Brian Hatch Timber Co. (Sales) Pty. Ltd. v. Federal Commissioner of Taxation.Judges:
Walsh J.: The appellant company (herein called the company) made a return of income for the year ending 30 June 1967 in which it showed a net profit of $67,836 but it claimed to deduct earlier losses amounting to $67,506 so as to reduce its taxable income to $330. The respondent disallowed the claim, stating that the losses were ``not allowed in terms of sec. 80A(1) of the Income Tax Assessment Act''. It is not disputed that the losses were incurred. But it appears that the respondent was not satisfied of the matters set out in paras. (c), (d) and (e) of sec. 80A(1). In addition to assessing tax on the full amount of the net profit, the respondent made an assessment of additional tax on undistributed profits under Div. 7 of Pt III of the Act. He disallowed objections to both assessments. The principal question in these appeals is whether or not the company has shown that this Court should interfere with the decision of the respondent concerning the matters to which sec. 80A(1) refers. There is a subsidiary question as to the application of sec. 80B(5).
The question is not whether I think that upon the facts placed before me the conditions of sec. 80A(1) were satisfied, but whether the respondent's decision should be reviewed on the ground that it can be seen that he has failed to discharge properly his statutory function, according to law. I accept the statement of Dixon J. in
Avon Downs Pty. Ltd. v. F.C. of T. (1949) 78 C.L.R. 353 at p. 360 as being an accurate exposition of the principles to be applied in dealing with the question which I have to decide. The examination of that question is complicated by the circumstance that very little evidence has been placed before me to show what was the material before the respondent when he made his decision. The company, through its counsel, has claimed that it was not practicable for it to produce that evidence. The respondent has chosen not to provide it. His contention is that there is no material before me upon which I can interfere with the respondent's decision and that therefore, the company must fail.
I allowed evidence to be given, against objection, concerning the facts which preceded accompanied and followed the acquisition, at a time within the relevant year of income, by Mr. Brian Hatch and his wife of three shares in the capital of the company, by which they became the holders and the beneficial owners of 60% of the issued shares.
According to the contentions of the company that acquisition gave Mr. Hatch the practical control of the company but left two shares (that is to say, two-fifths of its issued shares) in the beneficial ownership in which they had always been, and those shares still carried, at all relevant times, all the rights to which sec. 80A(1) refers. For the respondent it was contended that no evidence should be admitted of any facts not proved to have been known to the respondent when his decision was made. But I decided that in this case, in which there has been no suggestion of any deliberate concealment or misrepresentation of any facts, I should admit evidence of what actually happened concerning the change in the shareholding of the company and should determine afterwards to what extent that evidence could properly be considered in deciding the appeals, bearing in mind the limited scope of this Court's inquiry into the propriety of the respondent's decision. I think that it is convenient to set out in these reasons the facts disclosed by that evidence, without confining my statement of the facts to those which are actually proved to have been ascertained by the respondent when he was considering his decision.
The company was incorporated in 1961. Its name was then G.A. Cleary (N.S.W.) Pty. Limited. At a general meeting held on 19 December 1966. It was resolved that its name be changed to its present name. Its memorandum of association was subscribed by Mrs. Lorna Cleary and Mr. Scutt. Mrs. Cleary is the wife of Mr. G. A. Cleary who was appointed, by the articles of association to be governing director and was given control of the business and management of the company Mr. Scutt was an accountant who acted as such for this company and for other companies controlled by Mr. Cleary. Mr. Scutt has never had any beneficial interest in his subscriber's share. He understood that he held it for the benefit of Mrs. Cleary but he could not say definitely whether he held it for her or for Mr. Cleary. It has not been suggested that Mrs. Cleary was not the beneficial owner of the other subscriber's share. No other shares were issued earlier than 19 December 1966.
The trading of the company was not successful. It incurred substantial losses and it became unable to pay its debts. It was placed under the management of an official manager, in accordance with sec. 201 of the Companies Act 1961 (N.S.W.). Its creditors entered into an arrangement in accordance with sec. 181 of that Act. Its terms are not in evidence, but it appears from documents which are in evidence that the existence of the tax losses of the company was seen to provide an opportunity for some money to be raised for the benefit of the creditors. It appears that a company called Berry Motors Pty. Limited, of which a Mr. McMullen was the representative in these transactions, was active in procuring the said arrangement made by the creditors, the effect of which was, according to a letter tendered in evidence, that it ``has crystallised the debts due to the Creditors at a figure which will be paid and also stayed those debts to that figure''. The provisions of the scheme (according to the said letter) were such as to make it incumbent upon the ``scheme creditors'' to assign their debts. Assignments were to be taken from those creditors by the Berry company which would pay to the trustee of the scheme the amount specified therein.
Thereupon discussions took place between McMullen and Brian Hatch. Mr. Hatch, through companies which he controlled, carried on a business which consisted mainly of the buying and selling of timber. That business was profitable. These discussions were followed by correspondence between solicitors acting for the parties, and resulted in the execution of a deed dated 19 December 1966. The parties to it were Berry Motors Pty. Limited (Berry) and Grecher Pty. Limited (Grecher), which was a company controlled by Mr. Hatch. A recital in the deed referred to the accumulated losses of the company, which were stated to be available to be recouped pursuant to sec. 80 of the Income Tax Assessment Act. A recital referred to the scheme of arrangement and to the termination of the official manager's appointment. There was another recital that Grecher wished to take up a shareholding in the company representing 60% of its issued capital. There was a recital that it had been agreed that shares representing 60% of the total issued capital of the company would be issued to Grecher, subject to its paying to Berry the sum of $11,251. The deed contained several warranties by Berry. In effect, although not in form, the first warranty was that there was no restriction upon the existing shareholders as to any rights of the kind described in sec. 80A(1). Another warranty was that the Commissioner of Taxation had assessed the losses of the company, available to be recouped in terms of sec. 80 of the Act, in the four tax years up to and including the year ending 30 June 1966, at amounts which were set out in the deed and totalled $67,506. There was a provision for a refund or a further payment, if the Commissioner reduced or increased ``the losses available''. Berry convenanted that it would arrange for the issue of three shares at par to Grecher or its nominee and would arrange a general meeting of the shareholders of the company, at which new directors would be appointed and the present directors would tender their resignations. It was agreed that on or before 15 July 1968, Berry would hand to Grecher a form of assignment executed by Berry whereby the debt owed to Berry by the company would be assigned to Grecher. Berry would engage Mr. McMullen to assist the company, ``during the period in which the losses hereinbefore referred to are being recouped'', as an accountant, without charge to the company or to Grecher. The general meeting of the company which was to be arranged by Berry would be attended by a person nominated by Grecher and upon the issue of shares representing 60% of the issue capital, Grecher would pay to Berry by bank cheque the sum of $11,251.
No shareholder was a party to that agreement, nor was the company. No doubt Mr. McMullen felt it safe for his company to make the promises which the deed contained as to what would happen at a general meeting to be arranged, because proxies had been obtained from Mrs. Cleary and Mr. Scutt. Mrs. Cleary appointed McMullen as her proxy to vote for her and on her behalf at any ordinary or extraordinary general meeting of the company. At the same time she signed a request to the Board of Directors of the company to accept her resignation as director. Mr. Scutt appointed a Mr. Drever, who was a partner or associate of the official manager, as his proxy in similar terms. But it was not Mr. Drever who came in place of Mr. Scutt to the general meeting which was held on 19 December 1966. Drever signed a document appointing McMullen ``as my proxy to vote for me and on my behalf at any Ordinary or Extra-Ordinary General Meeting of the Company''. According to the minutes of the meeting of 19 December, McMullen was present as proxy for Mrs. Cleary and as proxy for Scutt. No one else was present, except Mr. Hatch and Mr. Levy (his accountant), who were present by invitation. The meeting, thus constituted solely by McMullen in his double capacity of agent for Mrs. Cleary and (as appears to have been supposed) agent for Scutt by force of his appointment as proxy made by Scutt's original agent Drever, proceeded to pass a number of resolutions. They included a resolution approving applications for the allotment of two
ATC 4097shares to Brian Hatch and one share to Noela Hatch his wife. Mr. and Mrs. Hatch were appointed directors and it was thereafter resolved that ``the present directors'' of the company should continue in office for the ensuring year. Nothing was done concerning Mr. Cleary's position as governing director (as set out in the articles of association) and he does not appear ever to have formally resigned from his position. But it is evident that he did not take or seek to take any further part in the affairs of the company. Nor did Mrs. Cleary or Mr. Scutt. It should be added that at a general meeting, nearly a year later, those recorded as being present were Mr. Hatch and Mr. McMullen as proxy for Mrs. Cleary (but not as proxy for Mr. Scutt).
Neither party has addressed any submissions to me as to the regularity or validity of any of those proceedings or as to the consequences for present purposes of any irregularities that took place. The appeals have been conducted on the basis that Mr. and Mrs. Hatch did validly acquire three shares in the company and become its directors. Of course, if they did not acquire those shares, the consequence would be that in the 1966 - 1967 tax year there was no change at all in the shareholding and, therefore, no reason why the company should not have been allowed deductions for losses to which it was entitled, prima facie, under sec. 80. I do not think that I need concern myself with any oddities or deficiencies in the procedures which were adopted.
Thereafter Mr. Hatch ran the business affairs of the company, in conjunction with the affairs of his other companies. In his evidence, which was given frankly and which I accept completely, he acknowledged that he decided what parts of the available business would be transacted by the individual companies in his group and that he allocated to the company a substantial part of that business. His whole object in entering into the transaction with McMullen's company was to get the benefit of the accumulated losses. He could do that only by carrying on business profitably in the name of the company and using its profits to pay off the debts which by assignment had become or would become due to his company Grecher. The shares acquired in the company had no other value at the time when they were acquired. Mr. Hatch said that he left all formal matters in the administration of the company, such as the sending of notices of meetings, to the care of his accountant Mr. Levy, who has since died.
Before entering into the transaction with Berry, Hatch had received advice. He knew that two shares only has been issued. He was advised that an arrangement could be made for him to acquire 60% of the shareholding and that, if any benefit was to be obtained from the losses, the holders of the other 40% of the shares must retain their complete interest and nothing must be done to restrict their rights in respect of those shares. He knew that this involved the risk that if they disposed of the shares his plan to use the company's losses must fail, but he thought this was a small risk and was willing to take it. He had no arrangement or understanding with Mrs. Cleary or Scutt before the meeting of 19 December 1966. He had not met them. Afterwards he did not make any request to them not to deal with the shares. He did not know whether any notices of meetings or other documents had been sent out to them. He left such matters to Levy. He would not agree that he considered them as having no longer any connection with the company. He said that they were still shareholders and he was clearly aware of their position.
There was a subsequent transaction which I think has no direct bearing upon this case. Mrs. Cleary signed a form of transfer of shares. It was expressed to be in consideration of $25 paid by Brian Hatch and to be a transfer to him of two shares in the company. A receipt signed by Mrs. Cleary stated that the $25 was received from H. Levy. The transfer was expressed to be signed on 21 March 1968 but, most probably, it was signed somewhat later than that. On 21 March 1968 Mr. Levy wrote to Mr. Drever stating that Hatch was interested in acquiring the two shares held by Mrs. Cleary and was prepared to offer $25. He requested that if she were agreeable she should sign the enclosed transfer and receipt and return them. Mr. Hatch said in evidence that the letter was written without his knowledge. I accept that evidence. But he did adopt the transaction. At a meeting of directors on 11 April 1968, it was resolved that the transfer be approved of one share from L.M. Cleary to Brian Hatch and of one share from C.B. Scutt, as trustee for Mrs. Cleary, to Mrs. Hatch. That was an odd effect to give to a transfer from Mrs. Cleary to Brian Hatch of two shares. But I do not think this matters any more than the earlier oddities associated with the company's affairs. I do not think that this transaction provides any basis for an inference that it was the outcome of some earlier agreement or understanding concerning those two shares. The profits which the company had made under Hatch's control were absorbed in paying its earlier debts. There is nothing to show that the transfer of the shares at the price stated would not have been made by Mrs. Cleary, unless she had already divested herself of her beneficial ownership or had agreed to do so.
I must refer now to some evidence given by Mrs. Cleary and by Mr. Scutt. He ceased to have any interest in the company after the official manager was appointed. He did not recall whether he ever resigned from his position as a director. He had no recollection of having disposed of the share nominally held by him. He was fairly certain that he did not. He said that he thought that the proxy signed by him was given to ``the liquidator'', at his request. To the best of his knowledge he did not revoke the proxy. It seems plain that he did not make any agreement or arrangement with anyone relating to the disposition of the share or to the exercise of any rights associated with it.
Mrs. Cleary gave evidence that she signed the proxy at the request of Drever and McMullen. She did not sell the shares or get rid of them before March 1968. She said that until then they were still hers. She did not think that they were worth anything. She was cross-examined about an interview which she had in February 1968 with an officer of the Taxation Department. A report of that interview was subsequently tendered in evidence. Her husband was present at the interview. The report said that ``the company was sold'', with the approval of the Court, to Berry Motors. Neither of the Clearys was able to recall whether they received any payments in respect of the sale. The report said that ``they were unable to recall whether they retained any interest in the company after the sale but said that for all purposes they lost all interest as they did not have any further dealings with the company or Berry Motors''. They both denied any knowledge of any such company as ``Brian Hatch Timber Co.'' or of Brian Hatch and Noela Hatch. Mrs. Cleary said that she had not had any correspondence in respect of Brian Hatch Timber Co. and that all contact with the company ceased on the sale to Berry Motors. The report ended with the following sentences -
``In answer to my specific questions she denied having at any time entered into any arrangement, agreement or option to sell shares in Brian Hatch Timber Co. nor had she signed a blank share transfer in respect of that company. The reason given for these denials was her never having heard of Brian Hatch Timber Co. prior to the interview.''
Both the Clearys signed the report as correct, with the correction that they had had no discussion with Berry Motors.
In evidence Mrs. Cleary said that, so far as she understood at the time (that is, at the time of the sale described in the report as the sale of the company), she had ceased to have any interest in the company. Of course she was not referring in that evidence to a proprietary interest. Later, when the proposal was made to sell the shares for $25 she did not think they were worth anything. She did not know to whom they were being sold. She knew only that Mr. Drever suggested that she should sell them. She said that she did not know that Drever, on behalf of the creditors, had had a transaction with McMullen to get money from the tax losses. It was Drever who asked her to sign the proxy. She did not know that this was in relation to a sale of the tax losses. Everything that she did was in accordance with what her husband told her to do. She did not think she had ever received any notice of any meetings.
Mr. Cleary was called into the witness-box and gave his name and address and said that he was the husband of Lorna Cleary. Neither counsel asked him any further question.
On the evidence placed before this Court the material which is known positively to have been in the possession of the respondent when he considered the claim to deduct the losses was that which was contained in the income tax return and the documents which accompanied it and the report of his officer's interview with the Clearys. The matters to be considered by him under sec. 80A(1) were: who had beneficially owned shares in the company, carrying rights of the kind described in that provision, during the years when the losses were incurred and whether at all times during the year of income, shares carrying those rights were still beneficially owned by the same persons. The return showed that the name of the company had been changed. It showed that its issued capital was five ordinary shares of $2 each fully paid. It gave a list of shareholders as at 30 June 1967. It showed Mrs. Cleary as holding one share and Scutt as holding one share. It showed that two shares were held by Mr. Hatch and one by Mrs. Hatch. It cannot be supposed that the respondent acted so irresponsibly that when he disallowed the claim to deduct the tax losses and afterwards disallowed the objection, he did not know and had taken no steps to find out how many shares there were in the loss years and who held them. It may, therefore, be assumed that he knew that at that time the only shares were the two held by Mrs. Cleary and Scutt. The question that remained was whether the beneficial ownership of those shares had continued as it was earlier or had changed. Section 80A(1) operated to prevent the losses being taken into account, unless the company satisfied the respondent that the beneficial ownership had remained unchanged. But the respondent could not reasonably fail to be so satisfied, in relation to shares which had continued to be held by the same
ATC 4099person, unless there was something before him to indicate that a change in the beneficial ownership had occurred. If it be supposed that he regarded the statements, which the Clearys were reported to have made to his officer, as being such an indication, the question arises whether the respondent could have held that view except as the result of some misconception of a kind which would require that his decision be reviewed. In my opinion the statements then made by the Clearys in the interview could not support a conclusion either that there had been, or that there might have been, a disposition by Mrs. Cleary (or by Mr. Cleary if he had been thought to have any beneficial interest in either of the shares) of the beneficial ownership or of any rights attached to them. If the statements that they had ``lost all interest'' in the company and that they could not recall whether they had retained any interest (in a different sense of that word) in it after the sale to Berry had stood alone, it might perhaps have been reasonable to infer that she (or they) had parted with the beneficial ownership of the shares or at least to suppose that this may have happened and therefore to refuse to be satisfied that it had not. But the Clearys denied any dealings by them with Berry. They denied any knowledge of Brian Hatch. Mrs. Cleary denied having entered into any arrangement, agreement or option to sell shares in Brian Hatch Timber Co. and having signed a blank share transfer in respect of that company.
The respondent did not put forward the report of the interview as being either the whole or part of the material upon which he acted and upon which he was justified in acting. As I have said, evidence has not been given identifying the material upon which his decision was based. I recognise the need to be on guard against treating the appeals as a rehearing of the facts. Nevertheless, I think that the limits which are placed by the nature of the appeal upon the review of the respondent's decision, important as these are, must not be allowed to be pressed so far as to make it impossible, in a practical sense, for an appellant to challenge it at all. If what the respondent learned from the interview with the Clearys was not part of the material which he used in making his decision either because he did not consider it to be relevant or because he thought it to be of no assistance, the result is that there is no known explanation for his failing to be satisfied that the beneficial ownership of the two shares had remained unchanged.
It may be suggested that the respondent did not accept the statements made by the Clearys or did not accept all of them. But upon an examination of what they were reported to have said I do not think that his decision can be explained on the basis that a part of their statements was accepted by him and was regarded as making it doubtful that Mrs. Cleary had retained her beneficial ownership. Again, it may be suggested that the respondent may have had before him material of which I do not know and that it is, therefore, impossible for me to conclude that some misconception or some extraneous considerations entered into the decision. This is a matter which requires close consideration. In many cases in which the material before the respondent had not been proved, I think that an appellant would be precluded from succeeding upon a question in which the satisfaction of the respondent was the determining factor. I was disposed to the view that this is so in this case. But I consider that I am in a position to come to the conclusion that it is extremely unlikely that from any of the parties to the transactions by which Mr. and Mrs. Hatch acquired between them a 60% interest in the company, the respondent obtained information (not disclosed to me) which could have helped him to conclude or to suspect that Mrs. Cleary had parted with her beneficial interest in the other shares or had agreed or arranged not to exercise any rights in relation to them. I say that because the evidence given by Hatch and by Mrs. Cleary did not reveal, in my opinion, any facts tending to such a conclusion or suspicion, and because I think there is no reason to believe that any relevant facts have been at any time concealed or misrepresented. I think that the theoretical possibility that this may have happened ought not to be held in the circumstances of this case, in which the respondent has called no evidence, to require a conclusion that his decision cannot be reviewed. In the circumstances, I am of opinion that I can have regard to the evidence of the actual facts of the transactions which have been outlined above. This evidence is relevant, although it is not my task to decide the facts of the case for myself, because it makes known to me the nature of the additional material which could have been available to the respondent, concerning the beneficial ownership of the two shares, as a result of inquiries from the people most directly concerned. If he had before him an account of the matter given by Hatch, I have no reason to doubt that it would have agreed with the account that he has given in evidence. It would have been to the effect that he had made no agreement or arrangement relating to the two existing shares and that he would have been anxious to avoid the making of any such agreement or arrangement. There is no ground for supposing in this case that the respondent has been supplied with information which, although it could be shown later to be not in accordance with the facts, could reasonably have been accepted and acted upon by him, as
ATC 4100occurred in Avon Downs Pty. Ltd. v. F.C. of T. (supra). Whilst it is theoretically possible that he had some erroneous information upon which he acted, I think that in the circumstances of this case it would not be right to treat that possibility as being of practical significance. I think that his decision may be examined, in the absence of any evidence to the contrary, on the supposition that he acted upon the actual facts or upon so much of them as had come to his knowledge.
The question, then, is whether there was anything to suggest that the beneficial ownership of the two shares had changed. In my opinion there was not. I think that a conclusion that it had changed or a belief that it might have changed could not reasonably have been formed, unless it had been based upon the circumstances that during the relevant period Mrs. Cleary (or her husband) had not exercised or sought to exercise any rights as shareholder and had not taken any actual interest in the affairs of the company and had no intention of doing so and that (probably) no notices of meetings or other correspondence had been sent to her by the company. But in my opinion those circumstances could not be found to have divested from her a proprietary right and could not have operated by way of estoppel or otherwise to preclude her from asserting that right if she had wished to do so at any time. If it be supposed that her right was divested, in my opinion the consequence must have been that it passed to somebody else. In
Wood Preservation Ltd. v. Prior (1969) 1 All E.R. 364 at p. 367, Lord Donovan said that it ``is possible for property to lack any beneficial owner for a time''. But although there may be special circumstances in which that is so, I have the same difficulty in thinking that it could be so in this case as Widgery L.J. had in the case cited (at p. 368). To whom could the property have passed? Surely not to Berry, although the Clearys are said to have stated that ``the company was sold'' to it. It seems plain that Berry did not acquire any beneficial interest in the shares and it should be recalled that the Clearys said they had had no discussion with Berry. It seems equally clear that Mr. Hatch did not acquire, at the relevant time, any beneficial interest in the two shares in question. The Clearys knew nothing of him and had no dealings with him or his other companies, either directly or through agents. The signing of the proxies could not amount to a transfer or a surrender of any rights to the shares. So long as they remained unrevoked, they authorised the appointees to vote at any general meeting. It may be assumed that the authority given by the proxies enabled the appointees to vote in a way which would have an effect upon the existing shares, inasmuch as an issue of further shares would reduce them to a minority holding. But the proxies could not have conferred authority to deal with the rights which remained attached to the two shares themselves and the proxies were not used in a way which suggested that anybody thought they had conferred that authority.
If Mrs. Cleary had heard of the meeting of the company arranged for 19 December 1966 or of any other general meeting of the company, prior to March 1968, and had attended it, I do not know upon what principle she could have been restrained by Mr. Hatch or by anyone else from exercising voting rights in respect of the share held by her. There is no need to consider whether or not she would have been precluded by any arrangement inferred to have been made earlier by her, from voting so as to prevent the issue of the three shares to Mr. and Mrs. Hatch. But there seems to be no legal or equitable ground upon which she could have been precluded from exercising the rights attached to the share held by her or from controlling, for her own benefit, the exercise of the rights attached to the share held by Scutt.
F.C. of T. v. Casuarina Pty. Limited 71 ATC 4068, in which judgment was given very recently by a Full Court of this Court, the main question arose under sec. 103A of the Act. Therefore the case is not directly in point here. But sec. 103A(4), which contains the expressions ``beneficially owns'', ``beneficial ownership'' and ``beneficially entitled'', was considered. It was there said that the questions to be considered in relation to para. (b) of that provision was whether a shareholder, which was a public company, was capable of controlling more than one-half of the voting power in the taxpayer company and was not whether it was likely to control it or was likely to exercise its voting power in a particular way. Similarly, in relation to paras. (c) and (d), the question was said to be a question as to the entitlement of the shareholder at a given point of time to a dividend, or to a distribution of capital assumed then to be paid or to take place. The question was not to be determined by considering the probabilities as to what the shareholder would receive in fact. Likewise in the present case, I am of opinion that it would be a misconception of the relevant statutory provision to treat the question to be decided as depending upon whether or not, during the relevant period, the rights described in sec. 80A(1) were exercised or enjoyed in fact by the holders of the two shares or were expected to be exercised or enjoyed.
I have said that reference was made at the hearing to sec. 80B(5). But I am of opinion that there is not, on any view of the facts proved before me (or of any part of those facts considered in
ATC 4110isolation from the rest of the facts), any basis for a finding in relation to the two shares that Mrs. Cleary entered into a contract, agreement or arrangement or granted a right, power or option of the kind described in that provision.
It was the Commissioner whom the company had to satisfy as to the existence of the facts set out in sec. 80A(1). The task of an appellant, who must show that his decision should be reviewed, is not an easy one. It has been suggested by counsel for the company that an attempt to produce evidence of the actual material upon which the respondent acted would probably have been frustrated by a successful claim of privilege against its production. I am not convinced that that is so, although it is true that the decision in
O'Flaherty v. McBride (1920) 28 C.L.R. 283, presents an obstacle to an appellant who wishes to take that course. So far as I am aware, that case has not been reconsidered by this Court in the light of the modern decisions in England on this type of privilege. Counsel for the respondent contended that the matter was one which could have been examined more satisfactorily by a Board of Review. But the company was entitled to come to this Court, if it chose to do that. The respondent called no evidence. That was within his rights. But it cannot prevent the Court from examining his decision and it leaves the Court without the benefit of evidence which might have provided an acceptable explanation of that decision. Upon the view I take of the case, I am not able to perceive a satisfactory explanation of it, other than that some mistake of law was made, or some extraneous factor was taken into account. I am disposed to think it likely that the respondent regarded the cessation of any actual connection with or interest in the company's affairs on the part of the Clearys and their vagueness as to what occurred as being sufficient grounds for failing to be satisfied that the beneficial ownership of the two shares had not been changed. If that was the basis of the decision I think that it was based upon a mistake of law. It may have had a different basis. But, if so, the fact that I do not know exactly what that basis was does not preclude me from holding that the decision ought not to stand. Dixon J. said in Avon Downs Pty. Ltd. v. F.C. of T. (1949) 78 C.L.R. 353 at p. 360 -
``It is not necessary that you should be sure of the precise particular in which he has gone wrong. It is enough that you can see that in some way he must have failed in the discharge of his exact function according to law.''
I am of opinion that in the matter No. 3 of 1970 the appeal should be allowed with costs. The assessment of additional tax issued on 4 March 1969 should be set aside. In the matter No. 4 of 1970 the appeal should be allowed with costs. The assessment of primary tax issued on 4 March 1969 should be set aside and the matter should be remitted to the respondent for the assessment of income tax in accordance with this judgment.
In matter No. 3 of 1970 - Appeal allowed with costs. Assessment of additional tax issued 4 March 1969 set aside. In matter No. 4 of 1970 - Appeal allowed with costs. Assessment made 4 March 1969 set aside. Matter remitted to the Commissioner for assessment in accordance with this judgment.