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.

Windeyer J.: In 1964 the Australian Parliament amended the Income Tax Assessment Act and enacted sec. 99 and 99A. This was more than two hundred years since the Wealth of Nations was published. Yet anyone remembering the record of Adam Smith's four ``canons'' of taxation must be beset by misgivings and regrets that Parliament forgot it:

``The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid ought all to be clear and plain to the contributor, and to every other person. Where it is otherwise, every person subject to the tax is put more or less in the power of the taxgatherer....''

Yet Parliament has in effect left it to the discretion of the Commissioner in certain circumstances to say whether a taxpayer should be required to pay tax in respect of certain transactions at a higher or at a lower rate. The criterion of differentiation is whether ``the Commissioner is of the opinion that it would be unreasonable that sec. 99A should apply''. And there are no absolute, precise or objectively determinable tests of what is here reasonable or unreasonable.

However, Adam Smith's canon is a political principle, not a rule of law. It states a characteristic which it is generally considered that a tax should have, not a characteristic which is of the essence of a tax. Parliament may seem to have acted in defiance of a recognised principle of taxation, but that does not of itself mean that the law which it has made is not a law with respect to taxation. It is not necessary to go through the various definitions of a tax to be found in writings by economists, and in judgments of this Court ever since
R. v. Barger (1908) 6 C.L.R. 41 at p. 68. That in
Matthews v. Chicory Marketing Board (Victoria) (1938) 60 C.L.R. 263 at p. 276 , adopted in
Browns Transport Pty. Ltd. v. Kropp (1958) 100 C.L.R. 117 at p. 129 will suffice: ``a compulsory exaction of money by a public authority for public purposes, enforceable at law, and... not a payment for services rendered''. An exaction pursuant to sec. 99A answers this description. I do not think it can be said that it is not a tax. That however does not dispose of the proposition that sec. 99A and sec. 99 read together are not in a constitutional sense a law with respect to taxation.

The argument for the taxpayer, as I understood it, was, stated briefly, that these provisions involved a delegation by Parliament of its legislative power which was invalid as going too far and amounting to an abandonment by Parliament of its function and duty. The power to make laws with respect to taxation does not, it was said, authorise an incontestable tax or an impost which was not objectively certain. These arguments are not


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without considerable weight bearing in mind what has been said by this Court on the general propositions involved: see among other cases, Victorian Stevedoring and General Contracting Co. Pty. Ltd. and
Meakes v. Dignan (1931) 46 C.L.R. 73 ;
King Gee Clothing Co. Pty. Ltd. v. The Commonwealth (1945) 71 C.L.R. 184 ;
Cann's Pty. Ltd. v. The Commonwealth (1946) 71 C.L.R. 210 ;
Deputy Federal Commissioner of Taxation v. Brown (1958) 100 C.L.R. 32 ;
Deputy Commissioner of Taxation v. Hankin (1959) 100 C.L.R. 566 . In Brown's case, (supra) Dixon C.J. said (at pp. 40-41):

``Although there is no judicial decision to that effect, it has, I think, been generally assumed that under the Constitution liability for tax cannot be imposed upon the subject without leaving open to him some judicial process by which he may show that in truth he was not taxable or not taxable in the sum assessed, that is to say that an administrative assessment could not be made absolutely conclusive upon him if no recourse to the judicial power were allowed. This is not the occasion to go into the basis of this view. All that is necessary is to note that it exists and that hitherto the legislature has respected it.''

That is pertinent of the Commissioner's decision to assess a taxpayer under sec. 99A is never examinable by the Court. But is this so?

The Commissioner is to ask himself whether it would be unreasonable that sec. 99A should apply to any particular trust estate. But the idea of reasonableness seems to be here amorphous. It is, of course, true that, as a measure in fact of time, space, quantity and conduct, reasonableness is a concept deeply rooted in the common law: and so, in such cases, is the power of a Court to say whether a particular decision of that fact is or is not within the bounds of reason. But, in cases of that kind, the circumstances in which the question arises provide criteria for its solution. Here the Commissioner's discretion is apparently at large. It does not clearly emerge from the Act in respect of what matter - or whose interest, that of the taxpayer or of the revenue - he is to consider whether it would be reasonable or unreasonable to apply sec. 99A in the case of any particular trust estate. He is to have regard to certain stated matters; but what weight or influence each is to have is not made clear. Moreover, the Act requires that he ``shall have regard to such other matters, if any, as he thinks fit''. However I assume that he is to be guided and controlled by the policy and purpose of the enactment, so far as that is manifest in it. That would exclude from his consideration any matter which it would be unlawful for him to take as a criterion, such as the State of residence of a trustee or of the beneficiaries of a trust. It would also, I think, exclude all merely fanciful and prejudiced tests which were hypothetically suggested in argument, such as vocation, religion, colour of skin or hair. Nevertheless the statute seems to allow great latitude to the Commissioner in forming his opinion. That he has formulated certain considerations by which he is guided, and made them publicly known, may be important as showing that in the exercise of his statutory discretion he acts honestly, consistently, and, as he thinks, in accordance with the legislative purpose. That purpose I take it is to enable the Commissioner to keep sec. 99A as an instrument to prevent avoidance of taxation by the medium of trusts, but not to use it when to do so would seem to him not in accordance with that purpose. But that the purpose of an enactment is understandable, would not cure its invalidity if it were invalid.

I have found the question in this case difficult. But I have come to agree with the Chief Justice in thinking that the Commissioner's decision is not removed entirely from examination by the Court, because I think that he could be asked by a taxpayer to state the grounds of his opinion; and if asked, that he should do so. The case would then be one in which, within limits, it would be appropriate to remember Coke's statement - ``and so it is of reasonable fines, customs and services... for reasonableness in these cases belongeth to the knowledge of the law and therefore to be decided by the justices'': Co. Litt. 56 b. That does not mean that we are to hear appeals from decisions of the Commissioner to apply sec. 99A; but it does mean that we could, in a given case, say whether there were any facts which could support his decision that it was not unreasonable to apply the section.

On the whole I do not think that sec. 99A is beyond the bounds of constitutional validity. I think however that it is very close to the boundary, and that it would be questionable as a precedent for legislation of


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a similar character. I see no reason for questioning the validity of sec. 99 separately considered.


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