Federal Commissioner of Taxation v ANZ Savings Bank Ltd

[1994] HCA 58

HIGH COURT OF AUSTRALIA

BRENNAN, DEANE, DAWSON, TOOHEY AND McHUGH JJ

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v AUSTRALIA AND NEW ZEALAND SAVINGS BANK LIMITED

(1994) 181 CLR 466

16 November 1994

Income Tax (Cth)

Income Tax (Cth) Deductions—Interest expenses—Disallowance—Objection Decision on objection including additional amount in assessable income but allowing deductions—Appeal to Federal Court—Taxpayer contending that additional amount not assessable income—Ability of Commissioner to contend that deductions not allowable—Income Tax Assessment Act 1936 (Cth), ss. 190(b)*, 199+. *Section 190 of the Income Tax Assessment Act 1936 (Cth) provided: "In proceedings under this Part on a review before the Tribunal or on appeal to a court—. . . (b) the burden of proving that the assessment is excessive shall lie upon the Taxpayer". +Section 199 empowered the Court to "make such order in relation to the decision to which the appeal relates as it thinks fit, including an order confirming or varying the decision".

Orders

In the case of each appeal:
1. Appeal allowed.
2. Orders 2 and 3 of the Full Court of the Federal Court be set aside and in lieu thereof order: (a) Orders of the trial Judge be set aside and in lieu thereof:

(i) Order the objection decision of the respondent Commissioner be set aside and the respondent pay the appellant's costs of the appeal.

(ii) Declare that - A. the assessable income of ANZ-ANZ Savings Bank NSW Treasury Corporation Annuities Partnership No. 17 is to be calculated by reference to s.27H of the Income Tax Assessment Act 1936 (Cth);

B. the net income of the Partnership is to be calculated after determination of the Partnership's allowable deductions.

(b) The respondent Commissioner pay the appellant's costs of the appeal to the Full Court of the Federal Court up to 10 June 1993.

3. Remit to the Federal Court for consideration in accordance with the reasons of this Court the deductions allowable to the Partnership under s.51(1) of the Income Tax Assessment Act, the appellant to have the costs of the proceedings on remittal unless the Federal Court otherwise orders in whole or in part. 4. The respondent pay the appellant's costs of this appeal.

Decisions

BRENNAN, DEANE, DAWSON AND TOOHEY JJ These appeals are brought by the Commissioner of Taxation ("the Commissioner") from orders made by the Full Court of the Federal Court of Australia setting aside objection decisions made by the Commissioner and in lieu thereof
allowing objections lodged by the respondent, Australia and New Zealand Savings Bank Limited ("the taxpayer"), against assessments to income tax in respect of the years of income ended 30 September 1986 and 1987 ((1) Australia and New Zealand Savings Bank Ltd. v. Federal Commissioner of Taxation (1993) 114 ALR 673.).

2. The order granting special leave to appeal confined the Commissioner to a number of grounds. In essence they relate to the "jurisdiction" of the Federal Court to entertain certain arguments upon which the Commissioner wished to rely but which the Full Court of the Federal Court held were not available to the Commissioner as part of the Commissioner's answer to the taxpayer's appeals against the decisions in question.

The assessments

3. As the foregoing may seem somewhat cryptic, it is necessary to say something of the circumstances in which these matters came before the Federal Court.

4. The taxpayer claimed to deduct from its assessable income for 1986 its share of what it alleged to be a partnership loss between itself and Australia and New Zealand Banking Group Ltd. In that year the partners had subscribed for 50 million units, each for a consideration of $1, in a trust fund and the trustee of the fund bought, with the funds subscribed, what the taxpayer claimed were three annuities. Nothing was payable to the trustee of the trust fund in the year in question. However, the partnership, having borrowed $42,369,456 of the money subscribed, incurred interest and other expenses in respect of the borrowing. The taxpayer contended that these expenses were an allowable deduction, for the purposes of Div.5 of Pt III of the Income Tax Assessment Act 1936 ("the Act"), in the calculation of the partnership loss for that year. The claimed partnership loss resulted solely from the expenses in question; the taxpayer's share of the loss was $34,163.

5. The Commissioner disallowed wholly the deduction claimed in respect of the partnership and accordingly the taxpayer's share of the partnership loss. The taxpayer objected to the assessment and the Commissioner made an objection decision under the Act. The basis for the Commissioner's decision may be summed up in the following way: 1. In the calculation, for the purposes of Div.6 of Pt III, of the

net income of the trust estate, Div.16E of Pt III applied to each of what the taxpayer claimed to be annuities as a "qualifying security" within the meaning of s.159GP of the Act. Division 16E is headed "Accruals assessability, etc., in respect of certain security payments".

2. In consequence, s.159GQ of the Act, which is within Div.16E

and which includes certain "notional accrual amounts" in the assessable income of a taxpayer, required the inclusion of an amount of $1,140,312 as the assessable income of the trust estate because the net income of the trust estate was that amount.

3. In the calculation of the net income of the partnership or the

partnership loss for the purposes of Div.5 of Pt III the amount of $1,140,312 was the assessable income of the partnership.

4. The expenses which the Commissioner had wholly disallowed in

the assessment should be wholly allowed as deductions in the calculation, for the purposes of Div.5, of the partnership loss.

5. The taxpayer's share of that loss, $23,513, should be an

allowable deduction from the taxpayer's assessable income, in lieu of the claimed deduction of $34,163.

6. While the amounts involved are different, the Commissioner's objection decision in respect of the objection against the assessment
for 1987 followed the same pattern. In the Full Court Hill J said ((2) ibid. at 680.):

"No appeal was before us in respect of that year, although the matter was argued as if both years of income were before the court."

Although the decision of the Full Court as reported suggests that only in respect of 1986 was an order made, the material before this Court indicates that similar orders were made by the Full Court in respect of both 1986 and 1987. The appeals in respect of the two years stand or fall together.

The appeals

7. The taxpayer appealed to the Federal Court from the objection decisions. It contended that in the calculation of "net income", in relation to a trust estate for the purposes of Div.6 of Pt III, each of the payments agreed to be paid to the taxpayer was "the amount of any annuity" within s.27H(1)(a) of the Act. Section 27H lies within Div.2 of Pt III. Part III is concerned with "Liability to Taxation" and Div.2 is headed "Income". Section 27H provides a formula for the calculation of the assessable income of a taxpayer in relation to annuities. The taxpayer's argument was that the partnership's income was to be assessed in accordance with s.27H(1)(a), not Div.16E, and that accordingly the "deductible amount" referred to in s.27H(2) must be excluded from the "amount of any annuity" treated as assessable income by s.27H(1)(a).

8. Jenkinson J rejected the taxpayer's appeals and in turn the taxpayer appealed to the Full Court of the Federal Court. Hill J observed ((3) ibid. at 681.):

" At issue is the ability of the (taxpayer) to deduct in the year of income the whole or some part of a claimed partnership loss, pursuant to s.92(2) of the (Act), in determining its taxable income."

The Full Court was unanimously of the opinion that s.27H of the Act constituted a code for the taxation of annuities and that the section was intended to take annuities out of the general provisions of s.25 and to include in assessable income only the income portion of an annuity instalment, treating as exempt income a part of the annuity representing the return of the purchase price of the annuity (if any) included in the definition of "deductible amount". In the view of the Full Court, Div.16E, upon which the Commissioner relied, is concerned in general terms with bringing forward to an earlier point of time the derivation of amounts which have the character of income, as for instance deferred interest. In consequence Div.16E did not affect the operation of s.27H.

9. Although this background has been necessary in order to understand what is before this Court, the correctness or otherwise of the Full Court's decision that s.27H was applicable is not in issue. What is in issue is as follows. Faced with the taxpayer's argument that s.27H was applicable to the determination of the partnership's assessable income, the Commissioner responded that although he had allowed the taxpayer's objections in part by permitting the deduction of the totality of the interest incurred by the partnership, once the matter was before the Federal Court he could defend the assessments by raising afresh the question of deductibility which, if the Court accepted the taxpayer's primary argument, should be determined on a different basis. In particular, if s.27H applied to the ascertainment of the assessable income of the partnership, the amounts allowed as deductions under s.51(1) of the Act should not have been allowed in full but should have been apportioned on the ground that the interest incurred by the partnership was in part incurred in gaining or producing exempt income or constituted an outgoing of a capital nature or was otherwise not incurred in gaining assessable income. A subsidiary question was involved. If the first question was answered in favour of the Commissioner, should the determination of the taxpayer's assessable income be dealt with by the Full Court or
remitted to Jenkinson J, the trial judge?

The jurisdiction of the Federal Court

10. The Full Court, by majority (Hill and Heerey JJ, Davies J dissenting), held that it was not open to the Commissioner to raise before the Federal Court, on the taxpayer's appeals, the allowability of the deductions which the objection decisions had granted. Of course the Commissioner had permitted the deduction of the totality of the interest incurred by the taxpayer, by reference to the Commissioner's treatment of the assessable income of the taxpayer. Although that treatment was rejected by the Federal Court, Hill J, with whom Heerey J concurred, concluded that the Federal Court "lacks jurisdiction to deal with" the question of the allowability of the deductions ((4) ibid. at 702.). The Commissioner has challenged that conclusion and that, in essence, is the matter for determination by this Court.

11. The submissions made by the Commissioner and the taxpayer necessitate consideration of a number of sections of the Act.
Reference is to the Act as it stood in March 1989 when the Commissioner's decisions were referred to the Federal Court. The objection and appeal provisions, then to be found in Pt V of the Act,
now appear in much the same form in Pt IVC of the Taxation Administration Act 1953 (Cth). But it is the Act as at the relevant time with which we are concerned.

12. Section 166 of the Act obliges the Commissioner, from the returns and any other information in his possession, to make an assessment of the amount of the taxable income of a taxpayer and of the tax payable thereon. A taxpayer, dissatisfied with an assessment, may lodge an objection, "stating fully and in detail the grounds on which he relies" ((5) s.185(1).). The taxpayer is limited to those grounds, "unless the Tribunal or court otherwise orders" ((6) s.190(a).). The Commissioner must then consider the objection and either "disallow it, or allow it either wholly or in part" ((7) s.186.). Hill J said that where the Commissioner allows an objection, in whole or part, "the Commissioner is to amend the assessment in respect of the 'particular' concerned: s.170(7)" ((8) (1993) 114 ALR at 702.). However, s.170(7) is cast in negative terms; it reads:

" Nothing contained in this section shall prevent the amendment of any assessment in order to give effect to the decision upon any appeal or review, or its amendment by way of reduction in any particular in pursuance of an objection made by the taxpayer or pending any appeal or review."

13. Where an assessment has been amended in any particular, the right of a taxpayer to object against the amended assessment "is limited to a right to object against alterations or additions in respect of,
or matters relating to, that particular" ((9) s.185(2).). A taxpayer who is dissatisfied with an objection decision made by the Commissioner may either request a reference of the decision to the Administrative Appeals Tribunal or request a reference to the Federal Court ((10) s.187.).

14. It is true, as Hill J observed, that a taxpayer's dissatisfaction will not be with that part of an objection decision which allows the objection in part; it will be with that part of the decision which disallows the objection in part. But, his Honour added: "It will be that unfavourable decision which is referred to this court." ((11) (1993) 114 ALR at 702.) That conclusion is by no means self-evident. It does not follow that part of the objection decision may be isolated from the rest and that the part may be referred to the Federal Court for determination independently of the decision itself.

15. While s.187 speaks of a request to refer "the decision" to the Tribunal or a request to refer it to the Federal Court, it is apparent
that in the former case the reference is for the purposes of
administrative review while in the latter case it is for the purposes of appeal. But what is referred, in either case, is the Commissioner's decision under s.186 of the Act which is a decision, after considering an objection, to disallow it, or allow it either wholly or in part. Obviously, there will be no reference if the objection has been wholly allowed. Section 189 makes abundantly clear that what is referred to the Tribunal or to a court is "a decision on an objection" and that the referral constitutes either the making of an application to the Tribunal for a review of "the decision" or the institution of an appeal against "the decision".

16. When the decision comes before the Tribunal for review or the Federal Court on appeal the burden of proving that the assessment is
excessive lies upon the taxpayer ((12) s.190(b). See Federal
Commissioner of Taxation v. Dalco (1990) 168 CLR 614 and the authorities referred to therein.). The crux of the approach taken by the majority in the Full Court may be found in the following passage from the judgment of Hill J ((13) (1993) 114 ALR at 704-705.):

" In the present case there can be no doubt but that the inclusion of an amount in assessable income and the disallowance of a deduction are two separate 'particulars'. The matter which is the subject of objection by the taxpayer and the subject matter of the objection decision is the inclusion of an amount in income. The matter of the allowance of the deduction is not a matter in respect of which the taxpayer is dissatisfied and it is not before the court. For the Commissioner to raise the allowability of the deduction it would first be necessary for the Commissioner, if the prerequisites of s 170 permit, to amend the assessment to disallow the deduction. Once the amended assessment issued, the taxpayer would then be permitted to object under s 185(2) to the particular altered. The Commissioner could consider this further objection and then if still of the belief that the deduction should not be allowed should disallow the objection and thereupon the matter would be properly before the court."

17. With respect, we do not agree with this approach. It may be accepted that the inclusion of an amount in a taxpayer's assessable income and the disallowance of a deduction claimed by a taxpayer are separate "particulars", though there is a question as to what this implies. And it is true that what the taxpayer objected to here was the inclusion of amounts in its assessable income arrived at, wrongly as the Federal Court held, by calculating the net income of the trust estate in accordance with Div.16E of Pt III of the Act. It is also true that the allowance of the deductions claimed was not a matter in respect of which the taxpayer was dissatisfied; that is self-evident. But it is a very large and, in our view, unwarranted step to say that the only matter before the Federal Court was that
part of each objection decision with which the taxpayer was dissatisfied. It is the Commissioner's decision which, in each case, was referred to the Court. True it is that the decision was referred by the taxpayer so that the inclusion of income by the Commissioner might be challenged. But it does not follow that the Court was not then seized of the decision in its entirety. The power of the Court in these circumstances is to:

"make such order in relation to the decision to which the appeal relates as it thinks fit, including an order confirming or varying the decision" ((14) s.199.).

18. This power is expressed in the widest terms. An appeal relates to the objection decision made by the Commissioner albeit a taxpayer is dissatisfied with only part of that decision. A power to make such order as the Court thinks fit is clearly not unconstrained but there is nothing in s.199 to suggest that the Federal Court may not make such order in relation to the objection decision as is appropriate in all the circumstances once the subject matter of the taxpayer's dissatisfaction with the assessment has been resolved.

19. The flaw in the approach taken by the majority in the Federal Court was to give the notion of particulars a significance which it does not have in the present case. The terms "particular" and "particulars" have a role to play in the operation of the Act but they are not determinative of the jurisdiction of the Federal Court to entertain a contention by the Commissioner that, if the basis on which he has determined the assessable income of a taxpayer is shown to be in error by reason of the inclusion of a particular amount, the basis on which the Commissioner determined deductions to be made from that income in order to arrive at the taxable income of the taxpayer should also be reviewed.

20. The place to be accorded "particular" and "particulars" within the Act may be discerned from a number of sections. Thus, s.170(3) precludes the amendment of an assessment after three years "increasing the liability of the taxpayer in any particular" where there has been a full and true disclosure of all the material facts necessary for an assessment. Section 177(1) makes the production of a notice of assessment "conclusive evidence of the due making of the assessment and ... that the amount and all the particulars of the assessment are correct". The limitation imposed by s.185(2) on the right of a taxpayer to object against an amended assessment has already been mentioned. But the terms are not used with a consistency that warrants the significance attached to them by the Federal Court. Furthermore, there is no basic distinction drawn between "particular" and "amount" in Pt IV of the Act. And it may be noted that "amount" appeared in s.166 before "particular" was introduced in s.185(2).

21. In argument the taxpayer relied upon a passage in the judgment of Deane J in Federal Commissioner of Taxation v. Offshore Oil NL ((15) (1980) 32 ALR 193 at 200.) in which his Honour referred to the process of assessing tax as involving a number of distinct stages. His Honour also spoke of the components of assessable income as being on "the credit side of the account" and the components of the various deductions as being on "the debit side of that account". Deane J was
echoing the language of Latham CJ in Trautwein v. Federal Commissioner of Taxation ((16) (1936) 56 CLR 63 at 94.).

22. Trautwein was concerned with the predecessor of s.185(2), namely s.37(1), which made every alteration or addition to an assessment "which has the effect of imposing any fresh liability, or increasing any existing liability ... subject to objection". Offshore Oil involved s.185(2) of the Act and the right of a taxpayer to object against an assessment which had been amended "in any particular". Deane J thought that Trautwein provided some guidance to the scope of s.185(2) in that the judgments in Trautwein supported the conclusion that the references to "liability" in s.37(1) were not restricted to the ultimate liability which the amended assessment imposed, but extended to the individual items taken into account, on either the debit or credit side, in the process of assessment. His Honour added ((17) (1980) 32 ALR at 200.):

"That conclusion has been reinforced by the introduction of the phrase 'in respect of any particular' in s.185 to qualify the references to 'fresh liability' and to 'existing liability'."

23. Nothing in the judgment of Deane J lends support to the taxpayer's submission that the only matter before the Federal Court was that part of the objection decisions to which the taxpayer took exception. Indeed, as the Act stood at the time of Offshore Oil, there was a proviso to s.185 precluding a taxpayer's right of objection, in the case of an amended assessment, except to the extent that a fresh liability was imposed or an existing liability increased. Yet the Federal Court held that the right of objection preserved by the proviso was to the amended assessment itself and not just to the relevant alteration or addition. If anything, the decision in Offshore Oil supports the approach for which the Commissioner contends in the present case.

24. The taxpayer also sought to rely upon McAndrew v. Federal Commissioner of Taxation ((18) (1956) 98 CLR 263.), but nothing in the judgments in that case justifies the significance which the taxpayer seeks to attach to "particular" or "particulars" in the present context.

25. The taxpayer was at pains to emphasise that in each case there was an appeal because, in terms of s.187, it was "dissatisfied with a decision under section 186". It followed, so the argument ran, that the jurisdiction of the Federal Court was limited to a determination of the matter which was the subject of dissatisfaction. But the crucial element is that which was referred to the Federal Court. In each case it was the objection decision of the Commissioner. As Davies J observed, s.190(b) casts on a taxpayer the burden of proving that an assessment is excessive and in a matter referred to the Court under s.187 there is nothing in the Act which confines the Commissioner to the matters referred to in the notice of objection. As was observed in Federal Commissioner of Taxation v. Dalco ((19) (1990) 168 CLR at 620, 631.), the term "excessive" in s.190(b) relates to the "amount" of the assessment which is mentioned in s.177(1). The question for the Court hearing an appeal is not whether the grounds of objection have been made out but whether the taxpayer has satisfied the burden cast by s.190(b) of proving that the assessment is excessive. Although Dalco was concerned with a default assessment made pursuant to s.167 of the Act, the point applies equally to an assessment made pursuant to s.166. Each section is concerned with the taxable income of a taxpayer.

26. In several decisions it has been held that the Commissioner may support the amount of the assessment on a ground not taken into account at the time the assessment was made ((20) See, for instance, Federal Commissioner of Taxation v. Wade (1951) 84 CLR 105. See also Federal Commissioner of Taxation v. Reynolds (1981) 34 ALR 463.). The Commissioner will be required to give proper notice to the taxpayer and, where appropriate, will be directed to furnish particulars. But, as Kitto J observed in Federal Commissioner of Taxation v. Wade ((21) (1951) 84 CLR at 117.): "No conduct on the part of the commissioner could operate as an estoppel against the operation of the Act." In the present case the Commissioner does not seek to support the assessments on a ground not previously taken into account. The Commissioner seeks to support the assessments, if not in their entirety, by reference to what he claims to be reductions in the amount of the deductions properly allowable to the taxpayer under s.51(1) of the Act as a consequence of the Federal Court's decision as to the basis on which the assessable income of the taxpayer should be determined. Since the Court is concerned to determine whether the amounts assessed as taxable income are excessive, the Commissioner must be able to raise for the Court's determination the deductions properly to be allowed in the light of the Court's decision as to assessable income.

27. It follows that the majority in the Full Court erred in declining to entertain the Commissioner's contention that the deductions previously allowed by him should be open to review in the light of the decision made by the Full Court as to the proper basis on which the assessable income of the taxpayer should be determined. The Federal Court, having allowed the appeals, should have remitted the matters to the trial judge for consideration in accordance with the reasons for judgment of the Court, as proposed by Davies J That was the appropriate course in the circumstances.

Amending the assessments

28. In the course of argument before the Court, questions arose as to the power of the Commissioner to issue amended assessments and the implications of that power in light of the Full Court's decision.

29. Section 170(1) of the Act empowers the Commissioner, "subject to this section", to amend an assessment at any time. But the sub-sections which follow place limits on the exercise of that power. Where a taxpayer has made "a full and true disclosure of all the material facts necessary for his assessment", no amendment increasing the liability of the taxpayer in any particular may be made after the expiration of three years from the date upon which the tax became payable under the assessment made after that disclosure ((22) s.170(3).).

30. There was no suggestion that the taxpayer had made other than full and true disclosure. However, there being assessments and amended assessments which, as reproduced, do not disclose the due dates for payment, it is not apparent whether it is still open to the Commissioner to issue amended assessments under s.170(1). In any event the Commissioner has not done so by reason of the proceedings in the Federal Court. Section 170(7) reads in part:
" Nothing contained in this section shall prevent the
amendment of any assessment in order to give effect to the decision upon any appeal or review". Counsel for the taxpayer suggested that it might be open to the Commissioner, at this stage, to amend the assessments in the light of the Full Court's decision. The question is not one requiring resolution in these appeals but it has some relevance to the operation of Pt IV of the Act. Sub-section (7) is cast in negative terms and is
to be contrasted with s.200B(1), also in Pt IV, which reads:

" When a decision of the Tribunal or of a court under this Part becomes final, the Commissioner shall, not later than 60 days after the decision becomes final, take such action, including amending the assessment concerned, as may be necessary to give effect to that decision." ((23) The

provision is substantially reproduced in s.14ZZQ(1) of the Taxation Administration Act.)

31. Section 170(7), in its present form, has been in the Act since its inception. Section 200B was introduced in 1986. It has an essentially mechanical operation, aimed at ensuring that in the absence of a power in the Tribunal or a court itself to amend an assessment ((24) A power which was removed from the courts (then the Supreme Courts) by s.88 of the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 (Cth) which amended s.199 of the Income Tax Assessment Act.) the Commissioner will do so in order to implement a decision of the Tribunal or a court.

32. There is a substantial obstacle to the use by the Commissioner of either s.170(7) or s.200B as authority to issue amended assessments in the light of the Full Court's decision. The order made by the Full Court in each case was that the objection decision be set aside and in lieu thereof the objection lodged against the assessment to income tax be allowed. It is unnecessary to refer to the terms of the notices of objection. It is apparent that the effect of allowing the objections is that the assessable income of the taxpayer is to be determined in accordance with s.27H(1)(a) of the Act. The deductions allowed by the Commissioner stand since they were not affected by the "decision" and the taxpayer's taxable income is to be determined accordingly. The Commissioner would be doing more than giving effect to the decision if he were to alter the deductions previously allowed. The position might have been different had the Full Court held that it had jurisdiction to entertain the Commissioner's submissions in regard to the deductions allowable under s.51(1) in the light of the correct basis for determining the taxpayer's assessable income but left it to the Commissioner to deal with this aspect. But it held that, relevantly, it lacked jurisdiction.

33. In these circumstances, the Commissioner cannot rely on s.170(7) to re-enliven the power of amendment conferred by s.170(1). Nor can he amend the assessment under s.200B by deducting from the assessable income ascertained by reference to s.27H any part of the deductions
which the Full Court has allowed to stand. In any event the Commissioner did not seek to rely upon either of these provisions. He relied on the scope of the decision which had been referred to the Federal Court.

Conclusion

34. For the reasons already given, the appeals should be allowed by remitting to the Federal Court for consideration, in accordance with these reasons, the extent to which the deductions claimed under s.51(1) of the Act (and allowed by the Commissioner) should now be allowed. The taxpayer should pay the costs of these appeals.

McHUGH J I agree that these appeals should be allowed. The facts and issues are set out in the judgment of Brennan, Deane, Dawson and
Toohey JJ

2. The power conferred on the Court by s.199 of the Income Tax Assessment Act (1936) (Cth) ("the Act") to "make such order in relation to the decision to which the appeal relates as it thinks fit, including an order confirming or varying the decision" was ((25) Throughout this judgment I frequently use the past tense to describe the position as it was at the time relevant to this appeal. Numerous changes to the appeal procedure since that time make it difficult to speak in the present tense.) wide enough to enable the Commissioner to raise in the Federal Court the question of the deductibility of the interest payments. I agree with Brennan, Deane, Dawson and Toohey JJ that the majority in the Federal Court gave "the notion of particulars a significance which it does not have in the present case". I am also in general agreement with their Honours' reasons for reaching that conclusion. Contrary to their view, however, I do not think that the terms of s.190(b) of the Act provided any support for rejecting the taxpayer's argument. That paragraph provided at the relevant time that "the burden of proving the assessment is excessive shall lie upon the taxpayer".

3. Counsel for the Commissioner contended that, notwithstanding the legislative changes made in 1986, the Act required a taxpayer to show that the amount of tax assessed pursuant to the provisions of s.166 was excessive and that Federal Commissioner of Taxation v. Dalco ((26) (1990) 168 CLR 614.) defined the issue in an appeal against a s.166 assessment. In Dalco, a default assessment under s.167 had been issued against the taxpayer. Brennan J said ((27) ibid. at 621.) that the purpose of the procedure of assessment, objection and appeal or review was to ascertain the "true tax liability" of the taxpayer under the substantive provisions of the Act. At that time, the legislation treated the taxpayer's objection as an appeal ((28) ss.187(1)(b), 197.). The Court was given power to "confirm, reduce, increase or vary the assessment" ((29) s.199.). In that context, Brennan J said ((30) Dalco (1990) 168 CLR at 621.) that it would be inappropriate for a court determining an appeal to make an order altering the tax liability assessed unless the Court was satisfied that the amount to which it proposed to alter the assessment represented the "true tax liability" of the taxpayer. The judgment of Toohey J was to the same effect. Mason CJ, Deane, Dawson, Gaudron and I agreed with the reasons of Brennan J and Toohey J In Dalco, the taxpayer established an error in the Commissioner's application of the Act. But the taxpayer failed to establish that his true tax liability was less than the Commissioner's assessment. Accordingly, the Court held that his appeal must fail.

4. Relying on Dalco, counsel for the Commissioner argued that, in the appeal to the Federal Court, the present taxpayer had to prove that the assessment was excessive and not merely that the Commissioner had erred in making his assessment. It followed from the terms of s.190(b), according to the argument, that the Commissioner could argue that the assessment was not excessive and that the interest payments were not allowable deductions having regard to the findings of the Full Court. In my view, however, there was at the relevant time a real difference between an appeal against an assessment under s.166 and an appeal against an assessment under s.167.

5. An assessment made under s.166 ordinarily involves "a number of distinct stages namely, the ascertainment of the components of assessable income, the ascertainment of any deductions to be made from assessable income for determining taxable income, the determination of the amount of taxable income and the calculation of tax" ((31) Federal Commissioner of Taxation v. Offshore Oil NL (1980) 32 ALR 193 at 200.). Error may occur at any stage. A taxpayer's objection to a s.166 assessment is ordinarily based on an error in that process. The challenge to the assessment is ordinarily the consequence of a challenge to the process. An assessment made under s.167, on the other hand, involves only one component in the assessment - the final figure.
As Mr Bloom, QC correctly submitted, there are no separate components of assessable income on one side or allowable deductions on the other side. An objection to a s.167 assessment, therefore, has to be against the final figure. At the relevant time s.190(b) required the taxpayer to prove that that figure was excessive.

6. Whatever may have been the position before the 1986 amendments to the Act, I think that there are real difficulties in applying the reasoning in Dalco to an appeal against an assessment made under s.166, particularly after the 1986 changes. That is to say, there is a real difficulty in holding that on an appeal against a s.166 assessment the taxpayer is bound to establish that the assessment was excessive. Indeed, Mr Bloom, QC cited Henderson v. Federal
Commissioner of Taxation ((32) (1970) 119 CLR 612.) as an illustration of an appeal, heard before the 1986 amendments, where the taxpayer successfully appealed on "the unusual and surprising ground that (the assessments) were too low" ((33) ibid. at 618.). It is arguable that s.190(b) was always a procedural section concerned with the onus of proof in cases where a taxpayer challenged either the final figure or some component in that figure and that it was not concerned with the ultimate issue in the appeal or with the jurisdiction of the Court.

7. Whatever may have been the effect of s.190(b) before the 1986 amendments, however, those amendments made an important change to the nature of a taxpayer's appeal: the Court no longer had the power to alter the assessment. In hearing an appeal, it was required to consider the decision on the objection made by the Commissioner and was constrained by the issues that arose from that decision. Plainly, the jurisdiction of the Court was determined by the Commissioner's decision. Consequently, the Court was given power to make orders confirming or varying the decision, not the assessment ( (34) s.199.) . The Commissioner was required to give effect to those orders ((35)
s.200B.). Only indirectly did the Court's order affect the assessment. These changes in the nature of the appeal indicate that after the 1986 amendments the purpose of s.190(b) was procedural, not jurisdictional. The Commissioner's decision could have been wrong without the assessment being excessive. The facts in Henderson are an example.

8. Because s.190(b) remained in the Act after the 1986 changes, it may be that the ultimate question in an appeal against a s.167 assessment continued to be whether the amount assessed as taxable income was excessive. But the reasoning that led this Court to that conclusion in Dalco does not seem to me to be applicable to an appeal
against an assessment under s.166 after the 1986 amendments.

9. Although the Court's jurisdiction was controlled by the "decision on the objection" ((36) s.189(3).), nevertheless the power conferred by s.199 was very wide. It enabled the Court to make such order "in relation to the decision" as it thought fit and that included an order that varied the decision. In their natural and ordinary meaning, the words of s.199 were wide enough to enable the Court to make an order
concerning a matter that had a relevant connection with the Commissioner's decision. The power to make such an order necessarily requires the conclusion that the Federal Court could hear evidence and submissions concerning the matter.

10. In this case, the question of the deductibility of the interest payments was a matter that was connected with the Commissioner's
decision on the objection. The Federal Court, therefore, had jurisdiction to deal with the matter.

11. The appeals should be allowed.