Winter v. Deputy Federal Commissioner of Taxation.

Fox J

Federal Court

Judgment date: Judgment handed down 31 July 1987.

Fox J.

This is an application under the Administrative Decisions (Judicial Review) Act 1977 in which the applicant seeks to have assessments of the Commissioner of Taxation under the Income Tax Assessment Act 1936 declared invalid. The Commissioner has before the Supreme Court of New South Wales an application for summary judgment and for Mareva injunctions in aid of enforcement of the assessments, or perhaps only one of them, and the adjourned hearing of that application is listed for 11 August 1987.

Notices of Assessment issued on 27 May 1985 against Vimair Pty. Limited ("Vimair") and Ilerace Pty. Limited ("Ilerace") for the year ending 30 June 1981 in the respective sums of $248,682 and $448,736.40. Both companies were assessed in their capacity as trustees, Vimair as trustee of a trust known as the "Vimair No. 1 Trust", and Ilerace as trustee of the "Ilerace No. 1 Trust". On 2 August 1985 an amended assessment was issued against Henry Victor Winter, the present applicant, for the same tax year for $1,362,347.38, representing $1,156,401 as tax on taxable income and the balance as additional tax. All three assessments are challenged in these proceedings.

The application for review was made out of time but the applicant successfully applied for an extension of time (see report,
Winter v. D.F.C. of T. 87 ATC 4065). At the hearing of that application the respondent sought to have the application for review struck out or dismissed on the ground that it was beyond the jurisdiction of the Court, but the question was regarded as arguable and was left to be decided at this hearing.

I should say that the applicant also relies upon sec. 39B of the Judiciary Act 1903, which gives power to the Court to issue prerogative writs against officers of the Commonwealth. Although the Rules respecting the use of sec. 39B (O. 54A) were not complied with, the applicant's submission was that the Court's jurisdiction was properly invoked. It is not, however, necessary to decide this question.

The decision of the Commissioner which is under challenge is one made under sec. 166 of the Income Tax Assessment Act, which provides as follows:

"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."

The obvious impediments to the present application are two: sec. 177(1) of the Income Tax Assessment Act and, in relation to proceedings under the Judicial Review Act, para. (e) of Sch. 1 to that Act.

Section 177(1) is as follows:

"177(1) The production of a notice of assessment, or of a document under the

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hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct."

The phrase to be emphasised here is "due making". The effect of the subsection has been stated many times. In
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280 at p. 4288; (1980-1981) 147 C.L.R. 360 at p. 375 it was said in the joint judgment of Mason and Wilson JJ.:

"An explicit and, in our view, correct statement of the effect of sec. 177(1) was made by Taylor J. in McAndrew (at pp. 281-282). For the reasons there expressed his Honour concluded that `s. 177(1) was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any ground'. He conceded that the word `excessive' in sec. 190(b) was inappropriate. However, he considered that an assessment `made in purported but not justifiable exercise of a statutory power' could properly be described as `excessive' (p. 282).

This interpretation gives expression to the policy which underlies, and is manifest in, the statutory provisions. The effect of this policy is that, once the Commissioner takes advantage of sec. 177(1) by producing an appropriate document, the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under Pt. V."

Section 5 of the Judicial Review Act confers jurisdiction on this Court to review a "decision to which this Act applies", which is defined in sec. 3(1) so as to exclude "a decision included in any of the classes of decisions set out in Schedule 1". Paragraph (e) of that Schedule provides as follows:

"(e) decisions making, or forming part of the process of making, or leading up to the making of, assessments or calculations of tax or duty, or decisions disallowing objections to assessments or calculations of tax or duty, or decisions amending, or refusing to amend, assessments or calculations of tax or duty, under any of the following Acts:


Income Tax Assessment Act 1936


Notwithstanding these impediments, it is clear from
Briggs v. D.F.C. of T. and Ors; Ex parte Briggs 86 ATC 4748; (1986) 69 A.L.R. 185 ("Briggs") that in some situations this Court does have jurisdiction to review purported income tax assessments which are not "assessments" within the meaning of sec. 177(1) and para. (e) of Sch. 1. In Briggs, the Court said (at ATC p. 4755; A.L.R. p. 192):

"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."

The applicant also referred to
D.F.C. of T. v. Truhold Benefit Pty. Ltd. 84 ATC 4912; (1984) 73 F.L.R. 283. In that case Shepherdson J. said (at ATC p. 4917; F.L.R. p. 290):

"I cannot believe that in the case where there are current two mutually contradictory assessments in respect of the same assessable income, sec. 177(1) must be construed according to Bloemen."

He did not, however, decide the question to which he referred, and in any event the case is quite distinguishable from the present.

The present case was put simply and solely on the basis that there were mutually inconsistent assessments, the inconsistency being between the assessment of Mr Winter on the one hand, and the assessments, taken

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together, of the companies to which I have referred, on the other.

There was in place at and after the end of the 1981 tax year a complex arrangement of trusts and companies with which Mr Winter would seem to have been connected, if he was not the controlling force, and through which, on the Commissioner's submission, moneys passed referable to the gross income said to have been received by Mr Winter for that year. There is a great deal of evidence before me, adduced on behalf of the Commissioner, which supports his contention that the applicant had in operation what has been called a "trust strip", which was used to avoid income tax. It is not necessary for me to deal with this material in great detail, and, in the view I take of the matter, it is better that I not express any conclusion upon it.

From 18 January 1980 to 10 March 1981 Vimair was the registered proprietor of the business name "Henry Winter & Associates". On 7 September 1981 Vimair submitted a return as trustee for the "Henry Winter & Associates Unit Trust No. 1" for the 1981 tax year. The profit and loss statement annexed to the return was headed:

"Vimair Pty. Limited as Trustee for: -

The Henry Winter & Associates Unit

Trust No. 1

Trading as Henry Winter & Associates

Profit and Loss Statement for Period

1st July, 1980 to 9th June 1981

(Ceased Trading after 9th June, 1981)"

The profit and loss statement showed an income of $631,560, derived from "Fees and Commission", total expenditure of $217,010 and an operating profit of $414,550. The net income returned was $414,470, representing the operating profit for 1981 less a loss of $80 incurred in previous years. The return stated that the entire net income as returned had been distributed to Vimair as trustee of the Vimair No. 1 Trust.

On 7 September 1981 Vimair also submitted a return as trustee of the Vimair No. 1 Trust for the 1981 tax year. The annexed "income statement" showed as income a receipt of $414,470 from Vimair as the trustee for the Henry Winter & Associates Unit Trust No. 1, expenditure of nil, and a distribution of $414,470 to Vimair as trustee of another trust, the "H.W. Trust". The same figures appeared in the return. However, the Commissioner ignored the distribution, and assessed Vimair as trustee for the Vimair No. 1 Trust to tax on an income of $414,470. According to the amended adjustment sheet, the Commissioner relies on sec. 99A and an argument that Vimair's arrangements were not effective for tax purposes.

The assessment of Ilerace follows a similar pattern. Ilerace was the registered proprietor of the business name "Henry Winter & Associates" from 10 March to 1 July 1981. On 7 September 1981 it submitted a return as trustee for the Ilerace No. 1 Trust for the 1981 tax year, to which was annexed a profit and loss statement headed as follows:

"Ilerace Pty. Limited Trustee For:

The Ilerace No. 1 Trust Trading as

Henry Winter & Associates

Profit and Loss Statement for Period

10th March, 1981 to 30th June, 1981

(Ceased Trading after 30th June, 1981)"

The profit and loss statement showed an income, derived largely from "fees and commission", of $1,023,559, total expenditure of $235,665, and an operating profit of $787,894, which was completely distributed to other trusts. The return showed a net income of $787,894 distributed in accordance with the profit and loss statement, but again the distribution was ignored and Ilerace was assessed to tax on the basis of a net income of $787,894. The adjustment sheet expressed a similar basis of assessment to that issued to Vimair.

The adjustment sheet accompanying Mr Winter's amended assessment included the following entries:



      Gross personal exertion income as
      returned by the following trusts: -

      (a)   Henry Winter & Associates Unit Trust No. 1           631,560
      (b)   Ilerace No. 1 Trust                                1,023,559

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      (i)   Deductions allowed against
            Personal Exertion Income as follows: -

      (a)   Henry Winter & Associates, Unit Trust No. 1        217,010
      (b)   Loss brought forward recouped                           80
      (c)   Ilerace No. 1 Trust                                235,665


The amounts of the gross income and deductions assessed against Mr Winter in respect of "personal exertion" are the same as those returned by the trusts, to which they are expressed in the adjustment sheet to relate.

It is not entirely clear what the business of "Henry Winter & Associates" was. Mr Winter is an accountant. The expenditure set out in the profit and loss statements relate to office expenses, but the income would seem to have come largely, if not wholly, from commissions received in connection with the sale of aircraft, Mr Winter himself having been the active agent in this regard.

Objections to all three assessments were lodged. The respondent disallowed the objections, and the taxpayers have requested that they be referred to the Administrative Appeals Tribunal. In the cases of Vimair and Ilerace this has been done.

As I have said, the applicant relies upon "mutual inconsistency". There is really no case that the assessments of the two companies are "mutually inconsistent". The gravamen of the submission is that the assessment of Mr Winter embraces amounts already assessed against both those companies and is therefore inconsistent with them. The fact that the same amount is assessed against two taxpayers in the one year, even where they had intimate dealings with each other, does not of course show "mutual inconsistency". A question arises as to whether there was a common, simultaneous, derivation. In the present case Mr Winter, and the companies and trusts have been blatantly uncooperative with the Commissioner when he has sought information and documents, and it is at least a possibility that he should be regarded as having derived the income and then paid it, without prior obligation, to the companies.

The starting point for the applicant's submissions was the following statement by Barwick C.J. in
Bailey & Ors v. F.C. of T. 77 ATC 4096 at p. 4098; (1977) 136 C.L.R. 214 at p. 217:

"... the process of assessment requires the application of the Act to the facts as known to and accepted by the Commissioner. He must of necessity, as part of that process, adopt a view of the relevant facts. They must be facts which disclose a taxable income."

The applicant submitted that in assessing the different taxpayers in respect of the same income, the Commissioner had failed to decide whose income it was, and that accordingly, he had not engaged in the "process of assessment" in the sense referred to in Bailey and Briggs, so that the "assessments" were not protected by sec. 177(1).

In my opinion this submission fails. There is a clear distinction between assessment on alternative bases and failure to properly assess at all, as Barwick C.J. recognised later in his judgment in Bailey (see at ATC p. 4098; C.L.R. 218). The Commissioner may assess different taxpayers in respect of the same income on alternative bases, although he can only collect tax on one basis: See
Richardson v. F.C. of T. (1931-1932) 48 C.L.R. 192 at pp. 205-207 and 212. In
Booth v. F.C. of T. 86 ATC 4049; (1986) 81 F.L.R. 346. McGarvie J., sitting at first instance, said at ATC p. 4077; F.L.R. 359:

"I do not think an implication arises from the Act that the Commissioner may not issue inconsistent assessments to two taxpayers in respect of the same income."

and he cited Richardson's case. The case went on appeal (see 86 ATC 4612), but this point was not dealt with. See also
D.F.C. of T. v. Jonrich Pty. Ltd. & Ors 86 ATC 4560 at p. 4575. It follows that the existence of two assessments in respect of the same income does

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not deprive either assessment of its protection under sec. 177(1): See
D.F.C. of T. v. Crowl 87 ATC 4001 at p. 4004; and
Tupicoff v. F.C. of T. 84 ATC 4851; (1984) 4 F.C.R. 505, at ATC p. 4863; F.C.R. p. 523:

In the present case the evidence shows most convincingly the care and attention which the Commissioner's officers have applied to their task in arriving at the assessments in question. They may have gone wrong somewhere, and the Commissioner may not be able to recover against all three taxpayers simultaneously, but this is a matter for investigation in the references which, in two cases, have gone to the Administrative Appeals Tribunal and which in the case of the assessment of Mr Winter may well go there.

The position in relation to this case, as I see it is, first, that the phrase "mutually inconsistent" is ambiguous and uncertain of application. The question can only be whether the Commissioner has arrived at an assessment, bona fide no doubt, and for the purposes of the Act. The assessments may be of the same amount, and relate to the same transactions, but this does not, of itself, establish "inconsistency". There can be no doubt that the assessments, and particularly that of Mr Winter, were arrived at after close consideration of the material the Commissioner was able to collect. It can hardly be said that the Commissioner did not duly consider the making of the assessments. So far as appears, he did so in accordance with his usual practice, albeit much investigation was necessary in relation to the position of Mr Winter. I am just not able to hold that there were not assessments, and from there (notices having been issued) the position is regulated by sec. 177(1), and the provisions of Pt V of the Act.

If the Commissioner seeks to enforce all assessments before the references and any appeals are determined, and this is regarded as oppressive, it is not beyond the power of the Courts to interfere, at least on an interim basis.

The application of para. (e) of Sch. 1 to the Act was not argued, and I say nothing about it.

The evidence does not show that any one of the notices of assessment was such that sec. 177(1) did not apply to it. There is no case for holding that the assessment issued to the applicant was not an assessment in the relevant sense, with the result that the application must be dismissed. The applicant must pay the respondent's costs.


1. The amended application for review be dismissed.

2. The applicant pay the respondent's costs of the proceedings.

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