Giris Pty. Ltd. v. Federal Commissioner of Taxation.

Judges:
Barwick CJ
McTiernan J
Kitto J
Menzies J
Windeyer J
Owen J

Court:
High Court (Full Court)

Judgment date: Judgment handed down 5 March 1969.

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Barwick C.J.: The appellant was assessed to tax in respect of the income of property of which it is a trustee for the tax year 1965-66 at the rate of tax appropriate to an assessment under sec. 99A of the Income Tax Assessment Act 1936-1965 (the Act). In an appeal against this assessment which came before my brother Menzies the appellant challenged the validity of sec. 99 and 99A of the Act and requested that that question of law be referred to a Full Court. The respondent agreed to this course and his Honour made an order that the question of the validity of the two sections be argued before a Full Court and adjourned the further hearing of the appeal which was before him. The sole question therefore before us now is the constitutional validity of the sections. I think it is advisable to set out the whole of the two sections:

``99. (1.) This section applies in relation to a trust estate in relation to a year of income only if the next succeeding section does not apply in relation to that trust estate in relation to that year of income.

(2.) Where -

• (a) there is no part of the net income of a trust estate that is included in the assessable income of a beneficiary in pursuance of section ninety-seven of this Act or in respect of which the trustee is assessed and liable to pay tax in pursuance of the last preceding section; or
• (b) there is a part of the net income of a trust estate that is not included in the assessable income of a beneficiary in pursuance of section ninety-seven of this Act and in respect of which the trustee is not assessed and is not liable to pay tax in pursuance of the last preceding section,

the trustee shall be assessed and is liable to pay tax on that net income or on that part of that net income, as the case may be, as if it were the income of an individual and were not subject to any deduction.

99A. (1.) This section does not apply in relation to a trust estate in relation to any year of income if the trust resulted from -

• (a) a will, a codicil or an order of a Court that varied or modified

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  the provisions of a will or codicil; or
• (b) an intestacy or an order of a Court that varied or modified the application, in relation to the estate of a deceased person, of the provisions of the law relating to the distribution of the estates of persons who die intestate.

(2.) This section does not apply in relation to a trust estate (other than a trust estate referred to in the last preceding sub-section) in relation to a year of income if the Commissioner is of the opinion that it would be unreasonable that this section should apply in relation to that trust estate in relation to that year of income.

(3.) In forming an opinion for the purposes of the last preceding sub-section -

• (a) the Commissioner shall have regard to the circumstances in which and the conditions, if any, upon which, at any time, property (including money) was acquired by or lent to the trust estate, income was derived by the trust estate, benefits were conferred on the trust estate or special rights or privileges were conferred on or attached to property of the trust estate, whether or not the rights or privileges have been exercised;
• (b) if a person who has, at any time, directly or indirectly -
  • (i) transferred or lent any property (including money) to, or conferred any benefits on, the trust estate; or
  • (ii) conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of the trust estate, whether or not the right or privilege has been exercised,

  has not, at any time, directly or indirectly -

  • (iii) transferred or lent any property (including money) to, or conferred any benefits on, another trust estate, not being a trust estate referred to in sub-section (1.) of this section; or
  • (iv) conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of another trust estate, not being a trust estate referred to in subsection (1.) of this section, whether or not the right or privilege has been exercised,

  the Commissioner shall have regard to that fact; and

• (c) the Commissioner shall have regard to such other matters, if any, as he thinks fit.

(4.) Subject to the next succeeding subsection, where -

• (a) there is no part of the net income of a trust estate that is included in the assessable income of a beneficiary in pursuance of section ninety-seven of this Act or in respect of which the trustee is assessed and liable to pay tax in pursuance of section ninety-eight of this Act; or
• (b) there is a part of the net income of a trust estate that is not included in the assessable income of a beneficiary in pursuance of section ninety-seven of this Act and in respect of which the trustee is not assessed and is not liable to pay tax in pursuance of section ninety-eight of this Act,

the trustee shall be assessed and is liable to pay tax on that net income or on that part of that net income, as the case may be, at the rate declared by the Parliament for the purposes of this section.

(5.) Where a body, association or fund referred to in paragraph (d), (e), (ea), (eb), (f), (g), (h), (i), or (j) of section twenty-three of this Act, or an organisation that is prescribed for the purposes of paragraph (x) of that section, has a vested

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interest, being an indefeasible interest, in the income or in part of the income of a trust estate, the net income or the part of the net income of the trust estate upon which the trustee is liable to be assessed and to pay tax as provided by the last preceding sub-section does not include so much of that net income or of that part of that net income as, in the opinion of the Commissioner, relates to the income or the part of the income of the trust estate in which that body, association, fund or organisation has such a vested interest.''

That the appellant has been assessed in accordance with sec. 99A and the appropriate taxing provisions involves the conclusion that the Commissioner has not thought it unreasonable to apply the provisions of sec. 99A to the income of the property of which the appellant is trustee in respect of the said year of income.

It will be observed as a matter of verbiage that sec. 99A purports to bring to tax the trust income which falls within its prescriptions and to do so of its own force. Verbally the Commissioner is given by sec. 99A an authority or discretion in the nature of a dispensing power if he thinks it unreasonable to apply the section to the particular taxpayer in respect to the particular year of income. If he does not think it unreasonable so to do, sec. 99 does not apply to the income of the particular trust estate in respect of the particular year of tax because, in default of the Commissioner's opinion in the appropriate sense, sec. 99A applies. It is possible to treat sec. 99A in isolation and, regarding it literally, not place the Commissioner under any duty to decide pro or con as to the reasonableness of applying that section to the particular taxpayer in the particular year of tax. In the Commissioner's silence, the section would apply. If that literal view were taken then, of course, the invalidity of giving the Commissioner an authority or discretion to treat the section as not applying to a taxpayer in a particular year of tax would not in any wise assist the present appellant. It would be left liable because of the literal terms of sec. 99A to tax at the rate appropriate to a taxpayer to whom sec. 99A applies.

However, I am not prepared to treat the section in isolation from sec. 99 and to give literal effect to what after all is not much more than a draftsman's device in allowing the section to apply where the Commissioner has not thought it was unreasonable for it so to do. In my opinion, the two sections must be read together and so read they do exhibit a cohesive scheme on the part of the legislature. In my opinion, the operation of each of the sections depends on the view of the Commissioner as to the unreasonableness of applying the one rather than the other to the particular taxpayer in respect of the year of income in question. So read, in my opinion, a duty is imposed on the Commissioner to decide in each case and in respect of each year of income whether it is unreasonable to apply sec. 99A rather than sec. 99.

It would also follow from my interpretation of the section that the Commissioner is in substance able to choose whether the trust income will be taxed at one rate rather than another, or perhaps, put more accurately, assessed under one section rather than another. He is able to make the choice in exercise of what, for want of a more precise expression. I shall call a legislative discretion: he can apply one section rather than the other if he thinks it unreasonable to apply the latter of them. I have been unable to find any content for the word ``unreasonable'' in the context of the two sections except considerations of a kind upon which a legislature acts in deciding whether an enactment or its particular terms are or are not unreasonable having regard to the interests of the public generally, of the citizen to be affected, of the Revenue and of the requirements of those policies, political, economic and fiscal which the Parliament is prepared to sanction. Some facts are specified for the Commissioner's attention in arriving at his opinion as to unreasonableness but he is given no hint of what bearing any or all of them ought to have or may have on his judgment. In addition, he is required to have regard to any facts which he thinks appropriate to be considered in relation to the formation of his opinion. This view of the discretion gives to the Commissioner a wide charter which it might have been thought he was ill-equipped to exercise. What he is required to decide, in my opinion, is in truth a function of the legislature, rarely delegated to an official. Its repose in the Commissioner means that the citizen cannot know when disposing of his affairs what the impact upon him or them the law regarding the taxation of income

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will make: and unless the Commissioner is required to disclose the factual basis of his opinion as to unreasonableness, the taxpayer will not know after he is assessed upon what factual basis he was required to pay the tax imposed. But the wisdom of creating this somewhat unusual situation and the dangers inherent therein are of no concern to the Court, though they might well be to the Parliament, if the features to which I have called attention do not lead to invalidity.

However, in my opinion, the Commissioner is under a duty in each case to form an opinion and the taxpayer is entitled to be informed of it, and upon the taxpayer's request, the Commissioner should inform the taxpayer of the facts he has taken into account in reaching his conclusion.

The appellant first makes a two pronged attack upon the sections. Because of the features to which I have called attention, it says that the sections do not amount to a law with respect to taxation within the meaning of sec. 51 (ii) of the Constitution because they prescribe no rule at all - they simply create what is virtually an authority in the Commissioner to create a rule. Further, it says that the sections involve an inadmissible delegation of legislative power and a delegation which is so complete as to amount to an abdication of such power pro tanto .

As to the first of these objections, I have come to the conclusion that the sections do amount to a law with respect to taxation. Together they prescribe the rule to be applied in assessing the particular class of taxpayer in the year of income, though dependent upon the fact of the Commissioner's opinion upon a matter which itself is no more than a matter of opinion. None the less the subject matter of the law is taxation and it does make a rule with respect to that matter. In my opinion, this objection fails.

As to the second of these objections, there is in the Australian Constitution no such separation of powers as would deny the Parliament the power to give an officer of the executive government such a legislative discretion as I have described. I have called it such to distinguish it from other discretions of the kind often given to officials, for example, such as enable an official to make his view of the facts of a matter a prima facie source of liability to tax. In the case of such discretions the legislature itself determines the grounds of liability leaving it only to the official to resolve the relevant facts nominated by the legislature as requisite to attract the stated liability. No doubt whilst the Parliament may delegate legislative power it may not abdicate it. Here, even though once the Commissioner's discretion is exercised in respect of a particular taxpayer and a particular year of income the consequences of that exercise are beyond recall except by means of retroactive legislation, it cannot, in my opinion, properly be said that the legislature has done more than delegate a legislative function. cf.
Cobb & Co. Ltd. v. Kropp (1967) 1 A.C. 141 .

It was then submitted that the effect of the sections was to create an unchallengeable tax, the imposition of which the taxpayer could not challenge and the validity of which the Court could not examine. I have already indicated the width of the Commissioner's discretion and the lack of discernible criteria by reference to which the propriety of its exercise could be tested. However, as I interpret the sections, the taxpayer is not without the means of obtaining the factual basis upon which the Commissioner has formed his opinion. The legislature, upon any construction of the sections, has made the existence of an opinion of the stated kind the condition of the operation of one of the sections rather than the other. Thus the Commissioner must hold the opinion. The Court can decide whether or not he did hold it. In my opinion, the Court can require him to form it. It can determine whether the opinion is held bona fide and, although as I have said, the discretion is wide and though being really legislative in nature, what is relevant to its formation may range over an extremely wide spectrum of fact and consideration, the Court can determine whether or not the opinion was formed arbitrarily or fancifully, or upon facts or considerations which could not be regarded as relevant even to such a question as the unreasonableness of applying a taxing provision to a particular taxpayer in respect of the income of a particular year. In my opinion, it cannot properly be said that there is here an unchallengeable tax as that expression is used in reasons for decisions given in this Court.

I need only mention one other argument

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which was submitted by the appellant. It was said that the concept of unreasonableness in relation to the application of a taxing provision did not itself contain any criteria nor any limitation as to what could be considered relevant; the Commissioner could decide that it was unreasonable to apply sec. 99A to taxpayers in one State whilst not applying it to taxpayers in another State. Whilst it was not submitted that the statute authorised such discrimination, it was said that it permitted it and that such discrimination could be practised without detection. In my opinion, even if the appellant had been right in saying that such a practice could not be detected, the sections would not be invalid for neither of them purports to authorise any such discrimination. The fact that the taxpayer could not evidence a malpractice on the part of the Commissioner neither makes the law invalid nor, to hark back to an earlier submission, does it make the assessment unchallengeable in the relevant sense. However, I have indicated my opinion that under the sections the Commissioner is bound to form an opinion and to disclose the factual basis upon which it has been formed. For these reasons, I would reject this submission.

In my opinion sec. 99 and sec. 99A are constitutionally valid.