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B.O.A. Pty. Limited v. Federal Commissioner of Taxation.

Judges:
Rogers J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 15 September 1981.

Rogers J.

B.O.A. Pty. Limited (``the Taxpayer'') was incorporated in October 1959. It proved to be financially unsuccessful in its business of manufacturing and distributing bowling equipment. As at 30th June, 1972, its balance sheet showed accumulated losses of $2,297,812. Its accumulated losses for tax purposes were $1,744,768. It owed its major shareholder, Marrickville Holdings Pty. Limited (``Marrickville'') $1,343,150.

In 1972 it was determined by those responsible for the Taxpayer's future, that the accumulated tax losses should be utilised. Advice was taken and some share transfers were effected, details of which I will mention later. In January 1973, Marrickville transferred one of its profitable assets, a snack food business, to the Taxpayer, which thereafter derived substantial income from the conduct of this new business. In the income tax returns which the taxpayer filed for each of the years ending 30th June, 1973 to 1976, it claimed to set off against the income earned from the snack food business the losses which had been accumulated during the income years 30th June 1966 to 30th June 1972.

In claiming these deductions of previous years' losses, the Taxpayer was relying upon the provisions of sec. 80(2) of the Income Tax Assessment Act, 1936, which permitted a taxpayer to claim as a deduction losses incurred within the previous seven years. However, the prima facie availability of such deductions was denied by subsequent provisions of the Act if the conditions enshrined in them were not complied with. These sections were the subject of some amendment during the relevant years. In the form in which it stood prior to Act No. 51 of 1973, sec. 80A(1) provided as follows:

``Notwithstanding sections eighty and eighty AA of this Act, but subject to the next succeeding sub-section and the next four succeeding sections, a loss incurred by a taxpayer, being a company, in a year before the year of income shall not be taken into account for the purposes of section eighty or section eighty AA of the Act unless -

  • (a) the company satisfies the Commissioner; or
  • (b) in the case of a company that is not a private company in relation to the year of income, the Commissioner is satisfied that it is reasonable to assume,

that, at all times during the year of income, shares in the company carrying between them -

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  • (c) the right to exercise not less than two-fifths of the voting power in the company;
  • (d) the right to receive not less than two-fifths of any dividends that may be paid by the company; and
  • (e) the right to receive not less than two-fifths of any distribution of capital of the company in the event of the winding up, or of a reduction in the capital, of the company,

were beneficially owned by persons who, at all times during the year in which the loss was incurred, beneficially owned shares in the company carrying rights of those kinds.''

Section 80B(5) made the following provision:

``Where -

  • (a) a person who beneficially owned any shares in the company at all times during the year in which the loss was incurred also beneficially owned shares in the company at any time (in this sub-section referred to as `the relevant time') during the year of income;
  • (b) before or during the year of income, that person entered into a contract, agreement or arrangement, or granted or was granted a right, power or option (including a contingent right, power or option), that, in any way, directly or indirectly, related to, affected, or depended for its operation on -
    • (i) the beneficial interest of that person in the last-mentioned shares, or the value of that interest;
    • (ii) the right of that person to sell, or otherwise dispose of, that interest, or any such sale or other disposition;
    • (iii) any rights carried by those shares, or the exercise of any such rights; or
    • (iv) any dividends that might be paid, or any distribution of capital that might be made, in respect of those shares, or the payment of any such dividends of the making of any such distribution of capital; and
  • (c) the contract, agreement or arrangement was entered into or the right power or option was granted, for the purpose, or for purposes that included the purpose, of enabling the company to take into account for the purposes of section eighty or section eighty AA of this Act a loss that the company had incurred in a year before the year in which the contract, agreement or arrangement was entered into or the right, power or option was granted or a loss that the company might incur in that last-mentioned year,

the Commissioner may, subject to the succeeding provisions of this section, treat those shares as not having been beneficially owned by that person at the relevant time.''

Act No. 51 of 1973 amended sec. 80A(1) with effect from 1st July, 1973 so as to increase the requirement for continued shareholding with the prescribed rights from 40% to 50%. Section 80B(5) was amended so that thenceforth it read as follows:

``Where -

  • (a) the company claims that a person beneficially owned shares in the company at a time during the year in which the loss was incurred and also beneficially owned shares in the company at a time (in this sub-section referred to as the `relevant time') during the year of income;
  • (b) before or during the year of income, an agreement was entered into, or a right, power or option (including a contingent right, power or option) was granted, being an agreement, right, power or option that, in any way, directly or indirectly, related to, affected, or depended for its operation on -
    • (i) the beneficial interest of that person in the last-mentioned shares, or the value of that interest;
    • (ii) the right of that person to sell, or otherwise dispose of, that

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      interest, or any such sale or other disposition;
    • (iii) any rights carried by those shares, or the exercise of any such rights; or
    • (iv) any dividends that might be paid, or any distribution of capital that might be made, in respect of those shares, or the payment of any such dividends or the making of any such distribution of capital; and
  • (c) the agreement was entered into, or the right, power or option was granted or acquired, for the purpose, or for purposes that included the purpose, of enabling the company to take into account for the purposes of section 80 or section 80AA a loss that the company had incurred in a year before the year in which the agreement was entered into or the right, power or option was granted or a loss that the company might incur in that last-mentioned year,

the Commissioner may, subject to the succeeding provisions of this section, treat those shares as not having been beneficially owned by that person at the relevant time.''

In addition, with effect from 1st July, 1972, sec. 80DA was inserted into the Act, providing as follows:

``(1) Notwithstanding sections 80 and 80AA but subject to section 80E, a loss, or a part of a loss, incurred by a company in a year (in this section referred to as `the year of loss'), before the year of income shall not be taken into account for the purposes of section 80 or section 80AA if -

  • (a) during the year of income the company derived income that the company would not have derived if the loss, or the part of the loss had not been available to be taken into account for the purposes of section 80 or section 80AA;
  • (b) a person other than the company will, either directly or indirectly, receive any benefit or obtain any advantage in relation to the application of this Act as a result of the operation of any agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business that would not have been entered into or carried out if the loss, or the part of the loss, had not been available to be taken into account for the purposes of section 80 or section 80AA;
  • (c) the affairs or business operations of the company were managed or conducted during the year of income without proper regard to the rights, powers or interests of continuing shareholders in the company; or
  • (d) during the whole or any part of the year of income the voting power in the company was, either directly or through one or more interposed companies, trustees, or partnerships, controlled by a person who did not, either directly or through one or more interposed companies, trustees or partnerships, control the voting power in the company during the whole of the year of loss or, in a case to which sub-section (5) of section 80A applies, during the part of the year of loss referred to in that sub-section, and that person acquired the control of that voting power for the purpose, or for purposes that included the purpose, of receiving any benefit or obtaining any advantage in relation to the application of this Act or securing that another person would receive such a benefit or obtain such an advantage.

(2) Paragraph (a) of sub-division (1) applies notwithstanding that the income was derived by the company in the course of ordinary family or commercial dealing but that paragraph does not apply where the continuing shareholders will benefit from the derivation of the income to an extent that the Commissioner considers to be fair and reasonable having regard to their rights and interests in the company.

(3) Without limiting the generality of paragraph (b) of sub-section (1), a person shall be deemed, for the purposes of that paragraph, to receive a benefit or obtain an advantage in relation to the application of this Act if the person is not liable to

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pay income tax in respect of a year of income, or the liability of the person to pay income tax in respect of a year of income is reduced, by reason that the person has not derived income that the person would have derived if the agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business had not been entered into or carried out.

(4) Paragraph (b) of sub-section (1) applies notwithstanding that the agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business was entered into or carried out in the course of ordinary family or commercial dealing but that paragraph does not apply in relation to a benefit or advantage that is received or obtained by a person who had a shareholding interest in the company in the year of income, being a benefit or advantage that the Commissioner considers to be fair and reasonable having regard to that shareholding interest.

(5) For the purposes of this section -

  • (a) a person has a shareholding interest in a company if he is the beneficial owner of, or of an interest in, any shares in the company; and
  • (b) where a person has a shareholding interest in a company that has a shareholding interest in another company (including a shareholding interest that the company has in that other company by any other application or applications of this paragraph) that person shall be deemed to have a shareholding interest in that other company.

(6) For the purposes of the application of this section in relation to a loss, or a part of a loss, incurred by a company, a reference in this section to continuing shareholders in the company shall -

  • (a) if sub-section (1) of section 80A applies for the purpose of determining whether the loss, or the part of the loss, is to be taken into account for the purposes of section 80 or section 80AA - be read as a reference to persons referred to in sub-section (1) of section 80A; and
  • (b) if sub-section (3) of section 80A applies for the purpose of determining whether the loss, or the part of the loss, is to be so taken into account - be read as a reference to persons referred to in sub-section (3) of section 80A.

(7) In determining for the purposes of this section whether the affairs or business operations of a company were managed or conducted as mentioned in paragraph (c) of sub-section (1), regard shall be had to any act or thing done in the course of the management or conduct of those affairs or business operations, irrespective of the purpose or purposes for which that act or thing was done and notwithstanding that the doing of that act or thing took place in the course of ordinary family or commercial dealing.

(8) For the purposes of this section, it shall be taken that -

  • (a) income would not have been derived by a company if a particular act had not been done;
  • (b) income would have been derived by a person if a particular act had not been done; or
  • (c) an agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business would not have been entered into or carried out if a particular act had not been done,

where the income would not have derived by the company, the income would have been derived by the person, or the agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business would not have been entered into or carried out, as the case may be, if none of two or more acts (including that act) had been done.

(9) A reference in sub-section (8) to the doing of an act includes a reference to the happening of an event of a matter or circumstance.''

Notices of Assessment bearing date 31st May, 1977 were issued by the Commissioner of Taxation in respect of the years of income ending 30th June, 1973 to 1976. The figures showed that the Commissioner had assessed

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the Taxpayer to income tax without allowing the previous years losses. That he proceeded on such a basis was made clear by an adjustment sheet which accompanied the Notices of Assessment and which stated ``Previous years losses disallowed in terms of sec. 80DA''. The statement in the adjustment sheet was one of the foundations for a submission advanced by the Taxpayer before the Taxation Board of Review and repeated before me. It will be necessary to deal with this argument in detail a little later.

The Taxpayer duly filed Notices of Objection dated 29th July, 1977. Conformably with the accepted practice and in fulfilment of the obligation imposed upon the Taxpayer by sec. 190(b) of the Act to prove that the assessments were excessive, the Notices of Objection sought to repel every conceivable basis upon which the Commissioner could deny the availability of the previous years losses as a deduction. It has been recognised for a long time that there is a high degree of artificiality in the framing of Notices of Objection. This is due to two factors: firstly, the taxpayer is confined to the grounds of objections set out in his Notice (sec. 190(a)); secondly, the Commissioner may, subject to little impediment, rely on any provisions of the Act in supporting the assessment. The difficulty which lies in the Taxpayer's path has been aggravated by amendments which have been made in more recent years grounding the liability of taxpayers on opinions formed by the Commissioner or on his state of satisfaction as to the existence of certain matters. The difficulty in framing Notices of Objection and in determining what path to follow in launching an appeal following disallowance of objections, has not at all been made easier by the different approach which is called for from the Board of Review on the one hand and a Court on the other, when dealing with an appeal from an assessment which does or may involve an opinion formed by the Commissioner or a state of satisfaction on his part as to the existence or otherwise of certain matters.

When the Commissioner issues a Notice of an Assessment, the taxpayer does not know and has no assured means of learning, whether the Commissioner has or has not formed a certain opinion or is or is not satisfied as to the existence of certain matters. Self-evidently, even where the ultimate assessment is unfavourable to the taxpayer and elicits a Notice of Objection from it, a taxpayer would not wish to disturb so much of the process of assessment as involved the formation by the Commissioner of an opinion favourable to the taxpayer or an aspect of the matter in relation to which the Commissioner has been satisfied of matters in a way favourable to the taxpayer. Nonetheless, not knowing whether or not the opinion of the Commissioner is or is not favourable, or whether the Commissioner has or has not been satisfied as to the existence of a state of facts crucial to the taxpayer's success, it has no option but to incorporate in its Notice of Objection, grounds founded on the assumption that the Commissioner's opinion and state of satisfaction have been adverse to the taxpayer at every stage of the assessment.

It was no doubt for reasons such as the foregoing that in each of the Notices of Objections there was included a ground which read as follows (for the sake of convenience I will use the form of the Notice of Objection relating to the year ended 30th June, 1973):

``4. At all times during the year of income ended 30th June, 1973, shares carrying between them the rights mentioned in Section 80A(1)(c), (d) and (e) were beneficially owned by persons who at all times during the years of income ended 30th June, 1966 and 30th June, 1967 respectively beneficially owned shares in the company carrying between them the rights of those kinds, and the Commissioner is, or ought to be, so satisfied''

(emphasis added).

It will be perceived that this ground of objection made two material points. Firstly, that in point of fact, the Commissioner was satisfied as to the matters referred to, and secondly, or alternatively, that if he was not satisfied he ought to have been. The Commissioner disallowed the Taxpayer's objections and conformably with the rights accorded to it by the Act, the Taxpayer required the objections to be referred to a Board of Review. The matter duly came before the Board where the Taxpayer continued to maintain the alternative approaches delineated in its Notice of Objection.

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That such was the course of proceedings before the Board is made clear from the reasons given by the Members of the Board which were tendered in evidence before me. I should interpolate here, that as appears from para. 10 of the Chairman's Reasons, the statement which was provided to the Board by the Commissioner pursuant to the requirements of reg. 35(1) claimed that the deductions sought were not allowable because of the provisions of sec. 80A(1) and 80B(5), as well as sec. 80DA. Before the Board the Taxpayer appeared to put in the forefront of its submissions the proposition that the adjustment sheet clearly showed that when making the assessment, the Commissioner was satisfied that the Taxpayer met the requirements of sec. 80A(1) and that the Commissioner did not treat the shares in the manner permitted by sec. 80B(5) (see Reasons of the Chairman para. 11; (with whose Reasons Mr. Harrowell agreed); Mr. Fairleigh Q.C. para. (a)). As an alternative and additional argument, counsel for the Taxpayer set out before the Board to seek, if he could, to affirmatively demonstrate the Commissioner's state of mind and attitude in the relevant respects. For this purpose, he sought the issue of a Notice to Produce addressed to the Commissioner calling for production of the whole of the file relating to the Taxpayer. The Board declined to draw the inference contended for by counsel for the Taxpayer and declined to issue a Notice to Produce. Once again, it is appropriate to return to these matters later.

In the ultimate outcome, the Board confirmed the assessments, holding that the requirements of sec. 80A were not satisfied and in any event, sec. 80B(5) operated to deny an entitlement to deduction and finally that sec. 80DA was not satisfied in various respects in respect of different years of income.

Appeals were brought from these determinations of the Board to this Court and by consent, the appeals relating to the several years of income were heard together.

On the first day of the hearing, Counsel for the Taxpayer called on the Commissioner to produce his files relating to the Taxpayer pursuant to a subpoena duces tecum. On their being produced, access was sought to them. For the reasons which I gave in the course of the hearing, I refused Counsel access to the files. At the conclusion of the evidence, further and more elaborate argument was submitted in support of a claim that the Taxpayer was entitled to access to the files and later, in support of an application for adjournment in order to test my earlier ruling. Additionally, in the course of the hearing, the Notices of Appeal were amended so as to tender for consideration the propriety in law of the course which was followed before the Board and in particular, to allow Counsel to contend that the Board should have found that the Commissioner had been satisfied of the matters in sec. 80A and had declined to treat the shares in the manner permitted by sec. 80B(5) or alternatively, that a Notice to Produce should have issued, securing production of the files.

The matters thus put in issue involve consideration of the position and duty of a Board of Review in receiving assessments made by the Commissioner and the function of the Court in entertaining appeals so called from decisions of the Board.

At the heart of the submission advanced by Counsel for the Taxpayer lies the proposition that in carrying out the task of assessment, once the Commissioner forms an opinion or arrives at a state of satisfaction or determines a matter favourably to the Taxpayer, whether an appeal is taken from the assessment to the Board or to the Court, no issue as the Commissioner's opinion or satisfaction or determination can or will arise. The Taxpayer seeks to derive this proposition from the judgment of the High Court in
Kolotex Hosiery (Aust.) Pty. Ltd. v. F.C. of T. 75 ATC 4028; (1975) 132 C.L.R. 535. That also was a decision involving a challenge to the Commissioner's refusal to allow a deduction of previous years' losses. An appeal against the assessment was taken to Mason J. sitting as a single Judge of the High Court and on it being dismissed, an appeal was taken to the Full Court. That appeal was also dismissed, with the Chief Justice dissenting. The Chief Justice said (ATC pp. 4031-4032; C.L.R. pp. 541-543):

``But it is important to observe that where the Legislature takes such a course it will be the Commissioner's relevant state of

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mind at the point of assessment which will be determinative. In emphasising that the Commissioner's state of mind at the time of assessment is a relevantly critical fact, I include in that connection the time up to the date of the issue of the assessment, a period during which the Commissioner may reconsider his assessment...

Quite clearly the Court cannot in any event substitute its view of any of the matters as to which the Act says the Commissioner is to be satisfied. It can of course decide that because of established facts or because of legal considerations the Commissioner could not have failed to have been satisfied. But if he is satisfied, it matters not in my opinion that he ought not to have been satisfied. The Court cannot overturn that satisfaction.

It may be that in a case where the records of the Commissioner do not disclose whether or not he was satisfied of such a matter, the Court may treat the Commissioner as having been satisfied if the assessment in question is consistent with his having been so satisfied...

Where the Commissioner has in fact been satisfied, in my opinion, he may not resile therefrom. The taxpayer will have no reason to challenge that satisfaction, being a circumstance in its favour. No issue as to the Commissioner's satisfaction will arise in the proceedings before the Court in relation to the assessment, and, as I have indicated, the Court may not examine that satisfaction or substitute its own conclusion for the affirmative conclusion of the Commissioner.

Thus in the present case if it were concluded that the Commissioner had in fact been satisfied at the time of assessment of the requirements of sec. 80A or sec. 80C, it is my opinion that there would be no warrant for the Court to do other than to accept and act upon that state of satisfaction whatever the Court may think of its propriety. The Commissioner could not in my opinion become dissatisfied after the issue of the assessment and seek to defend the assessment upon a new basis of fact or legal construction leaving it to the taxpayer to establish that the assessment was excessive. In the case of a statutory provision which makes the satisfaction or lack of satisfaction on the part of the Commissioner of a fact or situation an element in the process of assessment, the Commissioner when he has issued his assessment is, in my opinion, bound by his own subjective conclusions held by him at the time of the assessment...

Put another way the taxpayer, where the Commissioner is satisfied, need not show that the Commissioner could properly have been satisfied of that of which he was in fact satisfied. The taxpayer has the benefit of that satisfaction which as I have said the Commissioner may not retract. Nor as it seems to me can the Commissioner defend the assessment (to use the language found in the Commissioner's file on the present case), by attempting to establish a different state of mind formed after making of the assessment and perhaps upon material not before him at the time of the assessments. Facts supervening upon the making of an assessment or which though then existing were subsequently ascertained may possibly give rise to grounds for amendment of the assessment: but in my opinion they cannot justify a state of mind not present at the time of the assessment''

(emphasis added).

Gibbs J. was more guarded when at ATC p. 4048; C.L.R. p. 567 he said:

``Once the Commissioner is in fact satisfied he is bound to allow the deduction, although of course only to the extent allowed by the provisions of sec. 80. If the Commissioner has in fact been satisfied he cannot subsequently refuse a deduction on the ground that he ought not to have been satisfied unless in the circumstances he is entitled to amend the assessment under sec. 170 of the Act... Moreover, when the Commissioner has been satisfied of the matters stated in sec. 80C(1)(a) but has refused a deduction because he has not been satisfied of matters stated in sec. 80C(1)(b), he is not estopped thereafter from changing his mind and deciding that he is no longer satisfied of the former matters. Once the Commissioner has been satisfied of all the matters mentioned in sec. 80A or sec.

ATC 4500

80C, the condition of the section has been fulfilled and the obstacle which it raises to the allowance of a deduction has been overcome. However, if the Commissioner has failed to reach complete satisfaction as to all the requisite matters and his decision becomes open to review, he is not precluded from saying that he was wrong in expressing satisfaction as to some of the matters mentioned in the section.

In the present case the Commissioner was not in fact satisfied of the matters stated in either sec. 80A or of those stated in sec. 80C and the first contention made on behalf of Kolotex fails.

The questions that then arise are whether the conclusion of the Commissioner is open to review and, if so, whether it should be held that he should reach the requisite satisfaction. The grounds on which the conclusion by the Commissioner that he is not satisfied may be examined by a court of appeal are those stated in
Avon Downs Pty. Ltd. v. F.C. of T. (1949) 78 C.L.R. 353 at p. 360; see also F.C. of T. v. Brian Hatch Timber Co. (Sales) Pty. Ltd. A board of review may have wider powers - see per Owen J. in
F.C. of T. v. Brian Hatch Timber Co. (Sales) Pty. Ltd. 72 ATC 4001, at p. 4012; (1972) 128 C.L.R. 28, at p. 59''

(emphasis added).

The possible distinction which is contemplated in the judgment of Gibbs J. between an appeal to the Board of Review and an appeal to the Court, is in my opinion, of crucial relevance in the present case. To place the question in the correct perspective it is necessary to have regard to the statutory setting in which the respective appeal provisions are placed.

Section 166 of the Act requires the Commissioner to make an assessment, both of the taxable income of the taxpayer and of the tax payable thereon. Section 174 calls on the Commissioner to give notice to the taxpayer of the assessment he has made. No provision is made for adjustment sheets of the kind employed in this case and indeed generally, nor is it incumbent upon the Commissioner to designate the reasons or the statutory provisions which move him either to include particular items of receipt as income or to deny a deduction sought.

Section 185 requires a taxpayer to lodge with the Commissioner within the time limited, an objection in writing against the assessment ``stating fully and in detail the grounds on which he relies''. The sanction against failure to do so is contained in sec. 190(a) which limits the taxpayer to the grounds stated in his Notice of Objection. Subsection (b) throws upon the taxpayer the onus of proving that the assessment is excessive. The Commissioner is required to consider the objection and he may then either disallow it or allow it either wholly or in part (sec. 186). Any taxpayer dissatisfied with the decision may then either have the matter referred to the Board of Review for that purpose, or treat the objection as an appeal and forward it to the Supreme Court. Once the matter comes before the Board of Review, its powers are those specified in sec. 193(1) which provides:

``For the purposes of reviewing such decisions, the Board shall, subject to this section, have all the powers and functions of the Commissioner in making assessments, determinations and decisions under this Act, and such assessments, determinations and decisions of the Board, and its decisions upon review, shall for all purposes (except for the purpose of objections thereto and review thereof and appeals therefrom) be deemed to be assessments, determinations or decisions of the Commissioner.''

By sec. 196, either the Commissioner or the taxpayer may appeal to the Supreme Court from any decision of the Board that involves a question of law.

What is important for present purposes, is that the entitlement, indeed the statutory duty of the Board, to exercise the powers and functions of the Commissioner pursuant to sec. 193(1) is totally absent in the case where an appeal is taken straight to the Supreme Court. In
Denver Chemical Manufacturing Company v. Commr. of T. (N.S.W.) (1949) 79 C.L.R. 296, the Court was concerned with the provisions of the Income Tax (Management) Act, 1936. For all relevant purposes, sec. 248 was in the same form as sec. 193(1), while sec. 255(a) was in the form of sec. 196. The taxpayer appealed against certain amended assessments to the Board of Appeal which dismissed them and a

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subsequent appeal to the Supreme Court upheld that order. The leading judgment was delivered by Mr. Justice Dixon, who said at pp. 311-312:

``In my opinion sec. 210 intends to repose in the commissioner a discretionary power to say whether there has been, in his opinion, an avoidance due to fraud and evasion, and the sections of the Acts of 1936 or 1941 dealing with objections and appeals intend to repose only in the Board of Appeal the authority to re-examine that discretion on the merits. The provisions of the Act substitute the Board of Appeal for the commissioner, once there has been a reference to the Board of Appeal as a result of an objection by the taxpayer to the exercise of the discretion, the objection having been overruled by the commissioner...

In the first place, I think it is quite clear that once there has been an appeal to the Board of Appeal and the Board has expressed its opinion the Supreme Court is no longer concerned with the opinion of the commissioner.''

Similarly, Mr. Justice Williams, who was the only other member of the Court to express his own views, in agreeing with Dixon J., said at p. 317:

``Under s. 248 of the Act of 1941 the opinion of the Board of Appeal then became the opinion of the commissioner for all the purposes of the Act except for the purpose of objections thereto and appeals therefrom. Objections and appeals therefrom were no doubt expressly accepted to make it clear that a taxpayer could not lodge an objection to the opinion of the Board similar to the objection which he could lodge to the original opinion of the commissioner.

The Board was of the same opinion as the commissioner. I agree with Dixon J. that the combined effect of ss. 238, 248 and 255 of the Act of 1941, as the Supreme Court held, is to confine the appeal to the Supreme Court under s. 255 and from this opinion to an appeal on a question of law under sub-s. 1(a) and that an appeal from such an opinion is not an appeal on a question of fact within sub-s. 1(b)... The jurisdiction of this Court, like that of the Supreme Court, is therefore limited to examining the materials on which that opinion was formed and unless the appellant can satisfy the Court that the Board acted capriciously or arbitrarily or upon irrelevant considerations the appeal on this ground must fail.''

In
Mobil Oil Australia Pty. Ltd. v. F.C. of T. (1963) 113 C.L.R. 475, the High Court was required to consider the procedure to be followed by a Board of Review in carrying out the statutory task entrusted to it by the Act. In particular, the question arose whether it was required to conform to the principles of natural justice. Discussing that question Kitto J. said at p. 502:

``It is beyond question that in the ordinary kind of case a Board of Review is not under such an obligation, for its function is merely to do over again (within the limits of the taxpayer's objection) what the Commissioner did in making the assessment - not to give a decision affecting the taxpayer's legal situation, but to work out, as a step in administration, what it considers that situation to be. The Board is `in the same position as the Commissioner himself', as the Privy Council said in Shell Company of
Australia Ltd. v. Federal Commissioner of Taxation (1931) A.C. 275 at p. 298. It is `only another executive body in an administrative hierarchy':
Jolly v. Federal Commissioner of Taxation (1935) 53 C.L.R. 206 at p. 214.''

Earlier in his judgment, Mr. Justice Kitto explained some of the Board's powers in a manner which throws into high relief the distinction between the Board's and the Court's functions. As has been mentioned, sec. 193(1) gives to the Board all the powers and functions of the Commissioner in, inter alia, making assessments, determinations, and decisions under the Act. One of the Commissioner's powers is to require any person to furnish him with information (sec. 264). Consequentially the Board may, by notice in writing, require any person to furnish it with such information as it may require and to attend and give evidence before it, to produce all documents and other papers. The Court's powers in contrast are those to be found under the relevant statutes under which it operates. The Court has no

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power to call witnesses, call for documents, to require persons to give information. Similarly, and importantly for present purposes, the Board is entitled to consider whether it is satisfied as to the existence of a certain state of facts, or whether it holds a certain opinion or whether a discretion conferred by the Act should be exercised in a particular way. That satisfaction or opinion or exercise of discretion, shall become the opinion, or satisfaction or discretion of the Commissioner. Insofar as it differs from that which the Commissioner himself had formed it replaces it. The Court has no such function.

This seems to me to be the fundamental point of difference in the approach which a Court is called upon to adopt conformably with what fell from their Honours in Kolotex (supra) and the approach which the Board is required to make to the task of reviewing assessments pursuant to the provisions of the Act. In other words, in my opinion, the Taxpayer was in error in contending, as it did before the Board, that if the Commissioner was satisfied as to the existence of the matters called for by sec. 80A and did not think that sec. 80B(5) was applicable, that was the end of the matter. Even assuming in favour of the Taxpayer that the Commissioner had indeed assessed on such basis, whether or not the Commissioner was correct in exercising his powers in that way, was a question committed to the Board of Review by the Notice of Objection and the Board was bound to form its own opinions and exercise discretion for itself.

It is with this background that I turn to consider whether there had been an error of law in the Board's hearing of the appeal. Firstly, Counsel for the Taxpayer contended that no issue arose before the Board as to whether the Commissioner had been satisfied as to the existence of the matters postulated by sec. 80A or whether he had determined to treat the shares as permitted by sec. 80B(5). This submission was inextricably bound up with the further submission of the Taxpayer that the Board should infer that the Commissioner had come to these matters favourable to the Taxpayer and therefore it was no part of the Board's function to reconsider these questions. The Board rejected this submission for a variety of reasons. In my opinion it acted correctly in doing so. Firstly, the Board did not accept the view that it should infer from the wording of the adjustment sheet that the Commissioner had decided the requisite matters favourably to the Taxpayer. Secondly, the Board took the view that in any event, the question was committed to its consideration by the Notice of Objection. The Board accepted the Commissioner's submission that its function and duty was to review the decision of the Commissioner in disallowing the objections and that the objections themselves raised the issue of sec. 80A and 80B(5).

Whether the Board should have drawn the inferences contended for by the Taxpayer was, of course, a matter for the Board. The place of an adjustment sheet in the process of assessment has been the subject of some difference in recent judicial pronouncements. In
F.C. of T. v. Reynolds 81 ATC 4131, the adjustment sheet accompanying the assessment notice showed that the Commissioner had included the profit on the sale of a truck as assessable income in reliance on the terms of sec. 26AAA of the Act. Before the Board the Commissioner abandoned reliance on sec. 26AAA, and sought to support the assessment solely under sec. 25(1). The Board allowed the taxpayer's objection, holding that the Commissioner had incorrectly relied on sec. 26AAA to support the assessment and could not subsequently seek to defend the assessment under any other section of the Act. The Commissioner appealed to the Supreme Court and Neasey J. allowed the appeal. His Honour quoted from the judgment of Williams J. in
H.R. Lancey Shipping Co. Pty. Ltd. v. F.C. of T. (1951) 25 A.L.J.R. 145 at p. 145 where that Judge said:

``It is the practice of the respondent to forward an adjustment sheet with the assessment containing information on alterations and additions made to the taxpayer's return but he is not bound to forward such a sheet. The taxpayer who receives such a sheet is generally in a better position to state fully and in detail the grounds of his objection to the assessment, so that the practice is to be commended. If such a sheet is not sent, then the taxpayer may have difficulty in understanding the basis of the assessment.''

ATC 4503

One may be permitted to say that the taxpayer is only put in a better position if in truth the Commissioner will be confined to relying on the matter set out in the assessment sheet. Otherwise, with very great respect, the sole function of the adjustment sheet is to mislead the taxpayer into believing that the case that he will have to meet ultimately is that to which the adjustment sheet refers him. It is noteworthy, as Neasey J. pointed out that in
Bailey & Ors. v. F.C. of T. 77 ATC 4096; (1977) 136 C.L.R. 214, the dictum of Williams J. was referred to without any opinion being expressed as to its correctness or otherwise. Mr. Justice Neasey emphasised that in the matter before him, the amount of profit was taxable, if at all, by the operation of sec. 26AAA or 25(1)(a) ``without the necessity of any discretionary power being exercised, or the formation of any judgment or opinion on the part of the Commissioner'' (ATC p. 4141). He then concluded that the statement in the adjustment sheet that reliance was placed upon a particular general section, was no part of the assessment. His Honour expressed no view on what his conclusion would have been had the assessment depended upon the formation of some opinion or finding of satisfaction on the part of the Commissioner as to the existence or otherwise of a particular state of facts.

The status of an adjustment sheet was again adverted to by the High Court in
F.J. Bloemen Pty. Ltd. v. F.C. of T. and Simons v. F.C. of T. 81 ATC 4280. Relevantly the assessment issued to Mr. Simons was accompanied by an adjustment sheet which stated ``Your assessment will be reviewed upon determination of the objection against your assessment for 30th June, 1977''. On the basis of this information, it was contended that the assessment was void and of no effect as being an unauthorised tentative or provisional assessment only. Mr. Justice Murphy, at p. 4290 said:

``If in an appropriate proceeding an issue should arise whether a purported notice of assessment accompanied by an adjustment sheet containing the statement is a notice of assessment, then the answer should be in the affirmative. The adjustment sheet was not part of the assessment (see Mr. Justice Neasey in F.C. of T. v. Reynolds 81 ATC 4131). The adjustment sheet reference to a review did not destroy the definiteness of the assessment any more than would a statement that the assessment was subject to amendment.''

Aickin J. took the opposite view at p. 4292. His Honour said:

``In the present case the notice of assessment had attached to it a paper headed `Adjustment Sheet' which has been correctly treated as part of the notice of assessment.''

Whether or not the adjustment sheet is to be treated as part of the Notice of Assessment in my view the Board was correct in declining to draw the inference contended for by the taxpayer. The absence of reference to sec. 80A and sec. 80B(5) is hardly a sound basis for concluding that the Commissioner had considered the applicability of those provisions and taken a view favourable to the taxpayer. So to decide would be to assume that in the process of assessment, the Commissioner invariably proceeds section by section in the sequence in which they appear in the Act, forms an opinion in relation to the applicability of each, exercises the discretion where conferred by each and in an appropriate case nominates in the adjustment each and every provision which operates against the taxpayer in the circumstances of the particular assessment. Quite simply stated that is not how an assessment is made or should be believed to be made. Accordingly no favourable inference could be drawn in favour of the taxpayer merely from the terms of the adjustment sheet.

What I have already said as to the function and role of the Board of Review makes it clear that I also agree with the alternative basis for the Board's decision that it was for the Board to determine for itself whether or not the requirements of sec. 80A and 80B(5) were made out.

Against the possibility that its submission that the Board should draw the inference from the adjustment sheet I have been discussing failed, the Taxpayer foreshadowed that it would demonstrate by evidence that the Commissioner had been satisfied of the requisite matters in sec. 80A and determined against the exercise of power

ATC 4504

conferred by sec. 80B(5). To this end it sought the issue of a Notice to Produce calling for ``the whole of the Commissioner's files relating to the assessments issued to the Taxpayer in respect of each of the years ended 30th June, 1973, 30th June, 1974, 30th June, 1975, and 30th June, 1976''. The Chairman declined to sign the Notice to Produce for a variety of reasons. If I may say so, with respect, after accepting that the Taxpayer was not seeking particulars (para. 12), the Chairman nonetheless seemed to deal with the question of particulars (para. 13). That question should have played no role in the proceedings. The Chairman then expressed the view that the Notice called for discovery which the Board had no power to order as against the Commissioner (
Sutton v. F.C. of T. (1958) 100 C.L.R. 518) and therefore refused to sign the Notice (para. 14 and 15). It is true that the Notice to Produce was entirely too wide in its terms to procure the documents which the Taxpayer desired to obtain. The only documents which could have been relevant to the issue under consideration would have been expressions of the view of the Commissioner or by delegation of the Deputy Commissioner that he was satisfied or that he made a determination as to the requisite matters. Thus, in so far as the Chairman rejected the application to sign the Notice to Produce on the ground that it was too wide, he was in my view, entirely correct. I would have had more doubt about the refusal on the ground that it constituted discovery against the Commissioner, but it is unnecessary to consider that matter further for present purposes. However lest the limited basis on which I have dealt with the matter be misconstrued, it is desirable that I refer to what fell from Gibbs J. in Kolotex (supra) ATC at p. 4047; C.L.R. p. 566 where his Honour said:

``The question whether the Commissioner was satisfied of the matters stated in sec. 80A and 80C is not necessarily to be answered by finding that some of his officers were satisfied of those matters. The satisfaction required is that of the Commissioner himself - although of course if a Deputy Commissioner is exercising delegated powers the satisfaction of the Deputy Commissioner would be enough - see sec. 13 of the Act. It is, however, not enough that the Commissioner's officers are satisfied if the Commissioner does not adopt their views and make their satisfaction his own. In some cases a Commissioner may adopt the recommendation made to him by his subordinates without accepting all their reasoning.''

In the light of these comments, I would treat with some reservation the view expounded on this aspect by Mr. Fairleigh Q.C. in his reasons, 79 ATC at p. 538.

In the result then, the hearing before the Board did not involve any error.

The more exhaustive references I have made earlier in this judgment to both the provisions of the Act and the authorities have confirmed me in the views I expressed in the judgments refusing access to the Commissioner's files and for an adjournment to test that ruling. The role and practice of the Board of Review being of the nature described, sec. 193(1) of the Act falls into place as making the opinions and determinations of the Board the subject for the Court's consideration.

This approach appears to me to be supported by the reasons for judgment of members of the Federal Court in
F.C. of T. v. Mantle Traders Pty. Ltd. 80 ATC 4588. The Chief Judge at p. 4592 said:

``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

ATC 4505

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 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).''

Again, Brennan J. (sitting as a Judge of the Federal Court) said at p. 4600:

``Where a Board of Review substitutes its opinion, satisfaction or descretion 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'.''

The application of sec. 80A and 80B(5) were certainly the subject of consideration before the Board and the Board's views are exposed in their Reasons. To these it will now be necessary to turn but first it is appropriate that I set out some additional factual material.

The issued capital of the Taxpayer at all relevant times was $1 million, divided into 500,000 shares of $2 each. Although the shares were divided into classes, no special rights attached to the respective classes and it was common ground between the parties that they may conveniently be treated as though they did all belong to the one class.

From February 1962 to July 1968, the major shareholder holding 34.003 per cent of the shares was a public listed company, Marrickville Holdings Limited (``Marrickville''). The chairman and managing director was Mr. R.C. Crebbin. He was, through medium of a number of private companies, a substantial shareholder in Marrickville and could at all times relevant for present purposes be expected to act in the interests of Marrickville, not only by reason of his fiduciary obligations to that company as a director but also as a person having a real stake in the financial success of Marrickville. Mr. D.R. Blacklock, who was, together with Mr. Crebbin, also a director of both the Taxpayer and Marrickville, held 17.804 per cent of the shares in the Taxpayer. Three investment companies, Crebbin Investments Pty. Limited, Philan Investment Pty. Limited and Richal Investments Pty. Limited, together held 9.345 per cent of the shares. Mr. Crebbin was the governing director of each of these companies and had absolute control of them. Each of the private companies was a vehicle for the benefit of a child of Mr. Crebbin. J.H. Crebbin, R.A. Crebbin and G.F. Crebbin, being three children of Mr. Crebbin, held 1.989 per cent of the shares in their own names. Finally, Brunswick International S.A. and Hoyts Theatres Limited together held 36.859 per cent of the shares.

In 1968 Marrickville increased its interest in the Taxpayer by acquiring the shareholding of Brunswick International S.A., thereby increasing its shareholding to 48.193 per cent and leaving Hoyts Theatres Limited with 22.669 per cent.

As I mentioned at the outset of this judgment, in 1972 the Taxpayer was in a parlous financial position and its prospects were bleak. There was a deficiency of paid up capital of over $1.2 million. Although it had certain freehold assets as well, a substantial ``asset'' in its hands was the tax loss which it had accumulated. It was determined to make use of this tax loss.

The manner in which the Taxpayer went about utilising the tax losses is largely common ground between the parties. Advice was sought at various times from leading counsel and from accountants and solicitors. Insofar as the formal steps were concerned, this advice was implemented. It required the

ATC 4506

transfer and retransfer of shares as the complexities of the taxation legislation evolved and amendments to the Act were made. In November 1972 Marrickville acquired the shares of all other shareholders and also 16,725 of the shares theretofore held by the three investment companies controlled by Mr. Crebbin, leaving them with 30,000 shares. Thereupon only six per cent of the shareholding was not owned by Marrickville. This meant that continuing shareholders, being Marrickville and the three investment companies, held at all times, both in the relevant years of loss and as at 15th November 1972 and subject to the operation of sec. 80B(5), two-fifths of the shares in the Taxpayer being the proportion then called for by sec. 80A.

In April 1973 there was introduced into the Parliament legislation amending the Income Tax Assessment Act which made it necessary to seek further advice, and which advice, in turn, resulted in June 1973 in Mr. Blacklock apparently acquiring from Marrickville 6.632 per cent of the shares in the taxpayer and the three investment companies controlled by Mr. Crebbin apparently repurchasing the shares previously sold by them, so as to restore their combined shareholding to 9.345 per cent. Thereupon the requirements of the amended sec. 80A were prima facie satisfied.

It was the contention of the Commissioner before me, as indeed it was before the Board, that the evidence revealed the existence of two agreements or arrangements, one in 1972 and one in 1973, which entitled the Commissioner and the Board to apply sec. 80B(5) and treat the shares of the three investment companies controlled by Mr. Crebbin and the shares, apparently owned by Mr. Blacklock after 1973, as not beneficially owned by the respective registered owners. It was submitted that in 1972 Mr. Crebbin, on behalf of the three investment companies agreed with Marrickville that the 30,000 shares retained would not be disposed of until the Taxpayer's losses were utilised. Similarly, it was submitted that an agreement to like effect was made in 1973 in respect of the shares re-acquired by both Mr. Crebbin on behalf of the three investment companies and Mr. Blacklock. It is convenient that I deal with these submissions first and on the hypothesis that but for sec. 80B(5) the requirements of sec. 80A were satisfied.

For present purposes the principles to be applied in evaluating the evidentiary material presented in satisfaction of the requirements of sec. 80B(5) have been authoritatively enunciated in a stream of decisions, the most recent of which is
F.C. of T. v. Cooper Brookes (Wollongong) Pty. Ltd. 79 ATC 4398. The subsequent appeal to the High Court was restricted to a question not in point here. Fisher J. who delivered the only judgment on this point in the Federal Court said at p. 4415:

```It does not follow that it is necessary that there be formal acceptance of, or committal to, such an arrangement by such parties. A plan can be propounded without prior arrangement and be constituted as an arrangement by acceptance of or adherence to it implicit in the performance of steps which it encompasses or the acceptance of benefits which result from its implementation'.''

Further, at p. 4416 he said:

``Finally, it is to be noted that sec. 80B(5)(c) requires that the arrangement must have been entered into for the purpose of enabling the company (the taxpayer on my construction of the relevant subsection) to take into account a loss that the company had incurred in a year before the year in which the arrangement was entered into. It would appear that it is the subjective purpose of the continuing shareholder with which the section is concerned. In this regard it is clear that even if knowledge of the use which Network could make of the purchased companies should be imputed to King, it is at least suggested by the authorities that such knowledge without more is not sufficient. However knowledge of the use which an ultimate purchaser proposes to make of the company, and the further knowledge that the trustees were selling the companies for use by the purchaser in this way, together with the fact that King entered into an agreement (the agreement of July 1967) which was a necessary step in the trustees implementing the scheme are further significant facts.

In the
K. Porter case, in the High Court 77 ATC at pp. 4477-4478, in the joint judgment of Stephen and Murphy JJ.

ATC 4507

their Honours relied on the following facts to hold that there was a `purpose' falling within sec. 80B(5)(c) namely, awareness or knowledge on the part of the continuing shareholders of the purpose of the scheme involved combined with action by them necessary to the scheme's success. This was enough to make the purpose of the scheme's promoters, which was clear, their purpose. As their Honours said:
  • `... whether `purpose' in para. (c) be related to the arrangement, viewed as distinct from the parties to it, or to the parties themselves, the requirements of the paragraph are, in our view, satisfied (at p. 4478).'

In the
Students World case 78 ATC 4040 at pp. 4048-4049 Mason J. followed a closely similar line:

  • The reference to purpose in para. (c) seems to have been understood by Menzies J. (with whom Barwick C.J. agreed) in the Brian Hatch case as a reference to the subjective intention of the continuing shareholder... At first sight it seems odd that the purpose of the continuing shareholder should be singled out as a relevant or critical factor. It is the purchaser, rather than the continuing shareholder, who might ordinarily be expected to have the stated purpose in mind. However, it is with the ownership of shares by the continuing shareholder that the subsection is concerned. And in speaking of the purpose for which `the right power or option was granted' para. (c) seems to have in mind the purpose of the grantor. This in itself points to a subjective, rather than objective, purpose, a notion which gains some support from the fact that in the case of a contract, agreement or arrangement it is the purpose for which it was entered into that is important, there being a prior reference in para. (b) to the continuing shareholder having entered into the contract, agreement or arrangement. This view of purpose in para. (c) has been taken not only by Barwick C.J. and Menzies J. in the Brian Hatch case, but also more recently by Stephen and Murphy JJ. in K. Porter & Co. Pty. Ltd. v. F.C. of T. (Cth.).'

Mason J. concluded at p. 4049:

  • It was an arrangement entered into for the purpose stated in para. (c) because on the evidence which I have recounted the purpose of the purchaser was to gain control of the respondent so as to provide it with an income against which the losses could be deducted and this purpose was known to Mrs. MacPherson, the continuing shareholder. Indeed entry into the arrangement by the purchaser was explicable only on the footing that by obtaining control of the respondent the purchaser would provide it with an income from which the past losses could be deducted. And the inference is irresistible that Mrs. MacPherson was aware that this was the intention of the purchaser, for on no other hypothesis could the purchase of the apparently worthless shares be explained.''

There is no dispute that all the participants in the 1972 and 1973 transactions were told of the requirements of the legislation and in particular of the requirement that in order to enjoy the benefit of the tax losses, it was necessary for those nominated as continuing shareholders to retain their respective shares until the losses had been absorbed. Equally, it was common ground that all concerned wished to ensure that the Taxpayer, and in turn Marrickville, as the majority shareholder and large creditor, should obtain the benefit of the tax losses in question. Further, it is not contested by the Commissioner that all participants were told of Counsel's advice that in order to enable the tax losses to be enjoyed, there was a prohibition against entering into an agreement requiring the continuing shareholders to retain their shares. The extent to which details of this advice were transmitted or understood was not explored, but certainly it was asserted by the witnesses that they had an appreciation of the fact that there could be ``no strings attached'' to the rights of the continuing shareholders to deal with them as they wished. The Taxpayer's contention was that the self-evident commercial interests of the participants, as

ATC 4508

well as social and family links, were such that the continuing shareholders could be expected, without any agreement, arrangement or understanding, to act in such a way as to ensure the availability of the tax losses by continuing to hold their shares.

The Commissioner contended that the evidence revealed discussions which took the matter beyond the level of self induced restraint of a unilateral nature, and transported the transactions into the prohibited realm of an agreement or arrangement.

I am of the view that the evidence does in fact disclose the existence of two arrangements of the kind entitling the Commissioner and the Board on appeal to treat the shares in question as not having been beneficially owned by their registered owners. I find that an arrangement was entered into in 1972 that the three investment companies would not dispose of their shares and would continue to hold them until the losses were utilised. I further find that in 1973 the same arrangement was entered into by the three investment companies and Mr. Blacklock in respect of the shares which they then acquired.

It would be tedious and unnecessary to set out in detail the evidence which, applying the principles I have earlier stated, calls for the conclusions I have set out. I will content myself with but a selection of the material which, in my view, imperatively calls for the conclusion I have stated. Mr. Crebbin, being of the clear understanding that the tax losses would only be available so long as the investment companies continued to retain their shares, discussed that matter with other members of the board of Marrickville. He was asked in cross-examination:

``Q. And Mr. Crebbin, is it correct to say that as at 1972 when the decision was made to purchase all the shares except this six per cent, it was on the basis that those shares would continue to be retained by the investment companies?

A. Yes sir.

Q. That again, I take it, was a matter that was discussed amongst members of the board?

A. Yes sir.

Q. And Mr. Crebbin, it would be correct to say that as governing director of those three companies it was clearly your intention at that time that the shares should be retained for as long as necessary?

A. Yes sir.

Q. And did you express that intention to the other members of the board when the matter was being discussed?

A. Yes sir.''

The same evidence was given with respect to 1973. Nor did the Taxpayer's counsel dispel the effect of this evidence in re-examination, which had every appearance of cross-examination, when he asked the witness the following questions:

``Q. And you were asked a similar set of questions as to what was your intention as governing director of the three family companies in respect of the 5750 transferred back in July 1973. I think what you said can be fairly accurately summed-up by saying you intended the companies would retain them?

A. Yes sir.

Q. Did you commit the companies to that course in any of the discussions you had with them?

A. With the directors of Marrickville in 1972, 1973?

Q. Yes.

A. Yes, that the companies would retain them.

Q. Well, do you recollect what was said on the subject matter?

A. No I don't sir.

Q. Do you recollect who you had discussions with?

A. I think it would have been discussed with the Marrickville board.

Q. At board meetings?

A. Of that I wouldn't be sure, sir, I don't remember.

Q. But if you can't remember what was said, can you remember what you understood of the substance of what you were saying?

ATC 4509

A. The intention was that those shares would remain in the possession of the private companies.

Q. Well, whose intention?

A. My intention, or the intention of the private companies, of which I was governing director.''

The evidence of the other witnesses who were called to give evidence - Mr. Montgomery, a director of Marrickville and of the Taxpayer, and Mr. Blacklock - was entirely consonant with that of Mr. Crebbin. Thus, Mr. Montgomery explained that in 1972 the question of who should be the continuing shareholders in the Taxpayer was discussed by the directors of Marrickville, and the three investment companies were selected because Mr. Crebbin controlled them and they would therefore not be likely to dispose of them prior to the losses being exhausted. He was asked:

``Q. And Mr. Montgomery, did you have at that time the slightest doubt that if this proposal went ahead the three investment companies would retain their shares for so long as the losses were available?

A. I had no doubt that that would be the position.''

I do not accept the assertion that that was not a factor which entered into his determination to vote in favour of the proposal. Indeed, all extraneous facts argue for the acceptance of the evidence given by Mr. Crebbin and for the conclusion which I have drawn. The Taxpayer and Marrickville had Boards of Directors which, to an extent at any rate, were constituted by the same persons. The chairman and managing director of Marrickville also controlled the continuing shareholders. The need for retaining the shares was known and discussed by the Board of Marrickville and was a matter ventilated with the controller of the continuing shareholder. An arrangement was arrived at that the shares would be retained for the necessary length of time.

The same situation occurred in 1973 as between Marrickville and Mr. Blacklock, through Mr. Fitzpatrick as the intermediary. Mr. Fitzpatrick explained the position to Mr. Blacklock, and in particular that it was necessary for Mr. Blacklock to re-acquire the shares in 1973, that if Marrickville was to continue to have the benefit of those losses, he would have to retain them, and Mr. Blacklock loyally accepted that position. Mr. Blacklock was not taking the shares for dividends; he was not taking them for resale at a profit; he was taking them for the purpose which was put to him. Indeed, as Mr. Blacklock quite frankly said, the ``only reason'' for his re-acquiring shares in the Taxpayer was to enable Marrickville to continue to take advantage of the tax losses. Again, he said in terms that was his only purpose in acceding to Mr. Fitzpatrick's request. Significantly, the price Mr. Blacklock was to pay for the shares (one cent per share) was agreed on by the Directors of Marrickville or determined by Mr. Crebbin and Mr. Blacklock was merely told the price and asked for a cheque. By his actions he demonstrated in every way his readiness to do everything required of him to enable the tax losses to be utilised.

There can be no argument but that the purpose of Mr. Crebbin in his capacity as Governing Director of the three investment companies and of Mr. Blacklock in entering into these arrangements, was to enable the tax losses to be utilised.

I have approached the question of the application of sec. 80B(5) on the basis that otherwise sec. 80A was complied with. This of course, is contrary to the views of the Board, both because of the view that it took of the operation of Art. 121 of the Taxpayer's Articles of Association and because it was not satisfied on the material before it that Mr. Blacklock and the three investment companies did, in fact, re-purchase the shares in 1973 as desired. I do not wish to burden an already over-long judgment by what is, in the light of my conclusion, an unnecessary examination of these questions. It is sufficient that I point out that there was a great deal more material before me on the question of the 1973 transactions than there was before the Board. Had it been open to me and had I been called on to express my ``satisfaction'' as to the prima facie shareholdings, I would have been satisfied that the shares in the Taxpayer were, but for sec. 80B(5), held by Mr. Blacklock and the three investment companies in the numbers claimed by the Taxpayer. Equally, I am of the view that it

ATC 4510

was clearly open to the Board and the Commissioner on the material before each of them to fail to be satisfied and that they each were left in that state.

No useful purpose would be served in dealing with the other problems of interpretation thrown up by the appeals. I order that each of the appeals be dismissed and that the appellant pay the respondent's cost. Exhibits may be handed out on the expiration of twenty-eight days unless proceedings for the review of my judgment have been commenced in the meantime.


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