Briggs v. Deputy Federal Commissioner of Taxation (W.A.) & Ors; Ex parte Briggs.Judges:
This is the return of an order to show cause made on 29 April 1986. The prosecutor, Mr Peter Briggs, seeks relief against the respondents pursuant to sec. 39B of the Judiciary Act 1903. The relief sought in the application for the order to show cause was the issue of writs of mandamus and prohibition against each of the respondents. In his final address counsel for Mr Briggs said that he did not seek mandamus, but that he sought, in addition to prohibition, an injunction and a declaration of right. That is relief which the Court has jurisdiction to give, but the application for it was made orally and not in accordance with the relevant provisions of O. 54A of the Rules. Nothing turns on this because there was no objection by the respondents to the prosecutor claiming the additional relief. If it became important, appropriate amendments to existing documents may be made or additional documents may be filed. I give the necessary leave for this to be done.
In substance what the prosecutor seeks is the quashing of certain assessments of income tax and notices of assessment issued consequent upon those assessments having been made. The case which the prosecutor makes is that each of the assessments was not an assessment pursuant to the Income Tax Assessment Act 1936 and was a nullity. Each of the notices of assessment issued was, therefore, also a nullity. The assessments were made by the second respondent, Mr R.A. Gill, who is also the first respondent.
The case has a complicated history which it is necessary to endeavour to understand in order to deal with the problems which arise from the submissions of the parties. Six assessments and notices of assessment are involved. Three of these are amended assessments. These are amended assessments of income tax for the years ending 30 June 1976, 1977 and 1978. The remaining assessments are assessments of income tax in respect of the years ending 30 June 1979, 1980 and 1981. The amount of taxable income shown in each notice of assessment was $75,000 for 1976, $100,000 for 1977, $125,000 for 1978, $150,000 for 1979, $175,000 for 1980 and $200,000 for 1981. Appended to each notice was an adjustment sheet. The notices of amended assessment each showed a figure previously assessed as the prosecutor's taxable income. To this was added a figure to bring the amount up to the taxable income shown in the amended assessments. Each such amount was described in the relevant adjustment sheet as follows, "Add - Inclusion of Assessable Income". The adjustment sheets attached to each of the other notices of assessment said, "Inclusion of Assessable Income". Beside these words was written the amount of $150,000, $175,000 or $200,000, as the case may be. This was the same amount as was shown in each of the notices of assessment as being the taxable income.
Each of the notices of assessment issued on 12 July 1983. Objections to the notices of assessment were lodged by the prosecutor on 9 September 1983.
On 20 October 1983 a writ was issued out of the Supreme Court of Western Australia for the recovery of the amounts due under the notices of assessment and for the recovery also of certain additional tax which had been assessed. The writ had endorsed upon it a statement of the Commissioner's claim. On 20 December 1985 the prosecutor filed an amended defence. This included the following paragraph:
"10. The defendant further states that:
- (a) In issuing the said assessments the Commissioner has abused his position;
- (b) The nature and the basis of the liability on which the disputed tax has been assessed and the nature of the dispute are not such as to entitle the plaintiff to recovery of the tax sought;
- (c) The merits and the substantive nature of the grounds of the objections are such as to not entitle the plaintiff to recovery of the tax sought."
The recovery action was heard by the Supreme Court of Western Australia (Wallace J.) on 22 January 1986 [86 ATC 4020]. On 24 January 1986, it was ordered that judgment be entered for the Commissioner. It appears from the reasons for judgment that the only issue raised at the hearing by the prosecutor concerned questions whether the notices of assessment had been served. If the notices of assessment had not been served, the prosecutor's liability to pay them would not have arisen; see sec. 204 of the Act. The Supreme Court held that the notices had been served. The prosecutor appealed to the Full Court of the Supreme Court of Western Australia. The appeal was heard on 5 September 1986, and dismissed on 17 September 1986 [86 ATC 4583]. So, since 24 January 1986, the Commissioner has had judgment against the prosecutor for the amounts payable under the notices of assessment and for sums due for additional tax. The amount of the judgment is $1,048,179.82.
Between the date of the judgment on 24 January 1986 and the dismissal of the appeal on 17 September 1986 a number of things occurred. On 17 March 1986 the Administrative Appeals Tribunal continued the hearing of an appeal concerning a request by the prosecutor that documents held by the Commissioner be produced to him pursuant to the provisions of the Freedom of Information Act 1982. The Commissioner claimed that some of the documents were exempt under the provisions of that Act. Called to give evidence in the Commissioner's case was Mr Wiggins, the third respondent. The genesis of this case is to be found in answers given by him in the course of his cross-examination. The relevant questions and answers are as follows:
"In other words you - subject to confidential aspects relating to names and sources, you would tell him [the prosecutor], the basis of the assessments that you have made against him, would not you? - We would.
And you would tell him the calculations, would not you? - That is correct.
And then you said: we have to leave him with a certain doubt in his mind; we leave it up to him to come forward and we will assist him if necessary? - That is correct. We would provide him with information on the - based upon our information not being detrimental to any investigation.
And the calculations of the tax assessed have not been made available to him, have they? - He has not requested them.
And you are saying that if he came in and sat down and talked to you, you would give him these calculations, are not you? - That is correct.
In what documents do we find - I withdraw the question. In what documents are the calculations of his alleged income to be found? - Well, they are not contained in any of the documents before the Tribunal today.
Why not? - Those documents he would have in his possession.
Just a minute. In what document of the Taxation Commissioner are to be found the calculations that the Tax Commissioner used to assess the income of Mr Briggs for the purposes of the assessments that have been issued against him? - Against Mr Briggs personally?
Firstly, against him personally? - Well that particular information is contained in the adjustment sheet attached to the - to his notice of assessment.
In what document is to be found the Tax Office calculations of the alleged income of any companies controlled by Mr Briggs which are the subject of the objections? - The calculations under which - for which Mr Briggs has been assessed is an assessment based upon sec. 167 of the Act. Now that is the section whereby the Commissioner may, at his discretion, assess
ATC 4281the taxpayer with that amount of money or that...
Well, in what document of the Tax Commissioner is shown the calculations upon which assessments were issued under sec. 167 and which assessments are the subject of objection by Briggs personally, or any of his companies? - It would be contained on the adjustment sheet.
[It (the adjustment sheet)] shows, firstly, the nominated income which the Commissioner, through his delegate has determined was earned by Mr Briggs in the relevant financial year? - It expresses that figure.
It expresses the figure. It does not give any calculations of how the figure is derived, does it? - No, that was used - that was because sec. 167 of the Act provides a discretionary calculation.
You mean the Commissioner's delegate can pluck a figure out of the air in his discretion? - That is correct.
What do you mean, pluck a figure out of the air? I used the word never expecting you to agree with it? - Well, I said pluck, you said pluck.
Yes, well you have agreed with me. Do you really mean they pull a figure out of the air...? - Well, can I object to that?
No, my learned friend can if he wishes. What do you mean when you answer a question - what do you mean by the phrase pluck a figure out of the air for the purposes of that section? - The word pluck is not a word I would use. It is the word you used.
You agreed with my description? - Maybe it is - it is not actually a plucking, it is a determination.
It is a determination you say that is based upon no calculation that can be found in any documents of your department? - That is correct.
Well, would it come as a surprise to you to know that one of the reasons these proceedings are brought before this Tribunal, amongst other things, is to try and find the calculations of the assessments of the imputed income that the department has made against Mr Briggs? - That is what the current investigation is all about, is to clarify that particular assessment.
Why do you verify it when you have already issued them and they are in dispute? - It was a discretionary figure in the first instance.
What - you say they issue assessments based upon figures of income which have no calculated basis but which are determined in order to start proceedings which will then enable you to verify them. Is that the way it is done? - The idea is to give the opportunity to the taxpayer to come forward and to dispute and to provide the department with information that would be - would counter those original assessments.
What, you issue an original assessment, something like a shot over the bows; is that right? - No.
Well, is it to flush out the taxpayer? - It is to flush out the taxpayer and for him to come forward with the information that we are seeking.
You say the Act empowers the issue of assessments based upon a notional income, designed to flush out the taxpayer to see what response he makes to them? - Based upon considerations by the person who determines the figure, his discretion as to the amounts that he considers that the person should derive. He will issue assessments accordingly.
In the case of Mr Briggs or his companies, is there any working figure expressed on any piece of paper, anywhere in the department sources that will allow us to find out how the income figures were calculated? - Well, the actual determination of the figures was given by the Deputy Commissioner and it was his discretion.
By that you mean he took up what appears in your file, which appears to contain no working calculations and ascribed in his sole discretion, a figure? - Upon information provided to him by the officers of the department.
Yes, but there does not seem to be, as I understand you, and I do not wish to belabour this point too long, any
ATC 4282information put up to that officer by way of working figures for him to assess? - Well, the information could be based on circumstances; information regarding his lifestyle and from that information the Deputy Commissioner can make an assessment."
The emphasis is added.
Relying upon that evidence of Mr Wiggins, the prosecutor commenced these proceedings on 29 April 1986 by applying for an order to show cause. On 3 and 4 July 1986 it came before another Judge of this Court who was asked to strike it out as disclosing no cause of action. The application was dismissed.
On 27 August 1986 I made an order by consent referring to a Full Court of this Court questions of the construction and effect of sec. 177 of the Income Tax Assessment Act. For the purpose of the reservation of the questions the parties agreed upon a number of facts. Upon the basis of those facts the Court answered the questions favourably to the prosecutor. But the facts were agreed only for the purposes of the argument and now have no relevance to the outcome of this case. I should mention that during the course of the argument submissions were made, on the one hand, by counsel for the prosecutor that the facts of the matter were as stated by the parties, and, on the other hand, by counsel for the respondents that they were not. I do not find it profitable to reach a conclusion one way or the other on this matter. What I propose to do is to find the facts which are disclosed by the evidence which has been led before me at this hearing. The decision of the Full Court (86 ATC 4748; (1986) 69 A.L.R. 185) has relevance to the matter in so far as it throws light on the construction of sec. 177 of the Act upon which the respondents, notwithstanding their failure in the argument before the Full Court, continue to place reliance, but it has no other place in the determination of the matters now to be decided.
In the presentation of his case before me counsel for the prosecutor tendered a number of documents which were annexed to an affidavit sworn by the prosecutor's solicitor. Amongst the documents tendered was a portion of the transcript of evidence before the Administrative Appeals Tribunal on 17 March 1986, part of which has been earlier set out. Also tendered were a number of documents which had been produced to the prosecutor by the Commissioner under the Freedom of Information Act. It is unnecessary to refer to the detail of these documents. As well, there were copies of the returns lodged by the prosecutor for the years of income ending 30 June 1976 to 1981 inclusive. The returns for the 1979, 1980 and 1981 tax years were lodged on 30 May 1984, that is to say after the notices of assessment for those years had issued. The returns for the 1976, 1977 and 1978 years were lodged on 21 November 1978, 9 March 1979 and 28 July 1979 respectively. All six returns were thus lodged out of time. The returns for the 1976, 1977 and 1978 tax years disclosed taxable incomes of $8,550, $9,388, and $14,320 respectively. In each year the principal source of income was stated to be consulting fees received from companies, the names of which were given. Finally, there were the notices of amended assessment and assessment to which were annexed the adjustment sheets earlier mentioned.
At the close of the prosecutor's case counsel for the respondent submitted that, by reason of the operation of sec. 177 of the Act, the matters relied upon by the prosecutor were concluded against him by the tender of the notices of amended assessment and assessment. It was said that the effect of the tender was to make irrelevant the evidence relied upon by the prosecutor, particularly the evidence given by Mr Wiggins to the Administrative Appeals Tribunal on 17 March 1986. It seemed to me that this raised the very matter that had been the subject of the decision of the Full Court. Counsel for the respondents denied this. I indicated an unwillingness to rule on the objection at that time. I also said that it was my view that it would be better if the case were tried upon the entirety of the evidence which was available or which, at least, the parties intended to lead. After a short adjournment, which I granted to enable counsel for the respondents to consider his position and take instructions, it was announced that the respondents would lead evidence.
I should make it clear that the respondents carry no ultimate onus of proof in this case. The onus of proof has rested throughout upon the prosecutor. But it may have been - I do not need to decide the matter - that the tender of Mr Wiggins' evidence placed upon the respondents an evidentiary onus: cf.
Purkess v. Crittenden (1965) 114 C.L.R. 164. The
ATC 4283reference to the onus of proof is not of particular significance in the way that the case was ultimately presented. I have mentioned it only to emphasise that the onus has remained throughout upon the prosecutor. I have done so because, from time to time, things were said by counsel for the respondents and by the personal respondents in their evidence which suggested that they thought, because they had gone into evidence, that in some way the burden of proof had been transferred to them. I make it clear that that is not so.
In the respondents' case there were read affidavits of the respondents, Messrs Gill, Wiggins and Peacock. Additionally, there was an affidavit of Mr M.D. Cole who is a principal legal officer in the employ of the Australian Government Solicitor in Perth. To each of the affidavits were annexed or exhibited large numbers of documents. Many of these are important, but those of most importance are a report to the Deputy Commissioner, Mr Gill, by Messrs Peacock and Wiggins dated 7 June 1983, and a report dated 8 June 1983 made by Mr Gill to the Commissioner of Taxation in Canberra. The first of these reports is headed, "Further Report of Enquiries Made to Date into the Affairs of Peter Briggs". The report was compiled after a lengthy investigation of the affairs of Mr Briggs and of companies and trusts with which he has been associated. The report said that the source of the prosecutor's income could conveniently be split into three categories, namely, management fees, share trading and tax avoidance activities. This statement was preceded by some reference to sources of information and by a statement which referred to an earlier report which had said that it was essential for assessments to be raised against a trust known as the Briggs Family Trust of which a company, Essex Securities Pty. Limited, was trustee, "if any tax is to be recovered from Briggs because only the Trust has the assets to meet a substantial tax liability". It was also said that the companies were not caught by the Taxation (Unpaid Company Tax) Assessment Act 1982 so that there was no remedy available pursuant to that legislation.
The report then dealt with management fees and went on to endeavour to show that moneys received by a number of companies were received in fact on behalf of the Trust. In this connection reference was made to a number of cash withdrawals from companies and it was said that it was reasonable to assume that a major proportion of the cash withdrawals made by the prosecutor, who was the sole signatory to the accounts, were for his personal use or alternatively for the use of the Trust.
The next matter discussed was share trading profits. A number of round robin transactions were referred to and it was concluded that there were grounds for dismissing the round robins as shams and treating the share profits derived by certain companies as income derived by them as agents for the Briggs Family Trust.
In relation to tax avoidance activities that were said to have been conducted through a company, Western Australian Financial Services Pty. Limited, it was said that both the prosecutor and one of his co-directors had testified before the Costigan Royal Commission in regard to the company's activities. Both had given conflicting testimony and the Commission had yet to uncover who controlled the company. However, it was said that the prosecutor had admitted to receiving $150,000 as his share of the tax avoidance profits. It was not known how these funds flowed to him.
There then followed a heading, "Assessments". Under this heading it was said:
"It has taken the past two and half years to gather the information contained in this and the earlier report and despite the time lapse the total picture of Briggs' affairs are still far from complete. The difficulty has always been Briggs' total lack of co-operation, failure to lodge returns and the unavailability of records. The stage has been reached where little additional information is likely to be forthcoming in the foreseeable future and it is therefore necessary to bring the case to finality.
Based on the contents of this and the previous report there are two alternative options open to the Commissioner."
There followed a discussion whether to raise sec. 166 and 167 assessments in respect of the income of the companies. After the tabulation of some figures it was said that there would be no prospect of recovering the tax because each of the companies had been stripped of its assets in a manner which fell outside the provisions of the unpaid company tax legislation. The second option was said to be the better alternative. It
ATC 4284was to regard the intermediary companies as agents of the Family Trust so that the money that flowed through them could be regarded as income of the Trust. There followed a tabulation showing the amounts of assessments which, on this basis, would issue pursuant to sec. 99A and 167 of the Act.
There was then a departure to another subject. The question whether to tax the companies or the Trust was put aside and attention was turned to the prosecutor's personal position. At the heart of the case is the following paragraph from the report:
"On top of this there is also the question of the income derived by Briggs personally. He has only lodged income tax returns up to the year ended 30 June 1978 but the income disclosed in these belies the standard of his extravagant lifestyle. It is difficult to arrive at an appropriate taxable income and in view of the lack of details they can only be estimates. Nevertheless, having regard to his standard of living it is recommended that assessments or amended assessments be issued based on the following amounts:Year Taxable income 1976 $ 75,000 1977 100,000 1978 125,000 1979 150,000 1980 175,000 1981 200,000"
The next matter discussed was the question of penalties. It is unnecessary to refer to the detail of that discussion. The report then concluded.
Undoubtedly the exercise referred to in the last quoted paragraph from the report is the exercise to which Mr Wiggins referred in his evidence before the Administrative Appeals Tribunal.
On 8 June 1983, the day after the report made to him by Messrs Peacock and Wiggins, Mr Gill dispatched a report to the Commissioner of Taxation in Canberra. Early in the report is the following paragraph:
"For approximately two and a half years this office has been endeavouring to raise assessments against Briggs and his various entities which would reflect the income that he most certainly would have earned. However, due to his lack of co-operation, defiance of court orders and his failure to produce records we have been continually hampered from ascertaining the true position. Therefore there appears no alternative but to raise assessments based either on information that has so far been gathered which is rather limited or on assumed figures."
After some further discussion, Mr Gill echoed the recommendation made to him by Messrs Peacock and Wiggins which was to regard the companies as acting as agents for either the Trust or the prosecutor. The consequence of taking such a course was discussed. Mr Gill then turned his attention to the prosecutor's personal position and continued:
"There is insufficient information available to determine with any accuracy the personal income of Briggs. In the light of his failure to respond to prosecution action it seems improbable that he will ever lodged for years 1976-78 inclusive disclose ridiculously low net incomes when his lifestyle is considered. He is obviously intent in becoming a worldwide figure through yachting activities and he lives in a very expensive house at City Beach, an expensive suburb; the house is owned by his corporate trustee Essex Securities Pty. Ltd. The figures recommended by the investigation officer are therefore estimates but having regard to all the circumstances it is proposed that sec. 167 assessments issue on the recommended figures."
The report went on to refer to additional tax and the question whether the amounts assessed would be able to be recovered.
In his affidavit Mr Gill referred to the returns which, at that stage, the prosecutor had lodged in respect of the 1976, 1977 and 1978 tax years and to the fact that there had been no returns lodged in respect of the 1979, 1980 and 1981 years at that time. Nor had a return been lodged in respect of the 1982 tax year. Mr Gill referred to the difficulty of obtaining information and set out in a tabulated form a record of the action taken by the Australian Tax Office in Perth between 10 October 1975 and 12 July 1983 to obtain information and lodgment of income tax returns in respect of the prosecutor's income. The tabulation occupies three pages of Mr
ATC 4285Gill's affidavit. It is not appropriate to set it out in this judgment. It should be said, however, that on 10 occasions final notices were served requiring the lodgment of returns, on seven occasions the prosecutor was fined for failing to lodge returns, on seven occasions he was ordered by a court to lodge returns within a month, and on two occasions he was fined for failing to comply with orders to lodge returns. I said, in the course of the argument, and I repeat it here, that the fines imposed were, in the circumstances of a case such as this, derisory. I have said what I have without knowing what, if any, mitigating circumstances the various magistrates who heard the cases may have taken into account. But the fines were imposed pursuant to the then provisions of Pt VII of the Act. The maximum fine for failing to lodge a return was then $200: sec. 223. Fortunately the provisions of Pt VII providing for the prosecution of taxpayers who fail to lodge returns, and for other related offences, were repealed and replaced by Pt III of the Taxation Administration Act 1953 which Part came into force in December 1984: see Taxation Laws Amendment Act 1984, sec. 297.
In addition to serving final notices on the prosecutor and bringing proceedings against him for failure to lodge returns, the Commissioner also served on him notices pursuant to sec. 264 of the Act for information. Two of these notices were served. Amongst the evidence is a record of interview held as a consequence of the service of one of these notices. The interview took place on 4 June 1980. I do not refer to the detail of it but a reading of the answers indicates a substantial lack of co-operation on the part of the prosecutor. The answer, "I do not recall", appears repeatedly. The prosecutor did not give evidence in this case, although he was in Court for a good deal of the hearing. He could have gone into the witness box and indicated his willingness to co-operate with the Taxation Office and reasons why he had not lodged returns or complied with notices to lodge them. He did not do so. If it were a necessary inference for me to draw, I would have no hesitation in concluding that the prosecutor has engaged in a deliberate course of defying the tax laws and the tax authorities of this country. That was the inference that Mr Gill drew. He had ample justification for doing so.
Mr Gill in his affidavit deposed to the fact that it came to his attention in 1980 that the prosecutor was building a very expensive residence in a Perth suburb, City Beach. It is unnecessary to go into detail except to say that it was clear that very large progress payments were being made to the builder of the house. The house has since been completed and is the prosecutor's family home. There is evidence which suggests that it has a capital value of $2 million. Extracts from the leases which are in evidence show that it is expensively furnished. In 1984 rental of $36,000 per annum was payable under the sub-lease by the trustee of the Trust.
Mr Gill then referred to an earlier report made to him by Mr Wiggins in December 1982 in which base figures for the tax years 1979, 1980 and 1981 of $60,000, $80,000 and $100,000 respectively were suggested. The report said that, because Mr Wiggins considered that the prosecutor probably had received very substantial amounts as a tax avoidance promoter and because he was believed to have outlayed substantial sums on a yacht, "Hitchhiker", in preparation for an Australian challenge in the Admiral's Cup, he regarded these figures as not adequate and recommended that they be increased by a factor of "somewhere around five". A Mr Coleman was Mr Wiggins' supervisor. He recommended, in a handwritten endorsement on Mr Wiggins' report, that the base figures be multiplied by "at least 7". Mr Gill said that he decided not to act upon these recommendations, but to consider an alternative course for obtaining information from, and lodgment of income tax returns by, the prosecutor. The alternative course decided upon arose out of telephone conversations Mr Gill had with the First Assistant Commissioner (Compliance) in the Head Office of the Taxation Office in Canberra. The question was whether the prosecutor could be proceeded against for contempt of court on account of his non-compliance with a court order requiring lodgment of his income tax return for the year ended 30 June 1980. The matter was examined in Perth and Canberra and, on legal advice, it was decided not to pursue the matter of contempt proceedings.
A further report dated 31 March 1983 was prepared. The report was signed by Mr Peacock. The report was inconclusive, partly
ATC 4286for the reason that it was not then clear that the unpaid company tax legislation would not apply.
Mr Gill then said that he decided to apply the provisions of sec. 167 of the Act because the prosecutor had made default in furnishing returns for each of the three years 1979, 1980 and 1981 and he had reason to believe that he had derived taxable incomes during each of those years, and that he was not satisfied with the returns for the years ended 30 June 1976, 1977 and 1978 in that he had reason to believe that they did not disclose the correct taxable incomes.
Mr Gill went on to say that his study of the case involved discussions with Messrs Peacock and Wiggins, mainly Mr Peacock, and consideration of a number of reports which were specified. He then listed particular matters which he had taken into account. These were as follows:
"23(a) Mr Briggs' returned income for the year ended 30th June 1976 ($8,550), 30th June 1977 ($9,560) and 30th June 1978 ($14,320) appeared far too low for a person of his lifestyle.
(b) Mr Briggs had failed to supply adequate information for the determination of proper taxable incomes.
(c) During the period 1st July 1975 to 30th June 1978, Mr Briggs held interests in eleven companies from which it was likely that he derived income.
(d) Mr Briggs appeared to have built up a prosperous group of entities and considerable wealth had been accumulated in his family trust during the period 1st July 1975 to 30th June 1978."
Mr Gill said that he was of the opinion that the prosecutor had not made to him a full and true disclosure of all the material facts necessary for his assessments and that there had been an avoidance of tax. He said that he was of opinion that such avoidance was due to fraud or evasion. Mr Gill instanced, in relation to the years 1979, 1980 and 1981, a number of factors derived from reports by officers in his Department which indicated to him that the prosecutor must have received substantial taxable incomes for those years. The matters specified were as follows:
"(a) His apparent lifestyle.
(b) He was bankrupt in 1974 but living as a wealthy man in 1981.
(c) During 1978, a very substantial house in an expensive suburb was built for his residence.
(d) He was involved in promoting tax avoidance schemes.
(e) It was his practice to withdraw funds from Hampton Management & Co. and Capital Mining Co. to meet his family expenses.
(f) There was a belief that he had treated income derived by Rochester Securities Pty. Limited and Burford Nominees Limited as his own or had used it to acquire assets in the name of Essex Securities Pty Limited.
(g) Very substantial assets had been accumulated by his family company, Essex Securities Pty. Ltd. as trustee for his family trusts.
(h) Mr Briggs was one of the signatories to a report to the United States Securities and Exchange Commission stating that remuneration totalling $48,378 had been paid to Mr Briggs during the year ended 30th June 1981 by a company named Ferrovanadium Corporation Ltd. as salaries, fees, directors' fees and the like."
A copy of the last-mentioned report is in evidence.
Mr Gills' affidavit then continued:
"25. Once having come to these conclusions, it became necessary, pursuant to sec. 167, to use my discretion to determine what amounts should be the taxable incomes for each of the years involved. In exercising my discretion to determine these amounts, I considered the following aspects:
- (a) Mr Briggs' business activities including company promotion, management consultancy, tax avoidance promotion and share trading.
- (b) Mr Briggs' lifestyle.
The manner of exercise of my discretion was, of course, also founded on my 43 years of experience as a taxation official.
26. I had lengthy discussions with Mr Peacock aimed not only at exercising
ATC 4287judgment to determine taxable incomes for Mr Briggs but also to determine the manner in which his family trusts, management trusts and other relevant proprietary companies ought to be assessed.
27. In the course of determining the amounts of Mr Briggs' taxable income, comparisons were drawn with the incomes of professional persons, such as lawyers and medical practitioners (with which we had some considerable experience) as well as our own salaries in the context of maintaining the lifestyle which Mr Briggs was seen to be maintaining. Some calculations were made using possible alternative incomes. In the end, I considered that the following taxable incomes would be reasonable, i.e.1976 $ 75,000 1977 100,000 1978 125,000 1979 150,000 1980 175,000 1981 200,000
I had considered very substantially higher taxable incomes than those set out above but did not accept them as appropriate."
In the course of his oral evidence, Mr Gill confirmed his account of how he had arrived at the figures at which the prosecutor had been assessed for tax for the relevant years. I do not need to refer to the detail of this evidence. But I do need to mention an apparent conflict between Mr Gill's evidence and the documentary evidence which emerged as a result of what he said during his oral evidence. I have earlier referred to the recommendation which was signed by Mr Peacock and Mr Wiggins. On the face of his recommendation, the relevant parts of which I have quoted, it would appear that the figures for which Mr Briggs was assessed originated from Mr Peacock and Mr Wiggins. This, however, was not, according to Mr Gill, what transpired. He said the figures were arrived at after he and Mr Peacock had discussed the matter prior to the recommendation being written. He said that Mr Wiggins was not party to that discussion. He understood that Mr Peacock would prepare a recommendation which would include the figures, but he did not expect the recommendation to come from Mr Wiggins as well.
Both Mr Peacock and Mr Wiggins in their evidence corroborated Mr Gill's recollection of how the figures came into existence. Mr Wiggins said that he played no part in their selection and that he was told the figures by Mr Peacock after Mr Peacock's discussion with Mr Gill. The evidence of the three is thus consistent, but, as I have said, not necessarily consistent with the documentary evidence, particularly the recommendation signed by Mr Peacock and Mr Wiggins.
It was submitted by counsel for the prosecutor that I should not accept this part of the evidence given by Mr Gill, Peacock and Mr Wiggins and that I should prefer the inference, which is open on the face of the recommendation, that the figures came into existence as a result of a discussion between Mr Peacock and Mr Wiggins. They then went to Mr Gill who simply accepted them without more.
It is not clear to me what significance for the outcome of this case there would be if I were to accept or reject this submission. It would not seem to me that the acceptance or rejection of the evidence would be critical for the case of either party. Be that as it may, I have reached the clear conclusion that I should accept Mr Gill's evidence and also the evidence given about the matter by Mr Peacock and Mr Wiggins. I do this for two reasons. My principal reason is that I regard each of these witnesses as a witness of truth and a witness whose recollection on this matter can be relied upon. Criticism of Mr Gill's manner as a witness was made by counsel for the prosecutor. It was said that he had repeatedly not answered questions and displayed resentment in the witness box at being asked questions. I do not accept that submission. It is true that there were occasions when Mr Gill did not at first answer the question which was asked him. But I am satisfied that his failures in this regard were not due to dishonesty, but to the fact that he found the witness box a strange place and thought, as witnesses sometimes do, that he was engaged in a discussion or argument with counsel. I do not think he resented answering questions, but I think he revealed the frustration which he felt and, which is plain on the face of a number of the documents in the case, at not being able to obtain more information about the prosecutor's affairs and thus make a more accurate
ATC 4288assessment of his taxable income. Bearing in mind Mr Gill's position, I think this frustration understandable.
The other reason I have for accepting Mr Gill's evidence is that in the very answers Mr Wiggins made in answer to the questions asked him before the Administrative Appeals Tribunal, he gave an account of how the figures came into existence which is consistent with the account which he and Mr Gill and Mr Peacock gave in evidence before me. I refer to his answer (p. 4281 above) in which he said that the actual determination of the figures was given by the Deputy Commissioner "and it was his discretion".
I do not find it necessary to refer to the detail of Mr Peacock's and Mr Wiggins' evidence. It is clear from Mr Peacock's evidence that he, with the assistance of Mr Wiggins, had made an extensive investigation of the affairs of the prosecutor and of the trusts and companies with which he was associated before the assessments were made. The detail of that investigation appears in the evidence. To make the matter clear I indicate that I accept the totality of the evidence of these two witnesses. In relation to Mr Peacock's evidence, I do mention two matters. These were his reference to large sums of money being deposited in and withdrawn from the accounts of companies associated with the prosecutor. Many of the deposits and withdrawals were in cash. Furthermore, the prosecutor had an account with the American Express Company to which large amounts for air fares, hotel accommodation and other items were charged. Mr Peacock did not have as much evidence about the detail of these bank accounts and the account with the American Express Company at the time the assessments were made as he subsequently obtained. But of the cash transactions he said:
"We had the vouchers where it showed in the first place, expenses being paid on behalf of Briggs out of Hampton Management, Capital Mining. We had large numbers of cash - we had seen a number of cheques for cash - large amounts. And our view was that a lot of that had flowed directly to Briggs because there was no other explanation for his living expenses."
It was suggested to Mr Peacock that he had not paid any regard to that matter in arriving at the figures for the prosecutor's taxable income. The suggestion was made because of the reference to lifestyle in the report. But it was only because of the availability of money that the prosecutor was able to engage in the lifestyle which Mr Gill and Mr Peacock believed he had. It may be mentioned in passing that, after the assessments were made, Mr Peacock obtained access to copies of the bank accounts of a number of companies with which the prosecutor was associated. One of these, that for a company, Devine Nominees Pty. Limited, shows that in the period of five days from 25 June 1979 to 29 June 1979 inclusive, several million dollars passed through the account, some in cash and some in cheques. There were a number of debits and credits which were nearly or more than $1 million. One deposit of cash and cheques was approximately $6.5 million.
That concludes the account of the evidence. It is next appropriate to refer to the relevant sections of the Income Tax Assessment Act and to some of the authorities on those sections.
The central provision is sec. 167 pursuant to which the assessments under challenge were made. It is as follows:
"167. If -
- (a) any person makes default in furnishing a return; or
- (b) the Commissioner is not satisfied with the return furnished by any person; or
- (c) the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income,
the Commissioner may make an assessment of the amount upon which in his judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166."
With sec. 167 needs to be read sec. 166 and 170. Section 166 is in the following terms:
"166. From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon."
Section 170 empowers the Commissioner, in the circumstances there provided for, to amend
ATC 4289assessments by making such alterations therein or additions thereto as he thinks necessary.
It is next necessary to note sec. 17 and some of the definitions in sec. 6. Section 17 provides that, subject to the Act, income tax, at the rates declared by the Parliament, is levied and shall be paid, for the financial year that commenced on 1 July 1965 and for each succeeding financial year, upon the taxable income derived during the year of income by any person, whether a resident or a non-resident. The expression "taxable income" is defined in subsec. 6(1) to mean, relevantly for present purposes, the amount remaining after deducting from the assessable income all allowable deductions. "Assessable income" is defined in the same subsection to mean all the amounts which under the provisions of the Act are included in the assessable income. "Allowable deduction" means a deduction allowable under the Act. Finally, "assessment", again so far as the definition is relevant for present purposes, means the ascertainment of the amount of taxable income and of the tax payable thereon.
It is to be observed that sec. 166 empowers the Commissioner to use the returns lodged by a taxpayer and other information in his possession for the purpose of making an assessment of the amount of the taxable income of the taxpayer. The Commissioner may, pursuant to this section, rely entirely upon the returns, partly on the returns and partly on other information, or entirely on sources of information apart from the returns. The process in which he engages is described in
Bailey v. F.C. of T. 77 ATC 4096; (1977) 136 C.L.R. 214. There, Barwick C.J. said (ATC p. 4097; C.L.R. p. 216) that the assessment of income tax is the process of applying the Act to a state of fact. The duty of the Commissioner is to assess the tax upon the material contained in the return or otherwise in the possession of the Commissioner (sec. 166), there being provision in sec. 167 for the Commissioner himself to determine in the given circumstances the assessable income of the taxpayer.
The relationship between the two sections, sec. 166 and 167, had earlier been the subject of discussion by the High Court in
George v. F.C. of T. (1952) 86 C.L.R. 183 where Dixon C.J. and McTiernan, Williams, Webb and Fullagar JJ. said (pp. 203-204):
"The formation of the judgment as to what is the amount of the income that ought to be taxed is no condition precedent to the power to assess. It is part of the very process of assessment itself. Section 166 and s. 167 do not prescribe distinct duties or functions. They combine to show what the commissioner may or must do in performing his single duty of arriving at an assessment. Section 166 on its own terms covers cases where the commissioner depends exclusively on sources other than a return. It says that he is to make his assessment from (1) the returns, (2) from any other information, or (3) from any one or more of these sources. Clearly enough under s. 166 the commissioner can make an assessment which does not adhere to the income returned and yet to do so must involve some want of satisfaction with the return. Section 167 is epexegetical to s. 166. It is not an independent power. What it does is to mention with particularity three situations which might arise in carrying out the duty imposed by s. 166, and to direct how in those situations the commissioner shall proceed for the purpose of s. 166. Just as under s. 166 considered alone the commissioner ascertains the amount of the taxable income and thus assesses it so does he under s. 167, used in aid of s. 166, ascertain the amount upon which, in his judgment, income tax ought to be levied and thus assesses it. By definition `assessment' means the ascertainment of the amount of the taxable income, and of the tax payable thereon."
It may be noted that "epexegesis", from which "epexegetical" is derived, means the addition of a word or words by way of further elucidation; or that which is so added. It is not clear to me that the learned Judges meant the word to have quite this meaning. That is because of the sentence which follows that in which the word is used where it is said that what the section does is to mention with particularity three situations which might arise in carrying out the duty imposed by sec. 166 and to direct how, in those situations, the Commissioner shall proceed for the purpose of sec. 166.
It is convenient to pause at this point to deal with a threshold argument put by counsel for the prosecutor in relation to the operation of sec. 167. It was submitted that the process required by sec. 167 was no different from the
ATC 4290process provided for in sec. 166. The process provided for in sec. 166 involved the Commissioner in reaching a conclusion on the amount of a taxpayer's assessable income, the amount of his allowable deductions and, by subtraction, the amount of his taxable income. So much is established by the dictum of Barwick C.J. earlier referred to in Bailey and what was said in the George case. Section 167, so it was submitted, also contemplated this process, that is to say, the ascertainment of the assessable income, the ascertainment of the allowable deductions, and thus the amount of the taxable income. In the present case there was no evidence that this process had been followed. Instead, Mr Gill and those advising him had come directly to the ascertainment of the taxable income without turning their minds to the amount of the prosecutor's assessable income or the amount of allowable deductions which he might have claimed. Factually I think the submission is correct. Mr Gill did not pretend to endeavour to arrive at the amount of the prosecutor's assessable income or the amount of his allowable deductions. He went straight to the question of his taxable income. I say that not unmindful of the adjustment sheets annexed to the notices of amended assessment and notices of assessment to which I have earlier referred. In each case the expression used is not "taxable income" but "assessable income". This may be explicable, in relation to the notices of amended assessment, because they adjusted taxable income already assessed which had been arrived at in accordance with the returns which the prosecutor had lodged. The returns had included claims for certain deductions which had been allowed. No similar explanation is, however, available in the case of the notices of assessment for the 1979, 1980 and 1981 years. It was not argued that the use by the Commissioner in the adjustment sheets of the expression "assessable income" concluded this matter against him. Indeed, no submission based upon those words was relied upon at all, nor do I think any such submission would have succeeded if it had been.
The strength of the submission relied upon by counsel for the prosecutor derives in large measure from the dicta of the High Court in George's case which I have cited. That strength derives particularly from the use of the expression "epexegetical" and what follows thereafter.
I confess that I have not found the words used easy to understand, nor do I think I have comprehended fully the significance of this part of the judgment, but I have decided that the submission should be rejected. The matter now in question was not a matter in question in the George case. That was a case, like Bailey's case, in which particulars of the assessment process had been sought. It was held that, in the case of a default assessment made under sec. 167, it was not appropriate to order that the Commissioner give either particulars of the sources of additional taxable income which had been so assessed or particulars of the identity of the officers who made the assessment. The point of George's case was emphasised by Barwick C.J. in Bailey's case when he said (ATC p. 4098; C.L.R. p. 218):
"The considerable reliance placed by the Commissioner in argument upon this Court's decision in George v. F.C. of T. (1952) 86 C.L.R. 183 was, in my opinion, misplaced. In that case, an unsuccessful endeavour was made to obtain details of the assessment of assessable income made by the Commissioner under sec. 167 of the Act. This element of the process of assessment in the particular circumstances was not an application of the Act to a factual situation: on the contrary, it was an exercise of the Commissioner's power to determine the principal fact to which the Act should be applied. The situation dealt with in that case bears, in my opinion, no resemblance or analogy to the situation to which the Court must apply itself in this."
Bailey's case was a case in which the Commissioner had relied upon an arrangement under sec. 260 of the Act. Mention of this alleged arrangement had been made in correspondence and it was held that the taxpayer was entitled to particulars of it. Reference should also be made to the judgment of Aickin J. (at ATC p. 4101; C.L.R. p. 229) with which Gibbs J. (as he was) agreed (ATC 4098; C.L.R. p. 218).
What I think needs to be done is to look at the language sec. 167 has used and, to the extent that it is necessary, the language of sec. 166. The relevant words of sec. 167 are, "... the Commissioner may make an assessment of the amount upon which, in his judgment, income tax ought to be levied, and that amount shall be the taxable income of that person for
ATC 4291the purpose of section 166". Those words do not suggest that the Commissioner, in exercising the powers he has under sec. 167, is required to endeavour to ascertain the assessable income and the allowable deductions which the taxpayer has. It envisages that he may come directly to the task of determining a figure which, once determined, becomes the taxable income. That is not to say that the Commissioner may not proceed in the way contended for by counsel. But the words do not suggest to me that he is bound to do so. In contrast the relevant words of sec. 166 are, "... the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer...". Those words take him directly back to sec. 17 and the relevant definitions in subsec. 6(1). The section thus obliges him to engage in the process which is described in the judgment of Barwick C.J. in Bailey's case. On the other hand, the words used in sec. 167 involve the determination of a figure which is to become the taxable income. That figure is to be the amount upon which, in the Commissioner's judgment, income tax ought to be levied.
It is next necessary to mention a number of authorities which deal with the question of what is involved in the making of an assessment. With one exception, which I shall mention last, the cases are all concerned with assessments made pursuant to sec. 166 of the Act. But they are relevant to the process which is provided for in sec. 167 because the words there used are, "... the Commissioner may make an assessment..." albeit that the assessment made pursuant to sec. 167 is of the amount upon which, in the Commissioner's judgment, income tax ought to be levied.
The first of the authorities is the decision of the High Court in
Batagol v. F.C. of T. (1963) 109 C.L.R. 243 where Kitto J. referred to the use of the word "ascertainment" in the definition of "assessment" in subsec. 6(1) of the Act. He said (pp. 251-252):
"The word `assessment' is defined in s. 6 to mean, unless the contrary intention appears, the ascertainment of the amount of taxable income and of the tax payable thereon. There is nothing in s. 170 to show the contrary intention. But the definition is not sufficient by itself to answer the question before us, because `ascertainment' is a word the force of which depends upon the context. It is here used in an Act under which the service of a notice of assessment is the levying of the tax. Assessment in the sense of mere calculation produces no legal effect. No step that the Commissioner may take, even to the point of satisfying himself of the amount of the taxable income and of the tax thereon, has under the Act any legal significance. But if the Commissioner, having gone through the process of calculation, serves on the taxpayer a notice that he has assessed the taxable income and the tax at specified amounts, the tax becomes by force of the Act due and payable on the date specified in the notice or (if no date is specified) on the thirtieth day after the service of the notice: s. 204. Thus, and thus only, there is brought about an `ascertainment' of the taxable income and of the tax, in the sense that thereafter it is possible to say what could not have been said before: that amounts have been fixed so that they are to be taken for all purposes (except those of appeal: see s. 177) to be the result flowing from the application of the Act in the particular case. The respective amounts of the taxable income and the tax have been rendered certain. The word `ascertainment' being understood in this sense, the definition of `assessment' means, in my opinion, the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case."
In Bailey v. F.C. of T., as I have mentioned, Barwick C.J. described (at ATC pp. 4097-4098; C.L.R. pp. 216-217) the process involved in the making of an assessment. Amongst other things he said that the duty of the Commissioner is to assess the tax upon the material contained in the return or otherwise in the possession of the Commissioner (sec. 166), there being provision in sec. 167 for the Commissioner himself to determine in the given circumstances the assessable income of the taxpayer. It is not clear to me whether his Honour intended to use the phrase "assessable income". It is not the phrase which sec. 167 uses, but it may account for the Commissioner's use of the phrase "assessable
ATC 4292income" in the adjustment sheets to which I have earlier referred.
F.J. Bloemen Pty. Limited v. F.C. of T. 81 ATC 4280; (1981) 147 C.L.R. 360 Mason and Wilson JJ. referred in their joint judgment (ATC p. 4285; C.L.R. p. 371) to sec. 175 of the Act which provides that the validity of any assessment shall not be affected by reason that any of the provisions of the Act have not been complied with. They continued (ATC p. 4285; C.L.R. p. 371):
"This section does not relieve the Commissioner from the necessity of performing his duty to make an assessment. The section protects the validity of an assessment, once made, from the consequences which might otherwise flow from the Commissioner's failure to comply with any provisions of the Act. But it does not, and cannot, create a valid assessment where no assessment has been made at all. The section requires an actual assessment as a condition of its operation."
The decisions in Batagol and Bloemen, as well as some others, were referred to in the judgment of the Full Court in this case when it gave its judgment on the questions reserved to it. Those questions, as I have indicated, were based upon hypothetical facts to which the parties had agreed. After a review of the relevant provisions of the Act and the authorities, the Court said (86 ATC at p. 4755; 69 A.L.R. at pp. 191-192):
"... here, the respondents have admitted that the documents issued by them were not, in truth, assessments of taxable income: according to para. 4 of the admitted facts, none of the respondents, prior to the issue and service of the notices of assessment, made any attempt to ascertain the prosecutor's taxable income, nor intended to undertake any relevant process of calculation; rather, the first respondent issued the said notices for the purpose of forcing the prosecutor to consult with him or his officers; and, by para. 9, the first respondent, in the person of the second respondent, decided to issue the notices of assessment, knowing that they did not reflect any rational assessment of a liability of the prosecutor or with reckless indifference to whether they did or did not reflect any such assessment. The respondents have thus elected to proceed upon a footing different from that contemplated by the Act, for the statute proceeds upon the hypothesis that the Commissioner will not be motivated in the exercise of his powers by improper or collateral purposes (see Bloemen, per Mason and Wilson JJ. at ATC p. 4288; C.L.R. p. 375). But, to adapt the language of Isaacs J. in Clarke
[F.C. of T. v. Clarke (1927) 40 C.L.R. 246], the present case does not involve a `crucial diving' into `confidential channels of information'. Rather it is a case, no doubt unusual, of the respondents' asserting that they have abused their powers. This assertion, it is true, is made in a statement of facts which is agreed on a limited basis only. None the less, we must accept the assertion as accurate.
A genuine attempt to ascertain the taxable income of a taxpayer, even if carried out cursorily or imperfectly, is one thing. But when regard is had to the whole of the facts and surrounding circumstances of the present case and it appears that the respondents never intended to embark and did not in fact embark, upon the process of ascertaining the taxpayer's income, no `assessment' is involved. So much is really conceded by the respondents in the agreed facts and that consideration takes the case beyond what was decided in Bloemen. It must follow that sec. 177(1) can have no operation."
In the course of what he said in Batagol, Kitto J. used the expression "having gone through the process of calculation". I do not take his Honour there to be meaning that what must be involved is some process yielding a precise result by calculation in an arithmetical sense. There are many provisions in the Act which require exercises of judgment or estimation. This perhaps becomes clearer in relation to the present problem when one considers what was said by Latham C.J. in relation to the provisions (sec. 36, 37 and 39) of the Income Tax Assessment Act 1922, in
Trautwein v. F.C. of T. (1936) 56 C.L.R. 63. His Honour said (pp. 87-88):
"Obviously the facts in relation to his [the taxpayer's] income are facts peculiarly within the knowledge of the taxpayer.
In the absence of some record in the mind or in the books of the taxpayer, it would often
ATC 4293be quite impossible to make a correct assessment. The assessment would necessarily be a guess to some extent, and almost certainly inaccurate in fact. There is every reason to assume that the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself in that capacity by the simple and relatively unskilled method of losing either his memory or his books.
The application of sec. 39 [the conclusivity of a notice of assessment] is not, in my opinion, excluded as soon as it is shown that an element in the assessment is a guess and that it is therefore very probably wrong. It is prima facie right - and remains right until the appellant shows that it is wrong. If it were necessary to decide the point I would, as at present advised, be prepared to hold that the taxpayer must, at least as a general rule, go further and show, not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or more nearly right. I say `as a general rule' because, conceivably, there might be a case where it appeared that the assessment had been made upon no intelligible basis even as an approximation, and the court would then set aside the assessment and remit it to the commissioner for further consideration."
Essentially the submissions made by counsel for the prosecutor involve the proposition that on the face of Mr Gill's evidence the process of assessment was not undertaken. The effect of his evidence, so it was submitted, was to demonstrate the truth of what Mr Wiggins had said before the Administrative Appeals Tribunal, namely, that the figures had been "plucked out of the air". Coupled with this consideration was the further matter that the notices of assessment had been issued for an improper purpose, namely, to induce the prosecutor to come in to the Australian Taxation Office and discuss his affairs so that a more accurate assessment of his taxable income might be made. In other words, the reality was, as Mr Wiggins in his evidence had said, that the purpose of the assessments was to "flush out" the prosecutor.
The application for an order to show cause contained a number of grounds. These included grounds of a denial of procedural fairness and fraud. Those grounds were expressly withdrawn by counsel for the prosecutor. Furthermore, counsel made it clear that, however the matter was put in the grounds specified in the application, the matters upon which he relied were as I have stated them.
A starting point for the consideration of the competing submissions of the parties is to note the opening provisions of sec. 167 of the Act which indicate the circumstances in which the Commissioner may make an assessment pursuant to the section. He is not empowered to do so unless one or more of the matters provided for in para. (a), (b) and (c) of the section exists. In respect of three of the years of income here in question, namely, 1979, 1980 and 1981, para. (a) plainly applies because the prosecutor had made default in furnishing returns of income for those years. Returns had been lodged in relation to the years 1976, 1977 and 1978 but the Commissioner was not satisfied with those returns. Counsel for the prosecutor expressly disavowed any submission based on the Commissioner's inability to rely on sec. 167 because the conditions precedent to it being available to him specified in para. (a) and (b) were not established to have existed. So it is common ground that the section was available to the Commissioner.
Then it is necessary to take into account some background matters before coming directly to the question whether what Mr Gill did amounted to an assessment. To the forefront of these matters is the prosecutor's sorry, and really disgraceful, history of failing to file returns either at all or on time and his failure on more than one occasion to comply with orders made by magistrates that he file returns within a particular time. It is trite to say that a taxpayer's financial affairs are matters peculiarly within his knowledge. The Commissioner is dependent upon him for a proper disclosure of his income during a given year. If the taxpayer, like the prosecutor in this case, is not prepared to comply with the duties which the Act imposes upon him, he creates difficulties, not only for the Commissioner, but also ultimately for himself. It may be true, as counsel for the prosecutor submitted, that sec. 167 is not the gateway to fantasy and that it is not open to the Commissioner either to pluck a figure out of the air or to make an uninformed guess. But that the process may go close to guesswork, and yet be lawful, is established by what Latham C.J. said in the passage quoted
ATC 4294from his judgment in Trautwein (supra). The point I wish to make is that the prosecutor, by his failure to abide by his duty as a taxpayer, has placed the Commissioner in the position of having to do the best he can in the circumstances. As Latham C.J. has said, there is every reason to assume that the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself in that capacity by the simple and relatively unskilled method of losing either his memory or his books, or, I would add, by persistently refusing the Commissioner information as the prosecutor plainly did by his failure to lodge returns of income and in his examination consequent upon the service upon him of the notice pursuant to sec. 264 of the Act.
What then was Mr Gill to do. Was he simply to throw up his hands and say that he had no basis upon which he could make an assessment? To do so would run counter to common sense and would be in the face of what Latham C.J. said in Trautwein. Accordingly, he had to do the best he could. To say that he racked his brains to find a solution is an understatement. The history of the matter, as evidenced by the documents which are in evidence, shows that over a long period anxious consideration was given to the question of what the approach should be. Towards the end there are understandable signs of frustration creeping into various reports and memoranda prepared by Mr Gill and his officers. So he approached the matter upon the basis of the lifestyle which he understood the prosecutor to lead. And he used the general knowledge he had of the incomes of various people who led similar lifestyles. He engaged in no precise exercise. He did not refer to particular returns of income lodged by people in this category. He used his general experience and knowledge gained over the years of his service with the Department to reach a conclusion.
It was submitted by counsel for the prosecutor that, if this were to be the approach, a proper course would have been to look at actual returns, compare lifestyles and thus be more specific than Mr Gill attempted to be. What he did left the exercise in the realm of guesswork and did not allow it to become one of proper estimation. Once one enters upon a discussion of that kind, the question arises whether one is challenging the making at all of an assessment or rather challenging the way in which the assessment was made.
The essential question in this case is whether there was any assessment at all. The fact that it may have been able to be better done than it was will not make it a nullity if in truth the process of assessment, however unsatisfactorily, or even erroneously, it may have been done, was carried out. What is involved is a judgmental exercise to determine whether what Mr Gill did constituted an assessment or was an exercise unrelated to the prosecutor's circumstances. The evidence which I have accepted shows that Mr Gill had a substantial, although imperfect, knowledge of the affairs, not so much of the prosecutor himself, but of companies and trusts with which he was associated. Mr Gill was conscious that these trusts and companies were themselves potential taxpayers, and that to attribute more substantial incomes to the prosecutor for the relevant years than he did might not give proper weight to the income tax liabilities of the trusts and the companies. That was one of Mr Gill's reasons for rejecting earlier advice that he apply factors of five or seven to figures of $60,000, $80,000 and $100,000 which had been suggested to him. Mr Gill's knowledge of the prosecutor's personal position was far less. But he knew something of his lifestyle and that the prosecutor was apparently enabled to engage in this lifestyle because of the availability to him of large amounts of money, some in cash. That was all he believed he had to go on. It is difficult, as one looks at the matter now, to suggest what other approach might have been adopted. Basing himself on these matters and the overall background of which he was generally aware and which is summarised in the report prepared by Mr Peacock and Mr Wiggins on 7 June 1983, he proceeded, with the aid of a discussion with Mr Peacock, to his task. In my opinion, the evidence establishes that Mr Gill made a genuine estimate of the prosecutor's taxable incomes for each of the years. What he did, although quite inexact and perhaps incorrect, was in each case to make an assessment.
In reaching this conclusion I have taken into account the strong reliance placed by counsel for the prosecutor on the apparent arbitrariness and capriciousness of the annual increments of precisely $25,000 made to the taxable income of each successive year. Mr Gill's response to
ATC 4295this criticism was that he engaged in an exercise which was one of estimation. He detected in the information he had indications of growing wealth and affluence. The increments were his way of allowing for this, and, I suppose, although Mr Gill did not mention it, inflation. The arbitrariness of the increments indicates how imprecise Mr Gill's exercise was, but in my opinion what he did, bearing in mind the whole of the circumstances of the case, was nevertheless to make a series of assessments.
That concludes the principal argument against the prosecutor. As earlier mentioned, it was also contended that the assessment process was engaged in, not for the purpose provided for in the Act, but for the purpose of inducing him to come in and talk to officers of the Taxation Office about his affairs. I accept Mr Gill's evidence that this was not the purpose of making the assessments. That is not to say that the effect of making them might not have been to lead the prosecutor and his advisers into discussions with the Commissioner's officers. This in turn may have led the Commissioner to make an amendment of the assessments in accordance with the powers he has under sec. 170 of the Act. But that circumstance does not mean that the assessment issued, for an improper purpose. To the extent that what Mr Wiggins said in his evidence before the Administrative Appeals Tribunal suggests otherwise, it reflects a failure on his part properly to comprehend what had been done. This is understandable when one considers that Mr Wiggins played no part at all in the process of assessment.
In this regard I should emphasise that Mr Wiggins is the most junior of the officers who have had direct responsibility for the prosecutor's taxation affairs. The man who made the assessments was Mr Gill, not Mr Wiggins, nor, for that matter, Mr Peacock. Whatever Mr Wiggins may have said or thought about the matter is therefore irrelevant for present purposes, particularly as I am satisfied that I should accept Mr Gill's evidence that the figures originated after discussion between himself and Mr Peacock. I should add that the Act itself contemplates that the effect of the making of an assessment under sec. 167 may have a "flushing out" consequence. That is because it is recognised that the exercise may have yielded an incorrect result. In those circumstances the taxpayer is provided with an appeal under Pt V of the Act, but it is for him to establish that the amount of the assessment is excessive. He bears the onus of showing this to be so (sec. 190). The nature of the exercise in which he engages is described by Latham C.J. in Trautwein's case and also by the High Court in the judgment in George's case earlier referred to.
I am therefore of opinion that the order to show cause should be discharged and that the applications for an injunction and declaration of right should be dismissed.
Before I conclude, there are, however, some further matters which were relied upon by counsel for the respondents in opposition to the application which I should mention shortly. Firstly, it was submitted that prohibition would not lie because the Commissioner was not engaging otherwise than in an administrative exercise. Although prohibition might lie if he were required to act at all in a quasi-judicial capacity or apply the rules of natural justice, this was not such a case and prohibition was an inappropriate remedy. Secondly, it was submitted that, although the Court had jurisdiction to grant an injunction, it ought not to do so because the prosecutor's hands were unclean. Thirdly, it was submitted that the prosecutor was not entitled to the relief claimed because the matter was affected by the doctrine of res judicata. This was because of the proceedings in the Supreme Court of Western Australia and the judgment entered in the matter by that Court. It was submitted that the matter was either plainly raised on the face of the pleadings in that matter or was a matter which could, and, therefore, ought to have been raised, if not at first instance, then on appeal by the leading of fresh evidence, Mr Wiggins' evidence before the Administrative Appeals Tribunal having preceded the hearing of the appeal. Reference was made to Port of
Melbourne Authority v. Anshun Pty. Ltd. (No. 2) (1981) 147 C.L.R. 589, to the Rules of the Supreme Court of Western Australia dealing with the reception of fresh evidence on appeal, and to the decision of the High Court in Council of the City of
Greater Wollongong v. Cowan (1955) 93 C.L.R. 435, especially per Dixon C.J. at pp. 444-445. Fourthly, it was submitted that, in the exercise of my discretion, I should refuse relief because the matters relied upon could be raised in the appeal under Pt V
ATC 4296of the Act which is pending in the Supreme Court of Western Australia.
Although, in the view I have taken of the matter, it is unnecessary for me to deal with these submissions, I propose to say something about them shortly. In my opinion the better view is that prohibition does not lie in the circumstances of a case such as this. However, I have not considered the matter fully. But if the view I have expressed is right, the appropriate remedy, if the prosecutor had been entitled to succeed, would have been an injunction.
The answer made by counsel for the respondents to the claim for an injunction was that the prosecutor's hands were unclean. During the argument I raised with counsel the question whether the equitable principle that he who comes to equity must come with clean hands was applicable in relation to injunctions sought in administrative law matters. The better view would seem to be that it is; see De Smith's Judicial Review of Administrative Action, 4th ed. (1980) pp. 437-439; see also General Principles of Administrative Law, Sykes, Lanham and Tracey, 2nd ed., p. 246. Matters relied upon in support of the proposition that the prosecutor did not come with clean hands were that he had deceived the Commissioner and had engaged in fraudulent practices and/or evasive schemes for the avoidance of liability for income tax.
If it had been relevant to determine the matter, there may have been an initial difficulty because the evidence may not have enabled findings to be made of the existence of the matters relied upon. Be that as it may, it is necessary to take into account the fact that, for the defence of unclean hands to operate at all, the impropriety complained of must have an immediate and necessary relation to the equity sued for; see Equity - Doctrines and Remedies, Meagher, Gummow and Lehane, 2nd ed., para. 326, p. 78
Meyers v. Casey & Ors (1913) 17 C.L.R. 90; and
Dewhirst & Ors v. Edwards & Ors (1983) 1 N.S.W.L.R. 34. In this case the prosecutor seeks an injunction to restrain the Commissioner proceeding upon assessments and notices of assessment which, in his submission, were no assessments at all; they were a nullity. In my opinion, the matters relied upon by the Commissioner bear no relationship to what may be described as the prosecutor's cause of action - by analogy, his "equity" - or to the relief which he sought. The assessments were either invalid or they were not. If they be invalid, the Commissioner ought to be restrained from enforcing them, irrespective of what conduct the prosecutor had engaged in prior thereto, because the amounts would, in that event, have been an unlawful exercise of the Commissioner's powers. It should be clear that what I have said relates only to the doctrine of clean hands; I am not in this context talking about other discretionary defences such as delay or waiver or acquiescence.
The defence of res judicata I think raises difficult problems. I propose to say something of it, but I do not intend to express any concluded view about the matter. I should mention, first, a matter relied upon in opposition to the defence by counsel for the prosecutor. It was that the judgment of the Full Court of this Court in this matter itself created an issue estoppel or gave rise to a defence of res judicata. I do not perceive how this can be so. The judgment is an interlocutory one on assumed facts, not the actual facts of the matter. As I have earlier said, it decides nothing except certain principles of law.
A consideration of the notices of objection referred to in para. 10(c) of the prosecutor's amended defence filed in the Supreme Court proceedings which I have earlier set out strongly suggests that matters of the kind here relied upon were to be relied upon as a defence to the proceedings. I do not perceive why it was not open to the prosecutor to rely on these matters by way of defence to the claim. I think there are strong reasons for taking the view that the matters were within the matters alleged in para. 10 of the amended defence. At the time the matter was tried at first instance in the Supreme Court, the evidence upon which the prosecutor relied in these proceedings was not available to him, Mr Wiggins' evidence before the Tribunal not having been given until March 1986. But there is much to be said for the proposition that the Supreme Court on appeal would have had jurisdiction to allow the prosecutor to lead this evidence and would have exercised its discretion in favour of that course in accordance with the principles which are stated by Dixon C.J. in the Cowan case earlier referred to. However, as I say, it is unnecessary for me to express concluded views about these matters and I do not.
In relation to the question whether the matters relied upon in the present case could be relied upon in the Pt V appeal, counsel for the respondents relied upon
McAndrew v. F.C. of T. (1956) 98 C.L.R. 263 and upon Bailey's case for the proposition that the words of sec. 190, which provide that on an appeal the burden of proving that the assessment is excessive shall lie upon the taxpayer, enable the taxpayer to challenge the validity of the assessment. I do not myself find in either McAndrew's case or Bailey's case support for this proposition, although some support for it may be thought to be found in the passage from Trautwein's case which I have earlier cited. I think the better view is that the matters may not be raised in an appeal because I do not think that the language of sec. 190 is wide enough to embrace them. Again, however, I express no concluded view.
It remains to say that at the commencement of his submissions counsel for the respondents relied upon sec. 177. He said that this was a complete answer to the case made by the prosecutor. In my opinion this challenges directly the correctness of the decision of the Full Court of this Court in this matter. Apart from the fact that I am in agreement with what the Full Court decided - I was a party to the judgment - it is not open to me, in any event, to take a different view. I record the submission to enable the respondents to rely on the matter elsewhere if they so wish.
In the result the order to show cause is discharged. The applications for an injunction and a declaration are dismissed. The prosecutor is to pay the respondents' costs of the proceedings.
THE COURT ORDERS THAT:
1. The order to show cause be discharged.
2. The applications for an injunction and a declaration of right be dismissed.
3. The prosecutor pay the respondents' costs of the application.