MOCHKIN v FC of T

Judges:
Ryan J

Court:
Federal Court

MEDIA NEUTRAL CITATION: [2002] FCA 675

Judgment date: 29 May 2002

Ryan J

The applicant, Levi Mochkin, has since 1987 been engaged in various aspects of the sharebroking industry. In late 1985 he migrated to Australia from New York where he had undertaken rabbinical studies. Before 1987 he had not been involved in sharebroking. In that year he entered into an arrangement with Bridges Son & Shepherd Limited (``Bridges'') a member of the Stock Exchange which had its headquarters in Sydney but also had an office in Melbourne.

2. Pursuant to that arrangement, Mr Mochkin was provided with office accommodation at Bridges' Melbourne office, the services of a secretary and ``back office'' support. He arranged for the sale and purchase of shares by his clients to be executed by Bridges on the basis that he would receive one-third and Bridges two-thirds of the brokerage or commission thereby generated. Later that apportionment was varied to enable Bridges to retain 55% and Mr Mochkin 45% of the brokerage. Mr Mochkin had built up a substantial clientele, particularly among the Jewish community. In part, the growth of that business was attributable to advertisements placed in the ``Australian Jewish News'' which recited, amongst other things, that Bridges ``is pleased to advise that Levi Mochkin is with the firm as an Investment and Securities Advisor''. As well as his share-broking activities, Mr Mochkin, in 1987, was conducting other businesses, one being as a share trader which generated a profit of $52,490 in the 1987 year. His other businesses were as an importer of calculators which made a loss in the same year of $23,260 and as a clothing importer which generated, in the same year, a loss of $43,802.

3. In about May 1987, Bridges terminated its arrangement with Mr Mochkin and shortly afterwards, through its solicitors, made a demand on Mr Mochkin for him to indemnify Bridges against losses arising from defaults made by clients introduced by him who had entered into transactions effected through Bridges. Mr Mochkin did not comply with that demand and, in September 1987, Bridges commenced an action against him in the Supreme Court of Victoria. Mr Mochkin apparently defended that action on the basis that he had been an employee of Bridges but he has deposed that he was advised by Senior Counsel that it was likely that the Supreme Court would find that he had been an independent contractor to Bridges and that the defaulting clients introduced by him had been his clients rather than Bridges' clients. The trial of the Supreme Court action was proceeding in February 1988 and after the luncheon adjournment on 11 February 1988, while Mr Mochkin was under cross-examination, Counsel for the parties announced that it had been compromised.

4. Pursuant to the terms of settlement of the Supreme Court action Mr Mochkin paid

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Bridges $150,000 and released it from payment of commissions due amounting to about $200,000. The sum of $150,000 was claimed, and allowed, as a business deduction in the taxpayer's personal income tax return for the year ended 30 June 1987. In the light of that expense, Mr Mochkin has deposed, he decided to take steps to avoid thereafter attracting personal liability for similar defaults by his clients and to ensure that his stockbroking business was carried on through a limited liability company ``for the benefit of my family, related entities and charities''.

5. After the termination of his arrangement with Bridges, Mr Mochkin entered into a similar arrangement with Pembroke Securities Limited (``Pembroke''). That arrangement commenced to operate during 1987 by which time Mr Mochkin had an ``established client base'' of over one hundred which, he has deposed ``continued to grow while I used the services of Pembroke to transact orders on the Stock Exchange for my clients.'' Under the shadow of the Bridges' litigation against him in the Supreme Court, Mr Mochkin, on 1 February 1988, caused Daccar Pty Ltd (``Daccar''), the trustee of his family trust, the Mochkin Family Trust, to enter into a written consultancy agreement with Pembroke under which Pembroke undertook to transact business on the Stock Exchange for clients introduced by Daccar. The terms of the consultancy agreement between Pembroke and Daccar are not in evidence but I infer that they were substantially similar to the terms of the agreement which had formerly subsisted between Pembroke and Mr Mochkin. Pursuant to that agreement, Mr Mochkin had, in the 1987 - 1988 financial year to 1 February 1988, derived income of $516,238. From 1 January 1988 to the end of that financial year, Daccar derived fees or commissions from the arrangement with Pembroke amounting to $137,776. Some of those commissions were referable to share trading by Daccar on its own account.

6. Mr Mochkin explained the selection of Daccar as the vehicle for carrying on, from 1 February 1988, the business formerly conducted by him by arrangement with Pembroke by saying ``The only appropriate entity then available to me, and which would provide limited liability, was a family company, Daccar,...'' He went on to describe as follows Daccar's activities at the time when it undertook the relationship with Pembroke:

``Daccar had an active share trading business as well as holding long term portfolio investments. The sale and purchase of these securities were transacted through Pembroke and the commissions were shared pursuant to the fee sharing agreement. Daccar was entitled to a commission of about $33,000 from FAI in the 1988 year. Each of the Daccar businesses generated funds and from time to time some or all required capital. Surplus capital from each business was pooled and invested on interest bearing deposits. Furthermore, Daccar invested in various partnerships and joint ventures connected with its broking/share trading business and clients thereof.''

7. On 20 June 1989, Mr Mochkin procured the incorporation of another company, Ledger Holdings Pty Ltd (``Ledger'') to be the trustee of another family trust, the Mochkin Family Trust No 2 (``the No 2 Trust'') with the intention of having Ledger conduct the broking business formerly carried on by Daccar. That decision was explained by Mr Mochkin in these terms:

``As the wealth of Daccar grew, it determined that in order to ensure that Daccar's wealth was not risked by liabilities incurred by the broking business a separate entity should be used to carry on the principal broking business on the one hand and that Daccar be used to own assets.... As with the Mochkin Family Trust, the No 2 Trust allowed income and capital to be distributed to members of my family, related entities, other relatives and charities.''

8. In about August 1989, effect was given to Mr Mochkin's intention by terminating the consultancy agreement between Pembroke and Daccar and concluding, in its place, a substantially identical agreement between Pembroke and Ledger. Although Pembroke asked Mr Mochkin to sign a guarantee annexed to the new agreement, he declined to do so and the agreement apparently took effect without any personal guarantee of Ledger's performance of its obligations under it. In the part of the year ended 30 June 1990 fees or commission derived by Ledger pursuant to the consultancy agreement amounted to $181,439.

9. In 1990 the consultancy agreement between Pembroke and Ledger was terminated

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and Ledger entered into a new agreement on, I infer, substantially similar terms with another stockbroking house, MacDougall & Co Ltd (``MacDougall''). In about April 1991, the business of MacDougall was taken over by BOS Stockbroking Ltd (``BOS'') a subsidiary of the Bank of Singapore. According to Mr Mochkin, BOS offered to enter into a consultancy agreement with him personally but he declined because it was ``inconsistent with my resolution to avoid the risk of litigation against me personally.'' Accordingly, BOS concluded an agreement with Ledger. A ``Memorandum of Understanding'' or ``Heads of Agreement'' signed on behalf of each of BOS and Ledger contained, amongst others, these provisions:

``1. Where BOS buys shares or options on an order placed by Ledger for an on behalf of its clients, Ledger is personally liable for the payments to BOS as though it were acting as a principal. Where settlement is not made, Ledger is liable for an administration fee payable to BOS to be calculated by applying normal overdraft rates to the amount unpaid by Ledger's clients as though it were acting as a principal. Where appropriate, BOS may demand that Ledger provide security for any short-term credit facility;

...

3. Ledger is required to place Australian business from its clients with BOS. BOS can for any reason refuse to act on any purchase or sell order placed through it by Ledger on behalf of a Ledger client. Ledger is free to place ex-Australian business from its clients with any broker outside of Australia;

...

5. Where appropriate, and subject to the approval of BOS, Ledger, or its licensed employees or agents, may advertise that they conduct business in association with or through BOS.

...

9. Ledger is entitled to an agreed commission rate on all broking business written through BOS. Ledger is not entitled to any payment from BOS on any other basis. Unless otherwise agreed, BOS shall make payments to Ledger without Ledger having to invoice BOS. If BOS requires Ledger to invoice BOS, all invoices must be lodged on the first working Tuesday of a month;''

10. The Memorandum of Understanding also contemplated that Ledger would have its own employees and equipment and meet its own operating expenses. The last clause of the Memorandum recited:

``All employees of Ledger shall at all times comply with the laws, regulations and practices relating to advisers and agents, including the obtaining of licences, in any country in which Ledger operates. In addition, such employees shall comply with the practices as set down from time to time in internal BOS procedures.''

11. As a result of a management buy-out in 1993, BOS changed its name to Shaw Stockbroking (``Shaw''). It does not appear whether a fresh consultancy agreement was executed between Shaw and Ledger or whether Shaw simply succeeded to the rights and obligations of BOS under the agreement described in [9] and [10] above. At all events, Ledger continued to operate after the buy-out much as it had done before and Shaw provided it with extensive facilities including:

``the provision of suitable floor space, back office administration services, research facilities, telephone and facsimile services, courier services and the exclusive use of a specially constructed kosher kitchen.''

12. At all relevant times, Mr Mochkin was a director of Ledger and regarded himself as the head of the ``Ledger team''. That ``team'' included also Mr Rod Humphrey, the principal of Morgrae Pty Ltd (``Morgrae'') which had a commission-sharing agreement with Ledger. There were terms of that agreement that Morgrae would provide the full-time services of Mr Humphrey to assist Ledger:

``• to service old; new; and prospective clients, whether individual or corporate entities, by offering help and advice, to such clients, as and where requested.

• to assist with and to also generate all types of brokerage business and brokerage commission earnings.

• to provide competent market analyses; share price predictions; trends; evaluations; and yield of both shares and equities in the Australian stock market.''

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13. In return for that assistance, Morgrae was to receive forty-five percent, and from 1 July 1996, fifty percent of the ``gross brokerage commission written by'' Ledger other than commissions referable to transactions for any ``Mochkin'' entity or any commission written by Ledger in respect of a transaction exceeding $1 million. Ledger's ``house errors and adjustments'' were to be deducted before arriving at those gross commissions and Ledger and Morgrae were to share equally commissions referable to brokerage receivable by Morgrae for transactions into which its clients had entered. The amount payable to Morgrae under this arrangement was to be paid ``on a monthly basis and no later than one week after the brokerage commission is earned and paid to [Ledger] by Shaw.''

14. Other members of the Ledger ``team'' were Mr Zimmerman employed from September 1993 as a part-time bookkeeper for at least two days a week and Ms Del Giudice, a full-time secretary from September 1994 to March 1995. Her salary was paid by Shaw but that, together with associated ``on costs'', was reimbursed by Ledger as part of the accounting between it and Shaw. From July 1995, Mr Jonathon Herzog was a full-time employee of Ledger engaged principally in taking orders from its clients and placing them through Shaw. The remaining member of the Ledger ``team'' was Mr Nick Thomas who provided services of a stockbroking nature to Ledger's clients in return for certain interest free loans from Ledger and Daccar to himself and entities associated with him. The way in which Ledger discharged its obligations to Shaw in respect of defaults by clients for whom transactions had been undertaken at Ledger's request has been described by Mr Mochkin in these paragraphs:

``28. Pursuant to the agreement with Shaw it was agreed that if clients of Ledger defaulted in payment of amounts due for purchases Ledger had to make good any loss incurred by Shaw. This occurred frequently. Usually these amounts were deducted or withheld from commissions due to Ledger.

29. On 11 September 1995, Ledger procured Daccar to make an unsecured `loan' of $500,000 to Shaw. This loan was requested by Shaw as a consequence of a client of Ledger defaulting on payment for a purchase of securities made through Shaw. The loan was ultimately repaid when the client's account went into credit and the default was remedied.''

15. While the arrangement with Shaw subsisted, Mr Mochkin made frequent overseas trips to the United States, the United Kingdom and Israel. During his absences from the office, he has deposed ``the other members of the Ledger team continued to conduct trades, take orders and provide other services to the Ledger clients.''

The Great Central placement

16. In mid-1991, while in New York, Mr Mochkin was offered the opportunity to make a placement of a large parcel of shares to the value of $9.5 million in Great Central Mines NL (``Great Central''). In February 1992, when it became apparent that the placement could be made to clients of Ledger, he telephoned BOS requesting permission to make the placement through it. BOS declined to be involved in the placement and those of Ledger's clients who had agreed to take up shares made arrangements directly with Great Central. Because the placement did not proceed through BOS, Mr Mochkin took the view that neither Ledger nor he personally, as the holder of a proper authority from BOS, was entitled to a placement fee. When those controlling Great Central insisted on paying a fee, Mr Mochkin agreed with them that the fee be paid to Daccar which received $564,270 between March and May 1992.

Ledger's arrangement with Bell Securities

17. In October 1995, the arrangement between Shaw and Ledger was terminated and Ledger entered into a similar agreement with another corporate member of the Stock Exchange, Bell Securities Pty Ltd (``Bell Securities''). The relationship between Ledger and Bell Securities endured from October 1995 until the latter half of 1999. An attempt was made to conclude an agreement whereby Ledger and Bell Securities would share the profits from their respective businesses but Bell Securities required that Mr Mochkin give a personal guarantee of Ledger's performance of its part of such an agreement. Mr Mochkin declined to give the guarantee and the proposed agreement was never executed. The arrangements between Ledger and Bell Securities which, in fact, were put into effect have been described by Mr Mochkin as follows:

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``I on behalf of Ledger, negotiated with Bell Securities in respect of those services Bell Securities would provide to Ledger, to enable Ledger to service its clients. Zimmerman on behalf of Ledger and Mr Dean Davenport on behalf of Bell Securities had more specific discussions on the matter in May or June 1996. The agreements were never reduced to writing. It was agreed that Ledger would pay to Bell Securities a fee each month. Initially, this fee was approximately $10,000 per month and was periodically increased by agreement. In return, Bell Securities provided to Ledger office space (including a facility to run a kosher kitchen), phones (excluding mobile phones and calls made to and from overseas which were paid for by Ledger), facsimile machines, courier services, access to certain computers and computer services (for example, Reuter and Bloomberg), photocopy paper and soft drinks. Bell Securities also paid for a fridge to be installed in the kosher kitchen. Ledger entertained clients at the premises. Bell Securities also provided `back room' administration in respect of buy and sell orders placed by Ledger for its clients. Bell Securities also provided, at cost to Ledger, one car parking space at its offices (101 Collins Street, Melbourne) for the use of Ledger personnel.''

18. Bell Securities set aside for exclusive use of the Ledger ``team'' an area on Level 33 at 101 Collins Street Melbourne comprising three larger and three smaller offices or rooms with ancillary spaces and interconnecting passages. Bell Securities rendered monthly accounts to Ledger which showed the ``total brokerage'' derived from different types of transactions which had been introduced by Ledger to which Bell Securities variously attributed to Ledger commission at either fifty percent or forty-five percent. From those commissions were deducted amounts for the carpark, ``client outstandings'' or error adjustments and ``office expenses'' (for July 1999 recorded as $11,387.92) to arrive at a ``net commission payable''. There was no significant change in the way in which the Ledger team conducted its business after the transition from Shaw to Bell Securities. Mr Humphrey remained a member of the team and the arrangement between his company, Morgrae, and Ledger was preserved apparently unchanged. Mr Mochkin continued to be away from the office for extended periods of overseas travel or for reasons of religious observance. Even when he was present, he has deposed,

``the level of work was so great that all members of the Ledger Team were required to deal with and advise Ledger's clients and to process transactions. When Humphrey was absent on leave the rest of the Ledger Team (including me) serviced the Morgrae clients.''

19. From May 1996, Mr Zimmerman was employed full-time by Ledger as its internal accountant. Mr Jonathon Herzog continued as a full-time employee of Ledger at a salary increasing from $32,830 in the year ended 30 June 1996 to $75,000 in 1999 when he also received a bonus of approximately $15,000. His availability to service overseas investors was promoted in foreign media like the US ``Jewish Week'' in advertisements which gave prominence to his connection with Bell Securities. Mr Nick Thomas continued his association with Ledger and Mr Lewis Vassos was a member of the Ledger team during its association with Bell Securities. From 1 July 1995 to 30 June 1999, Ledger itself paid salaries, commissions and consulting fees totalling $1,970, 695. It was at all relevant times registered as a group employer under the Income Tax Assessment Act 1936 (``the Act'') and as an employer under the Accident Compensation Act. It also made superannuation contributions for its employees as required. In its most profitable year which ended on 30 June 1998, its operating expenses amounted to $837,454 leaving a net profit of $3,226,424.

20. Under the arrangement with Bell Securities, Ledger continued to be held liable for defaults or bad debts of its clients whose transactions were processed through Bell Securities. The mechanisms for discharging those liabilities have been described by Mr Mochkin as follows:

``As with Shaw, Bell Securities from time to time required `loans' to be made to it as security for possible client defaults. Bell Securities also deferred commissions and deducted amounts from commissions for client defaults. On 27 June 1997, Ledger made a `loan' of $899, 194.24 to Bell Securities as a consequence of client defaults. When clients ultimately made good

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the defaults, the `loans' were repaid. In addition, Ledger procured Daccar to make various `loans' to Bell in consequence of client defaults. Over a period of time these loans exceeded $10 million in total.''

21. While the arrangement with Bell Securities subsisted, Ledger maintained an extensive array of information technology, much of it purchased from Bell Securities. It also expended money on its own computer system. During the same period, it undertook an extensive advertising campaign to promote its services. From 1994 to 1995 it actively investigated, through Mr Zimmerman, the possibility of its acquiring an equity interest in various stockbroking houses including Shaw, Bell Securities and Pep Securities Pty Ltd but no proposal of that kind ever came to fruition.

The amended assessments.

(a) 1992

22. For the tax year ended 30 June 1992, Mr Mochkin lodged a personal tax return disclosing a taxable income of $15,168 of which $15,000 was shown as ``net non-primary production income distribution'' from ``partnerships and trusts''. In the same year, Ledger's tax return disclosed a net income of $111,168 from the business activity of ``sharebroking/ consultancy.''

23. By letter dated 14 April 1999, the Australian Tax Office (``the ATO'') advised Mr Mochkin of the making in respect of the year ended 30 June 1992 of determinations under Part IVA of the Act. That letter recited, amongst other things:

``It has been determined, by a duly authorised officer of the Australian Taxation Office, that the provisions of Part IVA of the Income Tax Assessment Act 1936 have application in respect of schemes entered into, and to tax benefits deemed to have been obtained in respect of the year ended 30 June 1992.

Determinations made in the name of Jennie Granger, Acting Deputy Commissioner of Taxation (Large Business & International), are enclosed.''

24. There were two determinations to which that letter referred, each dated 14 April 1999. The first recited that it had been determined for the purposes of s 177F(1) of the Act:

``IN RESPECT OF LEVI MOCHKIN (`the taxpayer') who in the year of income ended 30 June 1992 has obtained, or would but for the operation of section 177F obtain, a tax benefit in connection with a scheme to which PART IVA of the Act applies, namely $564,270, being an amount which would otherwise have been included in the taxpayer's assessable income in relation to the taxpayer's provision of personal services through a related entity, namely Daccar Pty Ltd in its capacity as trustee of the Mochkin Family Trust.

THAT the whole of the amount of $564,270 shall be included in the assessable income of the taxpayer in relation to the year of income ended 30 June 1992.

In accordance with the provisions of sub- section 177F(2) of the Act, I HEREBY DETERMINE that the amount of $564,270 shall be deemed to be included in the assessable income of LEVI MOCHKIN for the year ended 30 June 1992 by virtue of the operation of Section 25(1) of the Act.''

25. It will be recalled that $564,270 was the amount of the commission or fee which had been paid to Daccar after the Great Central Mines placement. In the same determination, it was further determined in accordance with s 177F(3) of the Act:

``... that the whole of the amount of $15,000 being an amount which, but for a scheme to which Part IVA of the Act applies, would not have been included in the assessable income of the taxpayer for the year ended 30 June 1992, and it being fair and reasonable that the amount should not have been included in the taxpayer's assessable income for that year, the amount should not be included in the assessable income of the taxpayer for the year ended 30 June 1992.''

26. The sum of $15,000 there referred to was, presumably, the amount which had been shown in Mr Mochkin's personal tax return as having been received as a distribution from ``partnerships and trusts'' although it is unclear from the material before the Court whether that amount had been paid to the applicant by Daccar or by Ledger.

27. A second determination under s 177F, also dated 14 April 1999, recited that it had been determined:

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``IN RESPECT OF LEVI MOCHKIN (`the taxpayer') who in the year of income ended 30 June 1992 has obtained, or would but for the operation of section 177F obtain, a tax benefit in connection with a scheme to which PART IVA of the Act applies, namely $185,440, being an amount which would otherwise have been included in the taxpayer's assessable income in relation to the taxpayer's provision of personal services through a related entity, namely Ledger Holdings Pty Ltd in its capacity as trustee of the Mochkin Family Trust No 2.

THAT the whole of the amount of $185,440 shall be included in the assessable income of the taxpayer in relation to the year of income ended 30 June 1992.''

28. In the same determination, it was determined that there should be allowed as a deduction the amount, amongst others, of $69,546 which, I assume, would have been claimable by Mr Mochkin had he returned as his own the income which he considered had been derived by Ledger.

(b) 1993

29. Mr Mochkin's personal tax return for the year ended 30 June 1993 disclosed a gross income of $80,000, presumably representing a distribution to him from Ledger, and a net taxable income after gifts to charities and other deductions, of $78,426. By letter dated 5 May 1999, the ATO advised Mr Mochkin that his income tax assessment for that year and the four subsequent years ended 30 June 1994, 1995, 1996 and 1997 would be amended. That letter was in the following terms:

``It has been determined, by a duly authorised officer of the Australian Taxation Office, that the provisions of Part IVA of the Income Tax Assessment Act 1936 have application in respect of a scheme entered into, and to tax benefits deemed to have been obtained, by you in respect of the years ended 30 June 1993 to 30 June 1997 inclusive.

Determinations made in the name of Jennie Granger, Acting Deputy Commissioner of Taxation (Large Business & International), are enclosed.

In order to give effect to the determinations made, your income tax assessments for the years ended 30 June 1993 to 30 June 1997 are to be amended. Adjustment sheets detailing the adjustments to be made to each year's taxable incomes have been enclosed. Notices of amended assessments reflecting these adjustments will be issued shortly.

Any queries in respect of this matter may be directed to Michael Alcock on telephone number 9275 2956.''

30. The determination in respect of the 1993 tax year recited:

``IN RESPECT OF LEVI MOCHKIN (`the taxpayer') who in the year of income ended 30 June 1993 has obtained, or would but for the operation of section 177F obtain, a tax benefit in connection with a scheme to which PART IVA of the Act applies, namely $267,978, being an amount which would otherwise have been included in the taxpayer's assessable income in relation to the taxpayer's provision of personal services through a related entity, namely Ledger Holdings Pty Ltd in its capacity as trustee of the Mochkin Family Trust No 2.

THAT the whole of the amount of $267,978 shall be included in the assessable income of the taxpayer in relation to the year of income ended 30 June 1993.''

(c) 1994

31. Mr Mochkin's personal income tax return for this year returned a gross income of $80,000 recorded as a distribution from the Mochkin Family Trust No 2. The determination for the purposes of s 177F(1) of the Act identified the tax benefit obtained in this year of income as $2,752,726 which, as for the previous year, was described as ``an amount which would otherwise have been included in the taxpayer's assessable income in relation to the taxpayer's provision of personal services through a related entity, namely Ledger Holdings Pty Ltd in its capacity as trustee of the Mochkin Family Trust No 2.''

(d) 1995

32. In this year, Mr Mochkin personally returned a gross income of $105,000 being a distribution from the Mochkin Family Trust No 2 from which he claimed deductions of $8,321 leaving a net taxable income of $96,863. The determination under s 177F(2) for this year was in identical terms to those for earlier years except for identifying the tax benefit as $2,251,283.

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(e) 1996

33. For the tax year ended 30 June 1996, Mr Mochkin returned a gross personal income of $200,000, again being a distribution from the Mochkin Family Trust No 2. The determination under s 177F(2) was again in the same terms as those for earlier years and identified the tax benefit as $1,773,189.

(f) 1997

34. For this year, Mr Mochkin's personal return disclosed a gross income of $1,100,000 represented by ``distribution from trusts.'' After deductions, mainly for ``gifts or donations'' of $898,000, the net taxable income returned was $201,843. The determination under s 177F(2) was also in the same terms as those for earlier years. It identified the tax benefit for 1997 as $5,281,355 and allowed as a deduction, amongst others, the amount of $1,100,000 which had been received as a distribution from Ledger in its capacity as trustee of the Mochkin Family Trust No 2.

Objections to amended assessments

35. The applicant objected to each of the amended assessments which issued as a result of the determinations described at [23] to [34] above, the objections were in common form and were prefaced by claims that:

``(a) The amended assessment is void and of no effect and should now be cancelled and/ or withdrawn;

(b) The issue of the amended assessment is not authorised by s.170 and/or s. 177G(1) of the Act;

(c) The two determinations under s.177F of the Act pursuant to which the amended assessment was purportedly made were void, invalid and of no effect;''

Then followed a claim that the applicant's taxable income should be reduced by the sum (or part thereof) by which it had been increased by the relevant amended assessment. There were then claims that additional tax imposed for lodging an incorrect return ``should be declared to be invalidly imposed, withdrawn, set aside, remitted or reduced in whole or part'' followed by claims that the Medicare Levy should be ``withdrawn, set aside or otherwise reduced and assessed or determined according to law'' and that the Commissioner had ``erred in limiting the compensating adjustments under s 177F(3) to the adjustments set out'' in the respective determinations.

36. Each objection was disallowed and the applicant has applied to this Court by way of appeal against the decision to disallow each objection. Each application seeks an order:

``A. Setting aside the decision.

B. Setting aside the amended assessment, and/or;

C. Allowing the Applicant's objection... against the amended assessment [for the relevant year].''

Were the fees or commissions credited to Daccar and later Ledger income of Mochkin within s 25(1) of the Act?

37. It was first submitted by Mrs Batrouney of Counsel for the Commissioner that the amended assessments in question could be supported on the basis that the fees or commissions successively received by Daccar and Ledger from the various broking houses were income which had been derived by Mr Mochkin within the meaning of s 25(1) of the Act. Section 25(1) provided:

``The assessable income of a taxpayer shall include-
- (a) where the taxpayer is a resident-
  - the gross income derived directly or indirectly from all sources whether in or out of Australia; and
- (b) where the taxpayer is a non- resident-
  - the gross income derived directly or indirectly from all sources in Australia,
which is not exempt income, an amount to which section 26AC or 26AD applies or an eligible termination payment within the meaning of Subdivision AA.''

38. Reference was made in the same context to s 19 of the Act providing that:

``Income or money shall be deemed to have been derived by a person although it is not actually paid over to him but is reinvested, accumulated, capitalized, carried to any reserve, sinking fund or insurance fund however designated, or otherwise dealt with on his behalf or as he directs.''

However, Mrs Batrouney expressly disavowed any suggestion that any of the successive arrangements between Daccar and

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later Ledger and the various broking houses had been a sham. It follows that fees and commissions payable pursuant to those arrangements to Daccar (putting to one side the Great Central ``finder's fee'' discussed at [68]-[ 72] below), and later Ledger, were gross income derived by those entities. Each of them could have sued in its own name to recover unpaid fees and commissions and was responsible to the relevant broking house for ``client defaults.'' There could be no suggestion on the evidence that either Daccar or Ledger had a right to be indemnified by Mr Mochkin against liability for those defaults. Indeed, on his evidence, which I accept, it was a concern after the experience with Bridges to immunise himself against precisely that kind of liability which led him to arrange for the business to be conducted from 1 February 1988 by Daccar and later by Ledger. From that time no income was derived by Mr Mochkin otherwise than as an employee of Daccar or Ledger until one or other of those companies had defrayed its operating expenses and other liabilities and had determined to make a distribution to him as a beneficiary. No payment could have been made to him ``as he directed'' in his personal capacity which, I consider, is what is required by s 19(1). Any directions which he gave, either in the conduct of the broking consultancy business or for distribution to beneficiaries, were given in his capacity as a director or employee of Daccar, and later Ledger.

39. In a related way it was submitted on behalf of the Commissioner that:

``... the source of the commission income returned by Daccar as trustee of the Family Trust in the years of income ended 30 June 1988, 1989 and 1992 was the provision of personal services by Mochkin, namely the performance of stockbroking functions, either in his own capacity or in his capacity as an authorised representative of the stockbroker (whether Pembroke or BOSS). Likewise the source of the commission returned by Ledger in the years of income ended 30 June 1990 to 1997 was the provision of the same personal services by Mochkin.''

40. However, on the analysis which I favour, no personal services were provided by Mr Mochkin to any of the various broking houses. None of them had the right to direct him personally in advising or obtaining instructions from clients. Rather, it was a matter of indifference to the broking houses, I infer, how or by whom those instructions were obtained. Of necessity, during Mr Mochkin's many and extended absences from the office, they must have been obtained and relayed to the relevant broking houses by Mr Humphrey, Mr Herzog or some other member of the Ledger ``team'' without any reference to Mr Mochkin.

41. The same analysis supports a conclusion that Mr Mochkin did not receive income from the provision of personal services to the clients of the business. Those clients did not attract any liability to pay Mr Mochkin or Daccar or Ledger for any services. Their contracts were with the broking house from time to time which issued them with ``bought'' and ``sold'' notes. It is true that the making of those contracts created an entitlement in Daccar, and later Ledger, to a share of commission and attracted to one or other of those companies a secondary liability for any default by the clients. However, those incidents of the arrangement do not permit a conclusion that any person other than the broking house derived income from the provision of personal services to the clients.

Part IVA of the Act

42. This Part of the Act is prefaced by s 177A which includes in sub-s (1) the following definitions:

```scheme' means-

(a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

(b) any scheme, plan, proposal, action, course of action or course of conduct;

`taxpayer' includes a taxpayer in the capacity of a trustee.''

43. Sub-sections (3), (4) and (5) of s 177A are in these terms:

``(3) The reference in the definition of `scheme' in subsection (1) to a scheme, plan, proposal, action, course of action or course of conduct shall be read as including a reference to a unilateral scheme, plan, proposal, action, course of action or course of conduct, as the case may be.

(4) A reference in this Part to the carrying out of a scheme by a person shall be read as including a reference to the carrying out of a

ATC 4476
scheme by a person together with another person or other persons.

(5) A reference in this Part to a scheme or a part of a scheme being entered into or carried out by a person for a particular purpose shall be read as including a reference to the scheme or the part of the scheme being entered into or carried out by the person for 2 or more purposes of which that particular purpose is the dominant purpose.''

44. The Commissioner identified, for the purpose of making the determinations described in [23] to [34] above, two ``schemes'' within the meaning of s 177A(1). The first (``the Ledger Scheme'') was said to have commenced in 1987 and been carried out in the years of income from that ended 30 June 1988 onwards. The description of the Ledger Scheme as set out in the Commissioner's Statement of Facts, Issues and Contentions is as follows:

``87. The Ledger Scheme consists of:

(a) the use of Ledger to receive payment from Pembroke, BOSS, Shaw and/or Bell for the personal services of the Applicant;

(b) the use of the No. 2 Trust mechanisms to divert income derived from the personal exertion of the Applicant to persons other than the Applicant. (`the Ledger Scheme').

Particulars of the Ledger Scheme

88. The ostensible arrangement between Pembroke/BOSS/Shaw/Bell and Ledger was that Ledger would place orders for shares or options on behalf of its clients with Pembroke/BOSS/Shaw/Bell in return for an agreed commission.

89. The income of Ledger was distributed to persons other than the Applicant and in particular:

(a) on and after the year of income ended 30 June 1990 - to Daccar which had share trading losses in each year of income (except the years of income ended 30 June 1991 and 30 June 1996);

(b) on and after the year of income ended 30 June 1992 (but not including the year of income ended 30 June 1996) - to Daccar which, in turn, distributed income to:

i. the LMC Trust;

ii. the Applicant's wife;

iii. in the year of income ended 30 June 1992 - to the Applicant; and

iv. from the year of income ended 30 June 1993 onwards - to the Unit Trust which had substantial current year and carry forward losses in each year of income;

v. in the year of income ended 30 June 1993 - to the Applicant's son, Josef Mochkin;

vi. in the year of income ended 30 June 1997 - to the Gold Trust which had significant current year and carry forward losses;

(c) in the year of income ended 30 June 1996 to the LMC Trust.

90. No salary was paid to the Applicant by Ledger apart from $80,000 in the year of income ended 30 June 1990 (which is outside the relevant period).

91. On and after the year of income ended 30 June 1993, the Applicant was distributed amounts of income from the No. 2 Trust which were substantially less than the amount paid by BOSS/Shaw/Bell for the provision of the Applicant's services.

92. The Ledger Scheme was entered into after 27 May, 1981.

93. The Ledger Scheme had and continues to have the effect of diverting income from the personal exertion of the Applicant to Ledger and so reducing the assessable income of the Applicant and the tax payable by the Applicant.''

45. The second ``scheme'' identified by the Commissioner has been called the ``Daccar Scheme'' and was confined to the receipt by Daccar of the sum of $564,270 represented by the ``finder's fee'' paid in respect of the placement of shares in Great Central. It has been described, more succinctly, in the Commissioner's Statement of Facts, Issues and Contentions in these terms:

``122. The Daccar Scheme consists of:

(a) the payment of $564,270 to Daccar ostensibly as commission in respect of

ATC 4477
services which were provided by it to GCM;

(b) the use of the No. 1 Trust as a mechanism whereby all or part of the commission income was:

(a) offset against carry forward losses of the No.1 Trust; and/or;

(b) distributed to persons other than the Applicant and in particular:

i. $123,302 to his wife; and

ii. $314,405 to the LMC Trust;

(c) the payment by Daccar of no salary to the Applicant or to anyone else; and

(d) the Applicant receiving only $15,000 as a distribution from the No. 1 Trust in the year of income ended 30 June 1992 which was substantially less than the services he provided to Daccar and/or GCM were worth (`the Daccar Scheme').''

The application of Part IVA to the Ledger Scheme

46. By s 177C(1) of the Act it is provided:

``Subject to this section, a reference in this Part to the obtaining by a taxpayer of a tax benefit in connection with a scheme shall be read as a reference to-

(a) an amount not being included in the assessable income of the taxpayer of a year of income where that amount would have been included, or might reasonably be expected to have been included, in the assessable income of the taxpayer of that year of income if the scheme had not been entered into or carried out; or

(b) a deduction being allowable to the taxpayer in relation to a year of income where the whole or a part of that deduction would not have been allowable, or might reasonably be expected not to have been allowable, to the taxpayer in relation to that year of income if the scheme had not been entered into or carried out;

and, for the purposes of this Part, the amount of the tax benefit shall be taken to be-

(c) in a case to which paragraph (a) applies - the amount referred to in that paragraph; and

(d) in a case to which paragraph (b) applies - the amount of the whole of the deduction or of the part of the deduction, as the case may be, referred to in that paragraph.''

47. There is no suggestion in this case that there was any deduction allowable to Mr Mochkin which would not have been allowable but for the Ledger Scheme. Accordingly, par (b) of s 177C(1) has no application to an examination of the Ledger Scheme. As I understand it, the Commissioner has taken the view that, but for the Ledger Scheme it might reasonably have been expected that there would have been included in Mr Mochkin's assessable income for each of the relevant years the income actually derived for that year by Ledger. As the High Court said in
FC of T v Peabody 94 ATC 4663 at 4671; (1994) 181 CLR 359 at 385:

``... A reasonable expectation requires more than a possibility. It involves a prediction as to events which would have taken place if the relevant scheme had not been entered into or carried out and the prediction must be sufficiently reliable for it to be regarded as reasonable.''

48. Section 177D of the Act provides that Pt IVA applies to any scheme that has been or is entered into after 27 May 1981 where-

``(a) a taxpayer (in this section referred to as the `relevant taxpayer' ) has obtained, or would but for section 177F obtain, a tax benefit in connection with the scheme; and

(b) having regard to-

(i) the manner in which the scheme was entered into or carried out;

(ii) the form and substance of the scheme;

(iii) the time at which the scheme was entered into and the length of the period during which the scheme was carried out;

(iv) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme;

(v) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme;

(vi) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has

ATC 4478
resulted, will result or may reasonably be expected to result, from the scheme;

(vii) any other consequence for the relevant taxpayer, or for any person referred to in subparagraph (vi), of the scheme having been entered into or carried out; and

(viii) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in subparagraph (vi),

it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for the purpose of enabling the relevant taxpayer to obtain a tax benefit in connection with the scheme or of enabling the relevant taxpayer and another taxpayer or other taxpayers each to obtain a tax benefit in connection with the scheme (whether or not that person who entered into or carried out the scheme or any part of the scheme is the relevant taxpayer or is the other taxpayer or one of the other taxpayers).''

49. The Commissioner's powers and discretions, once a tax benefit has been identified, are set out in s 177F which provides:

``(1) Where a tax benefit has been obtained, or would but for this section be obtained, by a taxpayer in connection with a scheme to which this Part applies, the Commissioner may-

(a) in the case of a tax benefit that is referable to an amount not being included in the assessable income of the taxpayer of a year of income - determine that the whole or a part of that amount shall be included in the assessable income of the taxpayer of that year of income; or

(b) in the case of a tax benefit that is referable to a deduction or a part of a deduction being allowable to the taxpayer in relation to a year of income - determine that the whole or a part of the deduction or of the part of the deduction, as the case may be, shall not be allowable to the taxpayer in relation to that year of income;

and, where the Commissioner makes such a determination, he shall take such action as he considers necessary to give effect to that determination.

(2) Where the Commissioner determines under paragraph (1)(a) that an amount is to be included in the assessable income of a taxpayer of a year of income, that amount shall be deemed to be included in that assessable income by virtue of such provision of this Act as the Commissioner determines.

(3) Where the Commissioner has made a determination under subsection (1) in respect of a taxpayer in relation to a scheme to which this Part applies, the Commissioner may, in relation to any taxpayer (in this subsection referred to as the `relevant taxpayer' )-

(a) if, in the opinion of the Commissioner-

(i) there has been included, or would but for this subsection be included, in the assessable income of the relevant taxpayer of a year of income an amount that would not have been included or would not be included, as the case may be, in the assessable income of the relevant taxpayer of that year of income if the scheme had not been entered into or carried out; and

(ii) it is fair and reasonable that that amount or a part of that amount should not be included in the assessable income of the relevant taxpayer of that year of income;

determine that that amount or that part of that amount, as the case may be, should not have been included or shall not be included, as the case may be, in the assessable income of the relevant taxpayer of that year of income; or

(b) if, in the opinion of the Commissioner-

(i) an amount would have been allowed or would be allowable to the relevant taxpayer as a deduction in relation to a year of income if the scheme had not been entered into or carried out, being an amount that was not allowed or would not, but for this subsection, be allowable, as the case may be, as a deduction to the relevant

ATC 4479
taxpayer in relation to that year of income; and

(ii) it is fair and reasonable that that amount or a part of that amount should be allowable as a deduction to the relevant taxpayer in relation to that year of income,

determine that that amount or that part, as the case may be, should have been allowed or shall be allowable, as the case may be, as a deduction to the relevant taxpayer in relation to that year of income;

and the Commissioner shall take such action as he considers necessary to give effect to any such determination.

(4) Where the Commissioner makes a determination under subsection (3) by virtue of which an amount is allowed as a deduction to a taxpayer in relation to a year of income, that amount shall be deemed to be so allowed as a deduction by virtue of such provision of this Act as the Commissioner determines.''

50. Having regard, as required by s 177D(b)(ii) to the form and substance of the Ledger Scheme as particularised by the Commissioner, I am prepared to accept that one of the purposes of Mr Mochkin in entering into the scheme was to obtain a tax benefit namely the ability to have the net income to be generated by the stockbroking consultancy business distributed in a tax effective way to the beneficiaries of a discretionary trust.

51. A contribution was made to the achievement of that purpose by the manner in which the scheme was entered into or carried out as contemplated by s 177D(b)(i) in the sense that Ledger was constituted the trustee of the Mochkin Family Trust No 2 and distributions were apparently made from that Trust in a more tax effective way than they would have been had they been confined to Mr Mochkin himself. However, the manner in which the scheme was entered into or carried out points, in addition, to other purposes having actuated Mr Mochkin. Without attempting an exhaustive catalogue of those other purposes, one which springs most readily to mind was to immunise Mr Mochkin personally and the separate assets of himself and Daccar against being required to discharge liability for ``client defaults'' or other debts or obligations of the business. Support for the imputation of that purpose is afforded by Mr Mochkin's steadfast refusal, at various points of carrying out the scheme, to provide personally, or through Daccar, any form of guarantee of Ledger. In a related way, the manner of carrying out the scheme enabled the capital necessary to run the business, including the making of ``loans'' or deposits required by the broking houses, to be raised or provided solely by Ledger, or where necessary Daccar, thereby limiting, or eliminating, any exposure of Mr Mochkin himself to the risks entailed in the provision of that capital. Another such purpose, I consider, was to allow the business to build up goodwill which would be detached, at least to an extent, from the personality and continued participation in it of Mr Mochkin himself.

52. There was no aspect of the time at which the Ledger Scheme was entered into, or the length of the period during which it was carried out, which indicated that Mr Mochkin had entered into it or carried it out for the dominant purpose of obtaining a tax benefit. Indeed, the coincidence between the entry into the scheme on 1 February 1998 and the coming to trial of the action by Bridges against Mr Mochkin personally, tends to corroborate his assertion that it was predominantly to avoid that kind of liability and the attendant litigation that he entered into the scheme.

53. The results, in relation to the operation of the Act, that were, or at the outset could be expected to be, achieved by the Ledger Scheme were consistent with the purposes imputed to Mr Mochkin in the course of the foregoing discussion. They included, it is true, the potential to avoid the inclusion in his personal assessable income of such amounts as Ledger, in the exercise of its discretion, should decide to distribute to other beneficiaries of the Mochkin Family Trust No 2. However, at the time of entry into the scheme, the result in relation to the Act was potentially neutral in the sense that Ledger might decide to distribute income to beneficiaries liable to pay tax at the same marginal rate as Mr Mochkin, or to charities as donations for which Mr Mochkin would have obtained full deductions from his taxable income had he made them himself.

54. Yet similarly, the most obvious change in the financial position of Mr Mochkin that resulted or could reasonably be expected to have resulted, from the scheme was that his

ATC 4480

taxable income was, or could reasonably be expected to be, reduced to the extent that other beneficiaries of the Mochkin Family Trust No 2 received, or were likely to receive distributions from Ledger. The Trust Deed governing the Mochkin Family Trust No 2, by cl 1(b) defined the ``General Beneficiaries'' under that deed as meaning and including:

``(i) the Specified Beneficiary or the Specified Beneficiaries (as the case may be);

(ii) the relatives of any Specified Beneficiary who is a natural person and the relatives of each such relative;

(iii) the members or shareholders for the time being of or in any Specified Beneficiary that is a corporation (other than a corporation in the capacity of a trustee of a trust or settlement) and the relatives of every such member or shareholder who is a natural person;

(iv) where any Specified Beneficiary is or are the Trustee of [scil or] trustees (including a corporation or other legal entity in their capacity as such) of any Trust or Settlement - every person having a beneficial interest in that Trust or Settlement whether vested or contingent and whether or not liable to be defeated by the exercise of any power of appointment or discretion or revocation or to be diminished by the increase of the class to which he belongs;

(v) any of the following entities wherever formed which the Trustee may at any time and from time to time (subject to the provisions of sub-clauses 5(4) nominate as a General Beneficiary namely-

(aa) the trustees of any Trust or Settlement (herein called `an eligible trust') under which any General Beneficiary has any beneficial interest whether or not liable to be defeated by the exercise of any power of appointment or discretion or revocation or to be diminished by the increase of the class to which he belongs;

(bb) any corporation (herein called `an eligible corporation') at least one share in which which [sic] is beneficially owned by any General Beneficiary or by the trusts [scil trustees] of an eligible trust;

(cc) any other legal entity at least one share or other interest (whether vested or contingent) in which is beneficially owned or held by any General Beneficiary or by the trustees of an eligible trust or by an eligible corporation;

(vi) such additional persons corporations and trustees of any Trust or Settlement (if any) as are named described or defined in the Schedule as additional members of the class of General Beneficiaries;

(vii) such charitable bodies as the Trustees at any time and from time to time before the Vesting Date may nominate as a General Beneficiary;''

55. That definition was preceded by sub-cll 1(a) and (b) which contained the following definitions of expressions to be found in the definition embodied in sub-cl 1(b):

``(a) `The Specified Beneficiary' and `the Specified Beneficiaries' shall mean the person or persons, corporation or corporations, trustee or trustees of a Trust or Settlement or of Trusts or Settlements or any other legal entity or entities named or described as such in the Schedule;

(b) `relative' in relation to a person means-

(i) the parent, grandparent, child, grandchild or remoter lineal descendant, brother, sister, uncle, aunt, nephew, niece or cousin of that person (and in each such case whether the relationship arises by blood or by marriage) or of the spouse of that person; and

(ii) the spouse of that person or of any person referred to in paragraph (i).''

56. The Schedule to the Trust Deed identified the ``Specified Beneficiaries'' and ``Additional General Beneficiaries'' as follows:

``6. THE SPECIFIED BENEFICIARIES:

The children of or to be born to LEVI MOCHKIN and LISA DAWN MOCHKIN, both of 63 Balaclava Road, Caulfield

7. ADDITIONAL GENERAL BENEFICIARIES:

(i) The said LEVI MOCHKIN

(ii) The said LISA DAWN MOCHKIN

(iii) The L. & M. Charitable Trust.

(iv) The Mochkin Family Trust.''

57. To the extent that Ledger made, or could be expected to make, gifts to charities of the same magnitude as Mr Mochkin would have made had he derived the income which Ledger

ATC 4481

received after the implementation of the scheme, there was no change in his financial position. Other changes in his financial position included those noted above namely that he was no longer exposed to a contingent personal liability for ``client defaults'' and could not be required to supply, from his own funds, the ``loans'' or deposits demanded by broking houses to cover those defaults.

58. The change in the financial position of persons connected with Mr Mochkin that resulted, or could reasonably be expected to have resulted, from the scheme was that, in the event of a favourable exercise of relevant discretions, those persons could expect an increased distribution from Ledger if it were to make a profit from the conduct of the business. By corollary, the distribution to those persons would be reduced if Ledger were to make a loss in conducting the business in any financial year, or if it were required to inject capital into the business from assets which would otherwise have been distributable to beneficiaries of the Mochkin Family Trust No 2. If, as suggested in [ 51] above, one purpose of the scheme had been to reduce the importance for the goodwill of the business of Mr Mochkin's personality and participation in it, a resultant consequence might reasonably be expected to have been an increase in the remuneration of other members of the Ledger ``team'' like Mr Humphrey and Mr Herzog to reflect their correspondingly increased significance in the conduct of the business.

59. In written submissions filed on behalf of the Commissioner it was argued that one consequence for Mr Mochkin, or persons connected with him, of the entry into, or the carrying out of, the Ledger Scheme was that Ledger carried on business in contravention of s 781 of the Corporations Law which, before its repeal by the Financial Services Reform Act 2001, provided:

``A person must not:

(a) carry on an investment advice business; or

(b) hold out that the person is an investment adviser;

unless the person is a licensee or an exempt investment adviser.''

60. ``Investment adviser'' was defined in s 9 of the same Act as meaning ``a person who carries on, or 2 or more persons who together carry on, an investment advice business.'' By the same section ``investment advice business'' had the meaning given by s 77. The latter section, in turn, provided; so far as is relevant:

``77(1) A reference to an investment advice business, in relation to a person, is a reference to:

(a) a business of advising other persons about securities; or

(b) a business in the course of which the person publishes securities reports.

...

77(3) The remaining provisions of this section apply for the purposes of determining:

(a) whether or not a person carries on an investment advice business; and

(b) what constitutes an investment advice business carried on by a person; and

(c) whether or not a person holds himself, herself, or itself out to be an investment adviser.

...

77(9) An act that the person does:

(a) while employed by, or acting for or by arrangement with, another person;

(b) as employee or agent of, or otherwise on behalf of, on account of, or for the benefit of, the other person; and

(c) in connection with an investment advice business carried on by the other person;

shall be disregarded.''

61. It was put on behalf of the Commissioner that Ledger was not a licensee or an exempt investment advisor. Assuming that Ledger had carried on an investment advice business or had held itself out as an investment advisor, it is clear that it did so only while acting for, or by arrangement with BOS or Shaw or one of the other broking houses, through which, from time to time, it caused the clients' trade to be conducted and which provided it with office space and office support. It thus came within the exception in s 77(9). If it matters, it appears that each of the relevant broking houses at all times held a dealer's licence under Pt 7.3 of the Corporations Law. The business carried on by Ledger was that of making the services of members of its ``team'' like Mr Mochkin, Mr

ATC 4482

Humphrey and Mr Herzog, available to the broking house to channel business through it. Ledger's only remuneration was derived from the broking house. There was thus no question of Ledger's being unable to sue the clients for ``fees'' as was held to be significant in
Peate v FC of T (1964) 13 ATD 346; (1964) 111 CLR 443. The ability to sue the clients always resided with the relevant broking house. By contrast with the circumstances discussed in the other cases analysed by Dawson J in
FC of T v Gulland; Watson v FC of T; Pincus v FC of T 85 ATC 4765 at 4796; (1985) 160 CLR 55 at 110-111, the business formerly carried on by Mr Mochkin, and later by Ledger, was not one where either of them acquired a licence; it was a business of acting, otherwise than while employed by another person, by arrangement with another person in connection with an investment advice business carried on by that other person. As to the meaning of ``by arrangement'' in this context, I adopt, with respect this analysis by Forgie DP in
Kippe v Australian Securities Commissioner (1998) 16 ACLC 190 at 209:

``In the context of the Law, I consider that a broader, rather than a narrower, interpretation should be give[n] to both `arrangement' and `in connection with'. There need only be an agreement or understanding, whether formally or informally expressed and whether oral or written, which the parties intend to govern their relationships. It does not matter whether the parties ever intended their understanding to have legal force. The understanding must bear some relationship to, or be to do with, the securities business carried on by the person of whom the other is said to be a representative.''

62. Support for this view is also provided by Policy Statement 117 issued by the Australian Securities Investment Commission (``ASIC'') on 3 March 1997 which laid down guidelines for determining when a person is required to hold a proper authority to provide investment advisory services on behalf of a licensee. That policy statement included the following passages:

``[PS 117.9] A natural person can only act as a representative of a dealer or an investment adviser (other than an exempt dealer or an investment adviser) if:

(a) the dealer or investment adviser is appropriately licensed; and

(b) the natural person holds a proper authority from the dealer or investment adviser (s 806 and s 807).

...

[PS 117.11] Who is a representative and what is an act of a representative are defined in s 94 of the Law. Person X is a securities representative of Person Y if X:

(a) acts as employee of, or for, or by arrangement with, Y in connection with Y's securities or investment advice business (s 94(I)); or

(b) holds a valid or an invalid proper authority from Y (s 94(2)).

[PS 117.12] Person X does an act in a representative capacity only where X acts as an employee or agent of, or otherwise on behalf of, on account of, or for the benefit of Y in connection with Y's securities or investment advice business (s 94(3)(a) to s 94(3)(c)). Work which is ordinarily done by accountants, clerks and cashiers is not considered to be acts of a representative (s 94(3)(d), see [PS 117.20 - 117.25].

[PS 117.13] A person who does an act of a representative as described in s 94(3) must hold a proper authority from a licensee unless that act falls within an exclusion set out in [PS 117.20].

...

[PS 117.47] A corporation cannot act as a representative of a licensee (s 809). Therefore, where a person holding a proper authority uses a company structure (for tax or other purposes), that person must take care to avoid the use of the company or its name in such a manner as to give rise to an inference that the company, and not the person holding the proper authority, is acting for or by arrangement with the licensee. This is necessary to avoid a breach of the s 809 prohibition.''

63. It will be recalled that each of Mr Mochkin, Mr Humphrey and Mr Herzog held a proper authority from the licensee, the broking house, which had an arrangement then in force with Ledger. The evidence, such as business

ATC 4483

cards from time to time in use by those holders of proper authorities, discloses a conscious effort to make clear that each of them was acting for, or by arrangement with, the relevant broking house and not on behalf of Ledger or Morgrae (each of which was named on the respective cards) as a principal in its own right. The fact that [PS 117.47] just quoted from the ASIC Policy Statement contemplated that a person holding a proper authority might use ``a company structure (for tax or other purposes)'' is not conclusive that Mr Mochkin's use of Daccar, and later Ledger, was for the dominant purpose of obtaining a tax benefit. As Mr Mochkin explained in evidence, which I accept, his selection of Daccar as the initial vehicle occurred because it was the only corporate structure which he had readily to hand at the time when he was being oppressed by the Bridges litigation.

64. The connections of a business, family or other nature between Mr Mochkin and the other persons discussed at [58] above, whose financial position changed, or might reasonably be expected to have changed, as a result of the Ledger Scheme were many and various. Some of those connections, like those with members of Mr Mochkin's family who, as beneficiaries of the Mochkin Family Trust No 2, could expect to benefit from a favourable exercise of Ledger's discretion, point to the desire to obtain a tax benefit as actuating Mr Mochkin's entry into, or carrying out of, the scheme. Others, like the connections with members of the Ledger ``team'' and the broking houses, point away from that desire to matters of business efficacy as constituting the dominant purpose. As explained earlier in these reasons, the connection between Mr Mochkin and the charities which could have been, and were, the recipients of distributions from Ledger was neutral on a tax benefit as the dominant purpose.

65. Having carefully examined and re- examined, with the guidance afforded by s 177D(b), all of the facts and circumstances attending the Ledger Scheme, I have concluded that Mr Mochkin's dominant purpose in entering into it and carrying it out was to avoid personal exposure to the liabilities and debts which would be incurred in the conduct of the business after 1 February 1988. It is true that he was also probably actuated by other purposes related to the conduct of the business and the potential to reduce his own taxable income, but those were, I find, subordinate to the dominant purpose which I have imputed to Mr Mochkin. By contrast with the features in Gulland (supra) discussed by Dawson J at ATC 4798; CLR 113, there was here a limitation of liability and the provision of services by the business was increased by the capital available from Ledger and the enhanced prominence given to members of the Ledger ``team'' other than Mr Mochkin.

66. It is true, as Counsel for the Commissioner argued, that the fact that a scheme is consistent with the pursuit of commercial gain does not preclude a dominant purpose of obtaining a tax benefit; see
FC of T v Spotless Services Ltd & Anor 96 ATC 5201 at 5206; (1996) 186 CLR 404 at 415. However, that obviously does not mean that the pursuit of commercial gain entails a dominant purpose of obtaining a tax benefit. Rather, it is ``the taking of steps which would not otherwise have been taken by entering into the scheme'' despite the pursuit of commercial gain, which points to the objective conclusion that obtaining a tax benefit was the dominant purpose; (Spotless at ATC 5210; CLR 423). Essentially the step which the Commissioner here identifies as one which would not otherwise have been taken is the conduct of the business through Daccar, and then Ledger, which was each the trustee of a discretionary trust. However, as the High Court made clear in the passage just quoted, it is the totality of the steps taken by entering into the scheme which has to be considered. When that is done, there remains undisturbed the conclusion already indicated, that Mr Mochkin's dominant purpose was to achieve a limitation of liability for the future conduct of the business and to eliminate altogether his own personal exposure to that liability.

67. For these reasons each of the amended assessments, insofar as it involved the application of Pt IVA of the Act to the Ledger Scheme, must be set aside.

The application of Part IVA to the Daccar Scheme

68. Different considerations apply to the Daccar Scheme. The salient feature of that scheme was the payment of the ``finder's fee'' of $564,270 to Daccar in circumstances where there was no connection between Great Central and Daccar to warrant the payment. It was Mr Mochkin's personal connection with the clients of what was, by then, Ledger's business which

ATC 4484

enabled the placement to be made. However, because BOS, as principal dealer, had declined to be involved in the placement, Mr Mochkin felt precluded from receiving the fee himself or allowing it to be received by Ledger in case it might jeopardise the ``arrangement'' with BOS by which, I have found, Ledger was then acting.

69. The subsequent history of the placement, as far as is relevant for present purposes, is set out in the following paragraphs from a letter dated 11 August 1992 to the Australian Securities Commission from solicitors then acting for Mr Mochkin:

``8. Mochkin then advised Gutnick [the principal of Great Central] that BOS would not do the placement and he, Mochkin, could not be further involved with the placement.

9. Over the period that Mochkin had been trying to interest investors in the Company, he had introduced a number of potential investors to Gutnick including individuals from South America. These introductions had taken place prior to 13 February 1992.

10. Moreover, before 13 February 1992 Gutnick had already been advised that certain investors in South America were prepared to take up a placement in the Company. After 13 February 1992 arrangements for the placement were finalised directly between the Company and the South American investors without Mochkin playing any further role.

11. When Mochkin was advised by Gutnick that the placement was proceeding direct, he told Gutnick that even though he had not been involved in the finalisation of the placement, he should still be entitled to receive a finder's fee for the money raised in the placement as a result of the efforts that he had put in over the previous months. Gutnick was agreeable thereto subject to legal advice.

12. Gutnick subsequently advised Mochkin that he had checked with his solicitors as to whether it was lawful, in the circumstances, to pay a finder's fee to Daccar (Mochkin's family trust company) and that he had received affirmative advice from his solicitors. Daccar subsequently received $564,269.94 from the Company over the period that the money came in. BOS lays no claim to this commission, having regard to BOS not being prepared ultimately to do the placement.''

70. That evidence reveals that Mr Mochkin made the request for the ``finder's fee'' because he felt that his own efforts in securing the placement had imposed a moral, if not a legal, obligation on Great Central to pay it to him. Even if the payment is properly to be characterised as gratuitous, it was made to Mr Mochkin or at his direction in the course, or as a result, of his avocation as a stockbroker or investment adviser. Accordingly, it would have formed part of his income on the application of principles enunciated in cases like
FC of T v Squatting Investment Co Ltd (1954) 10 ATD 361; (1954) 88 CLR 413,
Hayes v FC of T (1956) 11 ATD 68; (1956) 96 CLR 47 and
Scott v FC of T (1966) 14 ATD 286; (1966) 117 CLR 514 as applied by Northrop J in
FC of T v Co- Operative Motors Pty Ltd 95 ATC 4411.

71. Even if s 19 of the Act quoted at [38] above does not apply to the ``finder's fee'', the Daccar Scheme, as identified by the Commissioner, involved the taking of steps, principally by directing payment of the fee to Daccar, for which no other purpose can objectively be ascribed to Mr Mochkin than that of excluding the amount from his personal income and thereby obtaining a tax benefit. It was open to Mr Mochkin to retain the fee as his personal income without jeopardising his, or Ledger's, relationship with BOS because he could justifiably have claimed that all income derived from that relationship was channelled through Ledger. As earlier passages from the letter quoted at [69] above make clear, the main concern of BOS was that it should not be associated with a placement which its principal, the Bank of Singapore, had not assessed for risk and compliance with legal requirements. It is difficult, in those circumstances, to see why BOS would have regarded receipt by Mr Mochkin personally of the ``finder's fee'' in any different light from its payment at his direction to the trustee of his family trust.

72. Other courses which might have been open to Mr Mochkin but were not taken included the distribution of the ``finder's fee'' to other members of the Ledger ``team'' in the form of a bonus or other gesture of appreciation for their work. Alternatively Mr Mochkin could have directed that it be paid directly to a charity or charities nominated by him. The inability to reconcile the steps which were actually taken in

ATC 4485

relation to the fee with any dominant purpose other than obtaining a tax benefit inexorably vindicates the Commissioner's decision to include, by the amended assessment for the year ended 30 June 1992, the sum of $564,270 in Mr Mochkin's assessable income.

Validity of Part IVA Determinations

73. It will be recalled that the determination in respect of the ``finder's fee'' of $564,270 was made ``in the name of Jennie Granger, Acting Deputy Commissioner of Taxation (Large Business & International)''. In fact, the determination had been made by Mr Michael Alcock, ``Team Manager, Large Business & International''. It has been contended on behalf of the applicant that Ms Granger had never authorised Mr Alcock to make determinations under s 177F or to sign such determinations in her name.

74. By an instrument in writing dated 29 January 1998, the Commissioner had delegated to ``the persons from time to time holding, occupying or performing the offices of'', amongst others, ``Deputy Commissioner of Taxation - Large Business and International Program'' all his powers and functions in the Acts specified in Column A of the schedule to the instrument of delegation subject to the limitations specified in Column B of the same schedule. The Act was one of those specified in the schedule and the relevant entry in Column B did not impose any limitation in relation to the exercise of powers and functions under s 177F.

75. On 28 April 1998, Mr James Killaly, the Deputy Commissioner of Taxation, Large Business and International Program issued a written authorisation which contained this passage:

``I... authorise all officers:

(a) from time to time holding, occupying or performing the duties of the positions in the Large Business and International Program

and/or

(b) who exercise powers and functions in relation to any matters arising in the Large Business and Internal Program

to exercise all the powers and functions delegated to the office of Deputy Commissioner of Taxation, Large Business and International Program, including those powers under the Acts listed in Schedule 1 and regulations made under the Acts, subject to the limitations listed in Schedules 2 to 10. These powers and functions are to be exercised only in the proper course of each officer's duty.

The powers and functions listed in this instrument are described in broad and general terms. They are not limited to the exact words used in the legislation and are to be read as widely as possible.

References to ASO levels in this instrument include all other classifications with similar salary ranges in the Large Business and International Program of the Australian Taxation Office. If any officer is covered by more than one Schedule, that officer is authorised to operate under whichever of those Schedules contains the greater number of powers and functions.''

76. Schedule 3 to Mr Killaly's authorisation authorised ``officers holding the position of Senior Officer Grade B... to exercise in the course of their duties in the name of and on behalf of the person from time to time holding, occupying or performing the duties of the Deputy Commissioner of Taxation, all the powers and functions which Senior Officers Grade A are authorised to carry out under Schedule 2''. Schedule 2 which was related to Senior Officers Grade A authorised the exercise by them of all the powers and functions of the Deputy Commissioner of Taxation, Large Business and International Program listed in Schedule 1 other than certain specified authorities which did not include the authority to issue determinations under s 177F of the Act. Schedule 1 authorised the performance of all the Commissioners' powers and functions under the Act except those under certain enumerated provisions which did not include s 177F.

77. In my view, the nature of the powers reposed in the Commissioner by s 177F entails that those powers ``were not intended to be exercised only by the Commissioner or his delegate personally but may be exercised through a properly authorized officer'';
O'Reilly & Ors v Commissioner of the State Bank of Victoria & Ors 82 ATC 4671 at 4674; (1982-1983) 153 CLR 1 at 12-13 per Gibbs CJ, which was applied by Callinan J in
Dooney v Henry (2000) 174 ALR 41. In the present case, there was an unbroken chain of authorisation

ATC 4486

from the Commissioner through Mr Killaly to officers ``holding, occupying or performing the duties of'' amongst others, the office of ``Senior Officers, Grade B''. I am satisfied by the evidence of Ms Granger that Mr Alcock, on 14 April 1999, as an EL2 team manager, was performing the duties of a Senior Officer, Grade B. He was therefore authorised to exercise all the powers and functions delegated to the office of Deputy Commissioner of Taxation - Large Business and International Program which office, on the relevant date, was occupied by Ms Granger. I have, accordingly, concluded that Mr Alcock was authorised to make determinations under s 177F and issue them ``in the name of'' Ms Granger notwithstanding that he had not been personally authorised by her and that she was unaware of the making of the determination in question.

78. Mr de Wijn QC, who appeared with Mr Steward for the applicant, contended that ``unlike a delegation of power, the relationship of `authority' is a personal relationship and can only be made expressly or by necessary implication.'' Support for that proposition was said to be derived from
Re: In the matter of a Reference under Section 11 of the Ombudsman Act; ex parte The Director-General of Social Services (1979) 2 ALD 86, where Brennan J observed, at 94:

``Where the relevant power is not delegable, the only acts by which the power can be exercised are the acts of the authority and acts which, having regard to the nature of the power, the authority may authorize another to perform on his behalf and which have been so authorized.

But where the relevant power is delegable and has been delegated, the delegate may - without further authorization - act in effective exercise of the power. His acts are not treated as acts vicariously done by the authority. He is not an agent to exercise the authority's power; he may validly exercise the power vested in him. The distinction is brought out by Scott LJ in
Blackpool Corporation v Locker [1948] 1 KB 349 at 377 in rejecting a submission that the relationship of principal and agent existed between the Minister and a local council to which he had delegated certain powers: `In my opinion that view of the legal relationship between them is radically mistaken. As I have already said, the circulars contained (together with much explanatory matter) ministerial legislation with statutory force, transferring to the local authorities concerned the Minister's legal power to override the common law rights of individual members of the public, for the purposes defined in the circulars, and limited by their conditions.'

There is a confusing similarity between the exercise of an authority's power by the authorized acts of another, and the exercise by an authority's delegate of the power delegated to him. In either case the act - whether the act of the authorized person or the act of the delegate - is a valid exercise of power. Nonetheless, the sources of validity are different, though it must be said that the term `delegation' has frequently been used to describe either case without distinguishing between them.''

79. In this case, the power was delegable, and had been delegated by the ``authority'' [the Commissioner] to the ``Deputy Commissioner of Taxation, Large Business and International Program''. The holder of that office at the relevant time had, in turn, authorised various officers holding, occupying or performing the duties of certain subordinate positions to exercise, on behalf of the holder for the time being of the office of Deputy Commissioner of Taxation - Large Business and International Program certain of the powers and functions which had been delegated to that office. That, I consider, was what Mr Alcock did when he made and issued the determinations in question in the name of Ms Granger who, at the date of issue, was Acting Deputy Commissioner of Taxation, Large Business and International Program. He did not require a fresh authorisation from Ms Granger on her accession to that office. For these reasons, this attack on the validity of the determinations must fail.

Was there an effective exercise of discretion under s 177F?

80. By [66] and [67] of the applicant's Statement of Facts, Issues and Contentions, it was contended that:

``66. If Part IVA applies to any relevant scheme, the respondent did not lawfully exercise his discretion under s 177F(1) of the 1936 Act.

67. The additional tax imposed pursuant to s 226 of the 1936 Act was not correctly

ATC 4487
imposed as Part IVA did not apply to treat the income assessed as income of Mochkin. If the additional tax was properly imposed on the footing that Part IVA applied, the respondent made an error of law in exercising his discretion to remit part of such additional tax.''

81. Reference was made in support of those contentions, first to
Avon Downs Pty Ltd v FC of T (1949) 9 ATD 5; (1949) 78 CLR 353, where Dixon J considered s 80 of the Act in the form in which it then was. That section made deductible losses incurred in any of the seven preceding years and provided by sub-s (5) that;

``Notwithstanding any other provision of this section, in the case of a taxpayer which is a private company within the meaning of Division 7 of this Part, no loss incurred by the company in any year prior to the year of income shall be an allowable deduction unless the company establishes to the satisfaction of the Commissioner that, on the last day of the year of income, shares of the company carrying not less than twenty-five per centum of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than twenty-five per centum of the voting power on the last day of the year in which the loss was incurred.''

82. In respect of the attainment by the Commissioner of the satisfaction required by that sub-section, his Honour said, at ATD 10; CLR 360:

``But it is for the Commissioner, not for me, to be satisfied of the state of the voting power at the end of the year of income. His decision, it is true, is not unexaminable. If he does not address himself to the question which the sub-section formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from consider- ation some factor which should affect his determination, on any of these grounds his conclusion is liable to review. Moreover, the fact that he has not made known the reasons why he was not satisfied will not prevent the review of his decision. The conclusion he has reached may, on a full consideration of the material that was before him, be found to be capable of explanation only on the ground of some such misconception. If the result appears to be unreasonable on the supposition that he addressed himself to the right question, correctly applied the rules of law and took into account all the relevant considerations and no irrelevant considerations, then it may be a proper inference that it is a false supposition. It is not necessary that you should be sure of the precise particular in which he has gone wrong. It is enough that you can see that in some way he must have failed in the discharge of his exact function according to law.''

83. Although directed to the attainment of satisfaction as to a state of fact, the language of that passage is redolent of other well-known passages, notably that in
House v R (1936) 55 CLR 499 at 504-505, in which the High Court has considered the review of judicial or administrative discretions like that conferred by s 177F.

84.
Kolotex Hosiery (Australia) Pty Ltd v FC of T 75 ATC 4028; (1975) 132 CLR 535 to which I was also referred by Counsel for the applicant likewise concerned the attainment by the Commissioner of satisfaction as to certain matters affecting whether carry forward losses were deductible. In that case, Gibbs and Stephen JJ, over the dissent of Barwick CJ, held that where the Commissioner had failed to attain the requisite satisfaction because of some error, the court should reach its own conclusion on the material before it (including material not considered by the Commissioner) whether the Commissioner ought to have been satisfied.

85. In
Citibank Limited v FC of T & Ors 88 ATC 4714, Lockhart J had to consider a decision by a delegate of the Commissioner to exercise the powers of entry and search of premises conferred by s 263 of the Act. His Honour identified various matters which he considered were relevant to be taken into account in deciding whether to exercise those powers and, on the evidence, drew the inference that the Commissioner had failed to take into account relevant and material considerations.

86. The most recent case to which I was referred in this context by Counsel for the applicant was
FC of T v Pacific Dunlop Ltd 99 ATC 4294; (1999) 87 FCR 253, a sales tax case in which a Full Court of this Court at ATC 4306; FCR 269-270, explained Avon Downs (supra) and
Dalgety Downs Pastoral Co Pty Ltd v FC of T (1952) 10 ATD 55; (1952) 86 CLR 335 as:

ATC 4488

``... concerned with legislation which first allowed a general class of deduction and then excluded the right to the deduction in a particular case where the Commissioner formed a specific opinion. If the discretion was erroneously exercised, so that it had not been exercised at all, the consequence was that the Act operated to allow the deduction. Thus a taxpayer who succeeded in establishing that the discretion had miscarried had shown what his true taxable income was (except in the rare case where some other question intervened, such as the existence of other sources of income).''

(original emphasis)

87. For reasons explained above, it is now only necessary to consider the decision to issue the determination of 14 April 1999 in respect of the Daccar Scheme involving the ``finder's fee'' of $564,270. I have already indicated why I consider that Pt IVA of the Act, correctly understood, supports the making of the determinations in question in relation to those matters. I have been unable to discern on the face of the instrument embodying the determinations that Mr Alcock, when he made them, took into account an irrelevant consideration or failed to take into account some relevant consideration. By contrast with the case which confronted Lockhart J in Citibank, there is no evidence to support an inference, even with the assistance afforded by the respondent's failure to call Mr Alcock, that he took into account some extraneous consideration or failed to take into account a relevant matter. Nor is this a case where an unreasonable result was arrived at so as to create a presumption that an error occurred in the exercise of the discretion or statutory power, notwithstanding the inability of the court to identify the error.

88. Accordingly, to the extent that it is necessary to examine it, this attack on the exercise of the powers and discretions conferred by s 177F has failed.

Was the amended assessment of 14 April 1999 served in time?

89. The tax assessed by the original assessment issued to Mr Mochkin for the year ended 30 June 1992 became due and payable on 15 April 1993. By s 177G(1) of the Act it was provided:

``Nothing in section 170 prevents the amendment of an assessment at any time before the expiration of 6 years after the date on which tax became due and payable under the assessment if the amendment is for the purposes of giving effect to subsection 177F(1).''

90. It is common ground that the amended assessment for the year ended 30 June 1992 was issued on 14 April 1999 and served on Mr Mochkin on the next day, 15 April 1999. On behalf of the applicant it has been contended that service of the amended assessment occurred one day outside the time limit imposed by s 177G(1). Support for that contention was sought to be derived from Case W120,
89 ATC 951 where the facts as recited by Senior Member Roach, at 962, were:

``... The director-husband was originally assessed to income tax for the year of income ended 30 June 1978 by an assessment which issued on 5 April 1979. It provided for payment of the tax assessed on 8 May 1979. The amended assessment now relied on by the Commissioner was given effect to by a notice of amended assessment which issued on 7 May 1985 and was served at the address for service of the director- husband the following day: 8 May 1985. The argument for the taxpayer is that the Commissioner acted too late.''

91. The learned Senior Member then quoted this passage from the judgment of Kitto J in
Batagol v FC of T (1963) 13 ATD 202 at 205; (1963) 109 CLR 243:

``... To speak, as does sub-s. (1) [of s 170] of tax being paid in respect of the assessment, or to speak, as do sub-ss. (2)(b), (3), (4), (5) and (6), of tax having become due and payable under the assessment, would be impossible unless `assessment' meant the whole process which comes to a head in the service of a notice of assessment and thereby becomes, as a whole, an act in the law. If this be correct, it follows that until a notice of assessment has been served on the taxpayer the Commissioner and his officers neither need statutory authority to go back over any or all of the steps that have been taken in the office, and correct anything they consider to be erroneous, nor are disabled from doing so by anything in s. 170.''

(original emphasis)

92. Immediately after that quotation the following conclusion on the point was expressed in Case W120, at 963 [40]:

ATC 4489

``The point is a fine one. I think it is a good one. As fine points are as much open to be availed of by taxpayers as they are by the Commissioner, I conclude that there was no authority in the Commissioner to amend the assessment of the director-husband as he did.''

93. Mrs Batrouney responded by pointing to s 36(1) of the Acts Interpretation Act 1901 which provides:

``(1) Where in an Act any period of time, dating from a given day, act, or event, is prescribed or allowed for any purpose, the time shall, unless the contrary intention appears, be reckoned exclusive of such day or of the day of such act or event.''

The period of time here dated from the day on which the tax assessed by the original assessment became due and payable, ie 15 April 1993. If that day be excluded, as required by s 36(1), the period of six years allowed by s 177G expired at midnight on 15 April 1999; (see eg
Re Gray; Ex parte DFC of T (1993) 115 ALR 638). I am constrained to apply the same reasoning and conclude that the learned Senior Member in Case W120, who was apparently not referred to s 36(1) of the Acts Interpretation Act, was in error.

Conclusion

94. From the reasons set out above, it should be apparent that the applicant has discharged the onus of proving that the dominant purpose of the Ledger Scheme was not that of obtaining a tax benefit. Accordingly, each objection decision, insofar as it was related to the Ledger Scheme, must be set aside. In respect of the Ledger Scheme the Commissioner will be directed to allow the applicant's objections and issue amended assessments in accordance with law. Because the applicant has not discharged his onus of proof in relation to the Daccar Scheme, and because the Commissioner has succeeded on all other issues which were argued, the objection decision in respect of the applicant's objection to the amended assessment which issued in respect of the Daccar Scheme must stand. In the separate application by the applicant numbered V 652 of 2000 the interlocutory injunction granted on 5 October 2000 should be dissolved and that application will otherwise be dismissed. In the circumstances, it is appropriate to order the respondent to pay half of the applicant's costs of each appeal and of the application numbered V 652 of 2000.

THE COURT ORDERS (re V 559 of 1999) THAT:

1. The appeal be allowed in part.

The objection decision of the respondent made on 10 August 1999 be set aside except insofar as it related to the inclusion in the applicant's assessable income for the year ended 30 June 1992 of the sum of $564,270 and the deduction from the applicant's assessable income for the said year of the sum of $15,000.

The respondent be directed to allow the applicant's objection to the amended assessment issued on 14 April 1999 except insofar as such amended assessment was related to the inclusion in the applicant's assessable income of the said sum of $564,270 and the deduction therefrom of the said sum of $15,000.

The respondent be directed to issue an amended assessment for the year ended 30 June 1992 in accordance with law.

The respondent pay one half of the applicant's costs of the appeal such costs to be taxed in default of agreement.

THE COURT ORDERS (re V 560-569 of 1999) THAT:

The appeal be allowed.

The objection decision of the respondent made on 10 August 1999 insofar as it related to the amended assessment of the applicant's income for the years ended 30 June 1993, 1994, 1995, 1996 and 1997 be set aside.

The respondent be directed to allow the applicant's objection to the amended assessment made on 5 May 1999.

The respondent be directed to issue an amended assessment for the year ended 30 June 1993, 1994, 1995, 1996 and 1997 in accordance with law.

The respondent pay one half of the applicant's costs of the appeal such costs to be taxed in default of agreement.

THE COURT ORDERS (re V 652 of 2000) THAT:

1. The interlocutory injunction granted on 5 October 2000 be dissolved.

2. The respondent pay one half of the applicant's costs of this application, such costs to be taxed in default of agreement.

3. The application otherwise be dismissed.

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