The Trustees for the Estate of Edward Henry Watson (dec'd.) v. Federal Commissioner of Taxation.

Judges:
Brinsden J

Court:
Supreme Court of Western Australia

Judgment date: Judgment handed down 13 July 1982.

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Brinsden J.

These reasons for judgment concern seven appeals by the appellant against the inclusion in the assessable income of the estate for the relevant year of a portion of the proceeds from the sale of land owned by two syndicates, Mandurah Downs Syndicate and Wannanup Park Syndicate, which I understand the Commissioner contends is taxable in the hands of the estate pursuant to the provisions of sec. 26(a) of the Income Tax Assessment Act 1936 and amendments, and also in respect of each year additional tax levied pursuant to sec. 226(1). The arithmetic is not in question in respect of any of the assessments and the points which arise in respect of each appeal are identical. The appellant contends that the proceeds of sale are not assessable income because they

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represent the proceeds of realisation of a capital asset. As to the imposition of additional tax the appellant contends in the circumstances giving rise to the late returns, it is inequitable that a penalty of the amount levied or alternatively any penalty, be imposed.

It is now necessary to deal shortly with the background of events which occurred subsequent to the filing of the late returns in July 1974. The misfortunes which have befallen the taxpaying family, if I can refer to the beneficiaries of the estate as such, would, I think, soften the heart of all but, apparently, that of a revenue collector, as will be apparent from the following.

Edward Henry Watson died on the 10th February 1965 and previously to that event he had carried on the business of a land and estate agent at Mandurah. He was survived by his widow, Ella Alice Watson and three children, Raymond, Glen and Gaye. By his will dated the 18th October 1958 the deceased appointed Henry Souttar Lodge and Kevin McGregor, both of Harvey, solicitors, to be the executors and trustees of the will, at that time both principals in the firm of Ball & Co. Lodge renounced probate and on the 22nd April 1965 probate of the will was granted to McGregor. After certain bequests of personalty the deceased devised and bequeathed all the residue of his real and personal estate unto his trustees upon the usual trusts in relation to conversion with an absolute discretion to postpone conversion and after payment of all just debts, testamentary, funeral, probate and estate duties, the trustees were directed to stand possessed of the balance upon trust to pay the net annual income to the widow during her lifetime or until she should remarry, and as to the capital upon trust for Glen and Gaye as shall survive the deceased and attain the age of 21 years as tenants in common in equal shares. The widow is still living and has not remarried and the three children survived the deceased and attained the age of 21 years. It is to be noted that Raymond was not a beneficiary in the will. In September 1966 before the estate of the deceased had been fully administered the first calamity occurred when McGregor was drowned. His widow, nominated executrix of his will, renounced probate. The next calamity was when Glen was killed in a shooting accident in the same year on the 23rd December. Probate of Glen's will on the 30th June 1967 was granted to his brother Raymond. Ball & Co., who remained solicitors in respect of the estate throughout, had been instructed to proceed with an application for letters of administration with the will annexed of the unadministered estate of E.H. Watson deceased and by November 1969 the application to appoint the widow, Raymond, and Gaye, had proceeded to a point where it was shortly to be dealt with by the Court. Before the grant was made, on the 6th November 1969 Gaye died in a motor car accident. On the 27th August 1970 probate of her will was granted to her husband Ronald Sydney Martin.

It is not surprising that after these unfortunate events there was further delay in attending to the formalities of the administration of the estate. The widow too, was suffering from serious physical inconvenience as she was without a right arm. Finally on the 31st July 1973 letters of administration with the will annexed of the unadministered estate were granted to the widow, Raymond, and Ronald, the appellants. Between September 1966 and the 31st July 1973 there was no executor or administrator of the will or estate of the deceased.

The financial years in question are from the deceased's death on 10th February 1965 to the 30th June 1965 and thereafter the subsequent financial years to 30th June 1971. No tax returns in respect of any of those years were lodged until March 1974.

The deceased was a member of the two syndicates as at the date of death. The Wannanup Park Syndicate was formed on the 7th June 1955, and on that date it purchased a large area of land south of Mandurah for the purpose of resale at a profit. The syndicate agreement dated the 17th June 1955 appointed three trustees and recited that they had entered into a contract for the purchase of the land. The object of the syndicate is expressed in cl. 4 as being:

``to purchase the land described in the First Schedule hereto for the purpose of subdivision and resale.''

It went on to provide that the members were to contribute to the purchase the sums set forth in the Second Schedule and would be

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ATC 4294

entitled to participate in profits in the same disposition. Each member agreed to pay such further calls as may from time to time be determined by the syndicate in general meeting. Such calls were made in the same proportions as the original capital contribution of the member. Clause 9 provided for the management of the affairs of the syndicate and provided a significant role for the trustees who would generally manage the affairs with power to enter into contracts in furtherance of the objects of the syndicate, to operate a bank account, and to make decisions final and binding on all members consistent with the terms of the agreement and with policy determined in general meetings. Provision was also made for annual meetings and such other meetings as deemed necessary. No provision, however, was made in case of the death of a member and this event was to happen very shortly after the syndicate was formed for one of the original members and a trustee, Miss Russel, a solicitor, died prematurely and her interest in the syndicate was taken over by the other syndicate members. The deceased at the date of the commencement of the syndicate and through and until his death held a 1/18th share. The land purchased amounted to 800 acres of which by the 10th February 1965, 10 per cent had been subdivided into small building blocks of which some had been sold. The deceased at the date of death was also a member of the Mandurah Downs Syndicate in which he held a ⅕th interest. The syndicate had acquired a parcel of land close to Mandurah with the object ``to subdivide the said land for the purpose of sale at such price or prices and in such manner as the members shall determine and to distribute the profits in the proportions aforesaid''. Trustees were appointed of whom the deceased was one with the same general powers as in the other syndicate agreement. Again for the purpose of financing subdivisions each member agreed to pay such calls as may from time to time be determined by the syndicate in general meeting. Clause 7 provided for dissolution:

• (a) when the whole of the land had been sold or otherwise disposed of and the profits distributed, or
• (b) if the objects of the syndicate could not be put into effect,

but it failed to provide for what was to happen on the death of a member.

The land purchased amounted to about 200 acres, of which, by the 10th February 1965, 10 per cent had been subdivided into building lots some of which had been sold.

I propose to deal first with the main ground of appeal in relation to the so-called profits on sale. The Commissioner sought to justify the assessment on a number of grounds, some of which he did not appear to rely on in correspondence with the appellant, though on this appeal he is not prevented from doing so:
F.C. of T. v. Wade (1951) 84 C.L.R. 105 per Kitto J. at pp. 116-117;
Spence v. F.C. of T. (1967) 121 C.L.R. 273 at p. 281. It was contended that after death a new partnership came into existence either expressly or by tacit agreement, comprising the surviving partners and the estate. Alternatively, the surviving partners and the estate were a partnership within the definition of sec. 6 in that they were in receipt of income jointly. And, if I understood the Commissioner correctly, he also contended that the facts might indicate that the estate carried on a business in conjunction with a business carried on by the surviving partners, the assets of each business being the assets of the former partnership. I should say at this point that it was not a matter of contention but that the two syndicates amounted to partnerships at common law and within the meaning of the Partnership Act of Western Australia 59 Vic. 23. As against these various contentions the appellants say the facts do not support a finding of the estate entering into a fresh partnership agreement with the surviving partners, nor a partnership within the meaning of sec. 6, nor was the estate carrying on any sort of business. It is contended that all the estate did from time to time was to receive its share of the proceeds of the realisation of the assets less liabilities of the two syndicates following upon their dissolution by reason of the death of the deceased.

Throughout his address to me counsel for the appellants placed great emphasis on the allegation that the interests of the estate were merely being ``realised''. But there is no magic in the use of that word leading to the result that if an act or series of acts is

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ATC 4295

correctly called realisation of assets that means necessarily the proceeds are capital in the hands of the recipient. One must examine what was done in the process of realisation. As was said by Isaacs J. in
Joshua Bros. Pty. Ltd. v. F.C. of T. (1923) 31 C.L.R. 490 at p. 497: ``It was contended on behalf of the appellant that the process of selling the company's stock was properly described as `realisation'. The same could be truly said of all sales in business.'' Official Receiver in
Bankruptcy (Trustee, Fox's Estate) v. F.C. of T. (1956) 96 C.L.R. 370 is a case which shows that the process of realisation of a bankrupt estate by the Official Receiver may result in him carrying on a profit-making scheme leading to the profits being liable to tax in his hands.

There was very little evidence of what McGregor did in respect of the administration of the estate up until his death. It is clear, however, that his firm received at least one sum of money in respect of the Mandurah Downs Syndicate, which was forwarded to it by the real estate agents who had been appointed to conduct sales of Mandurah Downs land following upon the death of the deceased. The short text of the letter reads:

``On behalf of the estate of the late E.H. Watson we enclose a cheque for $3,600 being a share of income as at the 30th June 1966.''

It is, I think, also likely that McGregor would have seen the accounts in relation to the two syndicates for the year ended 30th June 1966, prepared by the accountants to both syndicates. In respect of Mandurah Downs the statement of assets and liabilities attached to the accounts shows under ``Accumulated Funds'' the estate of the late E.H. Watson along with the other syndicate members. The statement of income and expenditure also shows the estate of E.H. Watson sharing in the income along with the other syndicate members, in the proportion to which the deceased was entitled. The accounts for Wannanup Park seemed to have been prepared in exactly the same way showing the estate along with the other members receiving its proportion of the income and also showing its proportion of accumulated funds along with the other members. The accounts for neither syndicate appear to have been closed off as at the date of death or if so there was no evidence to this effect. Throughout all the relevant financial years the accounts of both syndicates seem to have been prepared in identical manner. It is not clear whether McGregor attended any meeting of either syndicate. There is also no evidence that McGregor took any step to advise the trustees or any member of the syndicates that as at the date of death the syndicates were dissolved and the estate would require the syndicates to be wound up. The only evidence is that he wrote to the accountants seeking details of the interest of the deceased in the syndicates but that is explainable as seeking information for inclusion in a statement of assets and liabilities for probate duty purposes. After McGregor's death his partner, Mr. Kronberger, took over the legal work in respect of the estate. He did attend meetings of both syndicates from time to time, but says he did so as only representing the interest of the estate and not as a member of the syndicate. As he was also the solicitor for both syndicates he explained his attendance at meetings also for answering legal questions which might arise during discussion. On one occasion he chaired a meeting but does not attach to that the same significance as does the Commissioner, but explains it merely as being because of the possibility that the members wanted a neutral person as Chairman. During the whole of the relevant years payments were received by Ball & Co. on behalf of the estate from the syndicates. Some portion of these payments usually included the estate's proportion of interest earned on the unpaid balance of the purchase price of subdivided land sold, but not fully paid for. In the books of the firm these payments were allocated between the widow and those entitled to the capital of the estate, the widow being credited with the portion representing interest. It would appear from the evidence of the widow from time to time Ball & Co. remitted to her the moneys so credited (see p. 93 transcript). Ray Watson on behalf of the estate also attended meetings of both syndicates from time to time. On the 18th October 1966 in respect of Mandurah Downs the minutes show Watson moved a motion. On the 14th November 1967 he attended another meeting and moved a motion. The first motion related to

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procedural matters but the second motion involved the disposition of $10,000 of a credit balance then held in the bank to the account of the syndicate. Watson, of course, had no interest through the estate in that syndicate. No satisfactory explanation was offered which countered the implication that Watson thought he was entitled, and the surviving members concurred, as representing the estate, to move motions. The minutes of both syndicates, which were distributed, listed the estate as a member. Finally in relation to Mandurah Downs certified copies of various documents from the Business Names Office show for the greater portion of the period with which I am concerned the estate as a member of the syndicate and indeed one of such documents bears the signature of a solicitor being a member of the firm of Ball & Co. on behalf of the estate.

During the relevant period, that is from 1965 through to 1971, land owned by the syndicates was subdivided and sold. Indeed as I understand the present situation neither syndicate has been finally wound up. The appellant accepts that both syndicates continued to be managed and operated along lines identical with what would have taken place had the deceased not died. In short there was no final settlement of accounts with the deceased estate and the deceased's interest in both syndicates has continued in those syndicates and been utilised by the surviving members from time to time subject to the estate receiving periodically along with other members of the syndicate, payments of its share in the purchase price received of land sold, and interest on unpaid purchase moneys. From time to time portion of moneys received by the syndicates, instead of being distributed among those entitled (which would have included the estate), were kept to finance further subdivisions. It is quite clear from the evidence of two persons, one of whom was a member of both syndicates, and the other a member of one syndicate, that they regarded the syndicates as from the date of death of the deceased as being in the business of subdividing and selling land. They did not see themselves as being members of a syndicate which was in the process of realising assets for the purpose of accounting to a deceased partner, but rather realising assets through the business of subdividing and selling land, the very purpose for which the syndicates were initially formed. Subsequent to McGregor's death no person prior to 1971 on behalf of the estate took any step or even requested the other members of the syndicate to wind up the syndicates and account to the estate for its shares. About 1971 or thereafter Mr. Kronberger told me that he expressed the view on behalf of the estate that the assets should be sold up. Thus from 1965 onwards in the names of these two syndicates, their businesses were carried on of developers and subdividers of land, involving all the attendant decisions as to whether or not to subdivide, how much and what land should be subdivided, what price should be put upon the lots so subdivided, on occasions when necessary imposing upon purchasers a requirement to build homes as a condition of sale, deciding what moneys should be retained by the syndicate from the proceeds of sales for the purpose of financing further subdivisions, deciding what moneys should be distributed to syndicate members, all these activities being carried on without any suggestion having been made to the surviving syndicate members or considered by them that the syndicates should be wound up for the purpose of realising the deceased's share in the assets. When decisions were taken to sell the remaining land in both syndicates which had not been subdivided those decisions appear to have been taken for business reasons associated with problems encountered in making further subdivisions.

The primary rule is, that upon the death of a partner, the partnership of which he is a member is dissolved and the partnership is to be wound up. There was nothing in the syndicate agreements that displaced that primary rule. It is of course possible for an executor and trustee of a deceased partner who has power to carry on a partnership business, to become by agreement whether express or tacit (see Barton J. in
Hocking v. West Australian Bank (1909) 9 C.L.R. 738 at p. 748) a partner in a new partnership between the surviving partners and the executor trustee. Whether or not a particular partnership exists depends upon the intention of the parties to be ascertained from all relevant circumstances (
Badeley v. Consolidated Bank (1886) 38 Ch. D. 238). There is no evidence which supports an

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express new partnership agreement but there is in my view considerable evidence which supports a tacit agreement. It is true that from September 1966 right through until July 1973 there was no person who could legally bind the estate, but on the other hand at all relevant times either Mr. Kronberger or Raymond Watson represented the estate and all those interested in it so far as the two syndicates were concerned. During the whole of that period the widow being the life tenant of the residue was not entitled to the income as life tenant, as the residue had not been ascertained, so the income from the assets of the deceased was the income of the executor or trustee and not that of the life tenant: see Windeyer J. in
Elder's Trustee and Executor Co. Ltd. and Satchell v. F.C. of T. (1961) 104 C.L.R. 12 at p. 21. This is so even though it appears the widow was receiving moneys from the estate purportedly as life tenant. Consequently both Kronberger and Raymond were in a position to represent all those beneficially interested in the estate. While it is true that there is little evidence showing positive steps taken by anyone on behalf of the estate to influence particular decisions of the surviving members those representing the estate did nothing to try to get the syndicates would up and seem to have gone along with the syndicates being carried on as originally conceived. There is also evidence of the surviving members tacitly accepting the estate as a substitute member which I have already outlined. If it be correct as I think it is, that the facts suggest Kronberger and Raymond on behalf of the estate tacitly entered into a new partnership with the surviving partners or continued with one entered into by McGregor, what results from neither Kronberger or Raymond having been appointed administrator with the will annexed of the estate? In my view upon the grant of letters of administration with the will annexed to the appellants, their title related back to the date of death of McGregor. The doctrine of relation back of an administrator's title is referred to in Williams v. Mortimer; Execution & Administration 453-456, Halsbury's Laws of England 4th ed. vol. 17 para. 735-736. The doctrine also applies to an administrator with the will annexed: In
re Pryse (1904) P. 301, C.A. Wherever anyone acting on behalf of an estate, and not on his own account, makes a contract with another before a grant of administration, the administration will have relation back, in order not to lose the benefit of the contract:
Bodger v. Arch (1854) 10 Exch. 333. The appellants have done nothing to disaffirm what was done or not done by Kronberger and/or Raymond and indeed it is clear that they were content to continue with the same arrangement whatever is the correct description of it. That arrangement now achieves a legal character by reason of the doctrine of relation back.

Clause 4(f) of the will provided power to the executors and trustees to continue any partnership or business carried on by the deceased at the date of his death and to enter into any arrangement with any former partner for succeeding to the deceased's share in any business carried on by him in partnership. In Lindley on Partnership 14 ed. at p. 463 the interest of a deceased partner in the partnership is said to be:

``the beneficial share of the deceased... is his proportionate interest in the partnership assets after they have been converted into money and all the partnership debts and liabilities have been paid and discharged.''

It is as the learned author points out, and this only, which on the death of a partner passes to his representatives. Section 56 of the Partnership Act expressly provides that subject to any agreement between the partners (and in this case as previously pointed out there is no such agreement) the amount due from surviving partners to the representatives of a deceased partner in respect of the deceased partner's share is a debt accruing at the date of death: Canny Gabriel Castle
Jackson Advertising Pty. Limited v. Volume Sales (Finance) Pty. Limited (1974) 131 C.L.R. 321: ``A partner has an interest in every asset of the partners and this interest has been described as a `beneficial interest'.'' As to a deceased partner see Romer J. in
Manley v. Sartori (1927) 1 Ch. 157 at pp. 163-164:

``The rights of the deceased partner or his legal personal representatives are rights over all the assets of the partnership. He has an unascertained interest in every single asset of the partnership, and it is not right to regard him as being merely

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entitled to a particular sum of cash ascertained from the balance-sheet of the partnership as drawn up at his death.''

As from the date of death therefore in this case the personal representatives of the deceased were entitled to call for the sale of all the assets for the purpose of ascertaining and realising the shares. Throughout the period of the returns the estate received a proportionate share of the income by way of interest on unpaid purchase moneys, not interest calculated on the value of the deceased's interests in the syndicates as at the date of death. Those receipts seem to me to support the view that a tacit new partnership agreement came into effect. I would place that new arrangement as coming into effect during McGregor's time and continuing thereafter to be renewed upon McGregor's death. It follows therefore that in my view the profit upon the sales of subdivided land attributable to the shares of the estate was correctly brought into tax.

There is no doubt that prior to the deceased's death both syndicates amounted to partnerships within the meaning of the Partnership Act as both parties agree in that they amounted to associations of people in receipt of income jointly. During that period of time the income included the profit on sales, and interest from unpaid purchase moneys. Subsequent to the death of the deceased there is not, the slightest doubt the estate received during the whole of the period of the returns income by way of interest upon unpaid purchase moneys. Did it do so in association with the surviving members of the syndicates to constitute partnerships within the meaning of sec. 6?
Tikva Investments Pty. Ltd. v. F.C. of T. 72 ATC 4231; (1972) 128 C.L.R. 158 was referred to. In that case the original members of the syndicate were found to be partners within the meaning of sec. 6 as being in receipt of income jointly whether or not the members were partners at general law. On the facts a further finding was made that Tikva achieved the status of a member of the syndicate of persons either carrying on business as partners or in receipt of income jointly and thus became a partner within the meaning of sec. 92. I do not find that case as requiring the party succeeding to an interest in a syndicate, being a partnership in the meaning of sec. 6, to achieve the status of a member of the original syndicate before it can be said that the members of the original syndicate and the successor constitute an association of persons in receipt of income jointly. On the facts of this case it seems only too clear the estate and the surviving members received income jointly at least to the extent of the interest on unpaid purchase moneys and thus were a partnership within the meaning of sec. 6 and 92. I am also of the view that a sec. 6 partnership arose in relation to the profits on further sales of land. In my view the estate went along with the surviving members carrying on the original business intention of both syndicates and that intention was a purpose referred to in sec. 26(a). The reasoning of the judgment of Stephen J. in Tikva's case at ATC p. 4238; C.L.R. pp. 168-169 seems to me to be applicable here with the additional consequence that there would be no room for making of any allowance in favour of the appellants for the probable fact that when the estate succeeded to the deceased's shares the land assets of the syndicates were probably at a greater value than original cost.

Should the proper conclusions on the facts be that no new partnership came to existence either expressly or tacitly either at general law or pursuant to sec. 6 the assessments I think can still be justified on the basis of the reasoning of Windeyer J. in Elder's Trustee and Executor Ltd. v. F.C. of T. previously cited. Stated shortly the facts of that case were that Mr. and Mrs. Satchell carried on business in partnership as graziers. She died and appointed Elder's and Satchell as her executors and trustees and gave Satchell a life interest. Shortly after her death Satchell had a discussion as to the running of the properties with a representative of Elder's. An agreement was reached permitting him to carry on the business without any direction or interference by the company except that the company required he should keep a separate bank account. In his own income tax return Satchell treated the profits made during the period he was in control of the business as his income upon the basis that one half of his income was his as surviving partner and the other half as life tenant. On the facts his Honour did not find that there was a new partnership in respect of the business of the executors and Satchell. His

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Honour pointed out that Satchell was not entitled to the income as life tenant in respect of the residue as it had not been ascertained, remarking that it might well have been the position that Mrs. Satchell's estate ought to have been assessed in respect of its share of the ascertained profits of the business as being income to which no beneficiary was then entitled, instead of Satchell having been assessed in respect of the whole of the profits. After having concluded that there was no new partnership his Honour went on to point out that a surviving partner who carries on a partnership business after dissolution must account for the profits attributable to the share of a deceased partner up to the time of realisation of the assets. If such a surviving partner carries on business without any final settlement of accounts with the estate of the deceased partner and using the deceased partner's share of the partnership property the representatives of the deceased partner may become entitled either to interest on the value of such share or to so much of the profits as are attributable to its use in the business: Partnership Act sec. 55 and the cases cited by Windeyer J. at p. 22. But the representatives of a deceased partner who allow his assets to remain for a time in the business, and who thereby become entitled to a share in the profits of the business, do not themselves become partners if they never interfered in the conduct of the business (
Home v. Hammond (1872) L.R. 7 Ex. 218 and
Brown v. Fletcher (1884) 5 N.S.W.L.R. 393). His Honour's conclusions in respect of that case at p. 23 I repeat hereunder:

``It is in the light of these principles that the present case must be viewed. Satchell was permitted to continue the business pending a final decision as to realisation and a settlement of accounts. The accounts of the business were kept in such a way that the share of the profits to which Mrs. Satchell's estate was entitled was ascertainable. But the fact that Mrs. Satchell's representatives were entitled to participate in the profits of the business carried on by the surviving partner does not mean that they were themselves carrying on that business so as to make sec. 36 applicable to the proceeds of the realisation when it was discontinued. They were, in my view, entitled to a share in the profits not because the estate and Satchell were carrying on business together, but because Satchell as surviving partner was carrying on the business using therein the testatrix's undivided share in the assets.''

In this particular case the estate's undivided share in the assets of the syndicates was left in the syndicates without there being any final settlement of accounts and further the surviving members were undoubtedly carrying on their former businesses using the estate's undivided shares. I have already said that what the surviving members of each syndicate did after the death of the deceased was not to realise the assets of the syndicate for the purpose of accounting to the deceased but to carry on business as before. That these businesses were the subdivision and sale of land, the profits from which would be taxable under sec. 26(a), whereas the business with which Windeyer J. was dealing was a grazing business, does not seem to me to make any difference. The profits of these businesses were ascertainable by ordinary methods by calculating the difference between the price of the land as purchased and the price of the land sold less expenditure necessary to achieve the price obtained. It could scarcely be argued that if the estate, instead of taking a share in the profits of the businnesses proportionate to the use of its undivided shares in the assets, elected to take interest on the value of its shares as at the date of death, that interest would not be taxable in the hands of the estate. I can see no justification for any different result where it elects to take profits.

For the above reasons, therefore, it is my view that the assessments of income tax in each case are justified and I now propose to deal with the other aspect of these appeals relating to the imposition of a penalty for late returns.

Underneath is a schedule of additional tax for late lodgement imposed by the Commissioner pursuant to sec. 226(1):

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ATC 4300

``SCHEDULE OF ADDITIONAL TAX FOR LATE LODGEMENT

                                   Remitted by        Additional Tax
                Imposed by         Commissioner       Per Assessments
                sec. 226(1)        sec. 226(3)         15 July 1974
                   $              $             %            $
      1965       7.70           1.30          16.88         6.40
      1966    1801.47        1301.47          72.70       500.00
      1967    1681.81        1181.81          70.27       500.00
      1968    1768.25        1268.75          71.72       500.00
      1969    4315.71        3815.71          88.41       500.00
      1970    1034.37         689.67          66.67       344.70
      1971     672.97         515.97          76.67       157.00''
        

I understand that sitting in this Court of Appeal I have no power to review the exercise by the Commissioner of his discretion under sec. 226(3). The Board of Review of course does have power pursuant to sec. 192 to review the exercise of discretion by the Commissioner except as is limited by sec. 193(2). If my arithmetic is correct had these appeals been directed to the Board of Review it could not have reviewed the Commissioner's exercise of discretion because the additional tax in relation to each assessment does not exceed 10% per annum of the tax assessable to the taxpayer. From
Jolly v. F.C. of T. (1935) 53 C.L.R. 206 it would appear that I might remit an assessment of additional tax to the Commissioner for the proper exercise of his discretion if it appears that he had not exercised his discretion according to law: see Rich J. and Dixon J. at p. 212. As Evatt J. in the same case points out at p. 218 the Commissioner is authorised by the section to act upon reasons which appear sufficient to him, which reasons may include matters of hardship and questions of general policy and administration. In this particular case the Commissioner has called no evidence to indicate what matters he took into account upon the exercise of his discretion if he so exercised it. The grounds of objection really hit at only the exercise of the discretion: the Commissioner ought to have made more weight of the misfortunes that have befallen this taxpaying family. Whatever I may think of the merits of these submissions, and I might add that I think there is a lot in them, the appeals could not be upheld on that ground for to do so would be simply reviewing the exercise of the Commissioner's discretion. There are, however, two other matters which are not raised in the grounds of objection but which were referred to in argument.

The first matter is that in the absence of any explanation from the Commissioner as to how he has arrived at the amounts remitted, the schedule showing no pattern from which it is possible to deduce the reasoning behind the assessments, it follows, it is submitted, that in the absence of an explanation from the Commissioner I ought to conclude that he has failed to exercise his discretion or alternatively exercised it on wrong principles. It is further said that if there is anything to be deduced from the schedule it is that the sums of additional tax indicate the Commissioner has approached the matter by considering what would be suitable in the circumstances by way of additional tax rather than by deciding what sum he should remit in view of the circumstances behind the late returns. Finally, there is a further point, namely that at least for the years 1967-71 there were no executors and consequently, so it is said, nobody who failed to duly furnish a return as and when required by the Act or the regulations or by the Commissioner and hence sec. 226(1) can have no application to those years. I believe that I am entitled to consider these objections notwithstanding that the taxpayer is by sec. 190 limited to the grounds taken in the objection: see
Mercantile Credits Ltd. v. F.C. of T. 71 ATC 4015 per Windeyer J. at p. 4019.

In Jolly v. F.C. of T. the relationship of subsec. (1) and (3) of sec. 226 was discussed. Dealing with similar provisions of the Act, as it then was, Rich J. and Dixon J. at p. 213 stated that subsec. (3) cannot be treated as a separate authority to forgo a debt due to the Crown exercisable by the Commissioner

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ATC 4301

independently of the question whether the taxpayer is within the conditions which expose him to prima facie liability to full additional tax. ``As a mere matter of strict construction, the liability is imposed by (sec. 226(1)) not absolutely, but subject to (sec. 226(3)).'' In form the provision does not impose an absolute liability and then confer an independent power of remission.

``But in substance it is reasonably clear that it was intended that the Commissioner should have in his hands a summary power of imposing upon taxpayers guilty of the kinds of act or omission specified a liability to further exaction commensurate with their fault.''

(At p. 214.)

Evatt J. at p. 218 endorsed these remarks and said:

``The liability is to pay the additional tax minus a remission, if it is decided to remit.''

Upon this approach to the section I do not think it is open to argue that if the Commissioner went about deciding firstly what was a fair thing by way of additional tax and then remitted the balance rather than deciding how much he would remit, he was wrongly exercising his discretion. Furthermore, I am not able to conclude from a study of the schedule that it suggests the Commissioner has exercised his discretion on any wrong principle. It is clear that he must have exercised his discretion and though I cannot say upon what basis, I cannot say for that reason he has failed to exercise his discretion in accordance with the law.

I now deal with the point that there being no trustees or executors during the years 1967-71 inclusive there was no one obliged to file the returns and hence no one to whom sec. 226(1) could apply. I think this can be answered fairly simply. Under sec. 162(1) every person shall, if required by the Commissioner, whether before or after the expiration of the year of income furnish to the Commissioner in the manner and within the time required by him a return of the income or any part of the income derived by him in any year whether on his own behalf or as agent or trustee and whether a return has or has not previously been furnished for the same period. I have evidence before me that by notice dated 23rd July 1973 addressed to the widow she was required to furnish within 14 days returns for each of the years from 1966-72 inclusive. That notice was issued shortly before Mrs. Watson became an administrator but no point has been taken about that nor about the fact that the notice was addressed only to her. On the 15th August Ball & Co. on behalf of all the administrators who had, of course, by then, been appointed, requested an extension of time which was granted until the 31st October 1973. The returns were not in, fact filed until March 1974. There has, therefore, in my view been a failure to comply with sec. 226(1) as the returns were not furnished as and when required by the Commissioner for the period from the 1st November until the date of compliance. The point can also be answered in another way by reference to sec. 254(1)(a), (b), (c) and the definition of ``trustee'' in sec. 6 as being, inter alia, every person having or taking upon himself the administration or control of income affected by any express or implied trust or acting in any fiduciary capacity, or having the possession, control or management of the income of a person under any legal or any other disability. Pursuant to sec. 254 a trustee has an obligation to file a return in relation to income received by him in his representative capacity. The definition of trustee was described in Official Receiver in Bankruptcy (Trustee, Fox's Estate) v. F.C. of T. (1956) 96 C.L.R. 370 at p. 383 as being wide. It is said here that it is sufficiently wide to cover Mr. Kronberger in respect of the moneys received from the syndicates and also for that matter the surviving members of the syndicate in relation to the moneys received by them which were remitted from time to time to the estate, part of which on any view contained income. I believe this argument is sound and it follows therefore that in any event throughout the relevant years there was a trustee obligated to file returns.

I therefore have reached the conclusion, and I must admit with some regret, that there are no grounds for impeaching the assessments of additional tax. It follows therefore that all these appeals should be dismissed.