Henry Comber Pty. Ltd. v. Federal Commissioner of Taxation.

Judges:
David Hunt J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 2 August 1985.

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David Hunt J.

These are appeals by two taxpayers against decisions of Board of Review No. 3 confirming the Commissioner's assessment for each of them for the year ended 30 June 1980. The taxpayers are Albert Henry Comber and Henry Comber Pty. Ltd. Mr Comber had founded that company and had been its managing director for some 11 years until he retired on 30 June 1980. He had not for some time been a shareholder himself in the company.

The appeals relate to a payment by the company to Mr Comber consequent upon his retirement of $100,000. The company claimed the $100,000 paid as a retiring allowance as a deduction pursuant to sec. 78(1)(c) of the Income Tax Assessment Act 1936. The Commissioner, however, formed the opinion pursuant to sec. 109 that $58,500 of that sum exceeded what was reasonable and allowed only $41,500 as a deduction, the excess being deemed by sec. 109 to be a dividend paid by the company. Mr Comber in his return grouped the payment of $100,000 with the payments of superannuation and long service leave (accrued prior to 1978), and 5% of the total was returned as assessable income in accordance with sec. 26(d). The Commissioner assessed Mr Comber as to 5% of $41,500 and as to 100% of $58,500 as a dividend pursuant to sec. 44(1)(a).

Objections to these assessments were lodged and disallowed. At the request of the taxpayers, the two decisions were referred to a Board of Review. The references were heard by Board No. 3, and the claims were disallowed: Cases R103, R104,
84 ATC 682, 691. As to Mr Comber's reference, the members of that Board were unanimous in their decision that the sum of $58,500 could not be included in his assessable income as a dividend pursuant to sec. 44(1)(a), as the taxpayer was not a shareholder and the amount deemed by sec. 109 to be a dividend had not been paid out of the company's profits. However, a majority decided that, whereas $41,500 was properly assessed as to 5% under sec. 26(d), the excess

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ATC 4453

of $58,500 fell within the general concept of income and was thus assessable as to 100% pursuant to sec. 25(1). The dissentient (Dr Beck) decided that the payment was capital in nature so that only 5% was assessable pursuant to sec. 26(d). As to the company's reference, a finding made in Mr Comber's reference was incorporated by reference to the effect that the assessor who fixed the figure of $41,500 as being reasonable in accordance with sec. 109(b) had failed to take into account a number of special factors in favour of the company. The assessment was nevertheless confirmed because that error had been more than cancelled out by errors in calculation which the assessor had made also in favour of the company.

An appeal to this Court lies only from those decisions of a Board of Review that involve a question of law: sec. 196(1). It is conceded by the Commissioner that a question of law was involved in the decision of Board No. 3 in Mr Comber's reference and - in order to avoid what could otherwise be an unjust consequence - he very properly took no point as to this Court's jurisdiction in the appeal by the company.

Prior to the formation of Henry Comber Pty. Ltd., Mr Comber had been associated with another company (P.E. Scrivener & Co. Ltd.). He had introduced to that company and had built up within it a substantial business in the export of meat. When he left Scrivener and formed Henry Comber Pty. Ltd. Mr Comber brought the whole of that business with him. No payment was made for goodwill by the new company either to Mr Comber or to Scrivener. Mr Comber spent long hours in the service of the new company and had few if any breaks on weekends or by way of holidays. Specifically, I disagree with the findings of fact made by the Board which proceeded upon the basis that overseas trips on business included benefits for Mr Comber by way of an overseas holiday component. It takes little experience of overseas business trips to realise that any so-called holiday component of those trips is hardly a ``benefit'' when compared with the additional grind involved in the work done on such trips.

Mr Comber was given the use of a motor vehicle at all times (a somewhat old Mercedes), and his travelling, entertainment and telephone expenses were met by the company. I am satisfied that all but the most minor portion of those expenses and the use of the motor vehicle related to the work which Mr Comber did for the company. The company also provided Mr Comber with a non-contributory superannuation scheme. I am satisfied that Mr Comber's total salary package was substantially lower than he could have obtained in a similar position elsewhere, a situation which he accepted because he had a high degree of job satisfaction with the company which he had built up and of which he was proud. He was not paid director's fees. Nor was he paid dividends, as he was not himself a shareholder.

I accept Mr Comber's evidence that he did not solicit the payment of the retiring allowance, and that he played no part in the decision to make the payment or in the calculation of the amount paid. The company's books of account show that, on 31 July 1980, Mr Comber's loan account was credited with the sum of $100,000, and on the same day it was debited with a payment of just over $90,000. These books were written up by Mr Ross Cuthbertson, a fellow director. Mr Comber denied lending the company any money after he had received the retiring allowance. He said that he had no recollection at all of how the loan account had been handled. He was in any event not aware of the credit of $100,000. This is a matter which Mr Cuthbertson obviously could have explained, but he was not called to do so. Although certain inferences may arise from his unexplained failure to give evidence in the case (I refer to the authorities later), I do not draw those inferences against Mr Comber. The obligation to call Mr Cuthbertson lay primarily upon the company rather than upon Mr Comber. In any event, his evidence here would have related to a matter which was at most a fact relevant to a fact in issue itself. If, contrary to Mr Comber's evidence, he had in fact used the $100,000 from the company to pay off his loan account, grave doubts would have been cast upon the good faith with which the company had paid that amount ``in consideration of... past services'', an issue arising under the company's claim for a deduction pursuant to sec. 78(1)(c) - but not, as I hold later, an issue which is relevant to the assessability of the payment in Mr Comber's hands. If such was the situation, it may also throw doubt upon Mr Comber's denial of any involvement in the payment of the retiring

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ATC 4454

allowance or in its calculation. That would certainly be relevant to Mr Comber's appeal. But Mr Comber impressed me by the evidence which he gave and by the manner in which he gave it. I am satisfied that Mr Comber did not play any part in whatever Mr Cuthbertson was doing with Mr Comber's loan account and, as I have already stated, I accept Mr Comber's denial of any involvement in the payment of the retiring allowance or in its calculation.

Prior to Mr Comber's retirement, the company's business was conducted by the three directors: Mr Comber, Mr Gordon Morris (who looked after sales) and Mr Cuthbertson (who looked after the financial side of the business). Mr Cuthbertson was also the company secretary and accountant. According to the evidence of Mr Morris, the payment of such an allowance to Mr Comber was suggested by either Mr Cuthbertson or himself, he could not recall which. Its purpose, he said, was to recognise all that Mr Comber had done for the company, as a just reward for the time and effort which he had contributed to it. He could not recall which of them came up with the figure of $100,000. It was not, he said, a figure arrived at after any calculations. It was one which he considered fair in the circumstances of Mr Comber's work for the company, a just and fitting retiring allowance. In discussing the amount to be given to Mr Comber, no thought had entered his mind as to its relationship with the amount of salary previously paid to Mr Comber. He denied that he regarded the payment as some measure of recompense for the low level of salary which Mr Comber had been paid. He said that he did not know what level of salary Mr Comber had been paid. Mr Morris was unable to say how the sum of $100,000 was selected; it was a fair and just reward for Mr Comber's services ``to the company and to the meat trade''.

I found all this evidence concerning the company somewhat inadequate. I am satisfied on the evidence that the company had sufficient funds from which such a payment could be made to Mr Comber, notwithstanding the overdraft which it increased. I accept also that Mr Morris probably did not know what Mr Comber's salary was, and that he did not himself relate the amount of the retiring allowance to the level of that salary. But his complete inability to articulate how the amount of that allowance was calculated leads me to find that its calculation was the work of Mr Cuthbertson, and that Mr Morris came to agree to that figure without knowing how Mr Cuthbertson had calculated it. I also accept that there was no discussion between Mr Morris and Mr Cuthbertson concerning the payment of a retiring allowance until 1980.

Mr Cuthbertson was not called to give evidence, although obviously he was available to do so despite the fact that the company ceased to carry on business early in 1984; no explanation was given for his absence from the witness box. As company accountant, secretary and the director who handled the company's financial affairs, Mr Cuthbertson would certainly have been aware of the level of Mr Comber's salary. He and Mr Morris each held 40% of the shares in the company, but clearly upon the evidence it was Mr Cuthbertson who ran the day-to-day affairs of the company. I am satisfied that both the proposal to pay the retiring allowance to Mr Comber and the calculation of the amount paid originated with Mr Cuthbertson. In relation to both these issues, I am satisfied that Mr Cuthbertson was the ``directing mind and will'' of the company: see
Allied Pastoral Holdings Pty. Ltd. v. F.C. of T. 83 ATC 4015 at p. 4017; (1983) 1 N.S.W.L.R. 1 at p. 5. His state of mind is thus for relevant purposes the company's state of mind, and his state of mind is established by his statements as to what his state of mind was and by evidence of his words and acts which point to or identify that state of mind: ibid. at ATC pp. 4017-4018; N.S.W.L.R. p. 6.

In November 1978 the company's accountant since its incorporation in 1969 wrote to the Deputy Commissioner seeking his approval to pay to Mr Comber a retiring allowance. I accept the evidence of both Mr Comber and Mr Morris that they had no knowledge of this matter. As Mr Comber was 62 years of age at the time, it is reasonable to infer that at least Mr Cuthbertson was giving some consideration to Mr Comber's retirement, even if Mr Comber was not participating with him in that consideration. Upon the evidence I am satisfied that this letter was written on the instructions of Mr Cuthbertson. The amount of the allowance which was being considered at that time was $150,000. One of the factors put forward as justifying the proposed amount was that:

``Mr Comber did not obtain the salary to which a person of his calibre and experience

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should expect due to the initial problems incurred in the trading of Henry Comber Pty. Ltd.''

It follows from these facts that Mr Cuthbertson in 1978 intended the company to pay Mr Comber a retiring allowance at least in part because his salary had been below the level which he deserved. Notwithstanding the different amount being considered at the time, that state of mind in 1978 is some evidence of what Mr Cuthbertson's state of mind was in 1980: Allied Pastoral Holdings Pty. Ltd. v. F.C. of T. at ATC pp. 4017-4018; N.S.W.L.R. p. 6. In accordance with Jones v. Dunkel (1958-1959) 101 C.L.R. 298 at pp. 308, 312, 319, 321, the unexplained failure to call Mr Cuthbertson has two consequences in this case: I draw the inference that Mr Cuthbertson's evidence would not have helped the taxpayer's case, and for that reason I draw more readily the inferences which are in any event otherwise open upon the evidence, and which Mr Cuthbertson could have contradicted, that it was largely his decision in 1980 to pay the retiring allowance to Mr Comber, that it was he who calculated the amount of the allowance and that that amount was calculated at least to some extent to take into account the fact that Mr Comber's salary had been below the level which he deserved.

That is the basic outline of the facts in these appeals (which have been heard together).

It is convenient to start, as did the parties, with the company's appeal. It principally involves a determination of the relationship between sec. 78(1)(c) and 109(b). Section 78(1)(c) makes allowable as a deduction from a taxpayer's assessable income:

``(c) Sums which are not otherwise allowable deductions and are paid by the taxpayer during the year of income as pensions, gratuities or retiring allowances to persons who are or have been employees or dependants of employees, to the extent to which, in the opinion of the Commissioner, those sums are paid in good faith in consideration of the past services of the employees in any business operations which were carried on by the taxpayer for the purpose of gaining or producing assessable income.''

Section 109(b) operates upon sec. 78(1)(c) - and upon other similar provisions of the Act - to reduce the amount of the deduction allowable in the case of payments by a private company. It provides:

``So much of a sum paid or credited by a private company to a person who is or has been a shareholder or director of the company or a relative of a shareholder or director, being, or purporting to be -

• (a) remuneration for services rendered by that person; or
• (b) an allowance, gratuity or compensation in consequence of the retirement of that person from an office or employment held by him in that company, or upon the termination of any such office or employment.

as exceeds an amount which, in the opinion of the Commissioner, is reasonable, shall not be an allowable deduction and shall, for the purposes of this Act..., be deemed to be a dividend paid by the company on the last day of the year of income of the company in which the sum is paid or credited.''

The payment made by the company to Mr Comber falls within the operation of both provisions. It was a payment made as a retiring allowance to a person who was or had been an employee in consideration of his past services in business operations which the taxpayer had carried on for the purpose of gaining or producing assessable income (sec. 78(1)(c)). (The company's original claim that the payment was an allowable deduction as an outgoing pursuant to sec. 51(1) was correctly abandoned before the Board of Review, so the payment was not otherwise an allowable deduction.) It was also paid by a private company to a person who was or had been a director of the company and it purported to be an allowance in consequence of his retirement from that office or of his employment with the company or upon the termination of that office or employment (sec. 109(b)).

In relation to each provision the Commissioner has to form an opinion, although it is a very different opinion in each case. Under sec. 78(1)(c) the Commissioner must form an opinion as to the extent to which the amount of $100,000 was paid in good faith in consideration of Mr Comber's past services. In consideration of Mr Comber's past services. In my view this must be regarded as one composite concept, as it is impossible to

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conceive of a situation in relation to a single payment which is accepted as having been made in consideration of past services where part of that payment was made in good faith and part of it was not. It is not sufficient for the taxpayer merely to prove bona fides. Under sec. 109 the Commissioner must form an opinion as to the extent to which the deduction was reasonable - that is, the amount allowed as a deduction pursuant to sec. 78(1)(c).

The Commissioner presented an alternative argument that the amount paid by a private company should be tested by sec. 109 before it is tested by sec. 78(1)(c), but that is clearly wrong - for sec. 109 operates only to take away what is elsewhere made an allowable deduction; until a payment is otherwise made an allowable deduction (such as by sec. 78(1)(c)), sec. 109 has no operation at all:
W.J. & F. Barnes Pty. Ltd. v. F.C. of T. (1957) 96 C.L.R. 294 at p. 310. Moreover it is clear, from the Commissioner's statement furnished to the Board of Review in the company's reference pursuant to reg. 35(1), that that is how he proceeded in this particular case. Under sec. 109 the function of the Commissioner is limited to the formation of an opinion as to quantum of what has been allowed elsewhere as a deduction; he has no concern under sec. 109 with any of the factors which govern the deductibility of that payment under another provision of the Act: ibid. at p. 303; he must make an assessment of the objective reasonableness of the amount allowed elsewhere by the Act (here, by sec. 78(1)(c)). On the other hand, under sec. 78(1)(c), the Commissioner must make an assessment of a subjective state of mind in determining the extent to which the payment was made by the taxpayer in good faith in consideration of the past services of the recipient. In many cases the objective reasonableness of the amount actually paid will be relevant to that issue, but the contrast between the reasonableness of the amount actually paid and that of the amount allowed as a deduction should be noted. This is why I stated earlier that the opinion which the Commissioner must form under sec. 109 is very different to that which he must form under sec. 78(1)(c).

It appears from the Board's reasons (and it was accepted before me) that the Commissioner applies the same test in the formation of his opinion under sec. 78(1)(c) as he does in the formation of his opinion under sec. 109. In each case he applies a scale also applied by him in giving his approval pursuant to sec. 23F in relation to various characteristics of superannuation funds whose income is made exempt from tax where they are set up by employers and where, inter alia, the benefits paid to employees are not excessive in amount having regard to certain objective considerations concerning their service with their employer (subsec. (2)(h)).

In limiting the matters which he considers to the application of the scale applicable to sec. 23F(2)(h) the Commissioner is clearly in error so far as it is applied to sec. 78(1)(c), for the matters enumerated in sec. 23F(2)(h) pay no regard to the subjective issue of good faith posed by sec. 78(1)(c). Whether or not he is in error so far as this scale is applied to sec. 109 is an issue to be determined later in this judgment, but it must be kept in mind that the Commissioner there is concerned with the reasonableness of the amount allowed by sec. 78(1)(c) as a deduction, and not necessarily with the amount actually paid and claimed pursuant to sec. 78(1)(c).

These appeals, however, are concerned not with the opinions formed by the Commissioner, but rather with the opinions formed by a Board of Review on reference from the Commissioner:
Brambles Holdings Ltd. v. F.C. of T. 77 ATC 4481 at p. 476;
F.C. of T. v. Mantle Traders Pty. Ltd. 80 ATC 4588 at pp. 4592-4593; (1980) 33 A.L.R. 276 at p. 282. Just what may be the effect of the exception to the provision in sec. 193(1) - which deems the Board's decision to be that of the Commissioner ``except for the purpose of... appeals therefrom'' - was not argued before me: cf. F.C. of T. v. Mantle Traders Pty. Ltd. at ATC p. 4592; A.L.R. p. 281.

There was some debate between the parties as to the correct approach to an appeal which involves the opinion of the Commissioner or the opinion of a Board of Review which replaces it. Normally, an appeal to the Supreme Court from the decision of a Board of Review is a full rehearing, in that it is determined upon the evidence before the Court without regard to any findings of fact made by the Board:
Krew v. F.C. of T. 71 ATC 4213 at p. 4216; (1971) 45 A.L.J.R. 324 at p. 326;
McCormack v. F.C. of T. 79 ATC 4111; (1979) 23 A.L.R. 583 at pp.

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598-599; F.C. of T. v. Mantle Traders Pty. Ltd. at ATC p. 4599; A.L.R. p. 291. However, where the assessability of a receipt or the deductibility of a payment depends upon the formation by the Commissioner of an opinion (or by the Board on a reference from the Commissioner), the nature of the appeal from that opinion is not the same. It is clear from the authorities that such opinion in each case is examinable only upon ordinary administrative law principles; it may be attacked upon the basis that the opinion was affected by a mistake of law, or took into account an extraneous consideration, or failed to take into account a factor which should have been considered, or was one which could not reasonably have been formed on the material before the Commissioner or the Board, as the case may be:
Avon Downs Pty. Ltd. v. F.C. of T. (1949) 78 C.L.R. 353 at p. 360;
Kolotex Hosiery (Australia) Pty. Ltd. v. F.C. of T. 75 ATC 4028 at pp. 4031-4032, 4048-4049, 4055-4056; (1975) 132 C.L.R. 535 at pp. 541-542, 567-568, 578-579; F.C. of T. v. Mantle Traders Pty. Ltd. at ATC pp. 4592-4593; A.L.R. p. 282. The determination of whether that opinion should or should not stand must proceed upon the basis of the material which was before the Commissioner or the Board, as the case may be, notwithstanding what additional material may be before the Court:
F.C. of T. v. Brian Hatch Timber Co. (Sales) Pty. Ltd. 72 ATC 4001 at pp. 4010, 4011-4012; (1972) 128 C.L.R. 28 at pp. 57, 59; Kolotex Hosiery (Australia) Pty. Ltd. v. F.C. of T. at ATC pp. 4049, 4055-4056; C.L.R. pp. 568, 578-579; F.C. of T. v. Mantle Traders Pty. Ltd. at ATC pp. 4592-4593; A.L.R. p. 282. But, if it is determined that the opinion should not stand, the Court itself must then decide whether or not the Commissioner ought to have held the relevant opinion, and it must do so by reference to all of the material before the Court: Kolotex Hosiery (Australia) Pty. Ltd. v. F.C. of T. at ATC pp. 4049, 4055-4056; C.L.R. pp. 568, 578-579; F.C. of T. v. Mantle Traders Pty. Ltd. at ATC pp. 4592-4593; A.L.R. p. 282.

If the Board in the present case had simply adopted the test applied by the Commissioner in relation to sec. 78(1)(c), then the opinion which it formed would have had to be set aside for the reasons which I gave earlier. What the Board did do is by no means clear. In the company's reference, Mr Hogan and Dr Gerber stated that they ``concur in the decision of our colleague, Dr Beck, and have nothing to add'': Case R104, 84 ATC 691. They did not state that they agreed with his reasons for that decision. Nor can such agreement be inferred from what they have to say in their decision in Mr Comber's reference (Case R103, 84 ATC 682) for, although Dr Beck incorporates the reasons which he had given in Mr Comber's reference in the reasons which he was giving in the company's reference, the extent of the agreement with Dr Beck as expressed by Mr Hogan and Dr Gerber in Mr Comber's reference (Case R103 at p. 683) is only with ``his conclusion at para. 6 of his reasons that the amount determined by the Commissioner under sec. 109 of the Act as `reasonable' should not be disturbed''.

The Commissioner himself has an obligation or a duty to disclose the basis for the formation of his opinion if requested to do so:
Giris Pty. Ltd. v. F.C. of T. 69 ATC 4015 at pp. 4018, 4019, 4024; (1969) 119 C.L.R. 365 at pp. 373, 375, 384; F.C. of T. v. Brian Hatch Timber Co. (Sales) Pty. Ltd. at ATC pp. 4007, 4012; C.L.R. pp. 52, 60; Kolotex Hosiery (Australia) Pty. Ltd. v. F.C. of T. at ATC p. 4031; C.L.R. p. 541;
Bailey & Ors v. F.C. of T. 77 ATC 4096 at pp. 4104-4105; (1977) 136 C.L.R. 214 at pp. 228-229. That obligation or duty applies no less to a Board of Review which is substituting its opinion for that of the Commissioner pursuant to sec. 193(1). A Board is, moreover, required to give reasons for its decision whether or not requested to do so. Although a Board of Review remains an administrative body, the rights of appeal from its decision as provided by the Act impose upon the Board a duty to give reasons in order to enable the Court hearing the appeal to discover whether appealable error has occurred:
Pellitt v. Dunkley (1971) 1 N.S.W.L.R. 376 at pp. 380-382, 384-385, 387-388. Its failure to comply with that duty amounts to an error of law on its part: ibid.

Such an error is apparent in this case, although the parties were content to proceed before me upon the basis that inferentially Mr Hogan and Dr Gerber had intended to agree not only with Dr Beck's decision but also with the reasons which he gave for it. I will approach the appeal, then, upon the same basis.

In the company's reference, there were two opinions to be formed - one under sec.

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78(1)(c) and the other under sec. 109. In the reasons he gave in that reference, Dr Beck merely said that he had indicated in his reasons in Mr Comber's reference that there were several relevant and special factors which the Commissioner had ignored when determining the amount to be allowed, and that some adjustment would have been warranted had there not also been some calculation errors made in the company's favour in the application of the Commissioner's scale to his assessment of what was ``reasonable'': Case R104 at p. 692. He went on:

``Under these circumstances I would not in Case R103 have varied the amount which purported (erroneously) to reflect the Commissioner's opinion under sec. 109. For the same reasons I would not vary the amount of deduction granted C Pty. Ltd.''

That statement suggests that the only error which Dr Beck saw in the Commissioner's assessment related to the formation of his opinion under sec. 109, a suggestion which appears to be confirmed by the statement of agreement by Mr Hogan and Dr Gerber in Mr Comber's reference (which I have already quoted).

When his reasons in Mr Comber's reference are examined, it appears that Dr Beck found it necessary to consider both sec. 78(1)(c) and 109 in that reference because he thought that sec. 109 applied to the assessability of the payment to Mr Comber (an issue with which I have yet to deal) and because, he said, there must be a relationship between the limit imposed under sec. 78(1)(c) and that imposed under sec. 109 ``on grounds of reason'': Case R103 at p. 688. For the reasons which I have already given, that statement is erroneous. Section 109 is concerned only with the amount which is allowed by sec. 78(1)(c), as it operates only to take away what is elsewhere made an allowable deduction: W.J. & F. Barnes Pty. Ltd. v. F.C. of T. at pp. 303, 310. It is also concerned with the objective reasonableness of that amount so allowed, and not with the subjective good faith with which the actual amount was paid.

Dr Beck identifies (at p. 689), as factors relevant to the Commissioner's opinion as to what was ``reasonable'' (that is, the opinion to be formed under sec. 109), Mr Comber's founding of the company, the bringing in of business from his previous ``employer'' and his unpaid duties as a director of the company. None of these would appear to fall within the matters contemplated by sec. 23F(2)(h), and so Dr Beck said. Earlier (at p. 688), Dr Beck appears to have thought that only the third of those factors was relevant to the Commissioner's opinion to be formed under sec. 78(1)(c) but it is not clear from what he said that this is necessarily what he intended. Nor is it clear (or even apparent) whether any opinion was formed by him under sec. 78(1)(c) as to the extent to which the amount of $100,000 was paid in good faith in consideration of Mr Comber's past services. It cannot be assumed from Dr Beck's erroneous assertion that there must be a relationship between the limits imposed by both sections that his opinion under sec. 78(1)(c) was the same as that which he had formed under sec. 109, because (it would seem) there were at least two factors relevant to his opinion under sec. 109 which he says were not relevant to the opinion to be formed under sec. 78(1)(c). There is simply no reference anywhere in his reasons to any opinion which he had formed as to the ingredient of good faith included in the composite issue which arises under sec. 78(1)(c).

I am satisfied that both the Commissioner and the Board of Review have erred in relation to the opinion to be formed under sec. 78(1)(c). Normally, it would then be necessary for me to decide, upon the material before me, the extent to which the Commissioner ought to have concluded that the payment was made to Mr Comber in good faith in consideration of his past services. However, without conceding the errors which I have found in relation to sec. 78(1)(c), the Commissioner has suggested that, even if he should have allowed 100% of the payment as a deduction under sec. 78(1)(c), his assessment can nevertheless be justified under sec. 109 alone. There was no dissent from the taxpayers to my adoption of that suggested course which does, of course, assist the company in the discharge of its burden of proving that the Commissioner's assessment was excessive. That burden imposed by sec. 190 applies also to appeals from a Board of Review to the Supreme Court: McCormack v. F.C. of T. 79 ATC 4111; (1979) 23 A.L.R. 583 at pp. 595-596, 600, 613. In particular, the company is assisted by avoiding the problems

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relating to the good faith with which it paid the money to Mr Comber in consideration of his past services, an issue to which I referred earlier when discussing the absence of Mr Cuthbertson from the witness box. The course suggested by the Commissioner does, however, also assist the Commissioner himself by avoiding the consequences of the opinion under sec. 109 having been formed in relation to the whole payment of $100,000, and not just whatever amount should have been allowed by sec. 78(1)(c).

The company, then, must demonstrate in accordance with ordinary administrative law principles why the Board's decision in relation to sec. 109 should be interfered with. In my view, the basis for the decision of Dr Beck (which the parties have accepted as the basis for the Board's decision) was that the Commissioner should have taken into account those matters contemplated by sec. 23F(2)(h) plus the three additional factors which he identified as being relevant.

Section 23F(2)(h) requires the superannuation benefits to be paid to employees not to be excessive in amount having regard to:

• (i) the remuneration paid to the employee for service rendered by him to his employer;
• (ii) the period of the service rendered by the employee to his employer;
• (iii) the benefits, pensions and allowances that have been, are being or may be provided for the employee or his dependants from any other fund to which that section applies; and
• (iv) any other matters that the Commissioner considers relevant.

Where such ``other matters'' are taken into account by the Commissioner pursuant to (iv), it would necessarily (it seems to me) involve an increase or a decrease in the amount identified in the scale normally applied by the Commissioner. Dr Beck did not place any particular reliance upon (i), because he stated (at p. 688) that he was disregarding the assertion that Mr Comber's salary level was deficient. The three additional factors were, as I stated earlier:

• (1) Mr Comber's founding of the company,
• (2) the bringing in of the business from Scrivener, and
• (3) his unpaid duties as a director.

Dr Beck concluded (at p. 692) that some adjustment to the Commissioner's scale would have been warranted in the company's favour had there not also been some calculation errors made in the company's favour in the application of that scale. He said (at p. 689) that, in the absence of those errors, the application of the Commissioner's scale (which is ex. 5) would have resulted in almost the total payment of $100,000 being treated as exceeding what was reasonable. If he were to quantify the extent by which the amount allowed by the application of the scale should be increased to take into account the additional factors, Dr Beck went on to say (at p. 689), the increase would not exceed the $41,500 which the Commissioner had allowed in error.

Where then was this opinion which was formed by Dr Beck (and accepted as being agreed with by the other members of the Board) in error in accordance with ordinary administrative law principles? It is clear from the findings of fact which I made earlier in this judgment that I disagree with a number of the facts found by Dr Beck and upon which he based his opinion. But there has been no suggestion made (nor could there be) that Dr Beck was not entitled to make those findings, or that the procedure by which he made them was erroneous.

What was argued by the company is that both the Commissioner and the Board, having allowed the deduction pursuant to sec. 78(1)(c), and having applied the same test under sec. 109, were obliged to find pursuant to sec. 109 that the amount was reasonable. Whilst that certainly was the error made by the Commissioner, it was not an error made by the Board, in that Dr Beck does not appear to have applied the same test to both sections (if indeed he made any decision at all under sec. 78(1)(c)). Nor is such an error involved in the course which it is assumed, for the purposes of this appeal, that the Board followed - that the whole of the payment of $100,000 was allowed under sec. 78(1)(c), but only $41,500 of that sum was allowed under sec. 109. That error is not involved because the same test has not been applied to both sections.

It was also argued by the company that it is wrong to apply any rule of thumb in the formation of an opinion under sec. 109; the

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Commissioner (and the Board) should, it is said, consider each case upon its own merits and without reference to the scale which is ex. 5. The matters to which sec. 23F(2)(h) is directed are, however, clearly relevant to the opinion to be formed under sec. 109. The inclusion of (iv) - ``any other matters that the Commissioner considers relevant'' - permits the flexibility which sec. 109 requires, provided of course that the amount identified in that scale (which is necessarily based only upon the matters enumerated in sec. 23F(2)(h) as (i), (ii) and (iii)) is increased or decreased according to the additional matters so considered to be relevant. Upon the basis that such adjustments are made, I see no error in the application of the sec. 23F(2)(h) scale to sec. 109.

As the whole of the company's claim for a deduction depends upon the formation of specific opinions by the Board of Review, the success or failure of its appeal to this Court depends upon the location of an appealable error in the formation of those opinions. I am not persuaded by the company that there has been any such appealable error. The appeal must therefore be dismissed with costs. I order the company to pay the Commissioner's costs.

I turn next to Mr Comber's appeal. That appeal principally involves the relevance of sec. 109 to the assessability of the payment in the hands of the recipient.

Mr Comber's argument is that, whether the payment of $100,000 which he received from the company is to be treated as capital or as income, it was a lump sum paid in consequence of his retirement as a director and as an employee of the company, and it was not an amount deemed by the Act to be a dividend paid to him. It was therefore assessable as to 5% only, in accordance with sec. 26(d). That section has both a charging and a liberating effect: if the payment be regarded as capital, sec. 26(d) makes 5% of that sum assessable income in the hands of the recipient; if it be regarded as income, only 5% of that sum is treated as assessable income and the total sum is not brought into assessable income by sec. 25(1):
Reseck v. F.C. of T. 75 ATC 4213 at pp. 4215-4216, 4220; (1975) 133 C.L.R. 45 at pp. 49-50, 57.

The Commissioner does not dispute the description of the payment as a lump sum paid in consequence of Mr Comber's retirement. He says that sec. 26(d) applies only to the $41,500 which was in his opinion a reasonable amount in accordance with sec. 109, and that the excess of $58,500 is deemed by sec. 109 to be a dividend in the hands of Mr Comber and taxable as such pursuant to sec. 44(1)(a). Alternatively, the Commissioner adopts the decision of the majority of the Board and says that that excess is assessable in accordance with sec. 25(1).

The first question then is whether the excess of $58,500 is excluded from the operation of sec. 26(d) because it is ``an amount (paid) that... is deemed to be a dividend paid to the recipient''. Section 109 deems the excess to be ``a dividend paid by the company on the last day of the year of income of the company in which the sum is paid or credited''. Section 109 does not expressly deem the exercise to be a dividend paid to the recipient. Mr Comber submits, therefore, that the excess is not excluded from sec. 26(d) by the words which I have quoted, and to which for convenience I will refer as ``the exclusion clause''. Mr Comber points out that, if the recipient of a payment within sec. 109 were a shareholder of the company making that payment, the deeming by sec. 109 of that payment to be a dividend would (if the payment were made by the company out of profits) bring that payment into his assessable income pursuant to sec. 44(1)(a). The purpose of the exclusion clause in sec. 26(d), Mr Comber argues, is to avoid double taxation, so that an amount brought into assessable income by sec. 44(1)(a) is not also (at least as to 5%) brought into assessable income by sec. 26(d) as well. Where, however, the amount is not brought into assessable income by sec. 44(1)(a) - because it is not deemed to be a dividend paid to the recipient as such - it is brought into assessable income by sec. 26(d) and not excluded from the operation of that section by the exclusion clause. The purpose of sec. 109 deeming the excess payment to be ``a dividend paid by the company'', he says, is related only to the liability of a private company to pay additional tax on undistributed income in accordance with Div. 7 (into which Division, it is significant, sec. 109 is to be found): see sec. 104 and 105A.

Such an interpretation of the purpose of sec. 109 in deeming an excess payment to be ``a dividend paid by the company'' (rather than

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deeming it to be a dividend paid out of the company's profits to the taxpayer as a shareholder) is consistent with the decision of Sheppard J. in
R.W. Rutherford & Anor v. F.C. of T. 76 ATC 4304 at pp. 4307-4310, an appeal which related to the largely identical deeming provisions of sec. 108 (which also falls within Div. 7). The Commissioner submitted that what Sheppard J. said in R.W. Rutherford & Anor v. F.C. of T. upon this issue was obiter, that it was not applicable to sec. 109 and that it was in any event wrong. I do not accept those submissions. I find that decision to be of great assistance to the resolution of this appeal. (I should add that both parties were agreed that that decision was not affected by the subsequent decision by the High Court relating to sec. 44(1) in
F.C. of T. v. Slater Holdings Ltd. (No. 2) 84 ATC 4883; (1984) 56 A.L.R. 306.)

Both the decision in R.W. Rutherford & Anor v. F.C. of T. and the applicability of that decision to sec. 109 are supported by the legislative history of sec. 108 and 109, which is conveniently set out in the reasons given by Mr Stevens in Case M56,
80 ATC 369 at pp. 369-373. Each section had, prior to the 1952 amendments to the Act, deemed the payment to the recipient to be a dividend paid out of profits derived by the company, and sec. 109 had further deemed the payment to have been received by the recipient as a shareholder of the company. It is, of course, only where the payment is made out of the profits derived by the company and to the recipient as a shareholder that a dividend is brought into assessable income as such by sec. 44(1)(a). The Commissioner argued that these alterations should, in effect, be ignored, so that the mere deeming of the payment to be ``a dividend paid by the company on the last day of the year of income of the company in which the sum is paid or credited'' (as sec. 109 now reads) is sufficient to deem the payment to be out of the profits derived by the company. I do not accept that argument.

A company's profits can only be ascertained by a proper accounting:
Evans v. D.F.C. of T. (S.A.) (1936) 55 C.L.R. 80 at p. 101. The Commissioner argued that the deeming of the payment to be a dividend which had been paid by the company on the last day of the year of income in which the payment was in fact made necessarily makes that payment one declared out of the profits derived by the company. I do not see how. In so far as Enderby J. may have decided to the contrary in
Masterman v. F.C. of T. 85 ATC 4015 at pp. 4029-4030, I am with respect unable to agree with him. The argument does not appear to have been one which appealed to Sheppard J. in R.W. Rutherford & Anor v. F.C. of T.; it does not appeal to me, and it is rejected.

In my opinion, the deeming provisions of sec. 109 do not affect the assessability of the payment in the hands of the recipient. I am satisfied that the amount exceeding what the Commissioner says was reasonable (pursuant to sec. 109) is not ``an amount... deemed to be a dividend paid to the recipient'' within the meaning of sec. 26(d), and that the exclusion clause in sec. 26(d) does not, therefore, operate to exclude that amount from the operation of that section.

The Commissioner, however, nevertheless went on to argue that, on the facts of this case, the sum of $58,500 in excess of what the Commissioner (and the Board) say was reasonable is brought into assessable income by virtue of sec. 44(1)(a) because that sum had in fact been paid to Mr Comber (as a deemed dividend) out of profits derived by the company. There is no dispute that the payment to Mr Comber was made out of the company's earnings. Its effect would appear to have been to have reduced what would otherwise have been a profit of $112,517 to one of only $12,517. But no accounts had been taken, the funds from which the $100,000 was paid were not at that stage ``profits'' and no dividend had been declared out of them.

Moreover, Mr Comber was not a shareholder of the company. A dividend is made assessable income by sec. 44(1)(a) only when it is paid to a shareholder. The amendment to sec. 109 to omit the provision whereby the recipient of a deemed dividend was also deemed to be a shareholder of the company which paid it has not been matched by any amendment to sec. 109 to remove that requirement. The Commissioner submitted that, if the payment is deemed to be a dividend, the recipient must ``in substance'' be deemed also to be a shareholder. That submission assumed a purpose in sec. 109 which I have already declined to accept. If, however, sec. 109 were intended only to have effect in relation to Div. 7, there would be no need to deem the recipient a shareholder. If the

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payment were income in accordance with general concepts, it would be made assessable by either sec. 25(1) or 26. If the payment were not income in that sense, there is no compelling reason to stand sec. 109 on its head in order to make the payment assessable pursuant to sec. 44(1)(a). The Commissioner's submission is rejected.

I am satisfied, therefore, that the excess of $58,500 does not become assessable income by virtue of sec. 44(1)(a).

Alternatively, the Commissioner says that the excess of $58,500 is income in accordance with general concepts, and is thus assessable pursuant to sec. 25(1). That was what the majority of the Board of Review decided. The majority had rejected the application of sec. 44(1)(a), but they decided that, as there was a ``real relationship'' between the receipt of $100,000 by Mr Comber and his employment, the whole sum was income in accordance with general concepts:
Hayes v. F.C. of T. (1956) 96 C.L.R. 47 at p. 54. The majority clearly enough accepted what has never been disputed by the Commissioner, that the $100,000 was paid to Mr Comber as a lump sum by way of a retiring allowance: see para. 8(i) at p. 686. The $100,000 was without doubt paid in consequence of Mr Comber's retirement. Indeed, the Commissioner accepted that $41,500 of that amount fell within sec. 26(d) as a lump sum paid in consequence of Mr Comber's retirement. Neither the Commissioner nor the majority of the Board sought to draw any distinction between the $41,500 which he accepted as falling within sec. 26(d) and the balance of $58,500 which he did not. It is difficult to see how any such distinction could be drawn.

In these circumstances, where the exclusion clause in sec. 26(d) does not operate to exclude a payment from the operation of that section, any amount paid by way of lump sum in consequence of the retirement of the recipient - even where wholly of an income nature - is assessable as to 5% pursuant to sec. 26(d), and not as to 100% pursuant to sec. 25(1). That is the necessary result of Reseck v. F.C. of T. The majority of the Board make no reference in their findings to the $41,500 being assessable only as to 5%, although they agree that such a sum was properly found by the Commissioner to have been a reasonable one within sec. 109 (and so, on any view of sec. 109, within sec. 26(d)), and they find that the balance was not assessable income by virtue of sec. 44(1)(a). Although they refer to the decision of the High Court in Reseck v. F.C. of T., and quote substantial passages from the judgments in that case, they appear to have proceeded upon the basis that what the High Court held in that case was not relevant to this present case, presumably because they thought that sec. 26(d) no longer applied. I have already held that the deeming provisions of sec. 109 do not affect the assessability of the payment in the hands of the recipient by excluding that payment from the operation of sec. 26(d).

Because sec. 26(d) applies whether the payment be income or capital in nature, it is unnecessary for me to distinguish between the two in relation to this payment of $100,000. Were it necessary for me to make that distinction, I would find that payment in Mr Comber's hands to be one of a capital nature rather than one of an income nature. It is important to emphasise that the character of the payment must be judged in the hands of the recipient:
Moorhouse v. Dooland (1955) Ch. 284 at pp. 295, 303-304, 308; Hayes v. F.C. of T. at p. 55;
Scott v. F.C. of T. (1966) 40 A.L.J.R. 205 at p. 210. The two High Court decisions make it plain that, although the motives with which the payment were made may be relevant to determining that character, they do not decide the question. Thus, the finding which I made at the commencement of this judgment that the company's decision to pay the $100,000 to Mr Comber was at least in part because his salary as managing director had been below the level which he deserved does not decide this issue against Mr Comber. The fact that part of the payment is deemed by sec. 109 to be a dividend does not do so either, as the concept of a dividend is by no means necessarily also one of income:
F.C. of T. v. W.E. Fuller Pty. Ltd. (1959) 101 C.L.R. 403 at p. 409;
Gibb v. F.C. of T. (1966) 118 C.L.R. 628 at p. 635. On the other hand, what is relevant here are the findings which I made that Mr Comber did not solicit the payment and that he played no part in the decision to make the payment or in the calculation of the amount paid. Had there been any suggestion that Mr Comber had been prepared to accept less than the salary which he deserved in anticipation of being paid a lump sum upon retirement to compensate him for that deficiency, there is

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little doubt that the lump sum payment would be income in nature: Reseck v. F.C. of T. at ATC pp. 4219-4220; C.L.R. p. 56. Dr Beck in the Board of Review appears (at p. 688) to have been of that view, although he ultimately expressed the minority view that the payment had been received by Mr Comber as a capital amount. I do not accept Dr Beck's view of the evidence, but I agree with his conclusion. Whilst the payment could not be fairly characterised as compensation for the termination of Mr Comber's employment (Reseck v. F.C. of T. at ATC pp. 4215-4216; C.L.R. pp. 48-49), it is, in my view, properly characterised in his hands as a voluntary gift in recognition for what Mr Comber had done in founding the company and in building it up: Moorhouse v. Dooland at p. 304.

Finally, the Commissioner submits that Mr Comber's appeal should in any event be dismissed because no ground was stated in his objection that sec. 44(1)(a) had no application as he was not a shareholder in the company which made the payment to him. Section 185 requires a taxpayer who is dissatisfied with his assessment to state ``fully and in detail'' in his objection the grounds upon which he relies. Section 186 requires the Commissioner to consider ``the objection'', and either to disallow it or to allow it wholly or in part. Where the taxpayer is dissatisfied with the Commissioner's decision upon his objection, he may request the Commissioner to refer that decision to a Board of Review or to treat his obligation as an appeal and to forward it to a Supreme Court (sec. 187). Section 190 provides that upon every such reference or appeal the taxpayer shall be limited to the grounds stated in his objection. The Commissioner, on the other hand, is permitted to justify his assessment upon any basis. For example, in the present case the Commissioner notified the Board of Review pursuant to reg. 35(1) that his reasons for disallowing the claim were that the excess found by him pursuant to sec. 109 was assessable in accordance with sec. 44(1)(a), but this did not prevent him from succeeding before the Board of Review upon the basis that the excess was assessable in accordance with sec. 25(1): cf.
Danmark Pty. Ltd. v. F.C. of T. (1944) 7 A.T.D. 333 at p. 344.

However, as the High Court has sternly warned, the requirements of sec. 185 and 190 are not merely for the benefit of the Commissioner; they also have the purpose of protecting the public revenue:
Molloy v. F.C. of Land Tax (1938) 59 C.L.R. 608 at p. 610;
H.R. Lancey Shipping Co. Pty. Ltd. v. F.C. of T. (1951) 9 A.T.D. 267 at p. 272. The test of the sufficiency of a taxpayer's grounds of appeal has been expressed in various ways; generally, it can be said, the grounds are sufficient if the Commissioner would be expected to gather from them (a) the particular respects in which the taxpayer contends that his assessment is erroneous, or (b) that he is being asked to apply his mind to a particular contention which will be in issue in the reference or the appeal:
R. v. D.F.C. of T. (W.A.); Exparte Copley (1923) 30 Argus L.R. 86 at pp. 87, 88; H.R. Lancey Shipping Co. Pty. Ltd. v. F.C. of T. at p. 273;
A.L. Campbell & Co. Pty. Ltd. v. F.C. of T. (1951) 82 C.L.R. 452 at p. 461;
F.C. of T. v. Western Suburbs Cinemas Ltd. (1952) 86 C.L.R. 102 at p. 106;
Archer Bros. Pty. Ltd. v. F.C. of T. (1952-1953) 90 C.L.R. 140 at p. 149;
F.C. of T. v. McClelland 69 ATC 4001 at p. 4006; (1969) 118 C.L.R. 353 at p. 377.

Obviously, however, the arguments in support of the taxpayer's grounds do not have to be stated in his notice of objection; it is sufficient if the necessary foundation for each argument is found in the grounds taken:
Perpetual Executors and Trustees Association of Australia Ltd. v. F.C. of T. (1953-1954) 88 C.L.R. 434 at p. 447. The point taken at the hearing of the appeal does not need to be stated in express terms; it is sufficient if the taxpayer's contention should have been gathered from the grounds read as a whole: ibid. at p. 447;
Peterson v. F.C. of T. (1960) 34 A.L.J.R. 296 at p. 299. However, ``catch-all'' or vague grounds - such as ``that the assessment is excessive'' - are not a compliance with the requirements of the Act: H.R. Lancey Shipping Co. Pty. Ltd. v. F.C. of T. at p. 273. On the other hand, the grounds of objection taken by a taxpayer should not be interpreted technically, narrowly or with rigidity: A.L. Campbell & Co. Pty. Ltd. v. F.C. of T. at p. 461. Any ambiguities or doubts should be resolved in favour of the taxpayer:
N.Z. Flax Investments Ltd. v. F.C. of T. (1938) 61 C.L.R. 179 at p. 204;
D. v. C. of T. (Qld) (1940) 6 A.T.D. 25 at pp. 41-42.

Moreover, sec. 199 gives power to the Court to direct the Commissioner to reconsider his

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assessment where it appears that it was made on a wrong basis, notwithstanding the taxpayer's failure to take a proper ground of appeal: F.C. of T. v. McClelland at C.L.R. pp. 364-365;
Mercantile Credits Ltd. v. F.C. of T. 71 ATC 4015 at pp. 4019-4020; (1971) 123 C.L.R. 476 at p. 486. It would be gravely unfair were the situation otherwise, if the Court were obliged to dismiss an appeal and to confirm an assessment which had been demonstrated to be clearly wrong.

Before applying what those cases have said to the present case, it is worth remarking that, in recent years, notices of objection have become excessively verbose and repetitive, and the number of the grounds stated in those notices has proliferated beyond control; many grounds appear to owe their birth solely to Roget's Thesaurus, and what used to be seen as a limitation to their number imposed only by the ingenuity of their author is now being extended by the modern technologies of the computer. The words ``fully and in detail'' appearing in sec. 185 neither require nor excuse this avalanche of paper and this prolixity of language. The despair expressed by Carmichael J. in
Illich v. Illich (1971) 1 N.S.W.L.R. 272 at p. 273 is often brought to mind; his Honour, remembering the story of the man of sudden wealth who bought a library by the ton, weighed the pleadings in the lengthy matrimonial suit before him: they weighed just under two pounds. His Honour recounted how counsel sensibly ignored the pleadings when asked to state the issues to be tried. Likewise, in most taxation appeals, a reference to the grounds of objection is of no assistance, and I have come to rely upon the more common sense approach of counsel at the hearing who are able to state succinctly in a few sentences (and usually by agreement) just what the issues are. To encourage a further profileration will not assist either the Commissioner or the courts. These days, a well-rounded set of grounds (say, of eight to ten pages) will enable almost any argument at all to be put, and the Commissioner is simply put on notice that all of them may be put. That is hardly the purpose of sec. 185 and 190.

In the present case, Mr Comber included in his return the lump sum payments made to him. There is no reference in his return to sec. 26(d), but the words ``lump sum payments'' and the figures ``1/20th'' were used. The Commissioner's adjustment sheet states:

``ADD Retirement benefit fully assessable to the extent of $58,500 being a deemed dividend in accordance with s. 109 of the Income Tax Assessment Act $55,575.''

There was no reference by the Commissioner at that stage to sec. 44(1)(a) - that was not mentioned by him until he notified the Board of Review pursuant to reg. 35(1) of his reasons for disallowing the taxpayer's claim, after Mr Comber's notice of objection had been lodged. That notice contains only a modest seven grounds. The first denies assessability under sec. 25(1). Bearing in mind the width of that section, that particular ground should not be expected to have brought home to the Commissioner the point under sec. 44(1)(a) which is now the subject of his complaint. The second ground asserts that the receipt was capital in nature and makes good the defect in the first ground, but it does not convey the point in question here to the Commissioner. The third ground asserts the existence of the positive ingredients of sec. 26(d). The fourth ground denies the application of the second of the two exclusion clauses in sec. 26(d). The fifth ground denies any basis for an opinion by the Commissioner in accordance with sec. 109 that any part of the sum paid exceeded what was reasonable. The sixth ground asserts that any sum which did exceed what was reasonable was less than that which was included in the assessment. The seventh ground is in these terms:

``That if all or any part of the said sum of $55,575 constitutes a dividend paid or credited to me by Henry Comber Pty Ltd, which is not admitted, then such dividend was not paid out of profits of Henry Comber Pty Ltd in terms of s. 44(1) of the Act.''

It is, in my view, obvious from the grounds as a whole that the taxpayer was neither making any admissions nor isolating particular issues as to the application of various sections upon which the Commissioner may or may not be relying. He was, of course, operating in the dark as to which sections these may be. However, he was clearly asserting that the $58,500 excess under sec. 109 (or $55,575, representing 95% of that sum) was not assessable income under any provision of the Act. His grounds dispute sec. 25(1), 109 and

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44(1)(a). They assert the applicability of sec. 26(d) and no other. It is obvious from the seventh ground alone that the taxpayer was disputing that any excess under sec. 109 was a dividend paid to him. Granted, there was no express assertion that it was not such because he was not a shareholder. But the Commissioner is not without knowledge of some basic matters in relation to the Assessment Act. He knows, or ought to know, that a dividend is not taxable unless it is paid to the taxpayer as a shareholder. Those are the very terms of sec. 44(1). He was made aware that the taxpayer was disputing that this particular amount was a dividend paid to him. He knows that there was no issue that the amount was paid to the taxpayer (it is, after all, included in his return). He should therefore have gathered from what was said that what was in issue was its characterisation as a dividend, and thus the applicability of sec. 44(1)(a) to that payment. One of the arguments as to why that section was not applicable is that the taxpayer was not a shareholder. The specific reference in the grounds to another argument as to why the section was not applicable (that the dividend had not been paid out of the company's profits) does not exclude the first argument in support of the ground that sec. 44(1)(a) was not applicable, because there is the clearest indication in the seventh ground - before the reference to any such dividend not having been paid out of profits - that the characterisation of the payment as a dividend was itself in issue.

Nor could it be said that this argument based upon the fact that the taxpayer was not a shareholder was some type of ambush point. The Commissioner had available to him the company's tax return which listed its directors and shareholders, and which made it plain that Mr Comber was not a shareholder. As Dr Beck put it in the Board of Review (84 ATC at p. 690), in all fairness it is not possible to deny a taxpayer's objection simply because he failed to spell out therein every line of argument that he might put under a section of the Act to which he had drawn attention. The Commissioner's argument only has legs (weak though they be) because of the absurd situation of particularity in grounds which objections such as these unnecessarily encourage. If the taxpayer had simply said that sec. 44(1)(a) did not apply to any excess beyond that found to be reasonable under sec. 109, there could have been no complaint. The complaint arises only because the Commissioner has wrongly assumed that the taxpayer was attempting to be more specific (and thus limiting) than he was in fact.

The Commissioner's objection based upon sec. 185 and 190 is rejected.

I uphold Mr Comber's appeal. I remit the assessment to the Commissioner to be amended, in accordance with the terms of my judgment, by including 5% of the whole of the $100,000 in the taxpayer's assessable income pursuant to sec. 26(d), and thus reducing his assessable income by $55,575. I order the Commissioner to pay Mr Comber's costs. I direct the entry of judgment accordingly.