Federal Commissioner of Taxation v. Mantle Traders Pty. Limited.

Judges:
Bowen CJ
Franki J
Brennan J

Court:
Full Federal Court

Judgment date: Judgment handed down 15 December 1980.

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Bowen C.J.

In this appeal the Commissioner of Taxation of the Commonwealth of Australia (``the Commissioner'') challenges the answers given on 24 June 1980 by the Supreme Court of New South Wales to certain questions submitted by special case pursuant to O. 35 r. 2 of the High Court Rules. Mantle Traders Pty. Limited (``Mantle Traders'') supports the answers.

The material parts of the special case are as follows:

``2. These matters are appeals by the Commissioner of Taxation from decisions of the Income Tax Board of Review No. 1 given on 22 October 1971 in respect of the years of income ended 30 June 1967 and 30 June 1968 respectively. The Board upheld the taxpayer's objections to an assessment of primary tax and additional tax under Div. 7 of Pt. III of the Income Tax Assessment Act 1936 in respect of the year of income ended 30 June 1967 and an assessment of primary tax only in respect of the year of income ended 30 June 1968.

3. The substantive questions to be decided in these appeals involve the interpretation of the provisions of sec. 80A(1) and 80B(5) of the Income Tax Assessment Act and the application of those provisions to the facts and circumstances of certain transactions relating to shares in the taxpayer company. The grounds of appeal are set forth in the Notices of Appeal filed on behalf of the Commissioner in the High Court on 18 November 1971. Those Notices of Appeal were subsequently transmitted to this Honourable Court pursuant to sec. 44 of the Judiciary Act 1903. Copies of the Notices of Appeal are annexed hereto and marked with the letters `A', `B' and `C'. Also annexed hereto and marked respectively `D', `E' and `F' are copies of the relevant assessments, accompanying adjustment sheets and notices of objection.

4. The preliminary questions of law to be determined by the Court prior to the hearing of the substantive issues are the following:

• (i) Whether at the hearing of the proceedings -
  • (a) the evidentiary onus;
  • (b) the ultimate onus:
• is to be borne by the appellant or by the respondent.
• (ii) Whether at the hearing the appellant or the respondent should begin.
• (iii) Whether, if the appellant should begin, he is entitled simply to tender the assessments in order to require the respondent to provide prima facie evidence that they are excessive or wrong.
• (iv) Whether the appellant for the purposes of the present appeal is entitled to rely upon the provisions of sec. 190(b) of the Income Tax Assessment Act 1936.''

The answers given by the Supreme Court were:

``1. (a) the evidentiary onus is borne by the Appellant Commissioner of Taxation;

(b) the ultimate onus is borne by the taxpayer;

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2. The Appellant;

3. No;

4. Yes.''

It was ordered that the Commissioner pay Mantle Traders its costs of the special case and the further hearing of the proceedings was stood over until the views of the ultimate court of appeal to which the parties decided to appeal were known.

The initial question which arises is whether this Court has jurisdiction to entertain an appeal which comes to it in this fashion. The proceedings before the Supreme Court and the appeal to this Court are governed by sec. 196 inserted in the Income Tax Assessment Act 1936 by Act No. 165 of 1976.

The judgment of the Supreme Court was given on 24 June 1980 and an order granting leave to appeal to this Court was made on 23 July 1980. The question is whether, on the proper interpretation of subsec. 196(5), the proceedings are an appeal against a decision of the Supreme Court on an appeal under that section. Counsel for Mantle Traders did not contend that the appeal was incompetent. Both parties sought from the Court a decision on the substantive matters raised in the appeal. However, jurisdiction cannot be conferred on this Court by consent. It is necessary, therefore, to deal with this question.

Some of the difficulties involved in appeals against decisions on preliminary points or on interlocutory orders or on final orders for costs at an interlocutory stage are reflected in the discussion in Director-General of Social Security v. Chaney, a decision of the Full Court of the Federal Court given on 7 August 1980 (unreported) and in the cases there cited. The Court in that case was, of course, concerned with different appeal provisions. A somewhat similar question arose in relation to the provisions of the Income Tax Assessment Act 1936 dealing with cases where a taxpayer's objection is referred directly to a Supreme Court, namely, sec. 197, 199 and 200 (see
F.C. of T. v. Offshore Oil N.L. 80 ATC 4457 ).

The answer to the question in this case must turn on the interpretation of subsec. 196(4) and (5). Subsection 196(4) by its reference to ``the decision... on an appeal... under this section'' seems to point to the decision of the Supreme Court determining the appeal under subsec. 196(1). Subsection 196(5), on the other hand, is general in its terms. It refers to an ``appeal against a decision of a Supreme Court on an appeal... under this section'' which suggests it covers any decision of the Supreme Court on the appeal. If so, it would cover a decision on a preliminary question, such as has been given in the present case, or an interlocutory order.

But subsec. 196(4) says ``Except as provided in sub-section (5)''. It might be argued that subsec. 196(5) is limited, operating simply as an exception from subsec. 196(4). However, subsec. 196(4) is a prohibition. The words of exception were appropriate to lift the prohibition from subsec. 196(5). This would appear to leave the scope of subsec. 196(5) itself to be determined by the words used in that subsection. Since the words are general, it may be argued that its scope is general. In the result, though in the absence of argument, my view as at present advised is that we should entertain the appeal.

Under sec. 196 an appeal lies from a decision of the Board of Review to the Supreme Court only if the Board's decision involves a question of law (subsec. 196(1)). Frequently, in such appeals, there is no dispute between the parties that a question of law is involved. No doubt the Court has to be satisfied that this is so, but the case proceeds and it becomes manifest from the material tendered in the proceedings that a question of law is involved. In other cases, however, it is a matter in dispute (see, for example,
Lombardo v. F.C. of T. 79 ATC 4542 ; (1979) 28 A.L.R. 574 ). The first question which arises, therefore, is upon whom does the burden rest of establishing that a question of law is involved in the Board's decision. It appears to me that this burden must rest upon the party who is appealing from the Board's decision whether it is the taxpayer or the Commissioner. If nothing is done, if it is not demonstrated to the Court that the decision of the Board involves a question of law, the Court will necessarily refuse to interfere with the Board's decision and whoever happens to be the appellant will lose.

How then may this burden be discharged? The proceedings before the Supreme Court are an appeal only in a somewhat special

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sense. The proceedings in the Supreme Court, although it brings into question the decision of the Board, is the initial court hearing and has to be determined on the evidence before the Court. If it is necessary in any particular case to refer to the transcript of evidence before the Board in order to demonstrate that a question of law is involved, how is this transcript to be brought before the Supreme Court? In relation to general issues arising on such an appeal, if either party seeks to rely upon the evidence of all or some of the witnesses who gave evidence before the Board, the transcript of that evidence may be tendered by consent. But where consent is refused the actual witness would have to be called.

It was argued by Counsel for the Commissioner that the documents which have to be forwarded from the Board to the Supreme Court to comply with the requirements of O. 65 r. 14 of the High Court Rules (see sec. 196A of the Act) will include the transcript if there is one. He further argued that all documents forwarded became part of the record of the Supreme Court and that Court may then refer to them to determine whether there was a question of law without any tender of them by either party. I do not think that this argument is correct. The obligation to forward documents from the Board to the Supreme Court appears to me to be a requirement imposed for purposes of convenience. It does not, in my view, make anything forwarded part of the record of the Court. Certainly, the notice of appeal lodged in the Supreme Court by which the appeal is instituted (O. 65 r. 11) is part of the Court record. Under the rules it must state the question or questions of law it may happen that the notice of appeal refers to some part of the record before the Board of Review. In such cases, in my opinion, the Supreme Court is entitled to refer to that material without its being tendered in evidence, in order to understand the notice of appeal.

In the present case the first question of law stated in the notice of appeal to the Supreme Court is whether there was evidence sufficient to satisfy the Board of Review of certain matters specified. Assuming it can be regarded as raising a question of law at all, this would necessarily require consideration of the transcript of evidence before the Board. The terms of this first question may be contrasted with ground 4 stated as one of the grounds of appeal in the notice. Clearly, ground 4, in claiming there was no evidence upon which the Board could be satisfied of the matters specified, assuming the claim has some reasonable basis, does raise a question of law. Other questions of law stated in the notice of appeal, such as those numbered 2, 3, 4, 5 and 6, may not require reference to evidence tendered before the Board.

It is unnecessary to develop further this question of the burden upon the Commissioner of demonstrating that there is a decision of the Board involving a question of law. It was not a real matter of contest between the parties.

Assuming that the Commissioner, being the appellant, is able to satisfy the Supreme Court that there is a question of law involved in the decision of the Board, the question then arises who should begin before that Court.

Whether one refers to the proceedings before the Supreme Court as an appeal from the decision of the Board as subsec. 196(1) describes it, or as a proceeding in the Supreme Court directed to upsetting the decision of the Board, it would seem that if no evidence is placed before the Supreme Court it will be unable to interfere with the Board's decision. Logically, therefore, it would seem that whoever wishes to have the decision of the Board upset should begin.

In
F.C. of T. v. Finn (1960) 103 C.L.R. 165 at pp. 168-169 , Fullagar J. said:

``Since the institution of the Boards of Review in 1925 the Commissioner has been the appellant in a large number of appeals from decisions of a board, and it has, I think, been the invariable practice in such cases for the Commissioner to begin. If an exceptional case arises in which law, justice or convenience (to use Lord Kenyon's words) requires that the taxpayer should begin, the matter will be within the control of the Court.''

Counsel for the Commissioner, however, argued that in the light of the decision in
McCormack v. F.C. of T. 79 ATC 4111 , the

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position was now different from that stated by Fullagar J. and that, even on an appeal by the Commissioner, the taxpayer had to begin.

Counsel for the Commissioner argued that the proceeding before the Supreme Court was a rehearing of the same issues as were before the Board; that although the Act provided in subsec. 193(1) that decisions of the Board on review should be deemed to be assessments, determinations or decisions of the Commissioner, because of the words in parentheses in that subsection, this was not so where an appeal was involved; that the rehearing was to determine whether the Commissioner's assessment was correct or not; and that because para. 190(b) was applicable in the proceedings the onus lay on the taxpayer throughout the rehearing whoever was the appellant.

In my opinion this argument goes too far. I consider that in the light of the observations of Gibbs J. and those justices who agreed with him in McCormack's case (supra) the operation of para. 190(b) is such that it applies in appeals before the Supreme Court and this is so whether the taxpayer or the Commissioner is the appellant. But it appears to me that the justices in McCormack's case, in disapproving of some of the reasoning of Fullagar J., were directing their disapproval mainly to that portion of his Honour's reasoning which placed weight upon the word ``such'' in para. 190(b). They did not disapprove of the comments made by Fullagar J. earlier in his judgment concerning the procedure which applies where the Commissioner is the appellant. Furthermore, it appears to me on the wording and structure of the provisions of the Act dealing with appeals to the Supreme Court that the Court is required on the evidence tendered before it to decide whether the decision of the Board should stand or fall. The statutory jurisdiction conferred is to hear an appeal from any decision of the Board which involves a question of law (sec. 196). Accordingly, if no evidence is tendered before the Supreme Court on an appeal by the Commissioner from a decision of the Board, the Supreme Court would appear to be unable to upset the decision of the Board.

The question is raised whether it is sufficient for the Commissioner in the proceedings before the Supreme Court simply to tender the Commissioner's assessment. In my opinion this would not be sufficient. However, the Commissioner might, if he chose, tender the assessment, the notice of objection, his decision on the objection, the request to refer and the Board's decision and reasons (if any) and then close his case. Not only would this in most cases give the Supreme Court a sound basis for deciding the question of jurisdiction, but also it would cast the burden upon the taxpayer of proving the assessment was excessive and define the issues to which the taxpayer was limited in discharging that burden. If the taxpayer tendered evidence directed towards those issues as it did before the Board of Review, presumably the Commissioner would be able to give evidence in reply in accordance with normal principles or perhaps, if allowed to do so by the Court, to develop matters a little further than the strict rules of reply might ordinarily allow. However, the course to be followed in this regard would appear to depend largely upon a decision to be taken by the Commissioner and those advising him.

Some of the problems may be illustrated by reference to grounds 3, 4 and 6. As to ground 3, subsec. 80A(1) makes a conclusion upon certain matters depend upon the satisfaction of the Commissioner. On the review before the Board, the Board by reason of sec. 193 had all the powers and functions of the Commissioner. Thus, the Board had power to substitute its own satisfaction under subsec. 80A(1) for that of the Commissioner and apparently did so. The Board's arrival at its own satisfaction is the subject of challenge by the Commissioner. On such an appeal, the Board's arrival at a state of satisfaction may be attacked on the basis that it was affected by a mistake of law, or took into account an extraneous consideration, or failed to take into account some factor which it should have considered, or if the satisfaction was one which could not reasonably have been entertained on the material before the Board. In an appeal based upon such a ground the Court is concerned, so it seems, with the satisfaction of the Board rather than that of the Commissioner; it is concerned with the decision made by the Board in the light of the material before the Board; if it decides the Board was in error, the Court then has to

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decide what should be done in the light of the material before the Court. An attack on the Board's satisfaction appears to raise issues separate from the question whether the Commissioner's assessment was excessive (see
Brambles Holdings Ltd. v. F.C. of T. 77 ATC 4481 at pp. 4486-4487; (1977) 138 C.L.R. 467 at pp. 476, 477-478 ).

As to ground 4, it would seem that unless the transcript before the Board is at some stage tendered before the Supreme Court, it will not be possible for the Commissioner to argue this ground.

As to ground 6, this appears to be intended to raise a question of law concerning the effect of bankruptcy upon the beneficial ownership of shares. It is difficult to see how the Commissioner could persist with this ground, unless at some stage the necessary factual foundation was laid by proof of bankruptcy.

I would answer the questions submitted as follows:

• 1. (a) There is an initial burden of adducing evidence resting on the Commissioner.

(b) Subject to any question of jurisdiction, if the Commissioner's assessment is in evidence before the Supreme Court, the taxpayer throughout the proceedings before the Supreme Court bears the burden of proving the assessment is excessive, being limited in this regard to the grounds stated in the notice of objection.

• 2. and 3. The Commissioner should begin and may do so by tendering his notice of assessment, the notice of objection, his decision on that notice, the request to refer and the Board's decision and reasons (if any).
• 4. Yes, provided jurisdiction is shown and the assessment is in evidence before the Supreme Court.

I propose that the appeal be allowed, the orders of the Supreme Court of 24 June 1980 be set aside, the questions in the special case stated on 23 June 1980 be answered as I have suggested above, and that the costs of the parties of this appeal, of the application for special leave, and of the special case in the Supreme Court be costs in the proceedings before the Supreme Court.