Federal Commissioner of Taxation v. Mantle Traders Pty. Limited.

Judges: Bowen CJ

Franki J
Brennan J

Court:
Full Federal Court

Judgment date: Judgment handed down 15 December 1980.

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Franki J.

I have had the benefit of reading a draft judgment of the Chief Judge and there is no need for me to set out the facts.

I consider that three basic issues are involved. They are:

First Issue - Has this Court jurisdiction to hear the appeal?

Second Issue - Who carries the onus of establishing in whose favour the proceedings before the trial judge should terminate?

Third Issue - Who has to commence before the trial judge and what is the minimum required of the appellant Commissioner before the taxpayer is called upon?

The First Issue

This question was not fully argued but, as at present advised, I consider that the Court has jurisdiction to entertain the appeal.

The orders which the judge of the Supreme Court may make in appeals pursuant to sec. 196 are not in any way limited by that section. This position may be contrasted with the provisions of sec. 195(1) and sec. 199(1). The judge may give a decision against which an appeal may be brought under sec. 196(5) either by leave to the Federal Court of Australia or by special leave to the High Court. The words used in the subsection are `` a decision''. The words chosen in sec. 196(4) are `` the decision'' and not `` a decision''. In the matter before us the trial judge has stated and answered certain specific questions. But he has done more than this, he has made an order that ``the Appellant pay Respondent's costs''. Such order was formally entered by the Acting Registrar of the Administrative Law Division of the Supreme Court of New South Wales on 28 July 1980. There appears to be no restriction on the judge adopting the course which he took or making any of the orders which he made and it was not suggested before us that he lacked power to adopt that course or make those orders. There is certainly no specific requirement limiting any order he may make.

The appellant has obtained leave to appeal from the Chief Judge of this Court from the decision of the Supreme Court of New South Wales.

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ATC 4594

Neither party has submitted that the Court lacks jurisdiction to hear this appeal. Indeed the course that has been followed was clearly one desired by both of the parties to the proceedings and embarked upon by the trial judge to give effect to the common desire of the parties. No argument that we lack jurisdiction has been submitted to us. The parties cannot confer jurisdiction on the Court. The trial judge has given a decision including an order for costs. Apparently the order for costs could be enforced as a separate order unless appealed against and reversed. (See generally
S.T.A.N. Constructions Pty. Ltd. v. Williams (1979) 28 A.L.R. 445 and
F.C. of T. v. Offshore Oil N.L. 80 ATC 4457 .)

I consider that the order of the trial judge falls within the words `` a decision'' in sec. 196(5) and that the Commissioner has a right to institute an appeal to the Federal Court by leave. The need for leave ensures that inappropriate appeals will not be brought to the Federal Court.

The Second Issue

Section 190(b) of the Income Tax Assessment Act 1936 provides the answer that ``the burden of proving that the assessment is excessive shall lie upon the taxpayer''.

The appellant relied on sec. 190(b). The respondent argued that sec. 190(b) is not applicable to an appeal by the Commissioner from the decision of the Board.

The respondent's basic argument was that once the Board reviewed the matter, the Commissioner's original assessment no longer existed and the only existing assessment was that of the Board. It was then argued that the appeal was from the assessment of the Board and that, following the ordinary principles applicable to appeals, the appellant carried the onus.

Section 170(7) refers to the amendment of an assessment to give effect to a decision upon a review. In
Batagol v. F.C. of T. (1963) 109 C.L.R. 243 , the High Court pointed out that an assessment is not made under sec. 170(3) until the Commissioner serves upon the taxpayer a notice that he has assessed the taxpayer's income and the tax at specific amounts. At p. 253 Kitto J., with whom Menzies J. at p. 254 agreed, said:

``I shall not refer in detail to ss. 185 to 202 inclusive, which deal with reviews and appeals, but the language of those sections cannot, I think, be reconciled with any other view than that without a notice of assessment fixing a taxable income and a tax there is no assessment.''

I have not overlooked that Fullagar J. in
F.C. of T. v. Finn (1960) 103 C.L.R. 165 at p. 169 said that after review by the Board ``That original assessment, which ex hypothesi has been reduced by the Board, has ceased to exist''. The same view was expressed at the bottom of p. 169 and the top of p. 170.

In
McCormack v. F.C. of T. 79 ATC 4111 at p. 4119 , Gibbs J. considered the judgment of Fullagar J. and said at p. 4120:

``Those remarks have no application to a case such as the present, where the Board has confirmed the assessment of the Commissioner.''

In my opinion, sec. 190(b) is referring to the assessment of the Commissioner and not the decision of the Board. In the case before us I consider that the critical question is whether sec. 190(b) applies where a reference has been made to the Board and an appeal is brought from the decision of the Board to a single judge or from the decision of a single judge to an appeal court be it the High Court or the Federal Court. It is obvious that the onus would not change in an appeal from a single judge to the Federal Court. McCormack's case (supra) was a case where a reference was made to the Board and an appeal lodged to a judge of the Supreme Court and from that court to the Federal Court and then to the High Court. The taxpayer was the appellant throughout.

Gibbs J. considered the effect of sec. 190(b) and at p. 4120 said:

``Although an appeal to the Supreme Court from a decision of a board of review is not a true appeal, but a proceeding in the original jurisdiction of the court, it is not only called an appeal, but has some of the characteristics of an appeal, and it is natural to conclude that it was intended that the court of appeal would apply no different rule as to the burden of proof from that which the board was required to apply .''

(Emphasis added.)

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ATC 4595

If the taxpayer was successful before the Board it would be extraordinary if the onus was reversed so that in an appeal witnesses who were called by the taxpayer before the Board would be called by the Commissioner before the Court.

At p. 4120 Gibbs J., in McCormack's case, said:

``In
McAndrew v. F.C. of T. (1956) 98 C.L.R. 263 , at p. 277 , Kitto J. referred to `the general policy, so clearly evinced in Pt. IV of the Act (comprising sec. 161 to 177) and sec. 190(b), of making all assessments unchallengeable except in so far as the taxpayer may displace them on appeal'. There is no reason why that policy should have been excluded in relation to appeals brought to the Supreme Court from boards of review, and it would be most anomalous if on such an appeal the taxpayer did not bear the burden of proving the assessment excessive, when on a reference to a board, and on an appeal direct to the Supreme Court, and on any further appeal brought from the Supreme Court, the taxpayer does bear that burden. Moreover, if sec. 190(b) applies only to references or appeals of the kind mentioned in sec. 187, the same must be true of sec. 190(a), yet it is well recognized that the provisions of that paragraph, which limit the taxpayer to the grounds stated in his objection, apply not only on a reference or appeal under sec. 187, but on a further appeal, whether brought under sec. 196(1) or sec. 200: see
Archer Brothers Pty. Ltd. v. F.C. of T. (1953) 90 C.L.R. 140 , at pp. 148-9 and cases there cited. For these reasons, with the greatest respect, I consider that on the proper construction of the Act the provisions of sec. 190(b) were applicable on the present appeals to the Supreme Court and to the Federal Court, because those courts were required to apply the same rule as that which applied in the Board of Review.''

Stephen J. at p. 4123 agreed with Gibbs J.

Jacobs J. at p. 4128 said:

``There is by virtue of sec. 190(b) a rebuttable presumption of law that an assessment is not excessive. That is only another way of stating that the burden lies upon the taxpayer to prove that the assessment is excessive.''

Murphy J. at p. 4132 said of sec. 190(b) that:

``The section is applicable on appeal whether or not the Board has varied the assessment.''

The conclusion that in all instances sec. 190(b) applies is in accord with several cases which were decided before McCormack's case. In
Watson v. F.C. of T. (1952-53) 87 C.L.R. 353 , Webb J. was considering a case where a decision disallowing an objection was referred to the Board which upheld the objection and the Commissioner appealed to a single judge of the High Court pursuant to sec. 196(1). At p. 363 Webb J. held that the taxpayer had failed to discharge the onus which under sec. 190(b) was on the taxpayer and not on the Commissioner. On appeal to the High Court Dixon C.J. at p. 367, in argument, expressed some doubt about this view but the question was not dealt with because the appeal was held to be incompetent.

In
F.C. of T. v. Robinson & Mitchell Pty. Ltd. (1941) 64 C.L.R. 612 , in an appeal by the Commissioner against a decision of the Board of Review, it was held by McTiernan J. at p. 618 that:

``The onus was by sec. 190(b) cast upon the company to make out its objection that the assessment was excessive. It has failed to sustain that onus.''

The appeal was allowed.

The High Court in
Macmine Pty. Ltd. v. F.C. of T. and F.C. of T. v. Macmine Pty. Ltd. 79 ATC 4133 considered appeals by the taxpayer and by the Commissioner from the decisions of a single judge of the New South Wales Supreme Court. The matters had come by way of appeal to the Supreme Court and not by way of the Board. The High Court heard the appeals together. Section 190(b) was considered but no distinction was drawn by any of the judges of the High Court between an appeal by the taxpayer and an appeal by the Commissioner.

Although Macmine's case did not involve a reference to a Board, statements in the judgments clearly followed what had been said in McCormack's case and the judgments were expressed in terms which left no doubt about the generality of sec. 190(b).

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ATC 4596

Gibbs J. at p. 4140 said:

``In my opinion, no onus is cast on the Commissioner to prove that an assessment is correct, and there is no special rule as to the manner in which a taxpayer may discharge the onus which lies upon him of proving that an assessment is excessive. I need not repeat what I have already said at length in McCormack's case .''

In relation to the appeal by the Commissioner, Gibbs J. at p. 4143 said:

``I therefore conclude that Macmine has not discharged the onus of proving that the proceeds of the sale of the rights in Petsec were not profits arising from the carrying out of a profit-making scheme.''

Stephen J. at p. 4146 said:

``If presumptions of fact concerning a taxpayer's affairs have, as I believe, no place in the operation of sec. 190(b), the subsection may be seen to stand, without need for any judicial gloss, as a simple legislative direction obedience to which is equally simple: given an assessment, a taxpayer who seeks to challenge it bears the onus of showing from the evidence that it is excessive, that he does by disproving, on ordinary civil standards of proof, the basis of assessment adopted by the Commissioner.''

And at p. 4147 he said:

``The question in tax appeals is never whether the Commissioner has established, by proof, the particular state of facts upon which he relies in support of his assessment; it is, rather, whether the taxpayer has established the non-existence of that state of facts and, hence, the excessiveness of the assessment. To say otherwise is, in effect, to invert the onus cast upon the taxpayer by sec. 190(b) and, in the present case, to require of the Commissioner that he prove the evidence of a profit-making scheme. But the Commissioner is not required, on an appeal against an assessment, to prove affirmatively the existence of facts which would support the liability to tax of the taxpayer which the assessment reflects. It is rather for the taxpayer positively to show, on the balance of probabilities, that the state of facts (including therein states of mind) which the Commissioner asserts as the basis of his assessment has not been made out.''

Murphy J. expressed similar views.

The Third Issue

The Commissioner, as the appellant, must commence. Once the Commissioner's assessment is in evidence before the Court, it is in a position to give effect to the obligation cast upon the taxpayer by sec. 190(b).

It seems that the Commissioner should also tender the notice of objection, his decision on that notice, the request to refer, the decision of the Board and the Board's reasons (if any). There may also be some question whether the decision of the Board involved a question of law.

It is not necessary to do more than say, for the reasons I have expressed, that I would answer the questions in the way proposed by the Chief Judge.

I agree with the orders proposed by the Chief Judge.