John Tanner Holdings Pty Ltd v Commissioner of Taxation

[1987] FCA 807

I -

JUDGMENT NO I,-nl.nn........ ...\ ........ ....

CATCHWORDS

INCOME TAX - Assessment of liability to income tax pursuant

to default assessment - burden lies upon taxpayer of

establishing affirmatively that amount of taxable income for

which he has been assessed exceeds the taxpayer's actual

taxable income during the relevant income year.

PRACTICE AND PROCEDURE - Order for discovery - applicants

seeking discovery on limited basis against Commissioner of

Taxation - purpose of interlocutory processes including

discovery - value of discovery in assets betterment cases -

Court's task to define the issues between the parties and to bring about speedier trial with minimum possible expense.

Income Tax Assessment Act 1936: S. 167, sub-s. 177(1) and

S. 190(b).

14 DECEMBER 1988
JOHN TANNER HOLDINGS PTY. LIMITED	v COMMISSIONER OF TAXATION
G2790-2795 OF 1987

MAY HARLOW PTY. LIMITED v COMMISSIONER OF TAXATION

G2796 - 2797 of 1987

JOHN A. TANNER v COMMISSIONER OF TAXATION

G2798 of 1987

PATRICIA M. TANNER	v COMMISSIONER OF TAXATION
G2799 - 2802 of	1987
LOCKHART J. SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA	)
NEW SOUTH WALES DISTRICT REGISTRY	) NO. G2790-2795 Of 1987
GENERAL DIVISION

BETWEEN:	JOHN TANNER	HOLDINGS	PTY.
LIMITED
Applicant

AND :	COMMISSIONER OF TAXATION
-

Respondent

IN THE FEDERAL COURT OF AUSTRALIA	)
\
NEW SOUTH WALES DISTRICT REGISTRY j	No. G2796-2797 of 1987

1

GENERAL DIVISION 1

BETWEEN:  MAY HARLOW PTY. LIMITED

Applicant

AND :  COMMISSIONER OF TAXATION

Respondent

IN THE FEDERAL COURT OF AUSTRALIA	)
1
NEW SOUTH WALES DISTRICT REGISTRY	) No. G2798 of 1987
1
GENERAL DIVISION	1

BETWEEN:  JOHN A. TANNER

Applicant

AND :  - COMMISSIONER OF TAXATION

Respondent

IN THE FEDERAL COURT OF AUSTRALIA 1 1

NEW SOUTH WALES DISTRICT REGISTRY	) NO. G2799-2802 Of 1987
1
GENERAL DIVISION	1

BETWEEN :  PATRICIA M. TANNER

Applicant

' AND:  - COMMISSIONER OF TAXATION

Respondent

JUDGE MAKING ORDER:	LOCKHART J .
DATE OF ORDER:	14 DECEMBER 1987
WHERE ORDER MADE:	SYDNEY

MINUTE OF ORDER

THE COURT ORDERS THAT:

1. The applicants in matters G2790 to and including

G2798, all of 1987, give general discovery to the respondent.

2 . The respondent in matters G2790 to and including

G2798, all of 1987, give discovery to the applicants of the

following classes of documents;

(i)      all documents, or copies thereof, which were

not documents brought into existence by the

respondent; and

(ii) all documents other than reports of

investigation officers and documents of a similar kind, being documents upon which the assets betterment statements are based.

3 . The applicants and respondent in matters G2790 to and

including G2798, all of 1987, are to give discovery, pursuant to orders 1 and 2 made by this Court by affidavit or

declarations as the case may be on or before 1 February 1988.

4 . The applicants and respondent in matters G2790 to and

including G2798, all of 1987, are to give inspection of

documents within 14 days after 1 February 1988.

5. Liberty be reserved to the applicants and respondent

in matters G2790 to and including G2798, all of 1987, to apply to the New South Wales District Registrar of the Federal Court to restore the matters to the Taxation

Directions List for further mention on seven days notice.

6. Liberty be reserved to teh applicants and respondent

in matters G2799 to and including	G2802, all of 1987, to
apply to the	New South Wales District Registrar of the

Federal Court to restore the matters to the Taxation

Directions List for further mention on two days notice.

7. Matters G2790 to and including G2802, all of 1987, are adjourned to 2 4 February 1988.

8. Otherwise there be no orders in matters G2799 to and

including G2802, all of 1987.

9. Matters G2790 to and including G2798, all of 1987, are

matters appropriate for	the retention	of senior and junior
counsel.

10.     The costs of the motion be costs in the proceedings.

NOTE:  Settlement and entry of orders is dealt with in Order
36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA	) )
NEW SOUTH WALES DISTRICT REGISTRY	) NO. G2790-2795 Of 1987
GENERAL DIVISION

BETWEEN :	JOHN TANNER HOLDINGS PTY.
LIMITED

Applicant

-

AND :  COMMISSIONER OF TAXATION

Respondent

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY	)
) NO. G2796-2797 Of 1987
GENERAL DIVISION	1

BETWEEN: MAY HARLOW PTY. LIMITED

Applicant

- AND : COMMISSIONER OF TAXATION

Respondent

IN THE FEDERAL COURT OF AUSTRALIA	1
NEW SOUTH WALES DISTRICT REGISTRY	) No. G2798 of 1987
1
GENERAL DIVISION

BETWEEN: JOHN A. TANNER

Appl i cant

-

AND :  COMMISSIONER OF TAXATION

Respondent

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY	)
1
) NO. G2799-2802 Of 1987
1
GENERAL DIVISION	1

BETWEEN :  PATRICIA M. TANNER

Applicant

AND :  COMMISSIONER OF TAXATION

Respondent

14 December 1987

REASONS FOR JUDGMENT

LOCKHART J .

These two matters being heard together by consent are

John Tanner Holdings Pty. Limited v Commissioner of Taxation

(G2975 of 1987) ("John Tanner Holdings") and May Harlow Pty.

Limited v Commissioner of Taxation (G2797 of 1987) ("May

Harlow"). The other matters in the list involve the same

parties but concern different years of income. The matter of
John A. Tanner v Commissioner	of Taxation (G2798 of 1987)
("John H.	Tanner") is related and turns upon my findings.

Though the matters of Patricia M. Tanner v Commissioner of Taxation (G2799 to G2802 of 1987) ("Patricia M. Tanner") are

related, due to the applicant's death the findings of this

Court are not immediately applicable. I shall return to

these lastmentioned matters later.

Turning first to John Tanner Holdings, the applicant and the respondent each	seeks by notice of motion an order for
discovery from the other.	It is these motions that are

before me today. The applicant's appeal relates to the year

of income ended 30 June 1981. The respondent assessed the

applicant's liability to income tax pursuant to the default assessment provision (S. 167) of the Income Tax Assessment - Act 1936 ("the Act"), commonly known as an assets betterment assessment.

The assets betterment sheets accompanying the notice of assessment state the facts and matters relied on by the

respondent to found the assessment. The applicant objected

to the notice of assessment and the respondent allowed some

of the objections but disallowed others.

The respondent issued a notice of amended assessment.

The assets betterment sheets accompanying that notice of

amended assessment follow the same general pattern of the

earlier ones but differ in certain material respects.

The applicant does not seek general discovery against

the respondent but it does not resist general discovery

against it. The applicant submits that the respondent should

give discovery on a limited basis, namely, of two categories
of documents: first, what counsel for the applicant described
as primary documents in the possession, power, custody or

control of the respondent (for example, bank statements which

the respondent may have and which	the applicant may or may
not have); and second,	working sheets of the respondent and
other like documents	showing the calculations and processes

by which the entry in the assets betterment sheets were

inserted. The applicant also seeks documents revealing the

departmental processes of the respondent including reports of
investigations or informants and internal memoranda passing

between officers of the respondent.

Section 190(b) of the Act provides that:

' I . . . the burden of proving that the assessment is

excessive shall lie upon the taxpayer."

This section must be read with sub-s. 177(1) which in essence

provides that the production of the notice of assessment

under the hand of the Commissioner 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.

From these and other sections of the Act it is

established that in an	appeal from an assessment the burden
lies upon a taxpayer	of establishing affirmatively that the
amount of taxable income for	which he has been assessed

exceeds the actual taxable income which he has derived during the relevant year of income: see, f o r example, Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246 and

Trautwein v Federal Commissioner of Taxation (1936) 56 CLR

Section 167 of the Act states:

"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. 'l

In this instance the Commissioner has made an assessment pursuant to S. 167(b), namely, he was "not satisfied with the return furnished" by John Tanner Holdings Pty. Limited.

No affidavits have yet been filed in the appeal save for

an affidavit in support of these motions. There are no pleadings and no particulars have, so far as I know, been sought or furnished. There is some force in the respondent's

argument that the applicant should first file and serve a

statement of claim, or, failing that, some document defining

the issues as it presently perceives them or a document

stating the particular respects in	which it differs from the
assets betterment sheets accompanying the relevant	notices of

assessment or amended assessment. But the purpose of

interlocutory processes, including discovery, is to identify

the matters truly in issue between the parties. There is

more than one way of achieving that object. It seems to me

that mutual discovery at this stage is a satisfactory method

of discerning the matters in dispute between the parties.

Once discovery has been given and inspection has taken place, affidavits, or statements of witnesses, as the case may be, may then be filed with the knowledge of what are the primary documents in the case.

I notice with interest that in Mack Federal v

Commissioner of Taxation (1983) 8 3 ATC 4043 Smith J. of	the
Supreme Court of Western Australia said at 4057 and 4058:

"The pleadings, or	their	equivalent	in these
proceedings, are	the	competing	betterment

statements and the notices of objection. For all
relevant purposes the substantive issue in the
proceedings is the liability of the appellant to

tax in the years in question, and the question is

whether the taxable facts shown in the respondents

statement do or do not exist."

These observations are of assistance in the present

case. The assets betterment statements issued by the

Commissioner accompanying the notice of assessment and

amended assessment and the notice of objection which are in

evidence do, in a broad sense, define the issues in the	case;
though it may be necessary for them to be further defined	as
the case proceeds.

I am not persuaded that discovery at this stage will

give tactical advantage to one side or the other. Assets

betterment cases are notorious for their consumption of

considerable amounts of time to the	disadvantage of the
Courts and the parties. This	is because they so often can

become an exercise involving attacks on the Commissioner's

asset betterment sheets in considerable detail by the

taxpayer with the respondent Commissioner negating at length

the taxpayer's case. Discovery should diminish these

problems.

Logically, of course, the Commissioner's assets

betterment sheets are in rebuttal of the taxpayer's case

because the taxpayer has an onus of the kind to which I have already referred; but in reality the substantive issue is as

Smith J. perceived it, in the case to which I have just

referred, namely, the liability of the taxpayer to the tax in question. Thus the particular question to be decided is

whether the facts shown in the assets betterment statements

of the respondent do or do not exist.

Orders for discovery in assets betterment cases have been made before. The Mack Case appears to be one example,

as does the earlier case	of L'Estrange v Federal Commissioner
of Taxation (1973) 73 ATC 4061, a decision of Menzies J.

Counsel for the respondent referred to the decision of

the High Court in George v Federal Commissioner of Taxation

(1952) 86 CLR 183. That was a case of a default assessment

issued by the Commissioner under S . 167 in which an attempt was made to obtain from the Commissioner a statement as to

the source of the money which the Commissioner's assessment

treated as income. The application failed. That case has

been subsequently treated in Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 as a case dealing with its own particular facts. See, for example, the observations of the Chief Justice, Sir Garfield Barwick, at 218, and Aickin J. (with whose reasons for judgment the other members of the Court agreed) at 229.

George's Case is plainly distinguishable from the

present case. This is an application for mutual discovery on

a limited footing so far as the discovery sought by the

applicant is concerned. It is not an application for a

statement in the nature of particulars. Moreover, the particulars sought in George's Case were different, covering a wider class than the documents of which discovery is sought in the present case.

Although directed to the context of particulars, the

observations of Aickin J. in Bailey's Case (supra) at 230, are relevant to the present case. His Honour said, referring to the review of authorities by Jeffrey J. in Tomlinson v

Federal Commissioner of Taxtaion (1974) 23 FLR 314:

' l . . . 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 disprove and should have

access to documents necessary for the proof by him

of his case. 'l

That principle runs through the modern cases dealing

with discovery and particulars, especially in the revenue

field. The Court's task is to define the issues between the parties and to bring about a speedier trial	with the minimum
possible expense.	Discovery is one procedure available to

the parties to achieve that end and in my opinion it is a

procedure which can properly be invoked by both parties at this stage of the case, provided that the discovery available from the Commissioner is limited in the sense which has been mentioned earlier.

I should say that this is not intended by me to be a

statement of general principle, but of the simplest and most
effective way of dealing with the initial interlocutory steps
in these cases. Indeed, in many cases it is difficult to see

why discovery would be necessary from the Commissioner at

all; but the raising of issues under S. 167, as this case

does, places the case on a rather different footing from the

usual case. Also, I think it is appropriate that discovery

be given at this early stage and that the other interlocutory

steps then ensue.

There remains the matter of May Harlow and the matter

related to it, G2796-G2797 of 1987. What I have said in the

matter of John Tanner Holdings	applies to the May	Harlow
matters.	No distinction is sought to be	drawn by either

party on the question of discovery between the two classes of case; although it is perhaps still an open question as to the

particular provisions of the Act on which the Commissioner

relied to found the assessments in	this case. It matters not
because, whether founded on	S. 167 or other sections of the
Act, assets betterment sheets have been included	in the
notice of assessment	and the same considerations generally

apply. Concerning the matter of John A. Tanner, what I have

said in the matter of John Tanner Holdings also applies.

As for the matter of Patricia M. Tanner (G2799 to G2802,

all of 1987) it is neither appropriate nor technically

possible for this Court	to make orders with regard to those
matters as Patricia M. Tanner has died. Probate	has been

granted to her son, John A. Tanner. However, what I have

said as to the preceding matters applies with equal force to

the matters where Patricia M. Tanner was an applicant. Though I make no orders, the parties can take what steps they deem appropriate to get discovery underway. I direct that the matter of Patricia M. Tanner be adjourned to 24 February 1988 and give leave to any party to restore it to the list on two days notice.

The orders sought are that discovery be given by the

applicants, being John Tanner Holdings, May Harlow and John

A. Tanner, generally and that	discovery be given by the
respondent to the applicants	of two classes of	documents,

namely, (1) all documents, or copies thereof, which were	not
documents brought into existence by the respondent and	(2)

all	documents	other than reports of investigation officers
and documents of	a similar kind being documents upon	which

the assets betterment statements are based.

I direct that the applicants, John Tanner Holdings, May

Harlow and John A. Tanner, give discovery to the respondent

generally and that the respondent give discovery to the abovementioned applicants of the two classes of documents to which I have just referred.

Discovery is to be given by each party in the form which I have mentioned by affidavit or declaration as the case may be on or before 1 February 1988 and inspection is to take place within 14 days thereafter. Liberty is reserved to all parties to apply on 7 days notice.

I certify that this is a case appropriate for the

retention of senior and junior counsel and costs of the

motion should be costs in the proceeding.

The abovementioned matters may be listed for mention on

2 4 February 1988.

I certify that this and the preceding ten

(10) pages are a true copy of the reasons

for judgment herein of the Honourable Mr.

Justice Lockhart.

Associate R . X b &
Date: 14 December 1987

Counsel for the	applicants:	Mr. D.H. Bloom Q.C. with
Mr. C.L. Lonergan

Solicitors for the applicants:  Messrs. J.W. Walker &
D.K.L. Raphael

Counsel for the respondent: Mr. N . R . Burns

Solicitor for the respondent:	Australian	Government
Solicitor

Date of Hearing:	December	14	1987
Date of Judgment:	December	1987	14