Trautwein v FCT

[1936] HCA 77

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taxing master's authority to disallow any costs which he may think H. C. OF unnecessary.

The appeal will be dismissed with costs.

McTIERNAN J. I agree.

Appeal dismissed with costs. Solicitors for the appellant, Bergin Papi &Finn. Solicitors for the respondent, C. R. Ellison &Co. falco v FCT

OF AUSTRALIA.] TRAUTWEIN

THE FEDERAL COMMISSIONER OF TAXATION RESPONDENT.

THE FEDERAL COMMISSIONER OF TAXATION

Ex PARTE TRAUTWEIN. Income Tax (Cth.)-Assessment-Amended assessment-Alterations or additions-

<< Imposing any fresh liability, or increasing any existing liability"-Right of taxpayer to object-Un maccounted-for accretion of assets over period of years-Alloca- tion by commissioner-Equal proportion to each year within that period-Validity -Burden of proof-Objections by taxpayer-Duty of commissioner-Income May 13, 14, Tax Assessment Act 1922-1934 (No. 37 of 1922-No. 18 of 1934), secs. 36, 37, 39, 50, 51A.

A taxpayer, who had not kept proper records or books of account, objected to assessments for Federal income tax made in respect of his income during each of seven consecutive years. His liability to tax was reviewed by the and

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commissioner in the light of a report by the taxpayer's accountants, which showed that as between the beginning and the end of the seven years period there had been a large unaccounted-for accretion of assets, which the commis- sioner regarded as of an income and not of a capital nature. The commis- sioner added a seventh part of the amount of this accretion to the assessable income of each of the seven years. The assessments were then amended. In six of the assessments the amount of assessable income was increased, and in one reduced. Three days later the commissioner notified the taxpayer that his objections to the previous assessments had been allowed to the extent shown in the amended assessments, and his attention was directed to his right of appeal. The taxpayer did not request that his objections be treated as appeals, but lodged objections against the amended assessments. Upon the disallowance of these objections he requested that they be treated as appeals. The taxpayer was unable to prove during what year or years the accretion was earned, or the precise amount of assessable income in each year, but it could not have been the case that in fact the annual increment in his wealth was throughout the seven years always equal in amount.

(1) The addition, in equal proportions, to the assessable income of each year within a period of years of income derived during that period but which could not be accurately apportioned did not render the assessments invalid.

(2) The burden was upon the taxpayer of establishing that the amount or some other particulars of each separate assessment were incorrect and that that incoreretness operated to his prejudice.

(3) A re-arrangement of an assessment as a whole upon an entirely new basis constitutes an alteration in or addition to the assessment as a whole, imposing a new or fresh liability within the meaning of the proviso to sec. 37 (1) of the Income Tax Assessment Act 1922-1934, against which a taxpayer may, upon a disallowance of his objections, appeal, and this is SO notwithstanding

Per Latham C.J. and Starke J. Merely to inform a taxpayer that he can discover from an amended assessment the extent to which his objections have been allowed is no performance of the duty cast upon the commissioner by sec. 50 (3), (4), of the Income Tax Assessment Act 1922-1934.

CASE STATED.

Trautwein v. Federal Commissioner of Taxation.-On appeals by Theodore Charles Trautwein from assessments for Federal income tax in respect to income received by him during the years ended 30th June 1921, 1922, 1923, 1924, 1926 and 1927 respectively, Evatt J. stated a case, which was substantially as follows, for the opinion of the Full Court

1. This case is stated in respect of matters arising upon the hearing of appeals in relation to assessments made by the commissioner in

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respect of the appellant's income for the years ended 30th June C. OF 1921, 1922, 1923, 1924, 1926 and 1927. The appellant made returns of income derived by him during the years ended 30th June 1921 to TRAUTWEIN 1927 inclusive showing the net income derived by him in those years to be nil, £2,508, £3,323, £2,133, £2,305, £2,576 and £4,604 respec- tively.

2. As regards the income derived during the year ended 30th June 1921 the commissioner caused a notice of an assessment to be given to the appellant on 22nd April 1930 based on a taxable income of £14,754. On 23rd November 1931 the commissioner caused a notice of amended assessment to be given to the appellant based on a tax- TRAUTWEIN. able income of £18,573.

3. As regards the income derived during the year ended 30th June 1922, on 9th May 1923 the commissioner caused a notice of assess- ment to be given to the appellant based on a taxable income of £2,485. On 22nd April 1930 the commissioner caused a notice of amended assessment to be given to the appellant based on a taxable income of £17,493. On 23rd November 1931 the commissioner caused a notice of a further amended assessment to be given to the appellant based on a taxable income of £23,134.

4. As regards the income derived during the year ended 30th June 1923, on 30th April 1924 the commissioner caused a notice of assess- ment to be given to the appellant based on a taxable income of £3, 478. On 27th August 1925 the commissioner caused a notice of amended assessment to be given to the appellant based on a taxable income of £6,301. On 3rd May 1927 the commissioner caused a notice of a further amended assessment to be given to the appellant based on a taxable income of £8,024. On 30th August 1927 the commis- sioner caused a notice of a further amended assessment to be given to the appellant based on a taxable income of £3,528. On 22nd April 1930 the commissioner caused a notice of a further amended assessment to be given to the appellant based on a taxable income of £20,129. On 23rd November 1931 the commissioner caused a notice of a further amended assessment to be given to the appel- lant based on a taxable income of £20,755.

5. As regards the year of income ended 30th June 1924 the commissioner, on 4th December 1925, caused a notice of assessment

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A. to be given to the appellant based on a taxable income of £4,000.

On 3rd May 1927 the commissioner caused a notice of amended assessment to be given to the appellant based on a taxable income of £2,193. On 30th August 1927 the commissioner caused a notice of a further amended assessment to be given to the appellant based on a taxable income of £2,133. On 22nd April 1930 the commissioner caused a notice of a further amended assessment to be given to the appellant based on a taxable income of £19,219. On 23rd November 1931 the commissioner caused a notice of a further amended assess- ment to be given to the appellant based on a taxable income of £24,464.

6. As regards the year of income ended 30th June 1925, on 12th March 1926 the commissioner caused a notice of assessment to be given to the appellant based on a taxable income of £5,093. On 3rd May 1927 the commissioner caused a notice of amended assess- ment to be given to the appellant based on a taxable income of £2,725. On 30th August 1927 the commissioner caused a notice of a further amended assessment to be given to the appellant based on a taxable income of £2,733. On 22nd April 1930 the commissioner caused a notice of a further amended assessment to be given to the appellant based on a taxable income of £38,601. On 23rd November 1931 the commissioner caused a notice of a further amended assess- ment to be given to the appellant based on a taxable income of £20,193.

7. As regards the year of income ended 30th June 1926, on 29th April 1927 the commissioner caused a notice of assessment to be given to the appellant based on a taxable income of £4,041. On 30th August 1927 the commissioner caused a notice of amended assessment to be given to the appellant based on a taxable income of £3,965. On 22nd April 1930 the commissioner caused a notice of a further amended assessment to be given to the appellant based on a taxable income of £21,848. On 23rd November 1931 the commissioner caused a notice of a further amended assessment to be given to the appellant based on a taxable income of £28,172.

8. As regards the year of income ended 30th June 1927, on 1st June 1928 the commissioner caused a notice of assessment to be given to the appellant based on a taxable income of £4,604. On

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23rd November 1931 the commissioner caused a notice of amended assessment to be given to the appellant based on a taxable income of £60,406. On 21st December 1934 the commissioner caused a notice of a further amended assessment to be given to the appellant based on a taxable income of £56,610.

9. [Stated that copies of each of the notices of assessment and of the adjustment sheets were annexed.]

10. After receipt of the notices given to him by the commissioner on 22nd April 1930 and particularized above, the appellant lodged notices of objection on or about 3rd June 1930. Except that ground 2 did not appear in the notice of objection lodged in respect of the year of income ended 30th June 1921, the grounds set forth in each of the notices were as follows:-(1) I am not liable for the balance of amended tax said to be due or any part thereof. (2) That the assessment is invalid for the reason that such assessment is an alteration or addition to an original assessment and all income tax payable in respect of the income included in such original assessment was duly paid, and the assessment the subject of this objection has been made after the expiration of three years from the date when the tax payable on the original assessment was originally due and payable and that there is no ground or material from which the commissioner has or had or could have had any reason to believe or upon which he can or could reasonably form or hold the opinion that there has been an avoidance of tax owing to fraud or evasion or attempted evasion, or that the avoidance (if any, which is denied) was otherwise than innocent or that such avoidance was due to fraud or evasion, and that any belief or opinion of the commissioner to the contrary is or was based upon grounds or material irrational and insufficient to support such belief or opinion. (3) That the assessment is excessive for the following reasons, that is to say :- (a) that the assessment includes as assessable income moneys received by me in connection with certain betting and alleged betting transactions and such moneys should not have been SO included: (b) that the assessment includes as assessable income capital moneys received by me in connection with sales and other transactions and such moneys are not liable to be SO included: (c) that if any capital moneys received by me in connection with

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the sales and transactions mentioned in par. (b) are liable to be

included in my assessable income, which I do not admit, then no proper deductions have been allowed in respect of outgoings, losses, expenses and liabilities incurred in relation thereto, and which I am by law entitled to deduct from such moneys: (d) that the assessment includes as assessable income certain moneys alleged to have been derived by me by way of royalty or bonuses and premiums, fines or foregifts, or consideration in the nature of premiums, fines or foregifts demanded and given in connection with leasehold estates, and if any such moneys were SO derived by me, which I do not admit, then the deductions to which I am entitled by law have not been allowed: (e) that the commissioner for the purposes of the assess- ment has apparently calculated my income upon the basis that I am liable to be assessed on moneys received on the disposal of freeholds, leaseholds and licensed premises, liability for which I do not admit, and I claim that if my income is to be calculated upon such basis, he has not allowed all the deductions in connection therewith to which I am entitled under the Act (f) that as the commissioner for the purposes of the assessment has apparently calculated my income upon the basis that I am liable to be assessed on moneys received on the disposal of freeholds, leaseholds, and licensed premises, liability for which I do not admit, and has assessed me in respect of the total sums payable in connection with such alleged transactions as being received in the year of income, the subject of the assessment, I claim that if my income is to be calculated upon such basis, then as the transactions connected therewith, or some of them, were on terms and the payments to me were spread over a number of years, the commissioner has wrongly included in my assessable income the whole of such payments as having been received during the year of income whereas part only of such receipts should have been SO included (g) that for the purposes of the assessment the commissioner has wrongly included certain capital assets representing certain shares and other investments and such capital assets have been incorrectly valued for the purpose of calculating my assessable income and have been wrongly included for such purpose. Such capital assets include the following pro- perties amongst others, that is to say (i) shares in Coogee Bay

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Hotel; the Empire Theatre Co.; and the Kensington Hotel Ltd.; H. (ii) property at Woodville; Parkgate Hotel: and in Barker Street, Kensington; (iii) mortgages re "Captain Cook," Rockdale, TRAUTWEIN Como, and Maroubra Hotels; (iv) live stock; motor car; jewellery; (v) Australian Bank of Commerce, rent account; (vi) interest in Kensington Hotel; (vii) trading stock-Belfield's Hotel; (viii) furniture-Belfield's Hotel; (ix) land at Kogarah; (x) mortgage-Taylor. (h) That if the capital assets referred to in par. (g) hereof are liable to be included in my assessable income, which I do not admit, then no proper deductions have been allowed in respect of outgoings, losses and expenses incurred in relation thereto and which I am by law entitled to deduct: (2) that for the purpose of calculating my assessable income the commissioner has included certain assets belonging to other parties and in respect of which I am not liable to be assessed whether as principal taxpayer or representative taxpayer or otherwise. Such assets include (inter alia) moneys relating to Belfield's Hotel, rents of properties adjoining Belfield's Hotel and land at Kogarah: (j) that if the assets referred to in par. (i) hereof are liable to be included in my assessable income, which I do not admit, then no proper deductions have been allowed in respect of outgoings, losses and expenses incurred in relation thereto and which I am by law entitled to deduct (k) that the commissioner has disallowed certain damages, losses and legal expenses incurred in connection with the income assessed which damages, losses and legal expenses I am entitled by law to deduct from my assessable income. Such damages, losses and legal expenses include (inter alia) those in reference to legal proceedings connected with Belfield's Hotel, and the formation of a company called "Belfield's Hotel Ltd." (4) That the assessment is based on an alleged increase of the amount and extent of my property between 30th June 1920 and 30th June 1927, and not upon income received by me and that such alleged increase has been calculated by the commissioner arbitrarily and upon improper values and without taking into consideration or making due allowance for losses, expenses, outgoings and liabilities which ought to be deducted in calculating the amount and extent of my property and that the commissioner in making such calculation has taken an incorrect,

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improper and inadequate sum as representing the amount and extent

of my property on the 30th June 1920, and has also taken an incorrect, improper and excessive sum as representing the amount and extent of my property on 30th June 1927. The following items (inter alia) have been incorrectly and improperly included in the calculation of the increase in the amount and extent of my property during the aforesaid period, that is to say: (i) furniture at Belfield's Hotel; (ii) certain live stock; (iii) the Maroubra Hotel; (iv) the Captain Cook Hotel: (v) shares in Empire Theatre (vi) land at Kogarah; (vii) property at Woodville; (viii) property in Barker Street, Kensington; (ix) Como Hotel; (x) mortgages and loans: (xi) motor car (xii) jewellery; (xiii) freehold land. The losses, expenses, outgoings and liabilities which have not been deducted as aforesaid include (inter alia) the following, that is to say :-(i) re Belfield's Hotel, £82,754; (ii) payments in connection with equity suit re Belfield's Hotel, £15,500 (iii) cost of two counsel, solicitors, &amp;., re Mrs. Trautwein and the formation of company, £2,000; (iv) moneys paid away for subsistence and expenditure, £7,000; (v) loss on sale of shares, £616; (vi) interest on Coogee Bay Hotel shares, £892 (vii) mortgage on Parkgate Hotel, £3,000; (viii) Woodville" (part of), £3,000. (5) That in making the assessment the commissioner has disallowed certain losses, outgoings and expenses which I am by law entitled to deduct from assessable income. Included therein are (inter alia) the following :- (i) Cost of running motor car used in connection with my business; (ii) depreciation of motor car used in connection with my business (iii) depreciation of plant, fittings, furniture, and the furnishings used in connection with the business conducted at Belfield's Hotel (iv) certain business expenses including purchases of trading stock. (6) That the assessment is irregular, erroneous, and not authorized by law.

11. These notices of objection were considered by the commis- sioner, who on 27th November 1931 forwarded a notice to the appellant. Omitting formal parts the notice was as follows: "Federal income tax Years ended 30th June 1921 to 30th June 1926 inclusive.-With reference to the objections lodged by you against your assessments for the years above-mentioned, I desire

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to inform you that the said objections have been fully considered and it has been decided to admit your claims to the extent indicated on the notices of amended assessment issued to you on 23rd instant. It is now competent for you to have the objections treated as appeals and, in this connection, your attention is invited to sec. 50, sub-sec. 4, of the Income Tax Assessment Act 1922-1928, which provides that a taxpayer who is dissatisfied with the decision of the commissioner, assistant commissioner or deputy commissioner, may within thirty days after the service by post of notice of that decision-(a) in writing, request the commissioner to refer the decision to a board of review for review or (b) in writing, request the commissioner to treat his objection as an appeal, and to forward it either to the High Court or the Supreme Court of a State. If you elect to have the objections referred to the board of review, your written request must be accompanied by a deposit of £50 in respect of each objection."

12. As regards each amended assessment, notice of which was given on 23rd November 1931 in respect of each of the above years, the appellant lodged notice of objection on 21st December 1931. The grounds set forth in those notices of objection were, in respect of each of the above years, as follows :- (1) I am not liable for the tax or any part thereof. (2) I am not liable for the additional taxes for omitted income or any part thereof. (3) The assessment is excessive for the following reasons, that is to say-(a) the amount of taxable income is in excess of the taxable income derived by me during the year in question as disclosed by the approximate general profit and loss account for the year as prepared by Messrs. Smith, Johnson &amp;Co. dated 24th June 1930 (b) the commissioner is not entitled to assume that the accretion to capital as disclosed by the statements of affairs prepared by Messrs. Smith, Johnson &amp;Co. as at 30th June 1920 and 30th June 1927 represents assessable income derived by me, or to attribute any part of such increase not specifi- cally identified as income derived during the year ended 30th June 1921. Alternatively, if the method adopted is a proper method -which I do not admit-to determine my assessable income for the year in question, then the adjustments made in the amount of capital as at 30th June 1927 and as at 30th June 1920 are incorrect either wholly or in part, and should not have been made. In

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particular, each addition to the capital as at 30th June 1927 is objected to and claimed to have been incorrectly made, and similarly each deduction from the capital as at 30th June 1920 is objected to and claimed to have been incorrectly made. Moreover, the additions made to the net increase in capital on account of expenditure which would not be deductible for income tax purposes, living expenses and other expenses, have been incorrectly made. The amount of £15,500 paid to Messrs. Laurence &amp;Laurence in respect of a transac- tion in property should not have been added, neither should the

TAXATION;

estimated legal expenses, namely, £2,000, in connection with such TRAUTWEIN. transaction. The amount of £7,000 representing the estimated

living expenses is excessive and should be omitted from the calcula- tion. From the result SO arrived at there must be excluded the amounts derived by me from betting, and all other amounts which do not represent income derived from my business or from property. (4) In making the further amended assessment the commissioner has not allowed all the losses, outgoings and expenses and other deduc- tions to which I am by law entitled, and in particular has failed to allow any deduction in respect of depreciation of plant, fittings, furniture, furnishings, machinery &amp;., used in connection with my business."

Additional grounds taken in respect of the several years were as follows :-

A. As regards the years ended 30th June 1921, 1923, 1924 and 1925 "The penalty included in the notice of further amended assessment in respect of omitted income has not been incurred, or alternatively has only been partly incurred, and is excessive having regard to all the circumstances of the case."

B. As regards the years ended 30th June 1921, 1922, 1923, 1924, 1925 and 1926: "I also object to the further amended assessment dated 23rd November 1931 on each and every ground of objection taken to the previous amended assessment in SO far as such objections have not been allowed in the further amended assessment and still have application."

C. As regards the year ended 30th June 1921: In view of the second proviso to sec. 2 of the Income Tax Assessment Act 1922-1930 the commissioner is not entitled to make the further amended

56 CLR 73

assessment in question, as he had no reason to believe that there had been an avoidance of tax owing to fraud or attempted evasion. If the commissioner had any reason to SO believe, his right to amend the assessment terminated upon the issue of the amended assessment dated 22nd April 1930, and he is not entitled to again amend that assessment as purported by the notice of a further amended assessment dated 23rd November 1931."

D. As regards the years ended 30th June 1922, 1923, 1924, 1925 and 1926: In view of the second proviso of sub-sec. 1 of the Income Tax Assessment Act 1922, the commissioner is not entitled to make the further amended assessment dated 23rd November 1931, as, having previously amended the assessment in pursuance of an alleged opinion that there had been an avoidance of tax, and that the avoidance was due to fraud or evasion, such amended assessment cannot be increased as the commissioner has had no additional information other than that supplied by me or my accountants, and in any case such information does not disclose any assessable income which was not either previously included in the assessment, or disclosed to the commissioner."

E. As regards the years ended 30th June 1922 and 1926: "The penalty charged in the amended assessment in respect of omitted income was not incurred, and is incorrectly charged, or alternatively is excessive SO far as concerns the amount attributable to the inclusion in the assessment of profits derived from sales of property. If I am liable to assessment in respect of such profits (which I do not admit) then the liability only arises by reason of the amendment of the Income Tax Assessment Act 1922-1930 by Act No. 50 of 1930 whereby par. ba of the definition of income was inserted in the Income Tax Assessment Act and made retrospective. As my return was lodged prior to the retrospective enactment, I am not liable to any penalty in respect of the alleged omission of the profits in ques- tion. I am not liable to assessment in respect of the profits made on sales of property, or alternatively, if I am SO liable, then my liability is only in respect of the amount of profit on the transac- tions which was received during the year of income, and the profit attributable to that part of the consideration which was not received during the year of income must be excluded from the assessment.' "

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F. As regards the year ended 30th June 1925: The amount of £17,500 representing amount paid to Laurence &amp;Laurence in connection with Belfield's £15,500, and legal expenses (estimated) regarding Belfield's £2,000, has been incorrectly disallowed as a deduction in arriving at my assessable income for the year in question. If I am liable to assessment in respect of the profits on sales of property, leases, &amp;., then I am entitled to deduct the expenditure of £17,500 referred to from my assessable income for the year ended 30th June 1925."

G. As regards the year ended 30th June 1927: (1) The assess- TRAUTWEIN. ment is invalid for the reason that such assessment is an alteration

or addition to an original assessment, and all income tax payable in respect of the income included in such original assessment was duly paid and the assessment the subject of this objection has been made after the expiration of three years from the date when the tax payable in the said original assessment was originally due and payable, and that there is no ground or material from which the commissioner has or had or could have had any reason to believe, or upon which he can or could reasonably form or hold the opinion that there has been an avoidance of tax owing to fraud or evasion or attempted evasion, or that the avoidance (if any, which is denied) was other- wise than innocent, or that such avoidance was due to fraud or evasion, and that any belief or opinion of the commissioner to the contrary is or was based upon grounds or material irrational and insufficient to support such belief or opinion. Furthermore, as such amended assessment has been made under the provisions of the Income Tax Assessment Act 1922-1927, it is governed by the pro- visions of sec. 37 of that Act prior to the amendment made by sec. 19 of the Income Tax Assessment Act 1930. (2) I am not liable to assessment in respect of the profits made on sales of freeholds, leaseholds and licensed premises or other property. (3) As the commissioner for the purposes of the assessment has apparently calculated my income on the basis that I am liable to be assessed on moneys received on the disposal of freeholds, leaseholds and licensed premises (liability for which I do not admit) and has assessed me in respect of the total sums payable in connection with such alleged transactions as being received in the year of income the

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subject of the assessment, I claim that if my income is to be calculated upon such basis, then as the transactions connected therewith, or some of them, were on terms, or were such that the full consideration was not received during the year of income, the commissioner has wrongly included in my assessable income the whole of such payments as having been received during the year of income, whereas part only of such receipts should have been SO included. (4) The penalty charged in the amended assessment in respect of omitted income has not been incurred, and is incorrectly charged, or alternatively is excessive so far as concerns the amount attributable to the inclusion in the assessment of profits derived from sales of property. Such TRAUTWEIN. sales of property, although omitted from my return, were advised to the department by my accountants. They were omitted on the ground that I was not liable to assessment in respect thereof. If I am liable to assessment in respect of such profits (which I do not admit) then the liability only arises by reason of the amendment of the Income Tax Assessment Act 1922-1930 by Act No. 50 of 1930 whereby par. (ba) of the definition of income was inserted in the Income Tax Assessment Act and made retrospective. As my return was lodged prior to the retrospective enactment I am not liable to any penalty in respect of the alleged omission of the profits in question. (5) The penalty included in the notice of amended assessment in respect of omitted income has not been incurred, or alternatively has only been partly incurred, and is excessive having regard to all the circumstances of the case. (6) I also object to the amended assessment dated 23rd November 1931 on each and every ground of objection taken to the amended assessments for the years ended 30th June 1921 to 1926 inclusive dated 22nd April 1930 and set forth in the notices of objection to such amended assessments dated 3rd June 1930, so far as such objections have application to the amended assessment now made for the year ended 30th June 1927."

13. The appellant did not within thirty days after the receipt of the notice referred to in par. 11 hereof in writing request the commis- sioner to treat his objections mentioned in par. 10 hereof as appeals and to forward the same to a court.

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14. The commissioner considered the objections referred to in par. 12 hereof and on 15th August 1935 sent to the appellant notices. In the notice in respect of each year except the year ended 30th June 1925, the commissioner informed the appellant that the objection had been fully considered and had been disallowed and that " it is now competent for you to have the objection SO far as it relates to alterations or additions, which have the effect of imposing a fresh liability or increasing an existing liability, treated as an appeal." Attention was invited to the sections of the Income Tax Assessment Act which provide that a taxpayer who is dissatisfied with the TRAUTWEIN. decision of the commissioner may within the prescribed time and

in the prescribed manner request that the objection be treated as an appeal and referred to the court. As regards the year ended 30th June 1925, the commissioner informed the appellant that " no notice of objection lies against the assessment therein referred to, it being a reduced amount."

15. The appellant thereupon, within the prescribed time, wrote to the commissioner requesting him to treat the objections referred to in par. 12 hereof relating to the income derived during the years ended 30th June 1921 to 1926 inclusive as appeals and to forward the same to the High Court of Australia, together with an additional ground of objection, in respect of each of those years, that the penalty included in the assessment was invalid and contrary to law and the commissioner had no power to impose same.

16. As regards the amended assessment, notice of which was given on 21st December 1934 in respect to the income derived during the year ended 30th June 1927, the commissioner on 21st December 1934 sent to the appellant a notice similar in terms to the notices for the years other than 1925, shown in par. 14 hereof, and thereupon the appellant within the prescribed time wrote to the commissioner requesting him to treat the objection lodged by him on 21st December 1931 in respect to the said year as an appeal and to forward the same to the court.

17. The commissioner forwarded to the court as appeals, together with all relevant papers, the objections relating to the income derived during the years ended 30th June 1921, 1922, 1923, 1924, 1926 and 1927 which objections are set out in six notices all dated

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21st December 1931. In the accompanying letter the commissioner stated, inter alia, that except as to the last year, the objections were transmitted as appeals SO far only as those objections related to altera- tions or additions which had the effect of imposing a fresh liability or increasing an existing liability upon the taxpayer beyond the liability imposed by the commissioner's earlier assessments made on 22nd April 1930, in accordance with the terms of the proviso to sec. 37 (1) of the Income Tax Assessment Act 1922-1934. The com- missioner did not forward to the court as an appeal the objection relating to the income derived by the appellant during the year ended 30th June 1925.

18. The appellant contends that he is entitled to have the objec- tions set out in the seven notices of objection dated 21st December 1931 considered by the court, and that his right of appeal also exists in respect of the year 1925.

19. The commissioner contends that the appellant had no right of appeal in respect of the income derived during the year ended 30th June 1925.

20. The commissioner further contends that as regards the income derived during the years 1921, 1922, 1923, 1924, and 1926 the appellant's right of appeal is limited to the amount only of the respective excess of the income mentioned in the notices of amended assessment dated 23rd November 1931 over the amount of the income mentioned in the notices of assessment or amended assess- ment dated 22nd April 1930, and that, as regards the income derived during the year 1927, the right of appeal is limited to the amount only of the excess of the amount of income notified on 23rd November 1931 over the amount of income notified on 1st June 1928.

21. After the issue of the series of assessments notified to the appellant in April 1930 the commissioner expressed his willingness to reconsider the question of the appellant's liability in respect of the years 1921 to 1927 inclusive after receipt of a report made by Messrs. Smith, Johnson &amp;Co., accountants, who were investigating the affairs of the appellant. That firm made a report and the figures and details therein were taken by the commissioner as a basis for the amended assessments of November 1931.

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22. In taking such report as a basis, 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. 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.

23. 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 income years 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 informa- tion and answers to requests furnished to him by the appellant.

24. 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 accretion representing 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 in each of the seven assessments under the method adopted by the commis- sioner is in fact incorrect and one or more must necessarily be

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excessive but the appellant has failed to establish affirmatively what is the precise amount of taxable income in each year.

25. The method of allocation adopted by the commissioner affects, TRAUTWEIN inter alia, (a) the amount of taxable income assessed for the year 1925, and (b) the rate and amount of tax chargeable in respect of each part of the total taxable income for each of the years 1921 to 1927 inclusive.

The following questions were reserved for the opinion of the Full Court :-

1. As regards the income derived during the years 1921, 1922,

1923, 1924 and 1926, has the appellant the right of appeal in respect of the amount of income mentioned in the notice of amended assessment given on 23rd November 1931, or is such right limited to the amount whereby the amount of income mentioned in such notice exceeds the amount of income mentioned in the notice of assessment or amended assessment given on 22nd April 1930 ? 2. As regards the income derived during the year 1927, has the

appellant the right of appeal in respect of the amount of income mentioned in the notice of amended assessment given on the 23rd November 1931, or is such right limited to the amount whereby the amount of income mentioned in such notice exceeds the amount of income mentioned in the notice of assessment or amended assessment given on 1st June 1928 ? 3. As regards the income derived during the year ended 30th

June 1925 is the appellant entitled to have his notice of objection dated 21st December 1931 treated as an appeal and forwarded to this court, and, if so, must the whole of such objection be determined ? 4. In view of the facts stated in pars. 21 to 25 of this case,

should any, and if SO which, of the assessments under appeal be deemed invalid (a) SO far as they include the amounts allocated to each of the seven years 1921 to 1927 under the procedure or allocation adopted by the commissioner or (b) in toto, or (c) in any respect ?

56 CLR 80

Mason K.C. (with him McKell and Gain), for the appellant. The appellant's right of appeal is not limited to the amount by which the income shown in the assessments of November 1931 exceeds the income shown in the assessments of April 1930. He is entitled to appeal in respect of the whole of the income shown in the assess- ments of November 1931. This point was decided by Macfarlan J. in W. Angliss &amp;Co. Pty. Ltd. v. Federal Commissioner of Taxation 1, and was not challenged on the appeal before this court in Federal Commissioner of Taxation v. W. Angliss &amp;Co. Pty. Ltd. 2. An examination of the dealings between the appellant and the TRAUTWEIN. commissioner shows that these assessments entirely took the place

of the immediately preceding assessments and were substituted for them (Federal Commissioner of Taxation v. Hoffnung &amp;Co. Ltd. 3 ). The words "admit your claims" in the commissioner's letter dated 27th November 1931 cannot be given any other inter- pretation. Under the Income Tax Assessment Act there cannot be in respect of any one income year more than one assessment in existence at the one time in respect of the same taxpayer. The commissioner did not by his letter of 27th November 1931 discharge the duty, imposed upon him by sec. 50 (2), (3) of the Act, of disallow- ing or allowing, either wholly or in part, objections made by the appellant. He did not indicate therein whether he had allowed or disallowed the objections and to what extent (Federal Commissioner of Taxation v. W. Angliss &amp;Co. Pty. Ltd. 4 ). There is a difference between original assessments and amended assessments (Penrose V. Federal Commissioner of Taxation 5 ). A tentative assessment is not really an assessment and can be withdrawn. The withdrawal of an assessment after objections have been made is tantamount to allowing those objections. The assessments of November 1931 do not indicate what has been allowed or disallowed. Where the commissioner has made an amendment to an original assessment and has received objections to the amendment he must, under the Act, deal with those objections and inform the taxpayer whether he allows or disallows them (W. &amp;A. McArthur Ltd. v. Federal Commis- sioner of Taxation 6 ). The issue by the commissioner of

1(1931) V.L.R. 107, at p. 122. 2(1931) 46 C.L.R. 417. 3(1928) 42 C.L.R. 39, at pp. 45, 46. 4(1931) 46 C.L.R., at p. 436. 5(1931) 45 C.L.R. 263. 6(1930) 45 C.L.R. 1, at pp. 9, 10, 21. 56 CLR 81

fresh assessment, following upon the receipt by him of objections, is an allowance by him of those objections. If the objections are allowed in toto, to that extent there is an annihilation of the amend- ment. Although a taxpayer may have omitted to take objections in respect of an increased liability imposed by an intermediate amended assessment, he is entitled to object if that increased liability is repeated in the final assessment (W. Angliss &amp;Co. Pty. Ltd. V. Federal Commissioner of Taxation 1 ). The issue of a later assess- ment wipes out or cancels an intermediate assessment. The taxpayer has a full right to object to the later assessment. A tax- payer is unable to appeal unless and until he is informed of the commissioner's decision upon his objections. For the liability shown in the original assessment the commissioner has substituted a new liability, not a fresh liability, within the meaning of the proviso to sec. 37. From that new liability the appellant has an independent appeal. As regards all years, including 1925, by reason of what happened in the commissioner's office, all the penultimate amended assessments were superseded, and therefore an appeal lies with regard to the ultimate assessments without any restriction. Under secs. 13, 32 and 35 of the Act it is the duty of the commissioner to ascer- tain the taxable income derived by a taxpayer in a particular year. The method adopted here by the commissioner of apportioning unexplained moneys over a period of years operates unfairly against the taxpayer. That procedure is not sanctioned by the Act, and renders the assessments invalid. The principle is bad because it enables the commissioner, by selecting a long or a short period, always to produce results adverse to the taxpayer. Powers conferred upon the commissioner by secs. 35 and 36 are exercisable only prior to the original assessment. Although under sec. 36 some latitude is allowed to the commissioner, under sec. 35 he has no discretion upon what income tax is to be levied. It must be levied upon the taxable income for the particular year. Once made, an assessment can only be amended in accordance with the provisions of sec. 37 and within the limits of time therein imposed, the obvious intention being that for the protection of the taxpayer there must be some finality. Amendments SO made are restricted to those which

1(1931) V.L.R. 107. 56 CLR 82

ensure completeness and accuracy" " in the original assessments.

To amend by adding a sum arbitrarily ascertained necessarily results in inaccuracy, and therefore such an amendment is bad and invalidates the assessment. Unless the commissioner is able to state with accuracy the taxable income for a particular year, he is not in a position to make an assessment for that year. Each year must be taken on its own basis irrespective of the amount of trouble and labour involved, and whether one method would be more convenient to the commissioner than another. The judge of first instance has found as a fact that the amount of taxable income TRAUTWEIN. contained in each of the seven assessments is incorrect, and that

one or more must necessarily be excessive; therefore those assessments should be set aside, and the matter referred back to the commissioner for amendment. The amended assessments do not purport to have been made under sec. 36. If those assessments are within, and were made under, that section, and are shown by the taxpayer to be excessive, the court may, under sec. 51A, make such order as is just in the circumstances. If the court is unable to say by how much the assessments are excessive the commissioner should make fresh assessments. A duty is cast upon the commissioner to act reason- ably, not arbitrarily.

Lamb K.C. and Alroy Cohen, for the respondent. Lamb K.C. Although he found that the taxable income shown in the amended assessments was excessive in respect of one or other of the seven years, the judge of first instance was unable, on the material before him, to find that it was excessive in respect of any particular year or years. Under sec. 39 the onus is upon the taxpayer to prove that the amount of taxable income shown in an assessment is not correct (Stone v. Federal Commissioner of Taxation 1; Jones V. Commissioner of Taxation 2 ). Information to this end is peculiarly within the knowledge of the taxpayer. The commissioner has, under secs. 35 and 36, an absolute right to make an assessment on information he has obtained. He is not bound to show that the

1(1918) 25 C.L.R. 389, at p. 392. 2(1932) 2 A.T.D. 16. [Noted, 6 A.L.J. 201.] 56 CLR 83

amount of taxable income determined upon is the precise amount for the particular year. The powers conferred by those sections are exercisable by the commissioner at any time, whether before or after the original assessment (Stone v. Federal Commissioner of Taxation 1 ). An instance of an arbitrary assessment made by the commissioner was before the court in Union Steamship Co. of New Zealand Ltd. v. Federal Commissioner of Taxation 2. See also Wall v. Cooper 3 ). The court will take into consideration the fact that the procedure followed by the commissioner in this case has been for many years the departmental practice. The appellant has TAXATION at no time made any suggestion as to how, nor has he produced information or material to show how, the excess income should be apportioned or allocated to the several years. In the circumstances the commissioner, in making the assessments, was entitled to adopt an average for the purpose of attaining completeness and accuracy." Random assessments based on averages were issued by the commis- sioner at the implied invitation of the appellant as expressed in the report submitted by his accountants. He is precluded by the provisions of sec. 38 from challenging the validity of the assessments. Regard should be had to the provisions of secs. 35 to 39 inclusive. In view of those provisions the appellant is not entitled to say that the taxable income shown for any particular year is not correct because it was ascertained by striking an average. The onus was upon the appellant to prove that in any particular year or years an excessive amount of taxable income was shown, and the extent of that excess; he has not done so, and therefore the assessments should be upheld (Macpherson &amp;Co. v. Moore 4 ).

The judge of first instance has not found that as regards any year the evidence showed that the amount was excessive. The assessments were made by the commissioner in a proper manner. If an assessment set aside merely because it is arbitrary or random, then the provisions of sec. 37 are of no value. An assessment must be accepted as correct until the contrary is proved (Stone v. Federal Commissioner of Taxation 5; T. Haythornthwaite &amp;Sons Ltd. v. Kelly 6; Halsbury's Laws of England, 2nd ed., vol. 17, p. 355, par. 726). The procedure

1(1918) 25 C.L.R. 389. 2(1920) 29 C.L.R. 84. 3(1929) 14 Tax Cas. 552. 4(1912) 6 Tax Cas. 107, at p. 114. 5(1918) 25 C.L.R., at pp. 392, 393. 6(1927) 11 Tax Cas. 675, at p. 671. 56 CLR 8456 CLR 85

third question does not arise, or, alternatively, it should be answered that there is no appeal except in respect of the excess. A taxpayer has no right to object unless an amending assessment imposes a TRAUTWEIN fresh liability or increases an existing liability (R. v. Deputy Federal Commissioner of Taxation (S.A.); Ex parte Hooper 1; Williams, Kent &amp;Co. v. Federal Commissioner of Taxation 2 ), so in any event an appeal does not lie in respect of the amended assessment for the year ended 30th June 1925. Each of these appeals is entirely separate from the others. Sec. 38 provides a complete answer to the contention that the further amended assessments are invalid. The commissioner may at any time call in aid secs. 35 to 39 inclusive, or any other section of the Act, to meet a particular case, or to justify any action taken by him (Stone's Case 3 Attorney-General v. Till 4 ). The fact that the commissioner decided upon a figure which happened to be wrong is immaterial.

Mason K.C., in reply. The commissioner did not by his letter of November 1931, discharge the duty put upon him by the proviso to sec. 37 (1) of the Act of notifying to the appellant the alterations and additions which had the effect of imposing a fresh liability, or increasing an existing liability (In re London and General Bank [No. 2] 5 ). On the question of onus the governing section is sec. 39, not sec. 36.

Cur. adv. vult. MANDAMUS.

The King v. Federal Commissioner of Taxation; Ex parte Traut- wein.-Trautwein applied upon motion for a writ of mandamus to compel the Federal Commissioner of Taxation to treat the objection lodged by Trautwein on 21st December 1931, in respect of the amended assessment for the income year ended 30th June 1925, as an appeal and to forward it to the court. The material facts are sufficiently set forth above. Evatt J. granted an order nisi return- able before the Full Court.

1(1926) 37 C.L.R. 368. 2(1926) 38 C.L.R. 256. 3(1918) 25 C.L.R. 389. 4(1910) A.C. 50, at p. 53. 5(1895) 2 Ch. 673, at p. 684. 56 CLR 86

Mason K.C., McKell and Gain, for the applicant. Lamb K.C. (with him Alroy Cohen), for the respondent. The commissioner is prepared to apply to this matter the principle of the decision to be arrived at by the court in the appeals just argued.

Mason K.C. In view of that intimation perhaps this application should be stood over generally to enable the commissioner to give effect to his proposal.

Cur. adv. vult. The following written judgments were delivered :-

LATHAM C.J. 1. This is a case stated in appeals against assess- ments to income tax for the years ending 30th June 1921, 1922, 1923, 1924, 1926 and 1927.

The first two questions require a decision as to whether the appellant is entitled to appeal in respect of the amount of income mentioned in the amended assessments against which the appeals are made, or whether his right is limited to the amount whereby the amount of income mentioned in the notices of the assessments appealed against exceeds the amount mentioned in the last preceding notices of amended assessments. In the case of all the years men- tioned, the amounts of income upon which tax is assessed in the latest assessments are greater than the amounts upon which tax had been assessed in the last preceding amending assessments. The case stated sets out the several assessments which had been made in respect of the years mentioned, i.e., all years from 1921 to 1927 except 1925, as to which another question arises. The latest amendments were made as a result of the consideration by the commissioner of reports made and accounts prepared by Smith, Johnson &amp;Co., a firm of accountants employed by the taxpayer. Pars. 22 and 23 of the case show the course adopted by the commis- sioner and par. 24 shows that a precise allocation of income to the years in question is not possible. It is not necessary to restate these paragraphs in detail. They, and other facts stated, show that the taxpayer, having kept no proper record or books of account, has not provided information which enabled the commissioner to

56 CLR 87

attribute to any particular year certain of the gains which he has made during the seven years 1921 to 1927 inclusive. The commis- sioner has divided these gains (amounting to £112,354) equally TRAUTWEIN between these seven years. The result is that the alleged taxable income is increased for each of the seven years, except 1925-for which year it is reduced.

2. Sec. 39 of the Income Tax Assessment Act 1922-1934 provides (inter alia) that the production of any notice or copy notice of assessment under the hand of the commissioner shall be conclusive evidence that the assessment has been duly made and that the amount and all the particulars of the assessment are correct, except in proceedings on appeal against the assessment, when it shall be prima facie evidence only. Isaacs J. said in Moreau V. Federal Commissioner of Taxation 1 that sec. 39 "throws the burden on the appellant to establish his right to the benefit he claims." This statement, if strictly construed, means that the taxpayer appellant does not rebut the presumption created by sec. 39 merely by showing that there is an error in it-and thereby " creating a blank "-he must go further and show either that there ought to be a "blank " .....a complete omission of the item in question -or that something else should be substituted for that item. The circumstance that the facts are (or were) peculiarly within the knowledge of one party is a relevant matter in considering the sufficiency of evidence to discharge a burden of proof. (See cases cited by Isaacs J. in Williamson v. Ah On 2.) Obviously the facts in relation to his income are facts peculiarly within the knowledge of the taxpayer.

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 extênt, 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.

1(1926) 39 C.L.R. 65, at p. 70. 2(1926) 39 C.L.R. 95, at pp. 113-115. 56 CLR 88

The application of sec. 39 is not, in my opinion, excluded as soon as it is shown that an element in the assessment is a guess 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 assess- ment and remit it to the commissioner for further consideration.

It is not necessary, however, in the view which I take of the facts in this case, to consider whether or not the statement which I have quoted from Moreau's Case 1, 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 commissioner for determination of the facts in accordance with that principle where that course is convenient.

3. Before applying sec. 39 to the facts stated in the case, it will be desirable to consider secs. 36 and 37, which must be interpreted before questions 1 and 2 can be fully answered. The facts stated are not stated as being the whole of the facts, and it is necessary to go further in order to answer the precise question whether the objections made can be relied upon as to the whole amount stated in each last amended assessment or only as to the excess of that amount over some preceding amended assessment. Apart altogether from the question of the distribution in equal parts over the seven years of the lump sum of income mentioned, the taxpayer may be able to show that the commissioner has overstated some receipt, or that he has understated some deduction. Upon the assumption that the evidence adduced to establish such a fact falls within the

1(1926) 39 C.L.R., at p. 70. 56 CLR 89

scope of the objections made (to which the taxpayer is limited by sec. 51A of the Act 1922-1934), can the taxpayer use such evidence

SO as to apply it to more than the excess income mentioned ? I shall first consider the provisions of sec. 36.

Sec. 36 is in the following terms:

If-(a) any person makes default in furnishing any return; or (b) the commissioner is not satisfied with the return made by any person or (c) the commissioner has reason to believe that any person (though he may not have furnished any return) is a taxpayer, the commissioner may cause an assessment to be made of the amount upon which, in his judgment, income tax ought to be levied, and the person assessed shall be liable to income tax thereon, excepting

SO far as he establishes on objection that the assessment is excessive."

If the assessment in question was made under sec. 36, then the taxpayer is liable to pay the tax as assessed " excepting SO far as he establishes on objection that the assessment is excessive." Sec. 36 enables the commissioner to make what have been called arbitrary or random assessments in the cases mentioned in the section. In such cases the onus placed upon the taxpayer, it is said, is heavier than that imposed upon him under sec. 39-that under sec. 36 he can succeed only to the extent to which he proves positively that the assessed income exceeds the real income, while under sec. 39 it may be enough to prove some prejudicial error or excess. It must be remembered, however, that, as the taxpayer is the appellant, he is always bound by the particulars of the assessment excepting SO far as he is able to displace them by evidence. Further, as the evidence of a taxpayer on an appeal is always directed towards a reduction of the tax, it may be questioned whether the onus imposed by sec. 36 is really any heavier than that imposed by sec. 39. As, in my opinion, for reasons which I shall state later, the taxpayer has not, on the facts as stated, shown any error or excess in the assess- ment for any year, it is not necessary for the purposes of this judgment to determine whether sec. 39 should be interpreted as in effect imposing the same onus on the appellant as sec. 36. It must be determined, however, whether sec. 36 applies to the amended assessments which are the subject of appeal.

56 CLR 90

It is urged on behalf of the taxpayer that sec. 36 is applicable only to a first assessment and not to an amended assessment, and that therefore the section does not apply to this case, because all the assessments now under consideration are amended assessments. This argument is based upon the fact that sec. 37, dealing with alterations in and additions to assessments, carefully imposes time limits upon the power of amendment of assessments. It is urged that if sec. 36, which is subject to no time limit, were applied SO as to enable the commissioner to issue an amended assessment at any time, the result would be to make the time limitation in sec. 37 TRAUTWEIN. quite ineffective and nugatory. In my opinion there is an answer

C.J. to this argument. Full effect can be given to both sec. 36 and

sec. 37 by reading them together. The result of reading them together is that the commissioner may act at any time under sec. 36 in the cases mentioned in that section except that where the assess- ment which he issues under sec. 36 is an assessment which makes alterations in or additions to any existing assessment, he is subject to the time limits imposed by sec. 37 (1A). The result of this construction is that sec. 36 is not limited to first assessments, but that it may also be applied to amended assessments which are duly made under sec. 37, and that, SO construed, it does not authorize the commissioner to disregard the time limits provided by sec. 37.

It may be added that the commissioner can act under sec. 36 when a person has made default in furnishing any return or when the commissioner is not satisfied with a return made. Sec. 33 enables the commissioner to require a return or further or fuller return at any time, and sub-sec. 2 of sec. 33 provides that all the provisions of the Act shall extend and apply to such returns, and that assessments may be made upon them in such manner as the commissioner considers necessary. Plainly sec. 33 can be applied after assessment, and it appears to me that sec. 36 is applicable, by reason of its own terms, reinforced by sec. 33 (2), SO as to enable the commissioner to make an amended assessment thereunder, but subject, as I have already said, to the time limitations imposed by sec. 37 (1A) in cases when they are applicable.

56 CLR 110

in respect of the amount of income mentioned in the notice of

amended assessment and that the right is not limited to the amount by which the taxable income fixed in the later notice exceeds the taxable income fixed in the earlier.

In cases such as the fifth year illustrates it would be more con- venient if the commissioner adopted a practice of complying with the taxpayer's request to forward the objections to the court, notwithstanding that the commissioner considers no appeal lies. His contention that an appeal cannot be entertained would not be

TAXATION;

prejudiced by his doing SO and he could, in forwarding the objections, TRAUTWEIN. notify the registrar and the taxpayer that he had given his decision

and forwarded the objection subject to and under the cover of an objection on his part that the alteration or addition was not subject to objection and appeal by the taxpayer. It may be true that under secs. 50 (4) and 51A (1) an absolute duty is not imposed on the commissioner to forward the objection if the objection is one which does not in truth lie and he has treated it as incompetent. It is not necessary for us to decide the point, for the commissioner has said that he will forward the objection if it appears to the court that the amended assessment was open to appeal.

We would not answer the third question which relates to the fifth year and we would allow the mandamus to stand over to be disposed of by the learned judge hearing the appeals.

This conclusion would give importance to the question whether, in the state of proof, the assessment of any year should be disturbed on the ground that included in the taxable income is an equal seventh part of the estimated growth in the taxpayer's wealth over the septennial period. The taxpayer contended that sec. 36 applied only to original assessments, and, accordingly, in making what may be termed a conjectural estimate of each year's income as the foundation of an alteration in an existing assessment, the commis- sioner exceeded his powers. The alteration, it was said, must therefore be set aside. It is not easy to see how this would help the taxpayer, who would be faced with the prior amended assessments and would be exposed to a fresh exercise, of the commissioner's power to amend them. It is true that sec. 36 is in terms confined to the original assessments. In this respect it resembles secs. 35, 38

56 CLR 111

and 40. But we think sec. 37 implies that, in exercising the power it confers, the commissioner may rely on the powers with which he is armed for the purpose of making original assessments. But, whether that be SO or not, we see no reason why any estimate he may make bona fide of the taxpayer's income for the purpose of assessing it as completely and accurately as he reasonably can should be considered an improper basis for an alteration or addition under sec. 37. 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 that it should be reduced by some ascertained amount. If sec. 36 provides machinery which 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, excepting

SO far as he establishes on objection that the assessment is excessive. But in any case the Act throws upon the taxpayer the burden of objecting to and appealing against an assessment or an amendment (secs. 50 and 51A). The burden lies upon him in the judicial proceed- ings which he is thus required to take of establishing that the assess- ment 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 of law or fact affecting the particular assessment must appear. In every financial year the tax is to be assessed if he derives income during the preceding financial year or other period for which his returns are accepted. For the purposes of assessment, objection and appeal, as well as for the purpose of liability to taxation, each year must be treated separately. It is often convenient to consolidate the hearing of appeals, but to do SO does not affect the ultimate question to be decided nor the burden of the taxpayer in establishing his right to relief.

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

56 CLR 112

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.

It follows, in our opinion, that he fails upon this question. We think the fourth question in the case stated should be answered in the negative.

First and second questions in the case stated answered that

the taxpayer has a right of appeal in respect of the amount of income mentioned in the notices of amended assessment given on 23rd November 1931 and that the right of appeal is not limited to the amount by which the taxable income fixed in such notice exceeds the amount of the taxable income fixed in the notice of 22nd April 1930. Third question not answered. Fourth question answered. No. Application for a mandamus referred to Evatt J. Costs to be costs in the appeals. Solicitors for the appellant and applicant, A. R. Baldwin &amp;Co. Solicitor for the respondent, W. H. Sharwood, Commonwealth Crown Solicitor.