Politis v. Federal Commissioner of Taxation

Lockhart J

Federal Court

Judgment date: Judgment handed down 20 December 1988.

Lockhart J.

The Administrative Appeals Tribunal (Dr R.A. Hayes, Senior Member) heard an application by Mrs Maria Politis to review decisions by the Commissioner of Taxation disallowing her objections against amended assessments to income tax for the years of income ended 30 June 1972 to 1979 inclusive [unreported]. The Tribunal upheld the decisions under review and the appellant then appealed to this Court pursuant to sec. 44 of the Administrative Appeals Tribunal Act 1975 (Cth).

The Commissioner issued income tax assessments for each of the income years in question; but, following an extensive investigation into the affairs of the appellant, he issued amended assessments for each of those years on 10 June 1980 which resulted in a substantial increase in her taxable income.

It was admitted by the appellant that during the relevant years she had kept various building society accounts in her maiden name with fictitious addresses and had regularly deposited various sums of money into those accounts and had from time to time made withdrawals therefrom. The balances in the accounts had built up progressively so that over the relevant years the amounts in them at any one time were quite substantial. Those accounts were not disclosed in the appellant's tax returns. The systematic investigation conducted by the Commissioner revealed that the appellant was the person operating the accounts. The deposits into those accounts and the interest derived therefrom constitute the income which the appellant omitted to include in her assessable income in each of the years in question and which provided the basis for the amended assessments.

Before the Tribunal there was no dispute about the existence of the accounts, the amounts of the deposits or the amounts of interest derived therefrom. The appellant's case was essentially that the deposits represented savings and capital sums which she felt constrained to keep secret primarily from her husband and, as an inevitable consequence from this, from the Commissioner. She admitted that the interest which she earned on those deposits ought to have been declared and conceded her liability to pay tax and additional tax on that interest. The explanation given to the Tribunal by the appellant for her conduct was that she suffered from marital difficulties and lived in fear of her husband; and that she had to keep money constantly on hand in case she needed to make a sudden escape and set up house on her own. She gradually saved moneys in various ways, including keeping money under the carpet at one stage. She read reports in newspapers of official investigations of undisclosed bank interest and asserted that in order to protect herself from such investigations she began to ``recycle'' deposits from building society to building society, closing accounts and opening others, in substance with the same moneys plus accrued interest, believing that this course of conduct would make it more difficult to trace the accounts.

The Tribunal dealt quite extensively with the case put by the appellant before it and with the essential features of the evidence adduced by her. The Tribunal mentioned that the appellant was extremely hard working, enterprising and industrious and that, together with her husband, she had acquired and developed property from which rental income was earned. For some time she and her husband had an interest in a laundromat which was ultimately sold. She also

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worked as a journalist with various Greek newspapers and is now a newspaper proprietor in her own right. She imported into Australia jewellery and other valuables which were inherited from relatives in Greece and these were sold. She both lent and borrowed money and had been a trustee for others who, for their own purposes, wish to move currency out of Greece. Her financial affairs were complex.

The Tribunal found that the appellant's claim that she was forced to engage in complex financial dealings through secret building society accounts involving large sums of money and over a long period because of the need to maintain ``a nestegg'' hidden from her husband was implausible and that the details of the accounts, provided by the Commissioner, and uncontested by the appellant, show a course of conduct and series of financial arrangements much too extensive to be explicable in those terms. The Tribunal found that, whilst the appellant's husband might have been physically overbearing, it was part of her case that she was the financial mistress and that he had virtually no say over financial matters. The Tribunal found that the appellant was a resourceful person and that she could have dealt far more efficiently and simply with her need to maintain a secret sinking fund than through the network of building society accounts that she opened over the relevant period. The Tribunal found that maintaining the secret accounts in which deposits of amounts large and small were constantly being made was highly suggestive of a scheme to defraud the revenue.

The Tribunal rejected the appellant's case that she was recycling various amounts accumulated by way of savings from account to account in order to keep a step ahead of any possible official investigation into undisclosed bank interest. The Tribunal found that, on the contrary, the facts revealed quite clearly a systematic series of small deposits redolent of ordinary business banking with no systematic matching of withdrawals and deposits.

The Tribunal noted that the appellant produced no bookkeeping records detailing aspects of the funds passing through her hands and said:

``[s] he fell back on a picture of herself at the start of the relevant period as a naive and inexperienced young woman battling in a new country to make a go of things, to whom proper bookkeeping would be completely foreign. But again, an inference from the absence of books is that the keeping of them would not have suited the applicant in what on the face of it would seem to be a long term plan to avoid paying tax on a significant part of her income through the maintenance of secret accounts.''

The Tribunal accepted that the appellant had over the relevant period received various amounts by way of capital rather than income: for example, settlement of insurance claims in respect of burglaries, the proceeds from the sale of inheritances, gifts from relatives, repayments to her of loans and the proceeds from the sale of business assets; but that the proceeds of a number of those items were in fact paid into her non-secret bank accounts, rather than into the secret accounts in issue.

In summary, the Tribunal found that the assertions of the appellant with respect to various financial transactions, and in particular her assertion that the transactions in the secret accounts could be accounted for by a process of recycling, was implausible. In the result the Tribunal upheld the decisions of the Commissioner under review.

The submissions made by counsel for the appellant before this Court on appeal from the decision of the Tribunal fell broadly into two categories which were related in some respects. The first submission was that the Tribunal misconstrued and erroneously applied sec. 190 of the Income Tax Assessment Act 1936 (Cth) (``the Act''). It was argued that the Tribunal viewed the section as one directing it how to deal with particular aspects of the evidence before it, rather than as a section requiring a review of the evidence as a whole to determine whether the onus of proof had been discharged. It was said that the Tribunal came to a series of conclusions in the course of its decision and applied sec. 190 piecemeal throughout its decision-making process rather than at the end. Reliance was placed in particular upon two specific findings with respect to sec. 190 by the Tribunal. First, the Tribunal said that the evidence adduced by the appellant as to her high public reputation was ``not enough to displace the onus which the Act places upon her''. Second, the Tribunal said with respect to the evidence of the appellant that she had her own ``system of mental bookkeeping'' which

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enabled her to accurately account for her finance dealings, that sec. 190(b) ``influences me from this course'', that is from the course of accepting the case of the appellant that her own informal method of ``mental bookkeeping'' was sufficient to show that moneys deposited into the secret accounts derived from declared sources, and were deposited following the deposit of items of capital into non-secret accounts.

Section 190 of the Act provides so far as relevant that the burden of proving that the assessment is excessive shall lie upon the taxpayer on a review before the Tribunal under Pt V, Div. 2. It is now well established that subsec. 190(b) imposes the burden on the taxpayer to establish that elements in the assessment are wrong. Often the taxpayer must show not only that the assessment is wrong, which is a negative proposition, but positively what correction should be made in order to make it right:
Trautwein v. F.C. of T. (No. 1) (1936) 56 C.L.R. 63 especially per Latham C.J. at p. 87:
McCormack v. F.C. of T. 79 ATC 4111 per Gibbs J. at pp. 4121-4122, per Stephen J. at p. 4123, per Murphy J. at p. 4132 and
Macmine Pty. Ltd. v. F.C. of T. 79 ATC 4133. This approach is supported by the operation of subsec. 177(1) of the Act, and in principle by the circumstance that the facts relating to the taxpayer's income are peculiarly within the taxpayer's own knowledge.

The section thus imposes upon the taxpayer the burden of proving that the assessment is excessive. The Act does not place any onus on the Commissioner to show that the assessment was correctly made, nor is there any statutory requirement that the assessment should be sustained or supported by evidence.

I have observed a distinct and growing tendency in this Court when appeals are brought from administrative tribunals including appeals on a question of law from the Administrative Appeals Tribunal under subsec. 44(1) of the Administrative Appeals Tribunal Act, for the Court to be asked to construe the tribunal's reasons for its decision minutely and finely and with an eye keenly attuned to the perception of error. The Administrative Appeals Tribunal is required by para. 43(2B) of the Administrative Appeals Tribunal Act to include in its written reasons for decision ``its findings on material questions of fact and a reference to the evidence or other material on which those findings were based''. I repeat what has been said by other members of this Court in the cases mentioned below and by myself on more than one occasion, that when this Court hears appeals from administrative tribunals - which are the bodies entrusted by Parliament with the task of reviewing decisions of a particular administrative character - the Court should approach its task sensibly and in a balanced way, not reading passages from the reasons for decision in isolation from others to which they may be related or taking particular passages out of the context of the reasons as a whole. I agree with the view expressed by Fisher J. in
Blackwood Hodge (Aust.) Pty. Ltd. v. Collector of Customs (N.S.W.) (No. 2) (1980) 3 A.L.D. 38 at p. 49 with respect to a decision of the Administrative Appeals Tribunal relating to the Customs Tariff:

``It is my firm view that this Court when hearing appeals from a Tribunal constituted for the purposes of reviewing decisions of this nature, should adopt a restrained approach. Parliament contemplated that only in exceptional circumstances should the decision of the Tribunal not be the final decision. This does not mean that when an error of law is identified, the court should be reluctant to intervene. In fact, it is under a duty to do so. Rather it should heed the comments of Davies LJ (as he then was) in
R. v. Industrial Injuries Commissioner; Ex parte Amalgamated Engineering Union (No. 2) [1966] 2 Q.B. 31 at 50:

  • `I should like to echo the words of my Lord, Lord Denning MR, in saying that I deprecate the practice, and hope it would not continue, of attempting to magnify or inflate questions of fact into questions of law and of trying to obtain decisions from the courts on matters which the legislature would appear to have thought suitable for decision by the various bodies and authorities set up under the Act of 1946.'

As Lord Radcliffe said in
Edwards v. Bairstow [1956] A.C. 14 at 38:

  • `... by the system that has been set up the commissioners are the first tribunal to try an appeal, and in the interests of the efficient administration of justice their decisions can only be upset on appeal if they have been positively wrong in law.

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    The court is not a second opinion, where there is reasonable ground for the first.'''

See also
Bisley Investment Corporation & Anor v. Australian Broadcasting Tribunal & Anor (1982) 40 A.L.R. 233 per Lockhart J. at p. 251, per Sheppard J. at p. 255;
Steed v. Minister for Immigration (1981) 4 A.L.D. 126 per Fox J. at p. 127 and
F.C. of T. v. Cainero 88 ATC 4427; (1988) 19 A.T.R. 1301 per Foster J. at ATC pp. 4430-4431; A.T.R. pp. 1305-1306. I agree with all those statements made by members of this Court from time to time.

In my opinion, when the reasons of the Tribunal in this matter are read as a whole, they do not support the argument that the Tribunal applied subsec. 190(b) in some piecemeal fashion throughout its process of reasoning, assessing particular questions of fact in the light of the onus provisions imposed by the section. What the Tribunal did, as I perceive it, is to correctly apply the test to which the section gives rise.

The second argument advanced by counsel for the appellant was that certain findings of fact made by the Tribunal cannot reasonably be supported on the evidence and were not therefore findings that it was reasonably open to the Tribunal to make.

I see no useful purpose in analysing each of the particular matters of fact to which my attention was directed in argument. There was a fairly large number of them. Some were finally not pressed in argument when it became clear that those items were not taken into account as the taxable income of the appellant in the relevant assessments and were accepted by the Commissioner as being on capital account; for example, the proceeds of sale of the interest of the appellant and her husband in a laundromat of some $12,000 and the proceeds of redemption of an insurance policy of some $3,349. The relevant facts appear to have been taken into account by the Tribunal and were reflected in its rejection of the appellant's case.

Section 44 of the Administrative Appeals Tribunal Act entitles a party to a proceeding before the Tribunal to appeal to this Court ``from any decision of the Tribunal in that proceeding'' but only ``on a question of law''. A finding by the Tribunal on a matter of fact cannot be reviewed on appeal by this Court unless the finding is vitiated by an error of law. That error of law must arise on the facts as the Tribunal has found them to be, or it must be established that the error of law is one which vitiates the findings made, or has led the Tribunal to omit to make a finding it was bound to make by law.

Although couched in terms that the findings give rise to a question of law - namely, that the decision of the Tribunal as to certain material matters of fact could not reasonably have been made - it is plain to me that in substance the appellant sought to transmute questions of fact into questions of law. In effect, the appellant asked this Court to express a second and favourable opinion on matters of fact which had been found unfavourable to her by the Tribunal.

The appeal should be dismissed with costs.

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