Eldridge v. Federal Commissioner of Taxation

Judges:
Foster J

Court:
Federal Court

Judgment date: Judgment handed down 25 September 1990.

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Foster J.

This appeal is brought from the decision of a Senior Member (Mr Gibson) of the Administrative Appeals Tribunal (``the Tribunal'') sitting in its Taxation Appeals Division [reported as Case W72,
89 ATC 651]. The Tribunal had for review under sec. 43 of the Administrative Appeals Tribunal Act 1975 (``the AAT Act'') decisions of the Commissioner of Taxation (``the Commissioner'') on objections made by the applicant taxpayer in respect of amended assessments to income tax for the years ending 30 June 1976, 1977 and 1978. These assessments had been made pursuant to sec. 167 of the Income Tax Assessment Act 1936 (``the Act''). The effect of these default assessments had been to add to the taxable incomes as returned the amounts of $8,863, $9,953 and $12,619 for the years 1976, 1977 and 1978 respectively. The Commissioner disallowed the applicant's objections under sec. 186 of the Act and, pursuant to sec. 187, the applicant, being dissatisfied with those decisions, requested that they be referred to the Tribunal. These referrals, pursuant to sec. 189(2) of the Act, constituted applications to the Tribunal for review of the decisions. In reviewing them, the Tribunal exercised its powers under sec. 43 of the AAT Act. It upheld the Commissioner's decisions on the objections.

The appeal against the Tribunal's decision is brought under sec. 44 of the AAT Act. It is brought on a question of law. Under the section, the question or questions of law constitute the sole subject matter of the appeal (
F.C. of T. v. Brixius 87 ATC 4963). The further amended notice of appeal sets out the following questions of law for decision in these proceedings:

``(i) Did the Tribunal err in law in rejecting the tender of documents sought to be tendered by the applicant?

(ii) Did the Tribunal err in law in its interpretation of Section 177 of the Income Tax Assessment Act 1936?

(iii) Did the Tribunal err in law in its interpretation of Section 190(b) of the Income Tax Assessment Act 1936?

(iv) Did the Tribunal err in law in its interpretation of the onus provisions of the Income Tax Assessment Act 1936 as they applied to hearings before the Tribunal?

(v) Did the Tribunal err in its interpretation of Section 167 of the Income Tax Assessment Act 1936 in respect of any requirement the Commissioner has to ascertain and deduct allowable deductions when making assessments under that section?

(vi) Did the Tribunal err in law in not deciding that upon the evidence the applicant had discharged the onus of proving the assessments were excessive?

(vii) Did the Tribunal err in law in failing to discharge its duty according to law and in particular having regard to Section 43 of the Administrative Appeals Tribunal Act, 1975 did it err in law in failing to itself make an assessment and form a judgment under and for the purposes of Section 167 of the Income Tax Assessment Act 1936?

(viii) Did the Tribunal err in law in so far as it failed to hold that there was no basis for treating amounts banked to the accounts of Waldene Holdings Pty. Limited and Lee Worboys Pty. Limited or amounts withdrawn from those accounts as representing in whole or part, income derived by the applicant?''

Paragraphs (vi), (vii) and (viii) were added by amendment shortly before the hearing. The questions, as they ultimately emerged during the course of argument, can be stated as follows:

• 1. Did the Tribunal err in law in rejecting the tender of certain reports of investigators on behalf of the Commissioner?
• 2. Did the Tribunal err in law in failing to find that the assessments were not assessments within the meaning of the Act?
• 3. Did the Tribunal misconceive and thereby fail to perform its role under the Act?

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  ATC 4910

Before I consider these questions, it is convenient to set out certain facts. These are to be found in the findings of Tribunal. It may be noted that none of the Tribunal's findings are claimed to have been vitiated by any error of law. It is claimed, however, on the part of the applicant that by failing to admit the evidence referred to above, the Tribunal put it out of its power to make other findings of fact, which could have had significant bearing upon the ultimate issue in the case arising under sec. 190(b), viz. whether the assessments were ``excessive''.

The applicant had been until 1973 an officer of the Australian Taxation Office. While occupying that position he had become friendly with two other officers, Messrs Elton and Wheeler. After leaving the Australian Taxation Office's employment, the applicant carried on business (inter alia) as a taxi driver and tax agent. He maintained his friendship with Elton and Wheeler who remained in the employment of the Australian Taxation Office until 1978. From some time in 1975 the three men became involved in an operation which the Tribunal found amounted, in effect, to a confidence trick. Wheeler had had some involvement in an investigation on behalf of the Australian Taxation Office of the affairs of a company Wallis Dene Pty. Ltd. This company was operated by a citizen of New Zealand. It was apparently suspected of failing to make proper returns of income. Its business consisted of the publication of a trade directory. In furtherance of this activity, approaches were made to various business houses to include their names and advertising material in the publication. It appears that many positive responses were obtained together with accompanying fees. The publication was of extremely poor quality and does not appear to have been distributed in any real sense at all. Notwithstanding this, it seems, business organisations continued to pay fees for entries in it, in response to the receipt of appropriate invoices forwarded to them by the company.

At some stage, the original proprietor returned to New Zealand. It is not clear whether there was any significant relationship between him and the three men. Be that as it may, the operations were taken over by Elton and Wheeler and the applicant was also involved. The applicant undertook a number of activities when requested to do so by Wheeler. These included picking up several thousand addressed envelopes from the printer that did work for the company and arranging their bulk postage to clients. He also collected the company's mail from a post office box. He extracted cheques from the letters and deposited them to the company's bank account. He performed these activities on a large number of occasions throughout 1975. In 1976 and 1977 two further companies were incorporated, Waldene Holdings Pty. Ltd. and Lee Worboys Pty. Ltd. The applicant assisted in the incorporation of these companies by signing as a witness on the memorandum and articles of association using a fictitious name for this purpose. The companies were formed for the purpose of carrying on the same activities as Wallis Dene Pty. Ltd.

The applicant continued in the performance of the same activities in respect of these new companies. Cheques in payment of fees for entries in the directories were received and banked. Additional bank accounts were opened into which moneys were transferred. There was obviously ample evidence to justify the Tribunal's finding that the network of companies and bank accounts was designed to prevent the tracing of the moneys received from clients who were, apparently, effectively misled into believing that they were making payment for entries in a worthwhile business publication of wide distribution. Messrs Wheeler and Elton were ultimately apprehended and charged with the misappropriation of a tax refund cheque payable to Wallis Dene Pty. Ltd. Investigation on behalf of the Australian Tax Office revealed a great deal about the ramifications of the companies and bank accounts. It indicated that a number of untraceable cash withdrawals had been made from the accounts. Clearly the view was formed that there was a significant conspiracy between the three men to conceal the receipt of moneys. The Commissioner took the view that all three had derived income from these activities which had not been disclosed for tax purposes. On the basis of the information available he raised default assessments against each of the men, resulting, in the case of the applicant, in the amended assessments the subject of the proceedings before the Tribunal and this Court.

The applicant disputed his liability under the amended assessments. He asserted that he had

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ATC 4911

in fact received nothing from the activities of the companies or from any moneys received by them except for certain payments for services rendered, which had been the subject of disclosure. He maintained that his involvement with the operations of Elton, Wheeler and the companies was entirely innocent. He claimed that he had been asked to assist, in 1975, in an ``undercover operation'' being conducted by Wheeler on behalf of the Australian Taxation Office into the affairs of Wallis Dene Pty. Ltd. and that all activities in which he had been involved were in furtherance of this operation.

The Tribunal made many findings of fact, based upon the evidence of handwriting experts in relation to documents allegedly signed in fictitious names by the applicant and connected with the operation of bank accounts and the like. It is not necessary to set out these matters here. In the upshot, it disbelieved the applicant and was satisfied that he was involved in what it described [at p. 652] as:

``... a scheme whereby moneys received through the post for subscriptions to a business directory passed through bank accounts in the names of three companies, two of which had been incorporated for the purpose of receiving those moneys, and then through various other accounts in such a way as would make it difficult to trace the ultimate recipients.''

It did not accept the applicant's denial that:

``... to the extent that he took part in the activities of the companies and the disposition of the moneys, he did so without being aware of being involved in a money-making scheme which involved concealing income.''

Although, as a result of the rejection of the tender of the document to which reference has been made, the Tribunal did not have before it the basis of the calculations made by the Commissioner as a result of which the amendments were made to the applicant's income for the relevant years, it was made clear during the course of the proceedings, in a statement by senior counsel for the Commissioner, that:

``in respect of each of the three financial years a certain amount was assessed to Eldridge, Wheeler, Elton, based on the total sum of money that was deposited into the various building society and bank accounts and withdrawn, and taking into account what remained in those banks or what was standing to the credit of those accounts as of 30 June 1978... and it is not in dispute, of course, that the figure was dealt with by dividing into three, using that as the divisor.''

The Tribunal's ultimate finding [at p. 659] was that:

``Although it is possible that the applicant did not receive a share of the proceeds of the scheme the Tribunal, having regard to all the evidence, is not satisfied by the applicant's evidence that he did not. He has therefore failed to discharge the onus of proving that the assessments were excessive. Accordingly the objection decisions, the subject of the application must be affirmed.''

Against this background of fact, I turn to consider the questions of law referred to above. To a large extent these questions all relate to and are connected with the rejection by the Tribunal of the tender on behalf of the applicant of the investigation reports provided to the Commissioner in respect of the companies and the three men. As it became a part of the argument before me that, even if these reports had been admitted into evidence, they would not have affected the outcome, they were tendered by consent in these proceedings. I therefore had before me this material which, because of its rejection, was not before the Tribunal. The reports are, indeed, central to this appeal, in so far as it is submitted that the Tribunal, by failing to admit them, effectively put it beyond its power properly to perform its role as a reviewer of the Commissioner's decision in that it deprived itself of the opportunity of determining whether the assessments were ``bad'' in law as being ``arbitrary and capricious'', particularly in so far as they did not take into account available business deductions or could have wrongly attributed the quality of income to receipts or have attributed to the three men, as income, amounts which, if income at all, were solely the income of the companies involved. It was submitted that, in contradistinction to the function of a court dealing with an appeal in respect of the disallowance of a taxpayer's objection, the Tribunal stood in the shoes of the

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ATC 4912

Commissioner and was obliged, in the proper fulfilment of that role, to receive in evidence any material which had been before the Commissioner. The evaluation of these submissions will require a consideration of the relevant sections and decisions of the courts. It is, however, necessary in the first place to have regard to the general context in which the tender of these reports was made and rejected.

In the first place, it is clear that the Tribunal was made aware from the outset that the assessments, the review of which it was to undertake, were default assessments made under sec. 167 of the Act and that, as in the case of the review of any objection decision, the appellant taxpayer claimed, and had the ultimate onus of establishing, that the assessment the subject of the objection was ``excessive'' (sec. 190(b)). Additionally, as the transcript of the proceedings before the Tribunal discloses, the proceedings were opened to it by counsel for the taxpayer who indicated what the issues in the review were to be. In this regard he said:

``Mr Eldridge... on 27 February 1980... received notices of amended assessments for the years ended 30 June 1976, 1977 and 1978 adding to his income already declared sums of money alleged to have been received by him through the companies Waldene Holdings Pty. Ltd. and Lee Worboys Pty. Ltd.

Mr Eldridge says, and will say, that he never received those moneys in any event. It is further Mr Eldridge's case that these assessments were arrived at by the taxation officer, the Commissioner, arbitrarily, taking the gross amount received by Lee Worboys Pty. Ltd. and Waldene Holdings Pty. Ltd., dividing it by three and apportioning one third to each Mr Eldridge, Mr Wheeler and Mr Elton. There is a question, there was a matter of law, it will be argued that those assessments are bad.''

Counsel went on to say that that was, he thought, ``in a nutshell... the crux of Mr Eldridge's case''.

Counsel for the applicant then proceeded to call evidence, the detail of which does not matter. Indeed, it has not been referred to in argument. I come, then, to the point where the tender of the investigation reports occurred. The transcript, so far as relevant, in relation to this matter reads as follows:

``MR MITCHELL: I... seek to tender investigation reports firstly from a Mr K.J. Carroll of 16 June 1978, a Mr N.R. Piggott of 18 January 1980 together with an attachment. There is an attachment to Mr Piggott's report which has the gross incomes from various sources of the parties, and a report of Mr V.F. Smith of 19 February 1980.''

The Tribunal was advised that these reports had been exhibits in similar proceedings involving Mr Elton's default assessments.

``MR ROFE:... we object to the tender of these documents on the basis that, as we understand, there is no challenge raised by the taxpayer in relation to the sum of money which was deposited into these various accounts and as of 30 June 1978 withdrawn and/or remaining to the credit of the accounts. If that was a concession made earlier, we would say these reports are irrelevant on that basis. In other words, I think the sum of money that we are talking about is in total $120,575 of which a certain figure was assessed to Elton, a certain figure assessed to Wheeler.

MR GIBSON: You are not talking about a particular year, you are talking about a period?

MR ROFE: The period covers three financial years, and in respect of each of the three financial years a certain amount was assessed to Eldridge, Wheeler, Elton, based on the total sum of money that was deposited into the various building society and bank accounts and withdrawn, and taking into account what remained in those banks or what was standing to the credit of those accounts as at 30 June 1978. My learned friend has conceded on an earlier occasion when the issues were sought to be defined that no challenge is made to those figures, and it is not in dispute, of course, that the figure was dealt with by dividing into three, using that as the divisor.

Secondly, in our submission, the Commissioner's reports bearing in mind that concession, in any event are irrelevant in the basis of George's case,
George v. F.C. of T. (1952) 86 C.L.R. 183, where I think in that

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ATC 4913

case attempt was made to get the Commissioner to particularise and supply the taxpayer with those particulars of how he came to his figures which were assessed to the taxpayer. If I might refer you to some passages in the joint judgment of Sir Owen Dixon C.J., McTiernan, Williams, Webb and Fullagar JJ.... [Counsel then read the relevant passage] These reports deal with the workings and processes by which the Commissioner came to fix the total amount, and then how he came to assess...

MR GIBSON: Why should he keep that a secret, Mr Rofe?

MR ROFE: Because it is said the assessment is the expression of the judgment and he should not be required to give particulars of how he arrives at that fact because the onus is fairly and squarely upon the taxpayer to demonstrate that the assessment is excessive.

To have the processes of the Commissioner as expressed in the reports, in our submission, which precede the assessment is to infringe what the High Court said in George's case; in other words, placing a requirement on the Commissioner which they say is not required. He cannot be required to give particulars which would show in effect the processes by which he arrives at his assessment, and a fortiori, it seems to us with respect, you cannot avoid that High Court decision by saying, well, let us have the reports and tender those.

MR GIBSON: In many cases, of course, with what used to be asset betterment assessments, the Commissioner does supply particulars whether he need do so or not. I am just wondering what is the big secret.

MR ROFE: But this is not an asset betterment assessment, and we have a concession that these figures are accurate in so far as they represent the moneys that go into the bank and are drawn on the bank and left standing to the credit of the bank, so it is not a question of there being any issue as to that. To say, therefore, please give us the particulars by way of what you have said in your reports as to how you arrived at the, in effect, agreed figures, is the very thing, in our submission, that in George's case the High Court said he cannot be required to give.

MR GIBSON: That was at the interlocutory stage, was it not?

MR ROFE: Yes, but with respect, if the rationale of that judgment is that the assessments themselves make it abundantly clear that the Commissioner has formed an opinion, then if the taxpayer wishes to establish that there is an error in that, he must undertake that onus of demonstrating error.

MR GIBSON: Well, if that were the principle to be applied, then the Commissioner need not give any particulars of his asset betterment assessments, and in fact he does. I am just wondering why in this case he is shy.

MR ROFE: It may be that he can choose to do that and maybe as a matter of practice he does an asset betterment assessment, but here, in our submission, that is a long way from saying that he is required or should disclose the processes of his reasoning in the various reports that pass between taxation officers who are dealing with a particular matter which preceded the actual assessment.

...

One simply has to ask oneself what is the purpose of the tender of the reports if they merely show the process of reasoning by which the Commissioner comes to an amount that is agreed so far (as) the moneys going to the accounts and the moneys coming out are concerned, so that the taxpayer is not disadvantaged and cannot say, I did not know the amount. He does, and he is agreeing with it, or the source of the moneys on which the Commissioner has relied. Those are available to him, and indeed, a document that we will tender sort of summarises the evidence that really has been adduced in this case, of which the taxpayer is now aware, although his case is, of course, that he did not know, so the taxpayer is in no sense disadvantaged, and if he is not disadvantaged, then to tender reports which preceded the actual assessments which he is not challenging, in our submission does not advance his case in any event.

MR GIBSON: It could be if he had a set of mathematical calculations and he knew the

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ATC 4914

components of the equation or the addition, he could say, you are absolutely right in point A, or your arithmetic is wrong.

MR ROFE: With respect, he does not say that now only do I know or do not know what amounts are said to have been deposited and withdrawn to these accounts; he has in effect conceded that the assessment is based on those amounts divided by three and added to his returned income.

MR GIBSON: But I suspect Mr Mitchell might be interested to know if there is any consideration given to deductions, and if so what deductions, and if so why not allowed. I do not know. I am only guessing.

MR ROFE: If the taxpayer wants to establish affirmatively that there were in fact deductions, then it is open to the taxpayer to do that. Mr Mitchell, of course, is in the dilemma that he has asserted as his primary ground of challenge that his client did not get any money, was not in the business. He has to sort of wear that.

He cannot then say, oh well, if he was in the business then there were deductions because there are always deductions in a business; now, if I get hold of the Commissioner's report, somehow or other I will discover something about the deductions. I think it is basically clear...

MR GIBSON: But there is nothing wrong with the taxpayer taking that approach, is there? He has got a very difficult onus.

MR ROFE: He has got a very difficult onus and it is not always easy for him to take that difficult role of saying, well, I was not in the enterprise, therefore it does not matter; at the same time, if you find that I was in the enterprise contrary to everything I have said, then I want to show you they did not allow any deductions.

But, you see, he has to establish not the possibility that there were deductions; he has to establish that there were deductions which the Commissioner has not allowed. If the Commissioner has no evidence of deductions in front of him, then it is perfectly proper he does not allow them.

MR GIBSON: Mr Rofe, you have made the point that the total figure is not disputed, based on George's case. Is there any other ground of objection to the tender?

MR ROFE: No, those are the essential...

MR GIBSON: I am not trying to cut you short. I am only saying that I think it will be necessary for me to have a look at George's case. I think you can infer from what I have said that I am disposed to admit the documents, but I obviously cannot if the law precludes me from doing so.''

There followed some further discussion as to the existence of relevant authorities, which was followed by a short adjournment, after which the matter proceeded as follows:

``MR GIBSON: George's decision has been followed, and it says the Commissioner is under no duty to give the taxpayer such particulars, but it just seems to me before a Tribunal which is standing, so to speak, in the shoes of the Commissioner, difficult to understand why he would not want to put the material, allow that material before the Tribunal.''

Counsel then referred to other portions of George's case indicating ``that puts it fairly strongly''.

``MR GIBSON: But the Tribunal has the duty of coming to some conclusion. It stands in the place of the Commissioner.

MR ROFE: Only in certain events. The taxpayer must discharge that onus pointing affirmatively to an error, and certainly if he succeeds in that, then the Tribunal stands in the shoes of the Commissioner, but we would have thought, with respect, that the reports and the processes and reasonings by which the Commissioner comes to proclaim his assessment really is of no assistance to the Tribunal if the Tribunal comes to the stage where it needs to stand in the shoes of the Commissioner because the Tribunal can only act really on the evidence that is adduced before it. So whereas to say it stands in the shoes of the Tribunal, it does not, with respect, necessarily mean that the reports that the Commissioner has used are relevant to the task which the taxpayer must undertake in order to get to the position of proving affirmatively an error.

MR GIBSON: I can only say that if the situation is that the Commissioner is not

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ATC 4915

prepared to allow that material to come before the Court it could seem unfair in some cases, and I think this may be one where it does seem unfair, and I think from time to time there has been some judicial criticism of the Commissioner in cases where he has not been prepared to make available such information. However, I think, Mr Mitchell, unless there is something you can put before me, that I must disallow the tender.

MR MITCHELL: If I might say this. The documents are not being sought to be tendered to disclose the gross income that was split three ways amongst three people, the documents are being tendered to prove that these assessments against Mr Eldridge are bad in law ab initio. Assessment is defined under the Income Tax Act to mean the ascertainment of the amount of taxable income and the tax payable thereon, and the taxable income is defined to mean the amount remaining after deducting from the assessable income all the allowable deductions. If no deductions were allowed, which is the case for this appellant, and if he is unable to have these documents put before the Tribunal, there would be no evidence before you that no deductions were, in fact, allowed...''

And counsel referred to a Privy Council case from India which has not been relied on in these proceedings before me.

``MR MITCHELL:...

It is the appellant's case that not only was there no guesswork, it is the appellant's case there was no honest guesswork, it is the appellant's case it is that judgment that the Commissioner must exercise was never ever exercised because no deductions were allowed at all. Therefore, it is not an assessment under the Act, then it is bad.

If we cannot get these documents before you on that basis, then as far as showing that aspect of the appellant's case which is that the assessments are bad and should be dismissed, there is no evidence before you. You are being asked to determine this case in a vacuum, and it is our submission that these documents are clearly relevant and are relevant to that aspect that I have just referred to, and should be admitted into evidence.

MR GIBSON: Anything further, Mr Rofe?

MR ROFE: To some extent that argument by my learned friend is answered in George's case...''

And counsel referred to a particular passage.

``MR ROFE: We would say that that is perhaps the short answer to what my learned friend is saying. Once you have got the assessment, then that is the manifestation or the evidence of the Commissioner's conclusion, and it is not relevant to look at the method by which he gets to it. Of course, there may be exceptions, and this case is certainly not one where it is asserted that the Commissioner has acted mala fide or something of that nature. If that was an issue in this case, it would necessarily have been pleaded. It has certainly never been suggested that that is the situation on this case.

So a special situation such as mala fides or something of that nature can be left aside. We would say George's case is really conclusive of the situation so far as relevance and admissibility of these reports go.

MR GIBSON: Thank you, gentlemen. I must disallow the tender, I feel.''

Evidence was given before the Tribunal, through Mr Elton, who was involved in a review of his own assessment, and in which review, apparently, those reports had been admitted, that no deductions had been allowed against the moneys that were assessed. It further appeared that in fact some deductions had been made in respect of some bank charges shown in the bank accounts. The actual contents of the reports, including the processes of reasoning whereby the figures used for the default assessments of the applicant were arrived at never found their way into evidence before Mr Gibson. Consequently he had before him at the conclusion of the case evidence that the amount of the default assessments had been arrived at by the methods indicated above and that there had been no deductions made for anything that could be described as ``business expenditures''.

In his final address counsel for the applicant made the following submissions:

``Sir, there are two strings, if I might say, to Mr Eldridge's bow in this case. You have

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ATC 4916

heard Mr Eldridge's evidence that he never ever received any money from the Waldene Holdings Pty. Ltd. to the Lee Worboys Pty. Ltd. scheme. You have heard evidence from Mr Elton that (a) Mr Eldridge was not involved, and (b) no deductions were allowed against the moneys that were assessed to the three operatives, alleged operatives.''

Counsel again made reference to the decision which has not been relied on in these proceedings. He then carried on:

``In our submission, Sir, what the Taxation Commissioner has done in this case is he has said, well, here is the money, we do not know what the deductions are, we are going to assess you on the lot and the three of you can be assessed one third, one third and one third. In my submission, Sir, that is not exercising judgment of any sort and what is more, it is acting, in my submission, capriciously at best.

Now, that being the case, it is all very well to say that sec. 190(2) places the onus on the taxpayer. We are well aware of that. But that onus is not placed on the taxpayer until such time as there has been a notice of assessment issued, and we say simply because a document which purports to be a notice of assessment has issued does not end the case.

We say if there has been no exercise of judgment, if the Commissioner has acted capriciously, which we submit he has in this case, then there has been no issue of an assessment under the Income Tax Act. There have been no deductions allowed. There being no deductions allowed, there can be no assessment.''

The basic submissions put by the applicant in these proceedings before this Court are, as I have said, really bound up with the parts of the proceedings before the Tribunal which have been set out. It is put that the Tribunal erred in law in holding that the case of George v. F.C. of T. (1952) 86 C.L.R. 183 prevented the reception of the evidence, that the evidence was necessary for it to fulfil its proper function of standing in the shoes of the Commissioner and that by rejecting it it both misconceived its role under sec. 43 of the AAT Act and also prevented itself from fulfilling that role. It was further put that the reception of the evidence would have inevitably demonstrated that the Commissioner had acted capriciously and arbitrarily and thereby failed to make any assessment in law.

It is convenient to deal with the last submission first. I have difficulty, at the outset, in seeing how it can be said that the question of whether the Commissioner has acted capriciously or arbitrarily can be an issue before the Tribunal except in a most limited way. As will be discussed hereafter, the Tribunal, pursuant to sec. 43 of the AAT Act, does exercise the functions of the Commissioner in relation to the making of an assessment, subject to such constraints as are imposed by sec. 177(1) and 190(2) of the Act. The matter of the assessment comes before it afresh. At the end of the day what it does is make an assessment itself. In doing so it must not, itself, act arbitrarily or capriciously. In those circumstances it is not to the point that the Commissioner may have so acted. The Tribunal is not considering whether the Commissioner's exercise of discretion has been vitiated by such considerations; it is simply exercising its own discretion. The limited way in which such a question could arise is, as I see it, where the Tribunal forms the view that the Commissioner has through an arbitrary or capricious approach, failed to make an assessment at all. In such circumstances it might well be said that the Tribunal would have no jurisdiction to proceed further, there being no assessment which could be the subject of objection, the decision in respect of which forms the basis of the Tribunal's jurisdiction to review. Presumably, in such circumstances, the matter would be simply remitted to the Commissioner for the purpose of making an assessment.

The submission as to the arbitrariness of the assessment in the present case does not appear to have been put to the Tribunal in this way. However, as it has been submitted that the rejection of the evidence of the investigation reports deprived the applicant of the opportunity of making any substantial submission in this regard, I feel it necessary to consider the topic.

Reference is made to the question of capricious or arbitrary behaviour on the part of the Commissioner in the making of assessments in
McEvoy & Ors v. F.C. of T. (1950) 9 A.T.D. 206

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ATC 4917

where Williams J., in dealing with an appeal to the Court under sec. 187 of the Act, said (at p. 211):

``Where the appeal is from an opinion or discretion conferred upon the Commissioner, the function of the Court in the first instance is limited to examining the materials on which the opinion or discretion was formed. Unless the appellant can satisfy the Court that the Commissioner acted capriciously or arbitrarily or upon irrelevant considerations, the appeal must fail.''

I am satisfied that this concept is not easily applicable to proceedings before the Tribunal rather than the Court, the Tribunal having, as I have said, the obligation to exercise its own discretion. Indeed, the whole question of an assessment by the Commissioner being vitiated by arbitrariness or caprice so that it is to be treated as a nullity appears to be a most difficult one.

In the first place regard must be paid to the terms of sec. 177(1) which provides that:

``The production of a notice of assessment... shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part V on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.''

The section has been the subject of judicial consideration in cases of the highest authority. In George the High Court said (at pp. 206-207):

``The clear policy of s. 177 is to distinguish between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. The former involves the due making of the assessment.''

In
McAndrew v. F.C. of T. (1956) 98 C.L.R. 263 the effect of sec. 177(1) was further discussed by Dixon C.J., McTiernan and Webb JJ. at pp. 269-270 where their Honours said:

``... the meaning and effect of s. 177(1) is to give evidentiary effect to... an assessment over the whole ground which by law it is the function of an assessment to cover. Over part of that ground its evidentiary effect is absolutely conclusive, over the rest of the ground it is conclusive except in proceedings on appeal against the assessment. It is given such evidentiary effect by the production of a notice of the assessment or of a copy under the hand of the commissioner, second commissioner or a deputy commissioner. The ground over which s. 177(1) gives conclusiveness to the assessment is described as the due making of the assessment and the correctness of the amount and all the particulars of the assessment. But that appears to us to comprise the whole ground. It is the manifest policy, one may now almost say the historical policy, of the legislation on the one hand to give to the taxpayer full opportunity on objecting to his assessment of contesting his liability in every respect before a court or before a board of review but on the other hand to require that in proceedings for the recovery of the tax the taxpayer will be concluded by the assessment and will not be entitled to go behind it for any purpose.''

This case involved the question whether the conditions set out in sec. 170(2) as precedent to the Commissioner's powers to amend a previous assessment fell within the first part of sec. 177(1) as being matters going to the ``due making'' of the assessment. It was basic to the decision that they did not.

There must obviously be a question as to whether the production of a duly authenticated notice of assessment would not preclude a taxpayer from raising any argument that the assessment was vitiated through its being arbitrary or capricious. One might well consider that this is the effect of the first part of sec. 177(1) in that such questions would go to the ``due making'' of the assessment which would then be conclusively presumed. A countervailing argument would consist in the assertion that sec. 177(1) applies only to ``assessments'' as such, with the result that it would still be open to the taxpayer to assert that what had occurred, owing to relevant arbitrariness and capriciousness, was not an ``assessment'' at all and therefore not amenable to the protection of the section.

One might be pardoned for thinking that this argument was no longer open after the decision of the High Court in
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280; (1980-1981) 147 C.L.R. 360.

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ATC 4918

The effect of sec. 177(1) was considered by Mason and Wilson JJ. After discussing the earlier cases of
Batagol v. F.C. of T. (1963) 109 C.L.R. 243 and
F.C. of T. v. Hoffnung & Co. Ltd. (1928) 42 C.L.R. 39, their Honours said (at ATC p. 4286; C.L.R. p. 373):

``What then is the effect of sec. 177(1)? Does production of an appropriate notice of assessment or document provide conclusive evidence that an assessment was actually made, or does it merely provide conclusive evidence that an assessment, if made, was duly made? Although it was said that the second alternative reflected a more natural reading of the provision, our view is that the language of the section is equally susceptible of either reading and that the answer is to be found not so much in the language as in the context and in the scope and purpose of the Act.''

Their Honours continued by considering George and McAndrew, saying in respect of McAndrew (at ATC p. 4288; C.L.R. p. 375) that:

``An explicit and, in our view, correct statement of the effect of sec. 177(1) was made by Taylor J. in McAndrew (at pp. 281-282). For the reasons there expressed his Honour concluded that `s. 177(1) was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any ground'...

This interpretation gives expression to the policy which underlies, and is manifest in, the statutory provisions. The effect of this policy is that, once the Commissioner takes advantage of sec. 177(1) by producing an appropriate document the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under Pt V.''

Their Honours further said (at ATC pp. 4288-4289; C.L.R. p. 376):

``If the actual making of an assessment be not comprehended by the expression `due making' then sec. 177(1) gives the Commissioner no evidentiary advantage in proceedings for recovery of tax. He would be obliged to prove that an assessment was made by calling an assessor. So much was ultimately conceded by the appellant's counsel. It is not to be supposed that Parliament intended that sec. 177(1) should have no application to the actual making of the assessment, thereby compelling proof by oral evidence in recovery proceedings that an assessment had been made. The consequence is so radical as to make the argument quite unacceptable.''

Their Honours further said in relation to sec. 177(1) (at ATC p. 4289; C.L.R. p. 377) that:

``Although the subsection is evidentiary and begins to operate when an appropriate document is produced in a court or board of review, and not before, its effect is to put the making of an assessment beyond challenge.''

Finally it is said (at ATC p. 4289; C.L.R. p. 378) that in their Honours' opinion:

``it must follow that a notice in proper form of an assessment necessarily compels the conclusion that there was an assessment made in fact.''

Despite the apparently absolute nature of these interpretations of the section, it is possible to see some amelioration of the situation in favour of the taxpayer where the Commissioner has made a default assessment under sec. 167, as in the present case. That section provides, so far as relevant, that if:

``(b) the Commissioner is not satisfied with the return furnished by any person... the Commissioner may make an assessment of the amount upon which in his judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.''

In
Briggs v. D.F.C. of T. (W.A.) & Ors: Ex parte Briggs 87 ATC 4278 at p. 4293; (1987) 14 F.C.R. 249 at p. 269, Sheppard J. said of this section that:

``It may be true, as counsel for the prosecutor submitted, that sec. 167 is not the gateway to fantasy and that it is not open to the Commissioner either to pluck a figure out of the air or to make an uninformed guess.''

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ATC 4919

His Honour went on to say that it was, nevertheless, established that ``the process may go close to guesswork, and yet be lawful''. In relation to this statement his Honour referred to what was said by Latham C.J. in
Trautwein v. F.C. of T. (1936) 56 C.L.R. 63 at pp. 87-88 where his Honour said:

``In the absence of some record in the mind or in the books of the taxpayer, it would often be quite impossible to make a correct assessment. The assessment would necessarily be a guess to some extent, and almost certainly inaccurate in fact. There is every reason to assume that the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself in that capacity by the simple and relatively unskilled method of losing either his memory or his books.

The application of sec. 39 [the then equivalent of sec. 177(1)] is not, in my opinion, excluded as soon as it is shown that an element in the assessment is a guess and that it is therefore very probably wrong. It is prima facie right - and remains right until the appellant shows that it is wrong. If it were necessary to decide the point I would, as at present advised, be prepared to hold that the taxpayer must, at least as a general rule, go further and show, not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or more nearly right. I say `as a general rule' because, conceivably, there might be a case where it appeared that the assessment had been made upon no intelligible basis even as an approximation, and the court would then set aside the assessment and remit it to the Commissioner for further consideration.''

These considerations, in relation to sec. 167 assessments, have been referred to in the recent case in the High Court of Australia of
F.C. of T. v. Dalco 90 ATC 4088 where Toohey J. said (at p. 4098), in relation to sec. 167 assessments:

``That is not to say that, in such circumstances, the Commissioner's assessment is completely at large or that particulars of an assessment will not be ordered. If the Commissioner has simply plucked a figure `out of the air' [Briggs (supra) at ATC p. 4293; F.C.R. at p. 269] or has proceeded `upon no intelligible basis' [Trautwein (supra)], the Commissioner may be in breach of his statutory duty to make an assessment from the information in his possession: see Bloemen at ATC p. 4285; C.L.R. p. 371. I express no view on that matter for this is not such a case; the assessments were reached after a long and detailed investigation into the taxpayer's affairs.''

The current situation would appear to be that, at least in the case of a default assessment, where the notice of assessment does not purport to be provisional or tentative (Bloemen) but is final and conclusive on its face, it can be attacked, as not being in truth an ``assessment'', only in the circumstances set out in the above passage from Dalco. The caveat must be immediately added that it cannot be said that this is firmly established.

To revert to the present case, it is necessary at once to bear in mind that in the proceedings before the Tribunal, as appears from the passages cited, the only basis of invalidity asserted was that it appeared that in the making of the assessments under review, the Commissioner had made no allowance for any business deductions. In argument before me it was further asserted that the Commissioner had, apparently, not given consideration to whether the amounts in question were truly income or, if so, income of the taxpayer. I shall return to this latter aspect later. The question of whether the failure to consider possible allowable deductions by the Commissioner had a vitiating effect upon an assessment of a taxpayer under sec. 167 was also considered in Briggs where Sheppard J. (at ATC pp. 4290-4291; F.C.R. p. 265), after considering what Barwick C.J. had said in
Bailey v. F.C. of T. 77 ATC 4096 at p. 4098; (1977) 136 C.L.R. 214 at p. 218, namely that a sec. 167 assessment was ``an exercise of the Commissioner's power to determine the principal fact to which the Act should be applied'', said:

``The relevant words of sec. 167 are, `... the Commissioner may make an assessment of the amount upon which, in his judgment, income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166'. Those words do not suggest that the

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ATC 4920

Commissioner, in exercising the powers he has under sec. 167, is required to endeavour to ascertain the assessable income and the allowable deductions which the taxpayer has. It envisages that he may come directly to the task of determining a figure which, once determined, becomes the taxable income. That is not to say that the Commissioner may not proceed in the way contended for by counsel. But the words do not suggest to me that he is bound to do so.''

I respectfully agree with and adopt this statement of the effect of sec. 167. The necessary consequence is that a mere failure to take into account possible deductions could never in itself render a sec. 167 assessment arbitrary, capricious or a nullity. It may be noted that Briggs' case was relied upon, in this regard, by the Tribunal in its reasons.

I therefore reject the appeal in so far as it relies upon a submission that the Tribunal should have found the assessment to be no assessment at all and, presumably, therefore remitted the matter to the Commissioner for a proper assessment to be made. I should add, because I have had the advantage of seeing the reports upon which the Commissioner relied, which was denied to the Tribunal by its rejection of their tender, that I am quite satisfied that they could not bear out any submission that the Commissioner in making the relevant assessments has ``plucked a figure out of the air'' or proceeded ``upon no intelligible basis''. Like the material considered in Dalco, they indicate that ``the assessments were reached after a long and detailed investigation into the taxpayer's affairs''. The taxpayer's case, therefore, in this regard, would in no way have been advanced had they been admitted into evidence before the Tribunal.

I come then to a consideration of the applicant's submission that the Tribunal erred in law in misconceiving its statutory function. That function is prescribed by sec. 43(1) of the AAT Act which provides as follows:

``For the purpose of reviewing a decision, the Tribunal may exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision and shall make a decision in writing -

• (a) affirming the decision under review;
• (b) varying the decision under review; or
• (c) setting aside the decision under review and -
  • (i) making a decision in substitution for the decision so set aside; or
  • (ii) remitting the matter for reconsideration in accordance with any directions or recommendations of the Tribunal.''

It is conceded that the functions of the Tribunal, under this section, do not relevantly differ from the functions of the previous boards of review set up under previous legislation. Accordingly regard can be had to what was said by Kitto J. in
Mobil Oil Australia Pty. Ltd. v. F.C. of T. (1962-1963) 113 C.L.R. 475 at p. 502, where his Honour said in relation to a board of review that

``its function is merely to do over again (within the limits of the taxpayer's objection) what the Commissioner did in making the assessment... The Board is `in the same position as the Commissioner himself', as the Privy Council said in
Shell Co. of Australia Ltd. v. Federal Commissioner of Taxation (1931) A.C. 275 at p. 298.''

The powers and functions of a board of review have been contrasted with those of a court when dealing with an assessment by the Commissioner. Thus Barwick C.J. in Bailey (at ATC p. 4098; F.C.R. p. 217) said:

``The Act confers on the Commissioner the power and duty of assessment. It does not confer them upon the Court. It is, of course, otherwise in the case of the Board of Review: see sec. 192 and 193. Thus, the power of the Court given by sec. 199 is not a power of initial assessment but a power to correct error in the process of assessment adopted by the Commissioner, the Court being enabled to rectify the error by taking one of the appropriate courses specified in sec. 199.''

On the basis of these considerations, it was submitted and not contested that the Tribunal, in the present case, as always, stood ``in the shoes of the Commissioner''. It cannot be doubted that the Tribunal was well aware of its role in this regard. Indeed in the transcript

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ATC 4921

passage cited Mr Gibson refers to it more than once. In fact, he indicated a wish, if permitted by law, to have before him the investigation reports because they were material which had been before the Commissioner and to which, presumably, regard was paid in the making of the sec. 167 assessments under review. It is clear, of course, that the ultimate role of the Tribunal, if it did not remit the matter to the Commissioner, was to exercise the Commissioner's assessment-making powers. In the present case it could not seriously be said, having regard to the material before the Tribunal, and even taking into account that that material might have been supplemented by the material in the investigation reports, that it would have approached the making of an assessment other than under sec. 167. That is, in the event that it did not accept the case presented by the taxpayer, namely that, so far as he was concerned, he was involved only in the ``undercover operation'', knew nothing of any income-producing or concealing scheme, and received nothing other than some small payments which he had disclosed in his returns.

This, it must not be lost sight of, was the main and substantial case put to the Tribunal by and on behalf of the applicant. It was through this case, mainly if not solely, that the applicant sought to demonstrate, the onus being on him, that the assessments were ``excessive'' within the meaning of sec. 190(b). The Tribunal rejected this case. Quite clearly, it was not rejected on the basis of some ``rubber-stamping'' of the Commissioner's previous views. It was rejected fairly and squarely upon evidence given before the Tribunal itself through documentary exhibits and through witnesses who were examined, cross-examined and re-examined in the ordinary way.

It is abundantly clear, of course, that even though the Tribunal does over again the work of the Commissioner, it does it in a significantly different way. Although it could be said to be part of an administrative hierarchy, its functions partake far more of the court than of the office desk.

It is clearly not cast in the role of the inquisitor. Although it does not act within the confines of formal pleadings, it is constrained in its inquiries and deliberations by the ambit of the taxpayer's objections. Although it is not bound by the rules of evidence (sec. 33(1)(c)) in reaching its decision it must act upon the evidence which is placed before it. In
Fletcher & Ors v. F.C. of T. 88 ATC 4834 at p. 4846, the Full Court of the Federal Court (Lockhart, Wilcox and Burchett JJ.) said as follows:

``By force of sec. 43 of the Administrative Appeals Tribunal Act, the Tribunal has all the powers and discretions that are conferred by sec. 186 of the Income Tax Assessment Act upon the Commissioner. In exercising those powers and discretions the Tribunal was bound to consider the facts as they were proved in evidence before the Tribunal, making the decision which, upon that evidence and at that time, was the correct or preferable decision to be made in considering the objection. The Tribunal was not confined either to the material which was before the Commissioner, as primary decision maker, or the events which had occurred up to that time: see Drake [(1979) 46 F.L.R. 409] at p. 419,
Nevistic v. Minister for Immigration and Ethnic Affairs (1981) 34 A.L.R. 639;
Commonwealth v. Ford (1986) 65 A.L.R. 323 at p. 328; Freeman v. Secretary, Department of Social Security (Davies J., 18 August 1988, not reported).''

Similarly in
Drake v. Minister for Immigration and Ethnic Affairs (1979) 46 F.L.R. 409 at p. 419; (1979) 24 A.L.R. 577 at p. 589 Bowen C.J. and Deane J. spoke of the functions and powers of the Tribunal as follows:

``The function of the Tribunal is, as we have said, an administrative one. It is to review the administrative decision that is under attack before it. In that review, the Tribunal is not restricted to consideration of the questions which are relevant to a judicial determination of whether a discretionary power allowed by statute has been validly exercised. Except in a case where only one decision can lawfully be made, it is not ordinarily part of the function of a court either to determine what decision should be made in the exercise of an administrative discretion in a given case or, where a decision has been lawfully made in pursuance of a permissible policy, to adjudicate upon the merits of the decision or the propriety of the policy. That is primarily an administrative rather than a judicial

---

ATC 4922

function. It is the function which has been entrusted to the Tribunal.

The question for the determination of the Tribunal is not whether the decision which the decision-maker made was the correct or preferable one on the material before him. The question for the determination of the Tribunal is whether that decision was the correct or preferable one on the material before the Tribunal...''

Although Mr Gibson did not have the investigator's reports before him, as a result of his ruling, it is perfectly clear from the appeal books, including references to material not reproduced, that he had before him a wide range of material, including material such as the sworn evidence of witnesses which was not before the Commissioner. He had the evidence of handwriting experts to assist in the identification of persons signing bank documents and the like. Indeed the whole proceedings were conducted in a manner most similar to ordinary adversary litigation. How, then, is it asserted that the Tribunal failed to make an independent decision on the material before it?

As I understand it, the submission is that the Tribunal failed to reach an independent decision on the amount of tax payable by the applicant in respect of the relevant income years. It merely adopted the Commissioner's figures without entering upon an independent quantification of the amount payable. It is put that it did not exercise its own discretion but, in effect, merely considered whether the Commissioner's discretion had miscarried. I simply do not accept that this occurred. Putting aside the question to be considered hereunder whether it should have admitted the investigator's reports, it had before it, in circumstances where the applicant carried the clear onus under sec. 19(2), only very limited material bearing upon the appropriate quantification of tax. It was apprised of the figure arrived at by the Commissioner by the exercise of default assessment powers under sec. 167. It knew that that figure had been arrived at by taking one-third of the banking figures referred to above. This was a matter of concession and agreement between the parties even if there was no presumption as to the correctness of this figure vis-à-vis any figures put forward on behalf of the applicant (see
F.C. of T. v. Elton 90 ATC 4078, and cases there cited). There were in fact no countervailing figures submitted by the applicant or on his behalf. The applicant bore the onus, quite clearly, under sec. 19(2) of demonstrating that the Commissioner's figures were excessive. This involved him in proving that his taxable income was in fact less than the amount in respect of which he had been taxed. This is clearly established by the decision of the High Court in Dalco. He sought to discharge this onus simply by his evidence, supported by that of Elton, that he had received no amounts from the ``undercover operation'' other than those disclosed. Neither he nor his supporting witness were accepted. Accordingly he failed to discharge the onus by these means. He did not advance any case to the effect that if he were not accepted in his main contention, the figure assessed should nevertheless be reduced as a result of some other calculation proved by him with appropriate evidence. The result is that the Tribunal had before it only the Commissioner's original figure. There was no basis proved by the applicant for departing from it. It was, accordingly, perfectly open to the Tribunal merely to adopt that figure in exercise of its own discretion under sec. 167. There could hardly be said to have been any viable alternative.

As I understand it, however, a further submission was put that, notwithstanding that this course was open, the Tribunal did not in fact follow it. It did not approach the matter independently but simply considered whether the applicant had demonstrated that the Commissioner's discretion had miscarried. This submission was based upon certain wording in the Tribunal's reasons. It is well established that the Court should not be over astute, in considering the reasons of a Tribunal under the AAT Act, in finding possible errors of law based upon statements in the reasons which might found such assertions if taken out of context (see, e.g.
Blackwood Hodge (Aust.) Pty. Ltd. v. Collector of Customs (N.S.W.) (No. 2) (1980) 3 ALD 38 at p. 49;
Bisley Investment Corporation & Anor v. Australian Broadcasting Tribunal & Anor (1982) 40 A.L.R. 223 at pp. 251 and 255;
Steed v. Minister for Immigration & Ethnic Affairs (1981) 4 ALD 126 at p. 127;
F.C. of T. v. Cainero 88 ATC 4427 at pp. 4430-4431;
Politis v. F.C. of T. 88 ATC 5029 at pp. 5032-5033). I am quite satisfied on a full

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ATC 4923

reading and consideration of the Tribunal's reasons that Mr Gibson in fact exercised an independent discretion in his dismissal of the objection decisions of the applicant.

I come then to the applicant's submission that the Tribunal erred in law in rejecting the tender by him of the investigator's reports. In argument before me it was submitted on behalf of the applicant that the absence of these reports prevented significant arguments on quantum being placed before the Tribunal. In particular, it was said, arguments could have been put that the figures shown in the reports in relation to the expenditure of the various companies in connection with the directory business could have been relied upon as constituting allowable deductions against income. It was also put that arguments could have been advanced that other amounts apparently brought into consideration did not constitute income according to the ordinary acceptance of mankind. The applicant additionally submitted that arguments would have been available that much of the money received would, if income, have been income of the companies involved and not of the applicant. As the Tribunal was not bound by the strict rules of evidence, the material although, perhaps, objectionable if tendered in a court, could have been accepted by the Tribunal as a basis for this type of argument. In light of the recent decision in Dalco, reversing the decision of the Full Court of this Court, these arguments have far less weight than they had at the time when they were initially presented, the High Court not having then given its decision. It was put on behalf of the respondent after the decision was given that, even if the material had been admitted, and had produced the results contended for, those results would still fall far short of enabling the applicant to discharge the onus of proving that the assessments were ``excessive'' within the meaning of sec. 190(b) as expounded by the High Court in Dalco. The mere showing by the applicant that the Commissioner had fallen into error in certain respects in reaching his assessment under sec. 167 would not have sufficed to show relevant excessiveness, in the absence of evidence on behalf of the applicant proving that his taxable income in the relevant years was in fact lower in amount than the amount arrived at by the Commissioner.

It is difficult to evaluate this essentially hypothetical situation. Undoubtedly the applicant did not seek to put an alternative calculation of his taxable income before the Tribunal. He merely relied upon his case that he had not in fact received any moneys under the scheme. It is most difficult to envisage how, in these circumstances, he could have mounted an alternative case that had any significant chance of success of producing a finding that his taxable income did in fact include moneys received from the scheme but in either a lesser amount than the Commissioner had assessed, or in a form which would not fall into the category of income. In any event, it would seem that the existence of the companies and their alleged use in the production of income was well known to the applicant and his advisers prior to the commencement of the review. If an alternative case along the lines referred to was sought to be raised, it could have been done so, admittedly in a more cumbersome manner, by the production of the source material upon which the investigators had worked and the advancing of arguments based upon those materials independently of the considerations of the investigators. Manifestly there was no attempt made to follow this course.

Accordingly, at the time when the tender of the reports was made on behalf of the applicant, the Tribunal had before it a case in which the issues were clearly enough drawn within the terms of the objection. The applicant was seeking to discharge his onus by proving that he received no money in respect of which the assessment could have been raised. He was not seeking to prove that the moneys, if received, were in any event not income or were the income of someone else. Although not bound by the strict rules of evidence, it is clear that the Tribunal would necessarily have regard to the question of relevance of the material tendered to the issues in the case as they appeared from the manner in which the case was being conducted. In this regard it is, in my opinion, of the utmost importance to focus attention upon the reasons advanced by the applicant's counsel for the tender of the material. It simply was not tendered on the basis that he would seek to make use of it for the founding of the arguments referred to above. It was not sought to be tendered for the purpose of demonstrating that moneys received

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ATC 4924

were not income or that deductions had not been allowed in the calculation of taxable income. It was not, as I read the transcript, tendered on the issue of quantification or ``excessiveness'' at all. It was tendered on the issue of arbitrariness and capriciousness which had been opened to the Tribunal by counsel on behalf of the applicant and which was also a significant feature of counsel's closing address. Indeed, it became an accepted thing in the case that no deductions had been allowed in arriving at the figure of taxable income used by the Commissioner. It seems that the applicant, in fact, wanted this material only to found this submission. He was able to make it, in any event.

In my view, it sufficiently appears from the transcript, that it was ultimately because of the narrow basis upon which the tender was made that the Tribunal, having heard arguments based upon George's case, rejected the tender. Although the Tribunal evinced interest in receiving the material on the broad basis that it stood in the shoes of the Commissioner, it was not submitted by counsel for the applicant that it should be received for calculation or quantification purposes. This was, perhaps, not surprising, having regard to the applicant's case of total denial of receipts of moneys from the scheme.

Accordingly, in the ultimate, the Tribunal was called upon to determine relevance on the basis that the material could demonstrate that deductions were not taken into account by the Commissioner and that this would support an argument that the sec. 167 assessment was vitiated by arbitrariness. George's case, as is Briggs' case, is clear authority for the proposition that the making of an assessment pursuant to sec. 167 does not require the ordinary processes of ascertainment of assessable income and allowance of permissible deductions. It can, as already indicated, involve a process akin to guesswork. The applicant was not seeking to disprove the result arrived at by guesswork; he was simply trying to prove that it had been in fact arrived at by guesswork and was therefore a nullity, a result which would not have been, in any event, in accordance with legal principle.

I am, therefore, of the view that in the circumstances the Tribunal committed no error of law in rejecting the tender.

I should perhaps add that, if I be incorrect in my analysis of the transcript and if the investigative material was in fact admissible on the general issue of excessiveness of amount, then I would not, in any event, be disposed to remit the matter to the Tribunal. In my view the admission of the material would not have affected the outcome of the review. In very many respects it is obviously similar to the material considered by Yeldham J. at first instance in Dalco. It provides a clear enough indication of the use by the three men of corporate entities simply for the purpose of effecting a scheme which would, at the one time, produce income and lead to its effective concealment. That was the view taken by the investigators and also by the delegate of the Commissioner. At the end of the day, had it been admitted, in light of the rejection of the testimony of the applicant and his witnesses, it is inconceivable, to my mind, that the Tribunal would not have accepted this view of the arrangements that had been put in place. It would have tended to confirm the Commissioner's case. It certainly would not have advanced the applicant's main case or any alternative case based upon an assertion that the amount of the assessments was, in any event, excessive.

For these reasons I dismiss the appeal and order the applicant to pay the respondent's costs.

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The applicant pay the respondent's costs.