Spassked Pty Ltd & Ors v Commissioner of Taxation

[2004] HCATrans 545

[2004] HCATrans 545

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S613 of 2003

B e t w e e n -

SPASSKED PTY LIMITED

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Office of the Registry
  Sydney  No S614 of 2003

B e t w e e n -

STANLEY PARK LIMITED

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Office of the Registry
  Sydney  No S615 of 2003

B e t w e e n -

INDUSTRIAL EQUITY LIMITED

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Applications for special leave to appeal

McHUGH J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 DECEMBER 2004, AT 11.06 AM

Copyright in the High Court of Australia

__________________

MR B.J. SHAW, QC:   If the Court pleases, in these matters I appear with my learned friends, MR A.H. SLATER and MR P.M. FRASER, for the applicants.  (instructed by Blake Dawson Waldron)

MR G.J. DAVIES, QC:   If the Court pleases, I appear in these matters with MR D.J. FAGAN, SC and MR S.H. STEWARD for the respondent.  (instructed by Australian Government Solicitor)

McHUGH J:   Yes, Mr Shaw.

MR SHAW:   If the Court pleases, in the application book at page 171 in paragraph 56, line 54, the Full Court states:

it is certainly now beyond doubt that the subsection does not require the assessable income referred to, to be the assessable income of the year of income, but it may refer to the assessable income of a past or future year of income.

That is the orthodox and established position.  Later, however, at page 187 a gloss is put on that position.  It is in paragraph 101, which starts on the page before.  The Full Court refers to what Mr Daniels says and says:

Mr Daniels agreed that whilst the Spassked structure remained a dividend trap only nominal amounts of franked dividends would be declared to it.  Indeed, he went further to say that he envisaged that it would only be if Spassked ceased to be a dividend trap that dividends would be derived by it and that dividends would not be derived by Spassked while accumulated tax losses were available to it. 

It said that this is critical, and, in the judgment of Justice Hill and Justice Lander, it said:

It is hard to see how interest is, in the year of income, incurred in gaining or producing assessable income when steps are being taken to ensure that in the year none, or only nominal assessable income is being derived.

So a gloss is being put on the established position, saying that if in the year of income you take steps to ensure that you do not receive income, then in that year the interest will not be deductible. 

That would mean, for example, that if you decided that, although one of your subsidiaries might declare dividends to you, you preferred to leave the profits in the subsidiary in order to provide working capital and you were going to do that for a number of years, there would be some problem about the deductibility of any interest you had incurred on moneys you had borrowed to acquire the shares in the subsidiary. That, it is submitted, is a surprising proposition. In our submission, the proposition that the court finally comes to is merely a variant of that proposition and raises a serious and important question in relation to the construction of section 51.

At page 188, in paragraph 104, the majority says, after referring to the transcript, that:

That transcript clearly justifies the conclusion drawn by the learned Primary Judge . . . that there was no agreed plan, mechanism or time frame according to which Spassked would begin to receive dividends . . . It indeed leads to the conclusion that the Spassked structure which depended upon Spassked not receiv[ing] assessable income while incurring interest which was capitalised was intended to continue into the indefinite future or, until it became necessary to terminate the structure.

So there is a reference there to “indefinite future” and, of course, “indefinite” means indefinite.  By that, I mean, if it is indefinite, it may be short or it may be long.  “Indefinite” is not necessarily long.

Then at page 189, after referring to Mr Cottam’s evidence, the Full Court says in paragraph 110:

The evidence of these two witnesses leads clearly to the conclusion that the interest incurred was not, in any year of income, incurred in gaining or producing assessable income, but rather that it was a part of the structure planned that in the foreseeable future Spassked would not, deliberately, derive assessable income.

The Court will notice that “indefinite” has turned into “foreseeable”.  Of course, what is foreseeable in the matter of business may be very short or it may be quite long.  Then in paragraph 111, their Honours go on to say:

It demonstrates, that far from being a case where interest was incurred on a loan to acquire shares which it was hoped would be dividend producing in the future (where the interest would be prima facie deductible), this was a case on its own facts, those being that interest was incurred on a loan to acquire shares where, in all the years of income in question and for the foreseeable future from the time the structure was established steps would be taken to ensure that the shares acquired would not produce anything but a nominal amount of assessable income.

So, in our submission, it is clear that the ultimate proposition of law ‑ ‑ ‑

McHUGH J: But they are not propositions of law, are they? Despite your attempts to formulate special leave questions, is not this case really just a factual case? The court took a view. Some might think the result surprising, but it is just really a factual case. We have said more than once that the Full Court of the Federal Court is ordinarily the tribunal for finally resolving income tax questions, unless there is some special point of principle involved in the case. Given all the authorities, including in this Court, on section 51, it is difficult to see this Court as laying down any principle of law.

KIRBY J:   Can I add to that, the intimidating content of paragraph 41 of the respondent’s submission about the voluminous evidence, the 350 pages of cross‑examination, the 1,282 individual documents and the 168 volumes of exhibit RD2.  It is the very thought of it, Mr Shaw.

MR SHAW:   Let me submit to your Honour that your Honour is shying away at the sight of a ghost conjured up magically by my learned friends, which has no real existence.

McHUGH J:   In your reply, you say it took eight hours in the Federal Court and the factual issues are fairly similar.

MR SHAW:   Well, they are.  I am holding up what was the only part of the application book which was actually printed.  There was another part that was on CD‑ROM.  That part was never referred to in the Full Court.  In fact, there was no ‑ ‑ ‑

McHUGH J:   The CD‑ROM will not worry me, but it might worry some of my colleagues.

MR SHAW:   There was not even a computer in court.  So the fear of all this great volume is, it is submitted, a ghost which my learned friend ‑ ‑ ‑

KIRBY J:   All right, well, let the ghost walk off and answer Justice McHugh’s question.  It is really a question of fact.

MR SHAW:   Your Honour put two things to me, really.  One is that it was all a question of fact and the other was that this Court has often said that in taxation matters the court of final appeal is, generally speaking, the Federal Court, unless some question of principle arises.  Of course, your Honours, it is undeniable that to some extent every case turns on the existence of facts which bring in ‑ ‑ ‑

McHUGH J:   I think most tax cases are really questions of fact cases.

MR SHAW:   I know your Honour thinks that but, in our submission ‑ ‑ ‑

KIRBY J:   I am prepared to concede they are lore.

MR SHAW: That is not this case and it is not this case because the passages I referred to do indicate that a gloss is being put by the Full Federal Court on the established doctrine. It is a gloss on the construction of section 51 and it is an important question because it does raise the question of what happens if somebody who invests in shares, in acquiring shares in some subsidiary, decides purposely not to receive dividends for some time because they want to provide funds through the earned profits for the business.

McHUGH J:   The result is undoubtedly curious, to say the least, that one company in the group has to pay tax on the income derived from the interest payments on the loans, and yet there is no deduction for ‑ ‑ ‑

MR SHAW:   Your Honour, it produces double taxation because there is tax paid on the income and no deduction allowed.  Yet, if it is all an internal matter, one would have thought either you get all of one or none of ‑ ‑ ‑

McHUGH J:   Yes, but in this area there is no doctrine of economic equivalence.

MR SHAW:   No, but, as your Honour points out, it does raise serious questions for this group of companies because of the result it produces.

McHUGH J:   There are huge sums of money involved.

MR SHAW:   There are huge sums of money involved.  We would submit that really the objective facts point very strongly to the likelihood that although the structure might continue for some time, ultimately, dividends would be received.  The reason for that is that all the moneys were invested in subcos which themselves invested in subsidiaries which earned very, very large amounts of money.  There were billions of dollars sitting in them which could only come up through the structure to get to the public shareholders through Spassked, because it was only Spassked that could receive unfranked dividends.

The trial judge escaped from the obvious conclusion that dividends would ultimately be received by relying on an erroneous proposition, as the Full Court held, that you could turn dividends which would otherwise be unfranked into franked dividends by paying the relevant tax.  That was held to be wrong.  What the Full Court did was to substitute for that reason the reason that because what was concerned was something internal, IEL was in a position where at any time, if it wanted, it could alter the terms of the articles of GIH so that Spassked could not receive any dividends at all and they would all go to IEL.  This was while no doubt ‑ ‑ ‑

McHUGH J: Well, I know, but two of the judges on the Full Court are as experienced in tax matters as probably any lawyers in Australia. Justice Hill would be probably the leading lawyer in Australia on tax matters and Justice Gyles not far behind. They assessed these facts and came to the view that on a proper application of the principles involved in section 51, there was no deduction. It just seems to me it is a fact case. I did toy with the idea as to whether or not it might be said the result is so bizarre, in one sense, that the judgment must be wrong.

MR SHAW:   In our submission, it is.  It is perfectly true ‑ ‑ ‑

KIRBY J:   This is a sort of Wednesbury principle in income tax cases.

MR SHAW:   I am sorry, your Honour?

KIRBY J:   This is a new Wednesbury doctrine.

MR SHAW:   Well, yes.  It is a very respectable doctrine, if your Honour pleases.

KIRBY J:   Very rarely applied in Australia.

MR SHAW:   Your Honours, the objective facts, it is submitted, do strongly lead to the conclusion that dividends are likely to be received.  Except for what the Full Court says about the possibility of changing the articles, there is really no sensible reason for thinking that dividends would not ultimately be received.  It does produce, it is submitted, an extremely odd result.  While it is true, your Honours, that Justice Hill is a very distinguished tax lawyer – he is indeed – I would not seek for a moment to say that he was not – and Justice Gyles is also a very experienced tax lawyer ‑ ‑ ‑

McHUGH J:   You have concurrent findings of fact against you by the trial judge.  I know you say that there is an error on the part of Justice Lindgren at first instance, but the Full Court said that that was not influential.

MR SHAW:   It did, because it substituted for one bad reason another bad reason.  It is submitted that the explanation which is substituted for the bad explanation is in truth no better than the explanation which was given in the first place.  The way in which the court approached the matter is, it is submitted, basically in error, first of all because, on the one hand, the court did not proceed in relation to the error which was made below in the appropriate way.

McHUGH J:   3.7 billion is involved.

MR SHAW:   In these particular years it is 900 million.  It is a matter which is, as your Honours will understand, extremely significant to our clients.  That, we understand, is not in itself a reason to grant special leave.

KIRBY J:   Well, it is a factor in my thinking.  I think, where very large stakes are involved, this Court can spare a day.  We spend time on lots of trivial and insignificant matters, in my opinion.

MR SHAW: In our submission, it is a significant matter and it does raise a question about the proper interpretation of section 51.

McHUGH J:   Just remind me again, is this case a test case for all the years between 1987 and 1994?

MR SHAW:   No, your Honour, it only relates to 1992.

McHUGH J:   So it is just decided.  I think there is 3.2 billion altogether.

MR SHAW:   That is right, your Honour, yes.  One combines, on the one hand, the oddity of the result that tax is paid twice.  One adds to that fact that really when you talk about – there are two aspects to what was done.  One was simply to substitute one dividend trap for a number of individual dividend traps, which does not seem as if that should produce any dire taxation results.  The other matter is that what was done was done in a way which was designed to simplify the operation of the group and not to lead to any particular change except simplicity.

So far as dividend traps are concerned, the real significance of the dividend trap was not the fact that losses were being created – that is because you have income as well as losses, as your Honour has pointed out – but its effect on preserving the effect of section 46 rebates.  The effect of that was that there was a saving in the value of something of $300 million altogether.  In our submission, the general result does cry out for special leave because, first of all, as we submit, there are important principles involved but, secondly, it does involve a lot of money and it is a very serious matter for our clients.  If your Honours please.

McHUGH J:   Thank you, Mr Shaw.  Mr Davies, what do you say about it?  It does seem a very odd result.  Although there is no doctrine of economic equivalence in Australian tax law, one company is taxed on the interest it

earns, and yet another company in the group cannot get any deduction for that interest.

MR DAVIES: Your Honour, if that is the result of it, it is the result because those controlling the group put in place a structure that had a particular company dedicated as a dividend trap. It was part of that structure that there should be a deliberate non‑derivation of assessable income by that company. Section 51(1), now section 8‑1, requires that the loss or outgoing to be deductible must be deductible because it has been incurred in gaining or producing assessable or in the course of a business carried on for the purpose of gaining assessable income.

The Spassked structure was the result of an internal restructure by the group where, before the structure was adopted, it suffered from a number of companies that were potential dividend traps.  There were problems paying dividends to those dividend trap companies.  What it did was to set up the Spassked structure where Spassked became the dedicated repository of losses.  Its purpose was to incur the interest expense.  It was to incur tax losses equal to the interest expense and those tax losses were then to be transferred to other members of the group to be deducted against non‑rebatable income.  So no part of the structure, as it operated, involved the receipt of dividends. 

My learned friend says, well, at some stage unfranked dividends had to be paid to it.  It could not be paid to it while it was a dividend trap because, as a result of company law, the payment of an unfranked dividend to a company that had current year losses meant that the dividend became caught and subsumed in that company.  It could not be transferred up the chain.  That is the first thing.  The witnesses all agreed that whilst Spassked was a dividend trap and a repository of tax losses, it would never receive dividend income.  So their case then became, “Well, at some stage in the future, we will undo it all”.  In 1992, the year with which these proceedings are concerned, they had not undone it, so that ‑ ‑ ‑

McHUGH J:   They did not do anything until the Spalvins takeover, did they?

MR DAVIES:   No.  The structure was undone in the sense that the debt was repaid and replaced by non‑interest‑bearing debt in 1994.  In 1992 Spassked is incurring interest expense, it is incurring tax losses, it is transferring tax losses out and it is not intended that it should receive dividend income.  Part of the focus of the evidence before the trial judge and then considered in the Full Court was whether, at the time the structure was set up, there was an expectation that at some stage in the future, some unidentified time, the structure would be brought to an end and Spassked would receive dividends on the shares.

On the evidence, the trial judge made strong findings that there was no such expectation.  The trial judge found that it was the expectation at the time the structure was adopted that it would operate indefinitely. The Full Court reconsidered the transcript of the evidence and found that on the transcript of the evidence the findings of the trial judge were warranted.  So my learned friend cannot point to any bit of the transcript that says, “This is when Spassked was intended to receive dividend income in the future”.

KIRBY J:   I take the force of all this, but the fact is that the outcome seems counter‑intuitive, that an awful lot of money rides on the decision.  Mr Shaw says he can construct some principles and that your intimidatory paragraph about all the factual material is erroneous.  How many days did it take in the Full Court of the Federal Court?

McHUGH J:   Eight hours, was it not?

MR DAVIES:   It took two days before the Full Court of the Federal Court.

KIRBY J:   If that is so, that would appear to lay at rest the matters that you raise in paragraph 41.  It was just put in there to frighten us, was it not?

MR DAVIES:   Well, it was in response, your Honour, to the written submissions about the failure of the Full Court to properly consider the transcript and so on and that it had to decide for itself on the evidence whether the witnesses ought to be believed.

KIRBY J:   You say they did that sufficiently.

MR DAVIES:   Yes, your Honour.  The first thing, in our submission, is that an error of principle has not been articulated.  The second is that the taxpayer ‑ ‑ ‑

McHUGH J:   What is said is that, although there is nothing that you can really put your finger on, nevertheless the result shows that there must have been a misapplication of principle.  I think, in reply, the respondent speaks about an implied finding.

MR DAVIES:   No, your Honours, because the benefit to the group of the Spassked structure was such on the evidence that it did not need to be brought to an end.  It could just go on indefinitely.  What I mean by that is the benefit to the group of Spassked not deriving dividend income.  If your Honours go to page 165 of the application book, subparagraph 15 of paragraph 199 of the trial judge, it is part of the long paragraph that is repeated in the Full Federal Court.  If your Honours see the last sentence before the last paragraph ‑ ‑ ‑

McHUGH J:   Line 35, is it?

MR DAVIES:   Line 33, your Honour. 

There would be no streaming up of dividends to Spassked so long as it was a dividend trap and still had transferable losses. 

That was accepted on the evidence.  That is not in issue. 

In relation to the latter the Commissioner submits as follows –

He then sets out a submission which we contended for before the trial judge and again in the Full Court by reference to the evidence.  Your Honours will see what effect on the group the transfer of the losses had.  Your Honours will see that:

In the year ended 30 June 1991 the total taxable ‑ ‑ ‑

KIRBY J:   Where are you reading now?

MR DAVIES:   I am reading at line 41:

In the year of income ended 30 June 1991 the total taxable income of the IEL group was $1,309,955,903.00 . . . $162,665,425.00 of which represented rebateable dividends . . . After allowing for the rebateable dividends, the resulting total taxable income was $1,147,685,524.00.  This figure was reduced to $5,460,747.00 by the transfer of tax losses in the sum of $1,142,224,777.00.  Spassked’s contribution to these losses was $642,273,167.00.  In the year of income ended 30 June 1992, the total taxable income of the IEL group . . . was $4,045,564,415.00, $2.860,074,321.00 of which represented rebateable dividends.  After allowing for the rebateable dividends, the resulting total taxable income was $1,181,494,467.00.  This figure was reduced to $699,872.00 by the transfer of tax losses . . . Spassked’s contribution to the transfer of losses was $800,415,065.00.  In the year of income ended 30 June 1993, the total taxable income of the IEL group . . . was $676,949,195.  After allowing for the rateable dividends, the resulting total taxable income was $430,708,195.  This figure was reduced to nil by the transfer of tax losses. 

So that, on an operating basis, the continuance of Spassked as a repository of tax losses, being able to transfer those tax losses out to the remainder of the group, produced a very real benefit for it.  It was one of the matters taken into account by the court.

My learned friend pointed out that the total capitalised interest was in the vicinity of 3.7 billion over years between 1989 through to 1994.  This year concerns only the 1992 year.  After the Full Court delivered its judgment, proceedings were commenced in the Federal Court by other members of the group raising the same issue in relation to other years.  As I understand it, the 1991 year, the 1994 year and, I think, the 1997 year are presently before the Full Court.  I say the 1997 year because Spassked continued to transfer out tax losses right through until 1998.  In those proceedings, the taxpayers contend that the other years have factual differences which mean the result in this case is not applicable.  Those matters, as I understand, have now been set down for a three week trial before Justice Conti next September on the basis that there are factual differences.

Can I take your Honours to findings that, in our submission, conclusively determine the case against the taxpayer, findings that were made by the Full Court but reflected also in findings made of the trial judge.  The first is at paragraph 101, which my learned friend took the Court to at line 61:

Mr Daniels agreed that whilst the Spassked structure remained a dividend trap only nominal amounts of franked dividends would be declared to it.  Indeed, he went further to say that he envisaged that it would only be if Spassked ceased to be a dividend trap that dividends would be derived by it and that dividends would not be derived by Spassked while accumulated tax losses were available to it.

So that it then becomes an issue, your Honours, as to whether there was an expectation that that position of Spassked as a dividend trap and a repository of losses should be discontinued.  The Full Court considers the evidence and in paragraph 104 on page 188 finds that:

the conclusion drawn by the learned Primary Judge and set out at [43] –

that should be [44] –

of these reasons that there was no agreed plan, mechanism or time frame according to which Spassked would begin to receive dividends . . . Hence and for the indefinite future while the structure remained, assessable income was not to be received in the form of dividends by Spassked (other than of an amount that, relatively, would be nominal) for the receipt of dividends would defeat the very structure which permitted Spassked, or so it was expected, to obtain an allowable deduction and thus transfer the losses it would accumulate for the benefit of companies in the IEL Group.

That is a critical finding, your Honours.  If I can then take your Honours to paragraph 110 ‑ ‑ ‑

KIRBY J:   Would we have to disturb that and set it aside for the applicant to succeed?

MR DAVIES:   Yes, your Honour.  In our submission, your Honours would, because it clearly flows from that finding that the interest expenses were not incurred in gaining assessable income or in a business conducted for the purpose of gaining assessable income.  If I can go to paragraph 110 on page 189, line 45:

The evidence of these two witnesses leads clearly to the conclusion that the interest incurred was not, in any year of income, incurred in gaining or producing assessable income, but rather that it was a part of the structure planned that in the foreseeable future Spassked would not, deliberately, derive assessable income.  Further, it leads to the conclusion that any plan to wind up the structure and thus bring about the result that thereafter Spassked would derive assessable income was only fleetingly considered, if at all.

It demonstrates, that far from being a case where interest was incurred on a loan to acquire shares which it was hoped would be dividend producing in the future (where the interest would be prima facie deductible), this was a case on its own facts, those being that interest was incurred on a loan to acquire shares where, in all the years of income in question and for the foreseeable future from the time the structure was established steps would be taken to ensure that the shares acquired would not produce anything but a nominal amount of assessable income.

Again, your Honours, a finding that the High Court would need to disagree with in order for the applicant to succeed. 

Then finally can I take your Honours to paragraph 113, where the Full Court was dealing with a submission that it had failed to take into account all the objective matters, the one predominantly being that this was a publicly listed company and Spassked had held shares in companies that produced profit and that one would have thought that, inevitably, dividends would be declared to it.  If I can take your Honours to line 30:

Far from it being wrong in law to have regard to the evidence to which reference has already been made that evidence makes it clear

that far from there being an ‘expectation’ or even hope that the shares in Spassked would be income producing the proposal was designed to ensure and its implementation did ensure that at no relevant time could it be said that Spassked incurred in the years of income interest on monies used by it to acquire shares in the course of any activity carried on by it in the course of gaining or producing assessable income.  Rather the occasion of each outgoing of interest was to be found in those shares deliberately being non income producing.

It is a most unusual case, your Honours, where there is a finding that the reason why the taxpayer in this particular case incurred the interest expense was because, deliberately and intentionally, it would not derive assessable income.  If that is the finding, which it was, then, in our submission, the necessary conclusion is that the amounts are not deductible.

Can I quickly take your Honours to page 221, paragraph 7 of our written submissions.  Your Honours will see in paragraph 7 that we have set out a number of the findings of fact made by the learned trial judge and given references which, in our submission, lead inevitably to the conclusion on the facts that the amounts are not deductible.

KIRBY J:   Yes, we have read those.

McHUGH J:   Yes, Mr Shaw.

MR SHAW:   If the Court pleases.  My learned friend referred to what appears at page 165 in some submissions made by him below which are set out by Justice Lindgren in his decision.  In our submission, what is said there is misleading unless it is realised that the income figures include the income of IEL, in other words, the other side of the deductions, and it does not take into account the Spassked deductions.

McHUGH J:   What do you say about the finding of the trial judge at page 86, paragraph 201.  He was satisfied:

that there was no agreed plan, mechanism or time frame, according to which Spassked would cease to be a dividend trap, cease to be a repository of losses, and begin to receive dividends ‑ ‑ ‑

MR SHAW:   Your Honour, we say that that is immaterial, as a matter of principle, if the fact of the matter was that because of where the profits of the group were situated, it was inevitable that at some time – although you could not say precisely when but likely very soon, as your Honours have been told happened in 1994, actually – the dividend trap would have to be removed because the profits of ‑ ‑ ‑

McHUGH J:   That was because of intervening events.

MR SHAW:   Your Honour, so it was, but what it demonstrates is that it is easy enough to bring it to an end.  What is more, the facts made it inevitable that it should be brought to an end, because so much of the profits of the group were in sub‑Spassked companies.  The dividends, either franked or unfranked, simply had to come up at some point, because the shareholders wanted them. 

The second thing we would observe is this, that if you look at what was said by the trial judge set out at page 167 in the Full Court judgment, in paragraph 23 of his Honour’s judgment, his Honour there says:

Spassked was the only shareholder in GIH entitled to unfranked dividends.  It follows that, unless GIH’s articles of associates were altered:

o   if there was an expectation or purpose that Spassked would cease to be a dividend trap and a repository of losses and that GIH would then pay unfranked dividends, there was an expectation or purpose that payment of them would be made to Spassked . . . 

But I am not satisfied that any such expectation, purpose or intention existed.

Then he places that on the error he made about how you can turn unfranked dividends into franked dividends.  So that his Honour’s conclusion that my learned friend relied on rests squarely on error.

We submit that it is not necessary at all to disturb the findings that my learned friend referred to in paragraphs 104, 110 and 111.  I say that because, as your Honours will recall, it was those very paragraphs I read out to your Honours when I opened my submissions and in which I said lay the error of principle.  My learned friend has asserted there is not an error of principle but, in our submission, we have clearly identified the fact that there is, because you do not need a definite time when the thing will come to an end.  All you have to be able to see is that, in the end, income will be produced, and “foreseeable” or “indefinite” or whatever is neither here nor there.

McHUGH J:   At most, that only means that there has been a wrong application of a principle.

MR SHAW:   No, your Honour, an invention of a new principle.

KIRBY J:   You say with very large consequences.

MR SHAW:   Yes, and it does involve very serious consequences.  So, in our submission, it is something that this Court could easily deal with and it should, because, from whatever point of view one looks at it, it is a very significant decision.  The consequence, I might add, includes not only consequences about the payment of tax but the imposition of penalties and various other things as well, so they are very serious consequences.  If the Court pleases.

McHUGH J:   This Court has said on more than one occasion that the Full Court of the Federal Court is ordinarily the tribunal for finally resolving issues concerning income tax questions.  This Court will not ordinarily grant special leave in a tax case unless the case raises some important issue of general principle that calls for the Court’s intervention.  Despite Mr Shaw’s attempts to argue that the case is one for the grant of special leave, we think that it only involves factual issues. 

Moreover, we see no reason to doubt the correctness of the Full Court’s finding in respect of those facts which were instrumental in it coming to the conclusion that there was no deduction available to the taxpayer within the meaning of section 51 of the Income Tax Assessment Act 1936 (Cth). Accordingly, the application for special leave to appeal is refused with costs.

AT 11.53 AM THE MATTERS WERE CONCLUDED