably, there might be a case where it
appeared that the assessment had been made
upon no intelligible basis even as an
approximation.
Now, Your Honours, that is the point this case was at
in the judgment of the majority in the Federal Court
because the basis upon which the assessments had been made were bases which they held not to be sustainable
at all, and His Honour goes on to say:
and the court would then set aside the
assessment and remit it to the commissioner
for further consideration -
which is what happened.
| ClT48/l/FK | 76 | 6/9/89 |
| Dalco(2) |
His Honour goes on to say that:
It is not necessary ..... to consider whether
or not the statement which I have quoted from
MOREAU's case, interpreted in the manner
suggested, places too heavy a burden upon the
taxpayer in an appeal because, as I propose to
show, the taxpayer has not, in my opinion,
shown any error in the assessment. I add that
what I have said does not preclude the court from
deciding a principle upon an appeal
and remitting the assessment to the
cormnissioner for determination of the facts - What becomes apparent, Your Honours, is that in the
discussion of the particular facts, and Your Honours
will recall this was the assessment divided into,
I think, seven equal parts - His Honour decided against
the taxpayer because, whilst it was demonstrated
that the amounts were unlikely to be exact, of course,
in any particular year, what had not been shown by the
taxpayer - and this was where the burden of proof provision worked against him - what had not been
proved was that in any one of those years, the amount
was too much.
(Continued on page 78)
| C1T48/2/FK | 77 | 6/9/89 |
| Dalco(2) |
MR JACKSON (continuing): Your Honours, that that is so appears at page 92, but also particularly at
page 93 commencing about point 3 in the third
line in the first new paragraph. After referring
to the provisions of section 36 and section 39,
His Honour says:
The facts stated in the case do not
establish that in any particular one
of the years in question the assessment is
excessive. The assessment for a particular year may or may not be so execessive.
Upon the facts stated no one can say whether
it is so or not. The result of the statutory prov1s1on -
that is the onus of proof prov1s1on -
is that, as the taxpayer has not
established, in respect of any year,
that the assessment is excessive, he is
liable ..... to pay tax upon the assessment
for each year.
Your Honours, the iudgment of Justices Dixon and
Evatt at page 111 supports, in our submission,
the view that one must look at the particular
assessment, meaning by that the assessment in its
fuller form, if I can put it that way. If Your Honours look at page 111, about point 3, the middle of the page:
The burden lies upon him in the iudicial
proceedings which he is thus required to take of establishing that the assessment
or amendment imposes upon him a liability
to which the taxing provisions of the Act
do not subiect him. Within the limits of
his obiectlon he must show that the
assessment is contrary to law or to fact.
Your Honours, the placing by the obiection of limits upon the case is, in our submission,
recognized, albeit in passing, there:
If so much is established, the court may
set aside the assessment and remit it for
reconsideration, or may itself determine
the amount of the liability. But error of law or fact affecting the particular
assessment must appear.
Your Honours, Their Honours decided against the
taxpayer for reasons similar to those of theChief· Justice. That appears at the bottom of
page 11 to the top of the next page.
ClT49/l/HS 78 6/9/89 Dalco(2) Your Honours, if I could turn then to the
submissions made by our learned friends about
McANDREW's case and, Your Honours, I do not need to
go to the case itself. The contention urged by them was that McANDREW's case turned really on the fact
that the right to apply section 170 was something
which would result in the assessment being
excessive if it had not been correctly applied, or
if there had not been a right to apply it.
But, Your Honours, that case was put on a broader
basis by the members of the Court who discussed it
in F.J. BLOEMEN PTY LTD V FEDERAL COMMISSIONER OF
TAXATION, 147 CLR 375, and Your Honours will
there see at page 375, in · the first and second paragraphs, the Court's view
about it - the start of the second paragraph:
This interpretation gives expression to
the policy which underlies, and is
manifest in, the statutory provisions.
Your Honours, I have referred already to the third
paragraph, to the reference "the framework of the
taxpayer's obiection'', and then, Your Honours, in
the next paragraph Your Honours refer to the fact t~at:
(Continued on page 80)
ClT49/2/HS 79 fi/9/89 Dalco(2) MR JACKSON (continuing):
the appellants argue that this view of
the operation of the Act does not offer
sufficient protection to the taxpayer in
the event of an abuse by the Commissioner
of his powers.
But the Court went on to say - Your Honour
the Chief Justice and Justice Wilson went on to
say, in effect, that on the hearing of the appealthe taxpayer was entitled to dispute his
liability to tax.
Your Honours, a further matter with which I wish to deal is our learned friend's reliance
upon section 175. Your Honours, all that is said by section 175 is that:
The validity of any assessment shall not be
affected by reason
of the fact -
that any of the provisions of this Act -
is not complied with.
Your Honours, we do not suggest that the
assessments made in the present case were invalid.
What is suggested is that the objections to the
assessments should have been allowed. Any suggestion - if I could turn to another matter,
Your Honours. Any suggestion, we would submit,
that the method adopted by the Commissioner is
irrelevant - and this is coming back to a point
I mentioned before - is inconsistent with a number
of things which perhaps I could summarize briefly.
One is section 177(1) which makes the particulars
of the assessment as well as the amount of the
assessment something which is excepted from the
conclusive evidence provision on the hearing of an appeal. The second feature, Your Honours, is section 186 which requires the Commissioner to
consider and to disallow or allow an objection,
in whole or in part, and, Your Honours, the grounds
of objection to an assessment may be not just that
an assessment is too high but that it was done
on a wrong basis.
Your Honours, the third feature is section 185
and Your Honours will see in section 185 that
it refers in particular in subsection (2) to, in
the case of amended assessments, the fact that
a fresh liability may be imposed in 'respect of
any particular" - that is an expression used in
C 1T50/l /ND 80 6/9/89 Dalco(2) section 185(2) which indicates that the assessment
is something which consists of a number of parts.
And Your Honours, accordingly, we would submit
then that one looks at the - as I have submitted
earlier, one looks at the assessment as consisting
of a number of things or potentially consisting
of a number of things and one has to look at the
end to see what matters remain in issue. The Court,
on hearing an appeal, is not just dealing the matter
in globo.
Could I add one further thing, Your Honour.
In paragraph 8 of our learned friend's outline
of submissions, they submit that in this case
the taxpayer failed to displace the factual basis
on which the assessment depended. Your Honours, in fact, that is not correct, with respect. That
was what they did dispace and the assessments were
left as being numbers of dollars.
Your Honours, I indicated before that
I would give Your Honours copies of the definition
section of the Act insofar as it was relevant.
May I do so now.
MASON CJ: Thank you.
(Continued on page 82)
ClTSO/2/ND 81 6/9/89 Dalco(2)
| MR JACKSON: | Your Honours, one other reference I should |
give the Court is THE FEDERAL COMMISSIONER OF
TAXATION V GULLAND, (1985) 160 CLR 55. The passages dealing with Dr Gulland's position were
at page 64 and page 111, the assessment against which he had appealed reduced his taxable income
from that which he had returned. Your Honours,
those are our submissions.
| MASON CJ: | Thank you, Mr Jackson. Yes, Mr Handley? |
| MR HANDLEY: | Your Honours, in addition to Dr Gulland's case, |
we should also draw the Court's attention to
HENDERSON's case, dealing with the assessment of
an accountant's partnership on either a cash
receipts basis or an earnings basis where, again, the
Commissioner's assessment was attacked on the ground
that it was too low. I do not really propose to take Your Honours to the case beyond giving a
reference to it. The objection to the Commissioner's
assessment was entertained by Mr Justice Windeyer
and entertained again in the Full Court despite the fact that the taxpayer's complaint was not that the assessment for the year in question was too high in
amount. HENDERSON V FEDERAL COMMISSIONER OF TAXATION, 119 CLR 612; there is some discussion of the matter by Mr Justice Windeyer at page 618
and then in the Full Court.
| TOOHEY J: | Mr Handley, what, if anything, does |
section 190(b), have to say in those circumstances?
| MR HANDLEY: | Well, there is a discussion by Mr Justice Windeyer |
as to where the onus lies in a situation where the
taxpayer comes before the court and says, "The
Commissioner has assessed me on a wrong basis. I should be assessed on an earnings basis, not a cash receipt basis, although in the year in question
it would actually increase my assessment". And,
Mr Justice Windeyer took the view that despite the
provisions of section 190(b), the onus remained on
the taxpayer of establishing his attack on the assessment. We thought we ought to draw that decision to the attention of the Court. It has to
be our submission, and it is our submission, that
in that situation the issue between the parties is
one which the statute does not allow to be
litigated at that stage just as, for example, the
question of how large a loss is, or whether
particular items in a particular year are assessable
or not, cannot be litigated if, in fact, there are
undisputed carried forward losses which exhaust the
amount of any disputed income or deduction. The issue has got to be postponed until it turns out that
the taxpayer is complaining that the assessment islarger than it ought to be according to the law and
| ClT51/l/JH | 82 | 6/9/89 |
| Dalco(2) |
the true facts. That point was not taken before
this Court in HENDERSON' s case; the only point seems to bethat it was taken was some discussion about where
the onus of proof lay in the appeal and the
point seems to have been conceded or just allowed
to pass by. In our submission, a taxpayer cannot
legally complain under tne statute that his
assessment is too low.
(Continued on page 84)
ClTSl/2/JH 83 6/9/89 Dalco(2)
| DEANE J: | I think it was adverted to in the leave application |
| in GULLAND was it not? | |
| MR HANDLEY: | I was not there, Your Honour. |
| DEANE J: | I have some recollection of it being raised in a |
| Western Australian tax case - - - |
MR HANDLEY: Well HENDERSON was a Western Australian case,
but Your Honour would not have been sitting
judiciously on that.
DEANE J: No, I do not think so, which means I think it was
raised in the leave application in GULLAND. I
do not know how it disappeared.
MR HANDLEY: | Yes. Well, Your Honours, whether it was raised in the leave application or not, it does not appear | |
| that the matter was squarely raised on the hearing | ||
| in GULLANDand it certainly was not squarely raised on the hearing in HENDERSON and, in my submission, bearing in mind what this Court said in McANDRtw | ||
| in particular and also in the other cases that have | ||
| already been referred to, excessive means "excessive in amount" and a taxpayer who claims the assessment | ||
| is too low does not present a justiciable issue | ||
| to this Court, or to any court exercising federal | ||
| jurisdiction. | ||
| Your Honours, in my submissions this morning I did advert to the fact that an original appeal | ||
| against the federal tax assessment, which once came to this Court and now goes to the Federal Court and previously went to the State courts in exercise | ||
| of federal jurisdiction, is a matter in the original | ||
| jurisdiction of the court, and in my submission, | ||
| ||
| that the court takes to the assessment, in that | ||
| it is not a review of the decision-making process | ||
| of the administrative officer, the court decides | ||
| ||
| judged, and if I could merely give a reference | ||
| to a number of cases where this Court has discussed the effect of an appeal to itself from both the | ||
| Tax Commissioner, the Registrar of Trademarks and | ||
| the Commissioner of Patents, and it has been said, for example, in JAFFERJEE V SCARLETT ,"It is the | ||
| duty of the court to decide the matter as upon | ||
| an original application and not merely to decide | ||
| whether the decision of the Registrar can or cannot | ||
| be supported", and that consideration, in my | ||
| submission, underpins the actual provisions of the | ||
| INCOME TAX ACT to which we have referred. |
| CIT52/l/CM | 84 | 6/9/89 |
| Dalco(2) |
I just merely give these references:
JAFFERJEE V SCARLETT, .a.trade imrk.case,. 57 CLR 119
and 126; KAISER ALUMINUM & CHEMICAL CORPORATION V REYNOLDS METAL CO., where Mr Justice Kitto
notices a number of tax cases and it is a
convenient source for those, 120 CLR 142; andanother trade mark case where Sir Owen Dixon
discusses this question of BAYER AKTIEN-GESELL-
SCHAFT V BAYER PHARMA PTY. LTD. 101 CLR 658,
and perhaps, Your Honour Mr Justice Brennan,
some of these issues were exhaustively considered
by the Federal Court in MANTLE TRADERS
and onus of proving facts and the like and the
Court may wish to look at that. It is not
inconsistant with any of our submissions, but does
consider at the Full Federal Court level anumber of these cases and the working of these
sections. MANTLE TRADERS is in 49 FLR 256. (Continued on page 86)
CIT52/2/CM 85 6/9/89 Dalco(2)
MR HANDLEY (continuing): Dealing with my friend's submissions
and going to what he has said since lunch-time,
Your Honour: he said more than once, "It was
demonstrated in this case that the assessments were
wrong" and he also said that the assessments were made on no intelligible basis and sought to apply
Chief Justice Latham's dictum in TRAUTWEIN to the assessments in this case.
Now, the majority in the Federal Court, in
my submission, did not say that these assessments
were made on no intelligible basis. They did refer to TRAUTWEIN and did so only once:
at the bottom of page 199 and at the top of page 200.
At the last two lines at page 199, Their Honours
said:
likewise, if the making of the judgment in
question cannot be seen as having proceeded
upon an intelligible basis, even as an
approximation (cf. TRAUTWEIN).
That was not the ratio of a majority decision,
as can be seen from a few lines on page 226 where,
at line 23, they say:
it was open to the taxpayer to endeavour to
demonstrate that each of the assessments
(that is, each of the processes of assessment)
was excessive in that it was not warranted by
law. It is that submission which we have
accepted.
So, their "no intelligible basis" submission was not
accepted and was not applied by the majority. case, have not been shown to be erroneous.
(Continued on page 87)
| ClT53/l/DR | 86 | 6/9/89 |
| Dalco(2) |
MR HANDLEY (continuing): The process by which the Commissioner reasoned to an administrative decision which later was evidenced in the assessments has
been shown to be affected by the application of
erroneous principles of law but that exercise,having been completed, the assessment having been
issued, the basis of that assessment is,
'Mr Daleo, in the year ended 30 June 1977, you received a taxable income of X thousand dollars."
That is the basis of the assessment.
The basis of the assessment is an opinion
formed by the Commissioner pursuant to
section 167 of the Act, namely, that the taxable
income - he has formed a iudgment as to the si?.e of the
appellant's - of Dalco's taxable income:
the Commissioner may make an assessment of
the amount upon which in his judgment income
tax ought to be levied, and that amount shall
be the taxable income of that person -
and that is the basis of the assessment and that
has not been shown to be wrong and is not shown
to be wrong merely because in the administrativeprocess leading to the Commissioner's administrative
decision the Federal Court has been able to discern
errors of law.
In our submission, Your Honours, BAILEY's
case is essentially concerned with the
Commissioner explaining to the taxpayer, in a non-167 case, just what his decision has been on
to disallow the objection and what his decision
has been on the assessment.
(Continued on page 88)
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| MR HANDLEY (continuing): | This is thrown up by |
Mr Justice Aickin's judgment at page 231 and I
would seek to just take a moment with this.
At 136 CLR page 231 at about point 6 on the page:
Whatever the position may be before the
appeal reaches a court of law there is
no doubt that the court has power, if
not directly under its rules, then
under its inherent jurisdiction, toorder the Commissioner to provide such
particulars of the process of
assessment as are necessary to enable
the real issues to be ascertained
before the case comes on for hearing.
And, His Honour goes on to explain what he had in mind by those statements and the process of
assessment does not concern, in our submission,
the Commissioner's reasoning or his decision-making
process but the nature of his decision.
There are many aspects of the Act in which
the inclusion of an item of income orthe disallowance of an objection by the
Commissioner in a manner which departs from
the return cannot be satisfactorily
litigated without particulars being givenby the Commissioner of the basis of his
assessment.
Now, that is not the basis of his assessment in the
sense of the reasoning process applied by the
Commissioner. The Court does not order particulars
of how the Commissioner reasoned to his conclusion;
what is being ordered is particulars of the
conclusion.
It is enough to give two illustrations
in relation to assessments under
section 166. If the Commissioner were
to disallow a deduction claimed by indicating merely an increase in the amount of taxable income without indicating what the relevant deduction disallowed was, it would be
impossible for the appeal to proceed in the court without the Commissioner provicing such particulars.
| ClT55/1/JH | 88 | 6/9/89 |
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MR HANDLEY (continuing): His Honour was obviously contemplating a case where multiple deductions were claimed by the taxpayer. One only has to think of Westpac or BHP, for example, "deduction
disallowed, $1 million", would not indicate any
issue on which either the taxpayer or the Court
could come to grips and so the Corrmissioner would
have to be told -would be expected to tell in~
that taxpayer, "repairs disallowed as capital item",
or, "oil expenditure disallowed as outside division"
whatever, or so on, the Commissioner being asked to give particulars of what his decision was, not his decision-making process, but what deduction
has he disallowed and in what amount so as to
throw up a justiciable issue with which the
taxpayer can come to grips:
Again if the Commissioner were to
increase the taxable income by an
addition to the amount of income
without identifying the nature of the
income included a challenge to such an
assessment in the court could not proceed
without particulars being given.
Mr Justice Aickin, of course, is talking about an
assessment under section 166 where the Commissioner
does not determine directly the quantum of the
taxable income. So the Commissioner would be
expected to indicate that he was including an
amount of interest or an amount of dividends,
proceeds on the sale of Blackacre, proceeds on thesale of BHP shares, or something of that nature to
indicate what it was he was doing. But, of course, BAILEY's case does not at all trespass on GEORGE's
case, in our submission, as Mr Justice Aickin was
very careful to indicate in this passage by
referring to an assessment under section 166 and,
indeed, it is clear, even from Sir Garfield Barwick'sjudgment in BAILEY that the Court did not have before
determines the taxable quantum by an exercise of it a section 167 case where the Commissioner directly judgment pursuant to section 167.
(Continued on page 90)
ClT56/l/HS 89 6/9/89 Dalco(2)
MR HANDLEY (continuing): His Honour said that at page 218.
He said:
The situation dealt with in that case
bears, in my opinion, no resemblance or
analogy to the situation to which the
Court must apply itself in this.
The "element", he said:
of the process of assessment in the particular
circumstances -
that is in GEORGE -
was not an application of the Act to a
factual situation: on the contrary, it
was an exercise of the Commissioner's power
to determine the principal fact to which the
Act should be applied.
Namely, the taxable income. So the basis of the assessment in this case for purposes of an appeal
and objection is not to be found in the internal
documentation in the Commissioner's office, but itis to be found in the statement that a default
assessment has been made and the taxable quantum
has been fixed at a nominated sum of money.
Your Honours, there was a discussion before
l\mch as to the circumstances in which section 167(c)
might operate which were not already covered by
section 167(a). It is perhaps not central by any
means to the case, but could I give Your Honours one
example where section 167 (c) might apply where section 167 (c)
would not? An entertainer might visit this country
for a month during April. It is known that he or
she is going to de9art before the end of the
financial year so that the statutory obligation
to lodge a tax return would not attach and normally
does not attach until some time around about
31 August, pursuant to a proclamation made by the Commissioner under the Act. So in the absence of a power in the Commissioner such as that
conferred by section 167(c), the visiting entertainer,
who may have done rather well by way of income from
Australian sources, would depart these shores with
the Commissioner having no power to raise an
assessment. He can then raise an assessment under section 167(c) and, if necessary, take steps via
section 218, or otherwise, to collect the money.
(Continued on page 91)
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MR HANDLEY (continuing): The taxpayer has not made default but the Commissioner may have reason to believe
that that entertainer who has not furnished a
return has derived taxable income and a resident
who is proposing to depart before 30 June or, .indeed,
before 31 August would be in the same situation.
The Commissioner could raise an assessment for
purposes of enforcement, MAREVA injunctions and
the like. They are our submissions, if the Court pleases.
MR JACKSON: Your Honours, may I have leave to say one thing and that is to- adopt a submission which my learned friend
attributed to me which I had not made earlier?
MASON CJ: Yes. MR JACKSON: And that was, with respect, that I had said, Your Honours, in our submissions, that the Court
should treat the case as one where there was no
intelligible basis shown. I had not :said that the
majority in the Federal Court had done so. But, Your Honours, on closer examination of my learned
friend's contention that that was what I had said,
it is what the Full Court seems to have done and line 15, dealing with the 1977 tax year:
What does not appear is mateEial upon which a judgment might properly be based -
and so on. That seems, if Your Honours read further down the page, to be applying also to the prior
year, 1976. Your Honours, if one goes from there
to page 219, about lines 1 to 8, the views adopted
in respect of the 1978 year appear to be the sameas those in respect of the prior year and, again,
Your Honours, at page 221, about lines 5 to 10.
BRENNAN J: Mr Jackson, those are the words on which yott
rely to found a submission that the Federal Court's judgment falls within that exception to which
Sir John Latham referred?
(Continued on page 92)
C 1T58/1 /ND 91 6/9/89 Dalco(2)
MR JACKSON: | Yes, Your Honour, what I was really doing was: I am asking the Court - and this is the submission | |
| we have made in the past, what we are submitting | ||
| is that the case is one falling within those | ||
| ||
| what I am simply saying is that the court below | ||
| seems to have taken a similar view, although not | ||
| expressed in those exact words. |
MASON CJ: And you are relying on the words "no proper basis"
in the two passages to which you have referred us
supporting that conclusion?
| MR JACKSON: | Yes, and I was | - - - |
| BRENNAN J: | You are not seeking to take us behind those words |
to the facts?
| MR JACKSON: | No, Your Honour. | I was just saying | that the |
conclusion that the court arrived at. Now, Your Honour, I was going to go to page 221, lines 1 to 10, then in relation to the last year which was 1980, at page 225, lines 26 to 32.
MASON CJ: That is all you wish to say about that?
| MR JACKSON: | Yes, Your Honour. |
MASON CJ: Yes, thank you, Mr Jackson.
| MR HANDLEY: | Could I just say something, Your Honour, about |
that? In my submission, what the court has said in
each of those passages, read in the light of their
ultimate statement, at page 226, line 26 is that they
have discerned errors of law in the decision-making
process of the Commissioner and so when they say"no proper basis" et cetera, et cetera, they are
saying "no proper basis in law".
MASON CJ: An intelligible but improper basis.
| MR HANDLEY: | Yes, but they are saying - and in my submission, |
as, indeed - we have already this submission. It is picked up to some extent in MANTLE TRADERS, in Mr Justice Brennan's judgment in the Full Federal
Court. That gets the taxpayer nowhere unless he
discharges the onus of proving what are the relevant
facts.
MASON CJ: Yes, thank you, Mr Handley. The Court will consider
its judgment in this matter.
| AT 3.21 PM THE | MATTER WAS ADJOURNED SINE DIE |
| ClT59/l/DR | 92 | 6/9/89 |
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