Giris Pty. Ltd. v. Federal Commissioner of Taxation.

Judges: Barwick CJ
McTiernan J

Kitto J
Menzies J
Windeyer J
Owen J

Court:
High Court (Full Court)

Judgment date: Judgment handed down 5 March 1969.

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Kitto, J.: By sec. 97 of the Income Tax Assessment Act 1936-1965 (Fed.) the assessable income of a beneficiary in a trust estate includes his share of the net income of the estate if he is presently entitled to it and is not under any legal disability; but upon so much of the net income of the estate as is not included in the assessable income of a beneficiary in pursuance of this provision (other than income in which any of certain bodies, associations, funds or organisations has a vested interest) the trustee is made liable to tax by sec. 99A or, if that section does not apply in relation to the particular trust estate in relation to the relevant year of income, then by sec. 99.

The importance of the question whether sec. 99A or sec. 99 applies is to be found in the fact that the rate of tax under the one is not necessarily the same as the rate of tax under the other. The rate where the assessment is under sec. 99A is that which the Parliament declares for the purposes of that section, whereas the rate where the assessment is under sec. 99 is that which would apply if the relevant income were the income of an individual and were not subject to any deduction.

Section 99A is expressed not to apply if the trust resulted from a will or codicil, or from an intestacy, or from an order of a Court modifying a will or codicil or the application of the law as to the distribution of intestate estates: sub-sec. (1); but even if the trust arose inter vivos the section, according to its terms, does not apply if the Commissioner is of the opinion that it would be unreasonable that the section should apply in relation to the trust estate in relation to the year of income: sub-sec. (2). In forming his opinion the Commissioner is to have regard to certain specified matters and ``such other matters, if any, as he thinks fit'': sub-sec. (3). The intended operation of these provisions is clear enough. Where income of a trust estate of a kind other than those described in sub-sec. (1) is not included by sec. 97 in the assessable income of a beneficiary (other than one of the bodies, associations, funds or organisations above referred to), sec. 99A imposes upon the trustee a liability to be assessed to tax at the special rate declared by the Parliament for the purposes of the section; but sub-sec. (2) purports to make that liability defeasible upon the formation by the Commissioner of an opinion that the application of the section in relation to the estate's relevant income of the particular year is unreasonable. The intention plainly is that in each case in which a trustee is liable to be assessed under sec. 99A in relation to a year of income the Commissioner shall apply his mind to the question whether it is unreasonable that in relation to that year the trustee should be so assessed rather than under sec. 99. But no duty is cast upon him to form an opinion as to whether it is unreasonable or not. He may be unable to form any opinion one way or the other; and if, after final consideration of the case, he finds himself with no positive opinion that the application of sec. 99A is unreasonable, the liability of the trustee under that section is to remain.

Under an order of a Justice, we have heard argument upon the questions whether sec. 99 and sec. 99A are valid. The authority for the order, and therefore our jurisdiction

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to decide the questions, is to be found, if at all, in sec. 18 of the Judiciary Act 1903-1966 (Fed.). That section empowers a Justice sitting alone to direct any question to be argued before a Full Court, and provides that a Full Court shall thereupon have power to hear and determine the question. The expression ``any question'' means, necessarily, any question arising in the matter which the Justice is engaged in hearing: the section cannot intend to enable questions to be referred and decided which are foreign to that matter, for if it did it would be in excess of any legislative power of the Parliament. The only question of validity which arose or could arise in the matter which was before the learned Justice in this case was the question of the validity of sec. 99A, for it is an agreed fact that the proceedings in which his Honour was sitting was an appeal against an assessment of income tax which had been made pursuant to that section, that is to say, which had been made on the footing that the Commissioner had not formed the opinion that it would be unreasonable that that section should apply to the case. In my opinion, therefore, we have no jurisdiction to give a decision as to the validity of sec. 99.

Subject to one question, I see no reason for the slightest doubt as to the validity of sec. 99A. Plainly it is a law with respect to taxation within the meaning of sec. 51(ii) of the Constitution. The contention that the concept of unreasonableness is so uncertain that sec. 99A(2) allows the Commissioner opportunity for discrimination between States or parts of States, and so exceeds the power given by sec. 51(ii) of the Constitution, is intelligible only if it means that the sub-section purports to authorise the forbidden kind of discrimination; and both upon ordinary principles of statutory interpretation and by virtue of the provisions of sec. 15A of the Acts Interpretation Act 1901-1966 (Fed.) it is impossible to construe it as purporting so to do.

The appellant's further contention that sub-sec. (2) provides for an ``incontestable'' tax, in the sense in which the expression was used in
Deputy Commissioner of Taxation v. Hankin (1959) 100 C.L.R. 566 at p. 576 (see also
Deputy Commissioner of Taxation v. Brown (1958) 100 C.L.R. 32 at p. 40 ), may be put aside because it is based on a misunderstanding of what is meant by an ``incontestable'' tax. The expression refers to a tax provided for by a law which, while making the taxpayer's liability depend upon specified criteria, purports to deny him all right to resist an assessment by proving in the courts that the criteria of liability were not satisfied in his case. Whatever may be said as to the validity or invalidity of an ``incontestable'' tax in this sense has no relevance to a tax which is described as incontestable merely because (as is the case where the formation of an opinion by the Commissioner under sub-sec. (2) makes sec. 99 applicable instead of sec. 99A) the liability of the taxpayer depends upon an opinion of the Commissioner the grounds of which are not necessarily ascertainable and for that reason alone are, in a purely practical sense, not always susceptible of challenge.

The only question which seems to me worth even brief consideration is whether sub-sec. (2) is invalid as an attempt by the Parliament to transfer a part of its legislative power to the Commissioner. There is no need to cite authority for the general proposition that the operation of a law with respect to taxation may validly be made to depend upon the formation of an administrative opinion or satisfaction upon a question, e.g. as to the existence of a fact or circumstance, or as to the quality (e.g. the reasonableness) of a person's conduct, or even as to the likelihood of a consequence of the operation of the law in an individual case, as in sec. 265 where the question is whether the exaction of an amount of tax will entail hardship. But it may conceivably be that the position is different where a provision purports to authorise an administrative officer to exclude from the application of a law any case in which he disapproves of its application. If sub-sec. (2) had the effect of setting the Commissioner free, in choosing between sec. 99A and sec. 99, to do what he thought fit within the limits of the powers of the Parliament, possibly is should be held invalid as an attempt to invest an officer of the executive government with part of the legislative power of the Commonwealth. If so, the question would next arise whether the rest of the section is severable from it for since in the present case the Commissioner has not acted on the footing of an opinion that the application of sec. 99A would be unreasonable we would not be

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concerned to hold sub-sec. (2) invalid unless the consequence would be the invalidity of the whole section. But sub-sec. (2) does not make the application of sec. 99A depend upon the will of the Commissioner instead of the will of the Parliament. It is true, I think, that notwithstanding the specification in sub-sec. (3) of sec. 99A of some of the matters to which the Commissioner may have regard, the authority that is given him to have regard to such other matters, if any, as he thinks fit makes it extremely difficult for him or anyone else to know with any degree of certainty what really is the judgment that he is to form in a given case. ``Unreasonable'' is a word which seems peculiarly out of place in this context, and if I were the Commissioner I am not sure that I should ever be able to form an opinion that I thought would operate under sub-sec. (2) to make sec. 99A inapplicable. But even if the Commissioner has the same difficulty the only result will be that sub-sec. (2) will never have any work to do; and to say that is very different from saying that the sub-section is invalid. It affords no ground for doubting the validity of the rest of the section.

In my opinion there should be a declaration that sec. 99A is valid.