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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.

Brennan J.

In the Supreme Court of New South Wales, Rogers J. sat to determine appeals by the Commissioner of Taxation, the appellant, from a decision of a Board of Review. Section 196 of the Income Tax Assessment Act 1936 (the Act) conferred jurisdiction upon a single judge of that Court to hear such appeals. At the outset of the hearing, a question arose as to the right to begin and the onus of proof. Rogers J. was asked by the parties to decide four questions which they formulated in these terms:

``(1) 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.

(2) Whether at the hearing the appellant or the respondent should begin.

(3) 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.

(4) Whether the appellant for the purposes of the present appeal is entitled

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to rely upon the provisions of sec. 190(b) of the Income Tax Assessment Act 1936.''

In order to raise these questions in a way which, it was believed, would permit an appeal from his Honour's decision the procedure was adopted of stating a case under O. 35 r. 2 of the Rules of the High Court of Australia (see sec. 196A). His Honour stated a case. Paragraph 2 of the stated case recited the upholding by the Board of Review No. 1 of the taxpayer's objections to assessments of primary tax and Div. 7 tax in respect of the income year ended 30 June 1967 and to an assessment of primary tax in respect of the income year ended 30 June 1968. Paragraph 3 stated the questions involved in the appeals and annexed the relevant notices of assessment, adjustment sheets, notices of objection, and notices of appeal to the High Court filed by the appellant on 18 November 1971. Those notices of appeal were subsequently transmitted to the Supreme Court pursuant to sec. 44 of the Judiciary Act 1903.

The questions formulated in the terms set out were recited to be ``preliminary questions of law to be determined by the Court prior to the hearing of the substantive issues''. These questions were answered by Rogers J. as follows:

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

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

2. The Appellant;

3. No;

4. Yes.''

and the appellant was ordered to pay the respondent's costs.

The appellant brings this appeal by leave against his Honour's decision. Both parties submit that the appeal is competent, and both seek a judgment of this Court on the footing that his Honour's decision is ``a decision of a Supreme Court on an appeal'' within the meaning of that phrase in sec. 196(5) of the Act. Although the substantive hearing of the matters before Rogers J. has not yet commenced, questions of onus, of the right to begin and of the effect in evidence of a notice of assessment are susceptible of being answered in principle without reference to facts other than those recited in the stated cases; and therefore the procedure adopted is not open to one of the objections which led this Court to refuse to answer the questions purportedly referred to it in
Pearce v. F.C. of T. 78 ATC 4428 . Without the benefit of argument on the meaning and scope of sec. 196(5), I am loath to conclude that the subsection does not permit a right of appeal against an interlocutory decision of the Supreme Court. Though Deane and Fisher JJ. held in Director-General of Social Security v. Chaney (unreported, 7 August 1980) that no interlocutory appeal lay to this Court under sec. 44 of the Administrative Appeals Tribunal Act 1975, it may be that different considerations apply under sec. 196(5) of the Income Tax Assessment Act 1936. At all events I am prepared to assume that that is so for the purposes of these proceedings. Questions of onus, of the right to begin and of the effect in evidence of a notice of assessment are ripe for determination in principle and, those questions having been argued before us, it is best to answer them and to attempt to place these answers within the framework of the questions in the stated case. That is the preferable course to follow, having regard to the age and vicissitudes of the litigation.

The questions in the stated case refer to burden of proof in two senses. Phipson (on Evidence, 10th ed. (1963) para. 92; ibid. 12th ed.) in a passage cited by Barwick C.J., Kitto and Taylor JJ. in
Purkess v. Crittenden (1965) 114 C.L.R. 164 at pp. 167, 168 , observed that burden of proof ``has two distinct and frequently confused meanings: (1) the burden of proof as a matter of law and pleading - the burden, as it has been called, of establishing a case, whether by preponderance of evidence, or beyond a reasonable doubt; and (2) the burden of proof in the sense of introducing evidence ''. I understand the first question in the stated case to use the term ``ultimate onus'' in the former sense, and ``evidentiary onus'' in the latter sense.

Before evidence of a fact is adduced, the evidentiary onus is necessarily coincident with the ultimate burden of proving that fact; but when evidence is adduced the evidentiary onus shifts from time to time according to the contemporary state of the

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evidence (see Wigmore on Evidence, 3rd ed. para. 2489). It is not possible therefore to state, in answer to question 1(a), where the evidentiary onus lies, for an answer would depend upon the evidence adduced at a given stage of the proceedings.

The substantial matter raised by the stated case, however, concerns the operation of sec. 190(b) and its effect in proceedings before a Supreme Court on an appeal from a Board of Review. Before coming to Div. 2 of Pt. V of the Act - Review and Appeals - the provisions which bear immediately upon the problems in hand - the statutory context in which those provisions operate - should be mentioned. Tax is levied upon taxable income by sec. 17 of the Act at a rate fixed by the Income Tax Act of the relevant year. The assessment of the amount of the taxable income of a taxpayer and of the tax payable thereon is a function entrusted to the Commissioner by sec. 166, which requires him to make the assessment ``From the returns, and from any other information in his possession, or from any one or more of these sources,...''. ``The assessment of income tax'', said Barwick C.J. in
Bailey & Ors. v. F.C. of T. 77 ATC 4096 , at p. 4097; (1977) 136 C.L.R. 214 at p. 216 , ``is the process of applying the Act to a state of fact'', a process which requires the Commissioner to apply the relevant statutory provisions to the state of fact, making such findings and exercising such functions in the way of forming an opinion, attaining a state of satisfaction or exercising a discretion as the Act commits to him to perform in the circumstances of each case.

Section 174 imposes upon the Commissioner a duty to serve a written notice of assessment upon a person liable to pay tax ``as soon as conveniently may be after any assessment is made'', and the production of that notice of assessment or of a copy is ``conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct'' (sec. 177(1)). Section 204 makes the tax assessed due and payable by the person liable to pay on a date prescribed by the section, being a date after service of the notice. The tax assessed becomes a debt due to the Crown (sec. 208), recoverable at the suit of the Commissioner or a Deputy Commissioner (sec. 209).

Clearly enough, the scheme of the Act is to preclude controversy in proceedings for the recovery of tax (see per Kitto J. in
Batagol v. F.C. of T. (1963) 109 C.L.R. 243 at p. 252 ) and to require proceedings to challenge the correctness of ``the amount and all the particulars of the assessment'' to which a notice of assessment relates to be taken under Pt. V of the Act - Objections and Appeals. If an objection or an appeal is successful, the assessment may be amended by the Commissioner in order to give effect to the decision (sec. 170(1) and (7)) and the notice of amended assessment issued consequently serves the same purpose and has the same force as the notice it displaces.

Where a taxpayer is dissatisfied with the Commissioner's decision on his objection against an assessment made by the Commissioner, the taxpayer may require that decision to be referred to a Board of Review for review, or to be treated as an appeal and forwarded to a Supreme Court (sec. 187, 188). Section 190 governs the procedure in material respects:

``Upon every such reference or appeal -

  • (a) the taxpayer shall be limited to the grounds stated in his objection; and
  • (b) the burden of proving that the assessment is excessive shall lie upon the taxpayer.''

In
McCormack v. F.C. of T. 79 ATC 4111 , Gibbs, Stephen and Murphy JJ. held that the burden of proving that an assessment is excessive rests on the taxpayer not only upon a reference to a Board of Review but also when the taxpayer appeals to a Supreme Court against a Board of Review decision under sec. 196(1), although such an appeal is in truth a proceeding in the original jurisdiction of a Supreme Court and is not a true appeal.

In the present case, the respondent seeks to confine the principle expressed in McCormack to a taxpayer's appeal from a Board. When a taxpayer fails before a Board, he carries the burden of proving that the assessment originally made by the Commissioner is excessive. But it is submitted that the Commissioner's

ATC 4599

assessment is displaced when a taxpayer succeeds before a Board and the Board, in exercise of the powers conferred upon it by sec. 193(1) and 195(1), itself makes an assessment in the place of the original assessment. If the taxpayer does not seek to challenge the Board's assessment, so the argument runs, he has no relevant burden to discharge: on ordinary principles the Commissioner, as the party invoking the jurisdiction of the Court and seeking relief at its hands, bears the burden of proving that the Board's assessment is insufficient.

When a taxpayer appeals from a decision of a Board confirming the Commissioner's assessment, the position established according to ordinary principles governing the burden of proof coincides with the position created by sec. 190(b) (see per Gibbs J. in McCormack, supra, at p. 4120). Or, as Kitto J. said in
McAndrew v. F.C. of T. (1956) 98 C.L.R. 263 at p. 273 , ``[t]he Act... reinforces this position by specific provision''. But when the Commissioner appeals, it is submitted, sec. 190(b) has no relevant operation, and on ordinary principles the Commissioner as appellant bears the Commissioner as appellant bears the burden of showing that the Board's assessment is incorrect and insufficient.

The burden of ``establishing a case'' requires a party on whom the burden is cast by law to prove the facts which are elements of that party's claim, his entitlement to relief or his defence, as the case may be. The burden imposed by sec. 190(b) upon a taxpayer is distributive, extending to proof of any fact which it is necessary for the taxpayer to establish in order to displace the assessment (
Danmark Pty. Ltd. v. F.C. of T. (1944) 7 A.T.D. 333 at p. 337 ), and he bears the burden of proving facts to show that the Commissioner's assessment is in error because it reflects the erroneous inclusion of a particular amount in his assessable income, or the erroneous exclusion of a particular amount from his allowable deductions (cf.
Macmine Pty. Ltd. v. F.C. of T. 79 ATC 4133 per Stephen J. at p. 4146). The issues involved in determining what is his true taxable income and in assessing his true tax liability may be various, but if the issues before the Supreme Court on a Commissioner's appeal under sec. 196 correspond with issues to which sec. 190(b) applied before the Board of Review, sec. 190(b) has the same application in the Supreme Court with respect to those issues as it had in the Board of Review. As Gibbs J. said in McCormack, supra, at p. 4120:

``Although an appeal to the Supreme Court from a decision of a board of review is not a true appeal, but a proceeding in the original jurisdiction of the court, it is not only called an appeal, but has some of the characteristics of an appeal, and it is natural to conclude that it was intended that the court of appeal would apply no different rule as to the burden of proof from that which the board was required to apply.''

Of course proceedings before and a decision by a Board of Review are administrative in nature, and proceedings before and a decision of a Supreme Court on appeal from a Board of Review are judicial in nature (
F.C. of T. v. Munro ; British Imperial Oil Co. Ltd. v. F.C. of T. (1926) 38 C.L.R. 153 at p. 183 ). It is a feature of the difference in the nature of the proceedings that the appeal is conducted as an original cause in the Court (
F.C. of T. v. Lewis Berger & Sons (Aust.) Ltd. (1927) 39 C.L.R. 468 at p. 469 ), and when the issues before the Court involve the ascertainment of facts the Court ascertains the facts for itself upon the evidence laid before it, and not by an appellate review of the findings made by the Board (
Rowdell Pty. Ltd. v. F.C. of T. (1962-63) 111 C.L.R. 106 at p. 119 ;
Krew v. F.C. of T. 71 ATC 4213 at p. 4216 ; McCormack, supra, at p. 4122). But the Court in entertaining the substantive appeal does not enter upon the determination of issues which were not before the Board: to do so would falsify the description of the proceedings as an appeal.

If the issues in the appeal to the Court are not confined to the issues before the Board, how are the issues in the appeal to be defined? If, as the respondent submits, the Court is to decide simply whether the Board's decision or assessment was correct without reference to the issues which the Board resolved in reaching its decision, how might the appeal be resolved except by allowing both parties to canvass without limitation every fact or provision which might be relevant to the making of a correct assessment? But the limitation imposed upon the taxpayer by sec. 190(a) precludes him

ATC 4600

from raising on appeal from a Board of Review any grounds which he had not stated in his objection (
Archer Bros. Pty. Ltd. v. F.C. of T. (1952-53) 90 C.L.R. 140 ), a limitation which would be anomalous if the issues in the appeal might include issues which were not before the Board.

In
F.C. of T. v. Western Suburbs Cinemas Ltd. (1952) 86 C.L.R. 102 , a Commissioner's appeal from a Board of Review, Kitto J. held the issues to be those to which the mind of the Commissioner was directed by the written notice of objection. His Honour said (at p. 106):

``The ground of objection which he [the draftsman of the taxpayer's grounds of objection] stated was that £ 603 was an allowable deduction because that was the amount which would have been expended if the company had decided to repair the dangerous portion of the ceiling instead of deciding to replace the entirety. To this ground the company was limited before the Board of Review by force of s. 190(a), and as a necessary consequence it is similarly limited on this appeal. I should therefore reject as incompetent, even if I did not think it erroneous, the contention advanced before me that £ 603 should be treated as an allowable deduction on the ground that it is part of a larger sum to the whole of which s. 53 applies. The Commissioner, when considering whether the objection should be allowed, could not reasonably be expected to gather from the written objection that he was being asked to apply his mind to any such contention.''

(Emphasis added.)

This passage was cited with approval in the joint judgment of the High Court in Archer Bros. supra, at p. 149.

There is nothing in the terms of sec. 196 which suggests that the issues in the appeal are different from the issues before the Board. However, where an enlargement of taxable income is conditioned upon the Commissioner's formation of an opinion, his attaining a state of satisfaction or his exercise of a discretion, the difference between the powers of the Board on review and the jurisdiction of the Court on appeal is reflected in a difference in the way in which they respectively determine whether the condition is fulfilled. The Board is empowered to review the Commissioner's opinion, satisfaction or discretion on the merits (sec. 193), but the Court has no jurisdiction to do so (see
Denver Chemical Manufacturing Co. v. C. of T. (N.S.W.) (1949) 79 C.L.R. 296 at pp. 312, 313 ). When a taxpayer attacks the Commissioner's performance of his functions in cases of these kinds, the issue before the Board of Review is whether the Commissioner correctly exercised the functions committed to him to perform, and if the Board concludes that the function was incorrectly performed by the Commissioner, the Board is authorized to substitute its opinion, satisfaction or discretion for that of the Commissioner (sec. 193). The Court has no jurisdiction to exercise such an administrative function (
Commr. of Stamp Duties (N.S.W.) v. Pearse & Ors. (1951) 84 C.L.R. 490 at pp. 517, 518; affd. (1954) A.C. 91 ). In an appeal to the Court, the issue is the validity, not the correctness, of the performance of the function. As Dixon J. said in Denver Chemical Manufacturing Co., supra, at p. 312:

``... it has to be borne in mind that the question is whether they have exercised their functions according to law and it is a question of the validity of their conclusion rather than its intrinsic correctness.''

Where a Board of Review substitutes its opinion, satisfaction or discretion for that of the Commissioner, it has long been held that on appeal the Court is concerned with the validity of the Board's exercise of its powers under sec. 193, rather than with the validity of the Commissioner's performance of his functions (ibid. p. 312). The Commissioner's function, though his assessment may have turned upon it, is superseded by the exercise of the Board's powers under sec. 193 - and this despite the provision in sec. 193 that the Board's decisions are not deemed to be decisions of the Commissioner ``for the purpose of... review thereof and appeals therefrom''.

There is a consequent asymmetry in the way in which issues as to the fulfilment of conditions of these kinds are resolved by the Board and the Court respectively. A taxpayer seeking to prove to the Court that the Commissioner's assessment is excessive may show that a challenged liability was

ATC 4601

conditioned upon the Commissioner's performance of a function, and that that performance of function has been set aside by the Board in exercise of its powers under sec. 193. To repel the taxpayer's case, the Commissioner would need to show that the Board has acted invalidly, not merely incorrectly. He may show this by showing that the Board was affected by a mistake of law, or took into account an extraneous consideration, or failed to take into account some factor which ought to have been considered or formed the opinion or acted on material which could not reasonably support the relevant opinion or state of satisfaction (cf. per Gibbs J. in
Brambles Holdings Ltd. v. F.C. of T. 77 ATC 4481 at pp. 4485-86; (1977) 138 C.L.R. 467 at p. 476 ).

Subject to this qualification, it may be said that an appeal under sec. 196(1) connotes a hearing and determination by the Court of issues which were before a Board of Review in the proceedings in which the decision under appeal was made. The appeal against that decision is determined by resolving the same issues by reference to the evidence adduced before the Court. The decision of a Board is not, so to speak, a new root of litigation from which new issues grow. Neither sec. 193 nor 195 requires the Board's decision to be so regarded. The wide powers conferred by sec. 193 are machinery for giving effect to a Board's decision. The powers conferred by sec. 193 and 195 may be exercised to vary or create an assessment which takes effect according to its tenor, but the powers so conferred are ``form only'', to use the phrase which Isaacs J. applied to the statutory predecessor of sec. 195(1) in F.C. of T. v. Munro (supra; affd. sub nom.
Shell Co. of Australia Limited v. F.C. of T. (1931) A.C. 275 at p. 295 ).

A decision by a Board of Review in favour of a taxpayer does not necessarily result in the making of a new assessment, or in the reduction or variation of the Commissioner's assessment. A decision against which the Commissioner may wish to appeal might be so expressed as to leave it to the Commissioner to give effect to the Board's decision by amending the assessment (see per Knox C.J. in
F.C. of T. v. West Australian Trustee Executor & Agency Co. Ltd. (1929) 43 C.L.R. 20 at p. 23 ). It is not to be thought that the issues on appeal from a Board will differ according to the form in which the Board chooses to cast the results of its decision.

In the present case, we were furnished with a copy of the Board's decision which reads, inter alia:

``5. For the reasons herewith the Board decides to uphold the company's claims.

6. Assessments to be amended accordingly.''

It is at least doubtful whether the Board purported to make a new assessment or to reduce the assessment made by the Commissioner.

The issues in the substantive appeal are the issues before the Board (subject to the qualification mentioned) whether the appeal be instituted by the taxpayer, the Commissioner or by both, and whether the form of the Board's decision brings a Board assessment into existence or not. To these issues, sec. 190(b) applies. Had the High Court perceived a difference in the issues in an appeal dependent upon these factors, the perception would doubtless have evoked some qualifying observations upon the principle expressed in McCormack, supra, as applying to sec. 196 appeals generally. Gibbs J. (with whom Stephen J. agreed) expressed the principle as applicable generally when he said (at p. 4120):

``In McAndrew v. F.C. of T. (1956) 98 C.L.R. 263, at p. 277, Kitto J. referred to `the general policy, so clearly evinced in Pt. IV of the Act (comprising sec. 161 to 177) and sec. 190(b), of making all assessments unchallengeable except in so far as the taxpayer may displace them on appeal'. There is no reason why that policy should have been excluded in relation to appeals brought to the Supreme Courts from boards of review, and it would be most anomalous if on such an appeal the taxpayer did not bear the burden of proving the assessment excessive, when on a reference to a board, and on an appeal direct to the Supreme Court, and on any further appeal brought from the Supreme Court, the taxpayer does bear that burden.''

Murphy J. (at p. 4132) expressed the view that sec. 190(b) ``is applicable on appeal whether or not the Board has varied the

ATC 4602

assessment'' and he cited as instances of this proposition two cases both of which were Commissioner's appeals:
F.C. of T. v. Robinson & Mitchell Pty. Ltd. (1941) 64 C.L.R. 612 at p. 618 and
Watson v. F.C. of T. (1953) 87 C.L.R. 353 at p. 363 .

In an appeal under sec. 196, whether it is brought by a taxpayer or by the Commissioner, sec. 190(b) has the same operation as it had in the proceedings before the Board of Review. The taxpayer bears the burden of proving each of the facts which must be established to show, within the limits defined by the notice of objection and the notice of appeal, that the Commissioner's assessment is excessive. It is not now material to consider whether sec. 190(b) places on a taxpayer an onus to exclude a proviso or exception which the Commissioner would ordinarily have the burden of establishing (cf.
Vines v. Djordjevitch (1955) 91 C.L.R. 512 at p. 519 ;
Australasian Jam Co. Pty. Ltd. v. F.C. of T. (1953) 88 C.L.R. 23 at p. 34 ). Nor is it material to consider how a taxpayer may discharge a particular burden of proof which sec. 190(b) places on him (cf.
Gauci v. F.C. of T. 75 ATC 4257 ; (1975) 135 C.L.R. 81 ; McCormack and Macmine Pty. Ltd., supra). It is sufficient to say that sec. 190(b) operates in an appeal under sec. 196(1) in respect of the issues before the Court to which it applies.

There are, however, some collateral or jurisdictional issues to which sec. 190(b) does not apply. The party invoking the jurisdiction of a Supreme Court under sec. 196(1) must show that there is a decision of the Board that involves a question of law, in order to show that he is entitled to invoke the jurisdiction of the Court to obtain relief against that decision. Frequently this will be shown by reference to the written decision of the Board (sec. 195(1)) and to the reasons for that decision given by the members of the Board. The question of law must have been involved in the Board's decision but once that is shown ``the whole decision of the Board, and not merely the question of law, is then open to review'' (
Ruhamah Property Co. Ltd. v. F.C. of T. (1928) 41 C.L.R. 148 at p. 151 ).

The Commissioner may, by reference to his notice of appeal, by proof of his assessment, the notice of objection, his decision on the objection, the reference and the Board's decision, and by proving that that decision involved a question of law, establish his entitlement to appeal and define the issues to which sec. 190(b) applies. If the taxpayer does not then discharge the burden which sec. 190(b) places upon him with respect to an issue so defined, the Commissioner succeeds on that issue. But the Commissioner must first show that there are justiciable issues, and he therefore has an initial burden of adducing evidence for that purpose.

The questions posed in the special case are not altogether appropriate to be answered consistently with the views expressed, and I would concur in the answers and in the order proposed by the Chief Judge.

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The orders of the Supreme Court of 24 June 1980 be set aside.

3. The questions in the special case stated in the Supreme Court on 23 June 1980 be answered as follows:

Question 1

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.

Answer 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.

Question 2

Whether at the hearing the appellant or the respondent should begin.

Question 3

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.

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Answers 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).

Question 4

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.

Answer 4

Yes, provided jurisdiction is shown and the assessment is in evidence before the Supreme Court.

4. 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.


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