A/asian Jam Co Pty Ltd v Commissioner of Taxation

The relevant provisions of the Income Tax Assessment Act are contained in ss. 28, 29 and 31. Section 28 provides: "(1) Where a taxpayer carries on any business, the value ascertained under this subdivision, of all trading stock on hand at the beginning of the year of income, and of all trading stock on hand at the end of that year shall be taken into account in ascertaining whether or not the taxpayer has a taxable income. (2) Where the value of all trading stock on hand at the end of the year of income exceeds the value of all trading stock on hand at the beginning of that year, the assessable income of the taxpayer shall include the amount of the excess. (3) Where the value of all trading stock on hand at the beginning of the year of income exceeds the value of all trading stock on hand at the end of that year, the amount of the excess shall be an allowable deduction." Section 29 provides: "The value of live stock and of each article of other trading stock to be taken into account at the beginning of the year of income shall be its value as ascertained under this or the previous Act at the end of the year immediately preceding the year of income." Section 31 provides: "The value of each article of trading stock (not being live stock) to be taken into account at the end of the year of income shall be, at the option of the taxpayer, its cost price or market selling value or the price at which it can be replaced." It is to be noted that s. 6 defines "trading stock" as including anything produced, manufactured, acquired or purchased for purposes of manufacture, sale or exchange.

It is on s. 31 that the present cases primarily turn. The section in terms allows to the taxpayer considerable freedom of choice. He may adopt one method of valuation for one part of his stock, and another method for another part. And he is not bound to adhere from year to year to any method of valuation for any part of his stock: he may change the basis as to the whole or any part of his stock from year to year at will. On the other hand, the section is imperative in that it requires him to adopt for each article of his stock one or other of the three prescribed bases of valuation. He is not at liberty to adopt some other basis of his own. And s. 29 requires that the value at which his stock is brought into account at the beginning of a year shall be the value at which it was brought into account at the close of the preceding year: in other words, the opening figure of any year must be identical with the closing figure of the preceding year.

The taxpayer company is incorporated in Victoria, and has for more than forty years carried on a large business of manufacturing or processing, and selling, jams, canned fruits, tomato sauce and a number of other food products of minor importance. Its "trading stock" at any given time consists partly of goods manufactured or processed but not yet sold, and partly of raw materials such as fruit, sugar, and tinplate. Of these it is necessary, for present purposes, to consider only three classes of trading stock - jams, canned fruits, and tinplate. The company is a very large buyer of fruit, and it has been its practice for many years to deal with certain growers, and to take from them each year the whole of their crops. These, of course, vary very considerably from year to year according to seasonal conditions and other factors. I gather that an accounting period ending on 30th September was chosen because it is shortly after that date that a new season's supply of fruit begins to come in, and stocks will generally be lower than at any other time in the calendar year. The company appears, as one would have expected, to have carried large stocks of jams, canned fruits, and tinplate, but there have been very wide fluctuations over the years. To take only one example, the closing stocks of jams in the years 1944, 1945 and 1946 were respectively 9,549,325 lbs., 5,453,046 lbs., and 9,203,077 lbs., and the largest of these figures is not the maximum, nor is the lowest the minimum in the relevant years.

As long ago as 1914 or even earlier, the company, for fairly obvious business reasons, adopted the practice of taking into its accounts, at the beginning and end of each trading period, its stocks of jams, canned fruits and tinplate, at "standard" values. The practice was followed not only in the keeping of its accounts for its own purposes but also in the returns furnished to the Commissioner for purposes of income tax. The unit in the cases of jams and canned fruits was a dozen tins or cans, and in the case of tinplate what is called a "base box". The values adopted were, in the case of jams 4/- per dozen tins or cans, in the case of canned fruits 5/- per dozen tins or cans, and in the case of tinplate 20/- per base box. The method appears to be essentially similar to that which is familiar in Australia in the accounts of pastoral businesses.

The values adopted by the company in or before 1914 have never been changed, and in all the years now in question the company's opening and closing stocks of jams, canned fruits and tinplate, were taken into account at 4/- per unit, 5/- per unit, and 20/- per unit respectively. For the accounting periods up to and including that which ended on 30th September 1938 no basis of valuation of stocks was stated either in the company's own accounts or in the returns furnished to the Commissioner for income tax purposes. In the following year, however, the Companies Act 1938 Vict. came into force, s. 124 of which required the balance sheet of a company to state "the basis of valuation of each class of assets", and in subsequent accounting periods the company, both in its own accounts and in the returns furnished to the Commissioner, stated the valuation of its stocks as having been made "at cost or under". For each of the accounting periods ended 30th September 1937 to 1947 inclusive income tax was assessed and paid on the basis of the returns furnished by the company to the Commissioner.

At some time after 1947 the Commissioner caused an investigation of the company's accounts to be made with particular reference to stock values, and on 24th November 1950 he issued amended assessments for each of the eleven income years commencing with that which ended on 30th September 1937. In three of the eleven cases his calculations showed a taxable income lower than that which had been returned. In the remaining eight cases they showed a taxable income higher - in five of the eight cases much higher - than that which had been returned. It is in respect of these eight cases that the present appeals are brought.

The basis of the Commissioner's calculations was, as I understand it, as follows. With regard to jams, he began by accepting for the first income year (1936-37) the company's own opening stock figure. Then for that and each succeeding income year he endeavoured to arrive at a closing stock figure which would represent as nearly as possible actual cost. From figures supplied by the company, and in no way challenged before me, he worked out the cost per dozen tins of each of twenty varieties of jam manufactured by the company. In the first year the lowest cost of any variety was 4/5d., and the highest 5/8d. He then added the twenty figures together and divided by 20, to arrive at an "average" cost for the twenty varieties of 5/3d. This method would, of course, give an accurate result only if exactly the same number of tins of each of the twenty varieties were held in stock, and this was very far from being the case. It is not unlikely, however, that any error would be in favour of the company, and in any case, as I have said, I did not understand the Commissioner's figures as such to be disputed. The result was to show a gradual increase in cost from year to year, the figure ranging from 5/3d. per dozen tins in 1936-37 to 6/10d. per dozen tins in 1946-47. The same method was adopted with regard to canned fruits and with the same result, though the company's own figure of 5/- per dozen tins was not exceeded by the Commissioner's figures until 1940-41, when his calculations produced a figure of 5/3d. From then onwards the figure rose from year to year until it reached 6/7d. in 1946-47. With regard to tinplate, the Commissioner, from figures supplied by the company, arrived at an estimated cost into store per base box, which ranged from 30/2d. in 1936-37 to 56/- in 1946-47.

Section 190 of the Act provides that on any reference or appeal the burden of proving that the assessment (which is, of course, in the present case, the amended assessment) is excessive shall lie upon the taxpayer. In this connection a question of some difficulty may arise under s. 31, to which some argument was directed before me. The words "cost price" in the section are perhaps not literally appropriate to goods manufactured, as distinct from goods purchased, by a taxpayer, but I feel no difficulty in reading them as meaning simply "cost". A position, however, may arise in which a taxpayer does not expressly state in his return on what basis his closing value of stock on hand is based. Or he may state (say) that he has proceeded on the basis of cost. If, in either case, the Commissioner ascertains that the value calculated on a cost basis is understated, and, taking cost as his basis, amends an original assessment based on the taxpayer's return, is it open to the taxpayer to show that, as to all or some of his stock, a valuation on one of the other bases would produce a result more favourable to him than the amended assessment? Counsel for the Commissioner contended that, in the latter case, the taxpayer must be taken to have made his election and could not be at liberty to alter his election. Counsel for the company contended that the taxpayer must always be at liberty to defeat or reduce the amended assessment by showing that any permitted basis of valuation would be more favourable to him than that adopted by the Commissioner. I mention the question because it was discussed, but, for reasons which will appear, I do not think that it arises in the present cases.

Regarded as a matter of business discretion and wise management, the policy of stock valuation adopted by the company appears to me to have been unexceptionable. But, for the purposes of income tax, s. 31 seems to me, as I have said, to be imperative and to require the closing value of trading stock to be based, in the case of each article, on one or other of three specified bases. And the conclusion seems to me to be inescapable that the company did not, for purposes of income tax, adopt any one of the three specified bases. The evidence suggests that the figures actually adopted were originally based on, or at any rate related to, actual cost. But the company adhered to those figures after they had ceased to bear any relation to actual cost, and after they had come to represent in effect a "standard" or more or less arbitrary "value". I do not think it possible to say that the company's returns, on which the original assessments were based, complied with the requirements of s. 31.

Mr. Menzies sought to maintain that the closing stock values stated in the company's returns for the years in question did conform to what is required by s. 31. His argument did not, I think, differ in substance from a view put by Mr. Robinson, a director of the company who gave evidence before me, in a letter written by him to the Commissioner during the progress of the investigation. He said that s. 31 was framed in the light of recognised practices adopted in businesses honestly and efficiently conducted. He said that a precise ascertainment of the cost of every article comprised in stock manufactured by a taxpayer must often be impracticable, and that a careful and honest estimate of the total cost of a quantity of stock was all that s. 31 really required. So far, I do not know that I would be disposed to differ from him. It is common knowledge that in many matters of accounting an honest and careful estimation is the most that can be expected or achieved. He went on to say that in the present case the company's valuation per unit of closing stock had been originally based on cost, having been adopted at a time when it did represent approximate cost. I think, as I have said, that the evidence established that there was a time when it did represent approximate cost. The next step was to say that, stock being once established and valued at cost, what took place from year to year was merely a drawing on that stock and a replacement of that stock, so that it was legitimate to regard the stock on hand at any given time, so far as it did not in fact consist of the "original" stock, as substituted for, and the equivalent of, "original" stock taken out and sold. Therefore, it was said, the stock on hand at the end of each of the accounting periods in question could be said with truth to have been valued at cost. The conception behind the argument may possibly be regarded as a sort of theoretical justification for a practice which does not seem to me in itself to stand in need of justification. But I am quite unable to accept the conclusion which is said to follow. It does not seem to me to bear any relation to the real situation or to the actual requirements of s. 31. There were, as I have said, very wide fluctuations, up and down, in the stock on hand from year to year at 30th September. Moreover, so far as jams and canned fruits are concerned, Mr. Robinson said in cross-examination that "in general, the maximum time that the company would carry stock would be two years". In any case, I am not able to read s. 31 otherwise than as requiring, at the end of every accounting period, a valuation, on one or other of the specified bases, of stocks actually on hand, and I cannot regard "cost" as meaning anything other than actual cost.

The other argument for the appellant company did not, if I have followed Mr. Menzies correctly, assert compliance with s. 31, but was directed rather to showing that the Commissioner's amended assessments were excessive, because a valuation might have been made on the basis of market selling value, and a valuation so made would have shown far lower values of closing stock than those at which the Commissioner arrived. But this argument also appears to me to be based on a foundation that is not really tenable. It did not appear to me to be applicable in any case to the tinplate. But it was said that the company sold during each year as much of its jams and canned fruits as it could sell, and that the stock which was left on hand at the end of the year represented a "surplus", the "market selling value" of which could only be ascertained by supposing the whole to be offered for sale en bloc on the last day of the accounting period. If one supposes such a sale - by auction or otherwise - I am quite prepared to accept the evidence that much lower values than those taken by the Commissioner would have been realized. But it is not to be supposed that the expression "market selling value" contemplates a sale on the most disadvantageous terms conceivable. It contemplates, in my opinion, a sale or sales in the ordinary course of the company's business - such sales as are in fact effected. Such expressions in such provisions must be interpreted in a commonsense way with due regard to business realities, and it may well be - it is not necessary to decide the point - that, in arriving at market selling value, it is legitimate to make allowance for the fact that normal selling will take place over a period. But the supposition of a forced sale on one particular day seems to me to have no relation to business reality. The case of Inland Revenue Commissioners v. Brigg Neumann & Co. [1] , was a case involving very special facts, but it was concerned with the valuation of stock, and a preliminary observation of Rowlatt J. seems to me to be in point here. He said: "It is not to be supposed that you would value - and it would not be right, of course, to do so - the cloth at a figure which you could get by having a break-up sale, or a forced sale, or anything of that sort" [2] . To attempt to arrive at market selling value on the supposition that the whole of the stock in hand must be offered for sale and sold on the last day of the accounting period is, in my opinion, to proceed on a wrong basis.

1. (1928) 12 Tax. Cas. 1191. 2. (1928) 12 Tax. Cas., at p. 1202.

In relation to jams, but not in relation to canned fruits or tinplate, certain figures (Exhibit T2) were put before me as showing the prices that might have been obtained on export, and arriving at market selling value by deducting from export price the estimated cost of taking from store to the f.o.b. point. Again it is not, in my opinion, correct to arrive at market selling value by reference exclusively to an export price. But the figures given relate, in any case, only to a part of the stock in question, and I did not understand Exhibit T2 to be pressed in argument.

The result is that the taxpayer has, in my opinion, failed to establish that any of the amended assessments is excessive. It remains, however, to consider whether the Commissioner was authorized by the Act to amend all or any of the original assessments, which were based on the returns furnished by the taxpayer. This question depends on the first three sub-sections of s. 170 of the Act, but it is necessary only to quote sub-s. (2).

Section 170 (2) provides: "Where a taxpayer has not made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and there has been an avoidance of tax, the Commissioner may - (a) where he is of opinion that the avoidance of tax is due to fraud or evasion - at any time; and (b) in any other case - within six years from the date upon which the tax became due and payable under the assessment, amend the assessment by making such alterations therein or additions thereto as he thinks necessary to correct an error in calculation or a mistake of fact or to prevent avoidance of tax as the case may be." It is common ground that the Commissioner had no power to amend the original assessment for any year unless the case fell within the terms of this sub-section, and that the burden rests on the Commissioner to establish what is necessary to bring the case within the sub-section: see McEvoy v. Federal Commissioner of Taxation [1] , and Federal Commissioner of Taxation v. Hines [2] .

1. (1950) 9 A.T.D. 206. 2. (1952) 9 A.T.D. 413.

Obviously the first question to be considered is whether the company made in each year a full and true disclosure of all the material facts necessary for its assessment. I feel compelled to hold that it did not. In Federal Commissioner of Taxation v. Westgarth [3] , it was held that almost identical words in s. 20 (2) of the Estate Duty Assessment Act 1914-1942 "meant disclosure of relevant facts known to the taxpayer or of relevant beliefs held by him, and that it did not involve making the Commissioner aware of facts unknown to the taxpayer" [4] . And in Foster v. Federal Commissioner of Taxation [5] , (see especially per Latham C.J. [6] ) it was held that the words did not require the taxpayer to direct the Commissioner's attention to facts of which the Commissioner was aware. But, as Williams J. observed in Scottish Australian Mining Co. Ltd. v. Federal Commissioner of Taxation [7] , the expression is a very wide one. His Honour said: - "It seems to impose on a taxpayer the duty of disclosing every fact which he knows or is capable of knowing material to a correct assessment" [8] . The words "or is capable of knowing", if read quite literally, may be thought to go a little too far, but I would think that even a merely inadvertent omission of a material fact may be enough to enable the Commissioner to maintain that the full and true disclosure required has not been made. I think further - what is of some importance in the present case - that, if there is a material omission in the taxpayer's return, it is nothing to the point for the taxpayer to say to the Commissioner: "It was obvious on the face of the return that there was something I had not told you: you could have asked me about it, and, if you had done so, the information would have been immediately and willingly supplied." Here the fact that closing stocks were brought into the company's accounts on the basis of a "valuation" which did not comply with s. 31 was a fact material to the company's assessment. In respect of the first two accounting periods, this fact was simply not stated in the company's returns: no basis of valuation was disclosed. For the remaining periods the returns showed a valuation "at cost or under". This was true so far as it went: some of the stock, e.g. sugar, was in fact taken in at cost, and the figure shown for other stock was in fact below cost. But it was material, for the purposes of assessment of income tax, for the Commissioner to know that the valuation, where it was below cost, was not based either on market selling value or on the price at which the stock could be replaced. And this fact was not disclosed.

1. (1950) 81 C.L.R. 396. 2. (1951) 82 C.L.R. 606, at p. 614. 3. (1951) 82 C.L.R. 606. 4. (1951) 82 C.L.R., at pp. 614-615. 5. (1950) 81 C.L.R. 188, at pp. 197-198. 6. (1950) 81 C.L.R., at p. 198.

The next question is whether there was an avoidance of tax. If the view which I have taken of the substance of the case be correct, it is clear that there was. The word "avoidance" unlike the word "evasion", does not, in my opinion, involve any notion of active or passive fault on the part of the taxpayer. If the absence of full disclosure has in fact resulted in less tax being paid than ought to have been paid, there has been an avoidance of tax within the meaning of s. 170 (2).

This point having been reached, it is established that the last three of the amended assessments were authorized by s. 170 (2). Each of those three amended assessments was in fact made within six years from the date upon which tax became due and payable under the original assessment. Each of those cases falls, therefore, within par. (b) of s. 170 (2). In each of the other five cases, however, more than six years had elapsed before the amendment was made, and a further condition must be fulfilled if the amendment of the original assessments is to be justified. That condition is that the Commissioner must have been of opinion, at the time of the making of the amendments, that the avoidance of tax was "due to fraud or evasion". Fraud has not been suggested, and the material word in that expression is the word "evasion".

The burden of proving that he held the relevant opinion at the relevant tine rests, I should think, as in the case of the other elements, on the Commissioner. By way of providing the necessary proof, Dr. Coppel tendered a certificate purporting to be signed "R. J. Mair, Second Commissioner of Taxation". This document bore date 8th August 1950, and, after reciting the relevant facts, concluded: "Now I hereby certify that I am of opinion that the said avoidance was due to evasion". The probative effect of this document depends on several enactments. In the first place, s. 9 of the Income Tax Assessment Act provides for the appointment of a Second Commissioner of Taxation, and s. 10 (so far as material) provides that, where the operation of any provision of the Act is dependent upon the opinion of the Commissioner in relation to any matter, that provision may operate upon the opinion of the Second Commissioner in relation to that matter. Section 266 of the Act provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters which by the Act are required or permitted to be prescribed, or which are necessary or convenient to be prescribed for giving effect to this Act. Then reg. 43 of the regulations made under the Act provides (in effect) that, in proceedings on appeal against an assessment amended in pursuance of s. 170 (2), a certificate in writing signed by the Commissioner or the Second Commissioner, stating that he is of opinion that the avoidance of tax was due to fraud or evasion, shall be conclusive evidence that the Commissioner or the Second Commissioner, as the case may be, "was of opinion as stated in the said certificate". Finally, s. 176 of the Act provides that all courts shall take judicial notice of the signature of every person who is or has been the Commissioner or the Second Commissioner if such signature is attached or appended to any official document.

When the certificate was tendered, Dr. Coppel referred me to, and read, reg. 43. No objection was taken, and the certificate was admitted and marked "Exhibit C2". At the close of his final address, however, Mr. Menzies submitted that reg. 43 was not authorized by s. 266 of the Act and was void. That being so, he said, there was no evidence that the Commissioner or the Second Commissioner held the necessary opinion, and the first five of the taxpayer's appeals must therefore succeed. Dr. Coppel submitted that Mr. Menzies, not having objected to the document when it was tendered, ought not to be permitted to raise this point at this late stage. Alternatively he asked that, if I did entertain the point, and whether I reserved it for consideration or decided it then and there against him, I should permit him to call further evidence. I was of opinion, on the one hand, that I ought not to exclude from consideration a point which plainly was at least arguable. It seemed clear to me, on the other hand, that the Commissioner's counsel ought to be allowed to take any course which he might have thought it advisable to adopt if the point had been raised (as it could have been) as an objection to evidence. I ruled accordingly, and, after hearing further argument, formed and expressed the opinion that reg. 43 was wholly invalid.

It appeared, and appears, to me to be entirely clear that reg. 43 is inconsistent with the Act. Its effect is simply to preclude the court from deciding questions which, by the provisions of the Act relating to objections and appeals, are committed to the court for decision. It seems unnecessary to say more. The only real question seemed to me to be whether it was possible, by the application of s. 46 of the Acts Interpretation Act 1901-1950, so to "read down" reg. 43 as to give it a partial valid operation. In Federal Commissioner of Taxation v. Rooney [1] , a regulation made under the Entertainments Tax Assessment Act 1916 came in question. The regulation provided that in any legal proceedings by the Commissioner for recovery of tax the certificate in writing of the Commissioner stating the amount of tax due by the defendant should be prima facie evidence of the fact stated. This was held to be a valid regulation under a power given in the same terms as those of s. 266 of the Income Tax Assessment Act. Cf. Loughnan v. Hopkins [2] . Is it possible to treat reg. 43 as including a provision that a certificate of an opinion that there has been fraud or evasion shall be prima facie evidence that such an opinion was entertained, and to hold that, to the extent to which it so provides, it is valid? It is not possible, in my opinion so to hold. Even if the regulation had in terms provided that such a certificate should be prima facie evidence only, I would not regard it as covered by Rooney's Case [1] . The subject matter of the certificate is of a different character altogether from that of the certificates which were in question in Rooney's Case [1] and in Loughnan v. Hopkins [2] . Questions of law, as well as questions of fact, are, or may be, involved in the formation of the opinion. In Rooney's Case [1] and in Loughnan v. Hopkins [2] it was quite convenient if not necessary, that the certificate should be made prima facie evidence. In either case, if the certificate was incorrect, it could without difficulty be proved to be incorrect. In the case of reg. 43, the result of making the certificate prima facie evidence might be to place the formation of the opinion beyond challenge just as effectively as if the certificate were made conclusive in terms. This would be neither necessary nor convenient for giving effect to the Act, though it might be convenient enough for other purposes and from another point of view. The opinion which I have expressed is not weakened but is reinforced by the consideration that, where under the Act the Commissioner's opinion is made a criterion of liability, the opinion can only be challenged within defined and narrow limits. When the Act makes the opinion of the Commissioner a criterion, and requires that opinion to be proved, it must be taken, in my opinion, to contemplate and require proof according to the rules of the common law, and any regulation which derogates from that requirement is inconsistent with the Act. Even, therefore, if s. 46 should be applied so as to give a partial and severable operation to reg. 43, the result would not be to produce a valid and effective law.

1. (1925) 36 C.L.R. 305. 2. (1940) V.L.R. 42. 3. (1925) 36 C.L.R. 305. 4. (1925) 36 C.L.R. 305. 5. (1940) V.L.R. 42. 6. (1925) 36 C.L.R. 305. 7. (1940) V.L.R. 42.

On my ruling that the certificate was not evidence, Dr. Coppel called Mr. Mair, the Second Commissioner, as a witness. He deposed that he had, before the amended assessments were made, formed the opinion that the avoidance of tax had been due to evasion, and he was cross-examined. Mr. Menzies argued that he had misunderstood the meaning of the word "evasion", and that he could not, on the material before him, reasonably form the opinion that there had been "evasion". It seems quite clear that it would not be enough for the taxpayer that I should myself form the opinion that the avoidance of tax was not due to evasion on the part of the taxpayer. The enactment is plainly one which "means to withdraw from the consideration of the court the correctness of the opinion of the Commissioner upon the matter in question." In order that the appeals should succeed, it is necessary that I should hold that the opinion was not in fact entertained, or that it was based upon a misconception of the meaning of the word "evasion", or that it was arrived at "capriciously, or fancifully, or upon irrelevant or inadmissible grounds" (per Rich and Dixon JJ. in Australasian Scale Co. Ltd. v. Commissioner of Taxes (Qld.) [1] : cf. Metropolitan Gas Co. v. Federal Commissioner of Taxation [2] ). In the course of a well known passage in Moreau v. Federal Commissioner of Taxation [3] , Isaacs J. said: - "Unless the ground or material on which his belief is based is found to be so irrational as not to be worthy of being called a reason by any honest man, his conclusion that it constitutes a sufficient reason cannot be overridden" [4] . I am inclined to think, with respect, that this puts the position somewhat too strongly. The position was put to me by counsel for the Commissioner very much as I have put it above, and I think it was correctly so put. The taxpayer can, of course, obtain an actual review of an opinion or discretion of the Commissioner by the Board of Review, though not by the court.

1. (1935) 53 C.L.R. 534, at p. 555. 2. (1932) 47 C.L.R. 621, at pp. 636-637. 3. (1926) 39 C.L.R. 65. 4. (1926) 39 C.L.R., at p. 68.

In Denver Chemical Manufacturing Co. v. Commissioner of Taxation (N.S.W.) [5] , Dixon J. said: - "I think it is unwise to attempt to define the word "evasion". The context of s. 210 (2) shows that it means more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information. It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the Commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which, if the result is to avoid tax, would justify finding evasion" [1] . The word was considered in a somewhat different context in Wilson v. Chambers & Co. Pty. Ltd. [2] . Knox C.J. said: - "A charge of evading payment is not made out by evidence which proves no more than that the person charged failed or omitted to pay an amount payable by him" [3] . I would respectfully agree with this: I am not at all sure that I would agree with all that is said by Isaacs J. [4] . Here, however, I am not trying the company on a charge of an offence. All I have to consider is, having regard to what is said by Knox C.J. and Dixon J. in the passages quoted, and to what I have said as to the bases on which the Commissioner's opinion can be challenged, whether the Commissioner's opinion in these cases was not, or could not be, entertained. I find it impossible to say that any sound ground of attack upon it emerges from the evidence.

1. (1949) 79 C.L.R. 296. 2. (1949) 79 C.L.R., at p. 313. 3. (1926) 38 C.L.R. 131. 4. (1926) 38 C.L.R., at p. 136. 5. (1926) 38 C.L.R., at pp. 144-145.

The Second Commissioner was cross-examined as to his conception of what constituted "market selling value", and some of his answers to questions were possibly given without sufficient consideration. Nothing, however, seems to me to turn on this. In examination-in-chief he stated the view which he formed in the following terms: - "I found from the report that for many years, probably twenty or thirty years, the company had adopted a value of stock on hand on the basis of what would be described as a unit value, and that the returns of the company for the years for which I was concerned in the investigation had been lodged on the same basis as the company had adopted in its accounts. Those values did not conform to any of the alternatives provided by s. 31, and in fact the returns as lodged, in my view, were misleading in that the inference could be drawn from statements in the accounts that the stock was valued at cost or lower, which would lead the assessor to believe that the return was in accordance with s. 31, namely, that the stock was valued at cost except for certain lines the market value of which had fallen below cost, and those lines were put in at market-selling value. Actually, the position was that the vastly greater proportion of the stock was brought to account at the unit value, which was considerably below cost, and only a minor proportion at cost price. The result was that the company had built up a very substantial hidden reserve of £160,000 odd. As a result, the company in the years covered by the investigation escaped tax in the vicinity of £56,000. In those circumstances, I looked at the whole of the facts. In my opinion there had been avoidance of tax and that avoidance was due to evasion." In cross-examination he said that he regarded "fraud" as involving "a deliberate attempt to suppress income", and that he had not thought that there was fraud in these cases. He was not prepared, however, to accept the view that no more than an "honest mistake" was involved. He said: - "The public officer of the company and the other executive officers must have known what the effect of their valuations of stock would be, that it was building up a very very substantial hidden reserve." He summed up his view as follows: - "I think they believed, when they put those values in, that they were not in accordance with the Act. The officials are supposed to know the law. It was a big company, and I take it they were well advised. They would know the provisions of s. 31, which required one of three valuations. They did not deny that the unit value was not cost, and made the claim that it may have been market selling value, which was rejected, and which the company did not pursue in any way during the course of the investigation. The company was given the opportunity, in respect of any lines which it considered were below cost, to submit a market selling value. It did not do so. Then the other basis was replacement cost. The unit value did not in any way answer any one of those descriptions."

It is, of course, from a court's point of view, a great advantage to know what was in the mind of the Commissioner or Second Commissioner, instead of having to consider as best one can what he might or might not have thought, and I have made full use of this advantage, although I think that in this case I should have reached the same conclusion if I had had only the certificate before me. In other words, I think that I should have held that the Commissioner might quite reasonably have taken the view which it turns out that he did in fact take. That view may perhaps be summed up thus. There has been, says the Commissioner, no deliberate attempt to deceive, and therefore the case is not one of fraud. On the other hand, it would be unreasonable to suppose, and it has not really been suggested, that those responsible for the company's income tax returns were ignorant of the requirements of s. 31. They continued to use in their accounts a figure which had once represented cost but which no longer represented cost. They returned, for income tax purposes, the accounts of the company as quite correctly and properly kept by it for its own purposes, but not adjusted so as to comply with s. 31. They would have supplied further true information, if they had been asked for it, but they hoped, says the Commissioner, that they would not be asked for it, and they allowed, if they did not actually invite, my assessors to make an assumption which they must have known was unfounded. I think, says the Commissioner, that there has been here more than a mere withholding of information which might or might not be relevant: I think that there has been an intentional withholding of information lest I should hold the company liable to tax to a greater extent than it was prepared to concede, and I regard this as "evasion".

It is not for me to say whether the view outlined above is right or wrong. I am satisfied that the Commissioner did entertain such a view, and that such a view is not based on any misconception of law. And I am not able to say that it was an unreasonable view - still less that it was arrived at "capriciously or fancifully or upon irrelevant or inadmissible grounds". The result is that, in my opinion, all the amended assessments were authorized by the Act, and all the appeals fail.