Commissioner of Taxation v AusNet Transmission Group Pty Ltd

Background 45 Pursuant to an Asset Sale Agreement dated 12 October 1997, SPI PowerNet, then known as Australian Transmission Corporation Pty Ltd, purchased the assets of the Victorian electricity transmission system, up until then owned and carried on by PowerNet Victoria, a body corporate established by the Electricity Industry Act 1993 (Vic), for $2.55 billion. Completion took place on 6 November 1997. 46 Australian Transmission Corporation Pty Ltd was a wholly owned subsidiary of GPU Inc, a United States corporation, and later changed its name to GPU PowerNet Pty Ltd. 47 All of the shares in GPU PowerNet Pty Ltd were subsequently acquired by SPI Australia Holdings Pty Ltd ("SPIAH"), a wholly owned subsidiary of Singapore Power International Pte Ltd ("SPI"), pursuant to an agreement dated 30 June 2000, and on 2 July 2000 GPU PowerNet Pty Ltd changed its name to SPI PowerNet. 48 On 19 October 2005, SPI transferred all its shares in SPIAH to SPANT for $1,100 million. The SPANT tax consolidated group, comprising SPIAH, SPI Australia Finance Pty Ltd and SPI PowerNet, was formed and SPI PowerNet ceased to be assessable for income tax as a separate identity.

Asset Sale Agreement of 12 October 1997 49 The Asset Sale Agreement of 12 October 1997 relevantly reads: THIS ASSET SALE AGREEMENT is made on 12 October 1997 between the following parties: 1. THE HONOURABLE ALAN ROBERT STOCKDALE in his capacity as Treasurer of the State of Victoria for and on behalf of the Crown in the right of the State ("State"); 2. POWER NET VICTORIA a body corporate established by the Electricity Industry Act 1993 ("Seller"); 3. AUSTRALIAN TRANSMISSION CORPORATION PTY LTD ACN 079 798 173 of Level 35, 101 Collins Street, Melbourne ("Buyer"); and 4. GPU, INC. of 100 Interpace Parkway, Parsippany, NJ, USA ("Guarantor"). RECITALS: A. The Seller is the owner of the Assets. B. The Seller agrees to sell and the Buyer agrees to buy the Assets (excluding the Land which will be allocated from the Seller to the Buyer) on the terms and conditions set out in this agreement. C. The State agrees to guarantee the obligations of the Seller under this agreement. D. The Guarantor agrees to guarantee the obligations of the Buyer under this agreement. E. The total value attributed by the parties to the sale of Assets (net of Creditors and Co … [illegible] Liabilities) the subject of this agreement is $2,555,000,000 made up of: Total Purchase Price $2,502,600,000 Estimated Duty $52,400,000 _____________ $2,555,000,000 F. The parties agree that the total payments to the State in connection with the privatisation of the Seller are $2,732,500,000 (including future licence fees of $177,500,000 payable by the Buyer, which the State values in net present value terms at approximately $161,000,000). THE PARTIES AGREE as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions … "Assets" means: (a) the Plant and Equipment; (b) the Business Records; (c) the Contract Benefits; (d) the Land; (e) the Intellectual Property Rights; (f) the Licences; (g) all the Seller's entitlements under the Real Property Leases; (h) inventories, raw materials and stores of the Seller used in the Business; (i) cash on hand and deposits and securities in the name of the Seller, other than with TCV; (j) entitlements under the Employment Contracts; (k) the Trade Debts; and (l) all other tangible or intangible assets (including goodwill and insurance proceeds from the Seller's insurance policies) owned by the Seller whether or not listed in the balance sheet of the Seller forming part of the 1997 Accounts, other than the Specified Assets. … "Business" means the business of the design, ownership, augmentation and maintenance of the parts of the Victorian electricity transmission system owned by the Seller (and subsequently the Buyer), the provisions of connection services and other activities carried on by the Seller (and subsequently the Buyer) including diagnostic testing. … "Business Records" means all of the Seller's financial and business data, employee data, technical data and all the Seller's other records, data, information and documents, with the exception of any documents relating to the Specified Assets. … "Intellectual Property Rights" means the rights of the Seller to all: (a) patents, copyrights or designs, registered or unregistered; (b) rights under each licence in respect of such patents, copyrights or design; and (c) equitable rights in respect of such patents, copyrights or designs or such licences. … "Total Purchase Price" means $2,502,600,000 being the sum of the price of the Assets (including the Land) net of Contract Liabilities and Creditors (excluding Specified Creditors) assumed under this agreement and, for the avoidance of doubt, does not include the Estimated Duty. The sum of $2,502,600,000 is fixed, notwithstanding that the components referred to above may be shown collectively to have a different value. … 2. SALE AND PURCHASE 2.1 Sale of Assets Subject to the terms of this agreement, on the Completion Date: (a) the Seller must sell free of Security Interests the Assets (excluding the Land); (b) the Buyer must: (1) buy the Assets (excluding the Land); (2) assume the Creditors (except the Specified Creditors) and the Contract Liabilities; (3) pay the Total Purchase Price to the Seller; and (c) the State must procure that the New Allocation Statement becomes effective. 2.2 Method of Payment All payments to be made under this agreement must be made by bank cheque or in such other method as may be agreed in writing between the Seller and the Buyer. …

Analysis of the Asset Sale Agreement 50 The "Assets" sold and purchased under the Asset Sale Agreement of 12 October 1997 include "the Business Records", itself a defined term, of PowerNet Victoria, and "the Intellectual Property Rights", again a defined term, of PowerNet Victoria. The business records undoubtedly included the various drawings, plans, instructions, manuals, reports, principles, procedures and other documents referred to at R [18]; and the intellectual property rights undoubtedly included such copyright as existed in those drawings and documents at the time. 51 The Asset Sale Agreement provided that the "Total Purchase Price" was a fixed sum of $2,502,600,000 and was expressed to be "net of Contract Liabilities and Creditors (excluding Specified Creditors) assumed under this agreement", but did not include the Estimated Duty. No part of this sum was allocated to any particular asset sold and there was no evidence to suggest that the parties had agreed some allocation of that sum outside the confines of the instrument that is the Asset Sale Agreement. Moreover, significantly, in my view, the definition of the term "Total Purchase Price" concluded: The sum of $2,502,600,000 is fixed, notwithstanding that the components referred to above may be shown collectively to have a different value. 52 The reference to "the components referred to above" is a reference to the "Assets" as defined. This sentence makes clear that the price has been fixed without reference to the collective value of the assets sold. Arguably, that denies any ability on the part of either of the parties to allocate the purchase price among the "Assets", by reference to their respective values. The relevance of this will become apparent below.

Division 10B of Part 3 of the 1936 Act 53 In the 1998 year of income, Div 10B relevantly provided: 124K Interpretation (1) In this Division, unless the contrary intention appears: … unit of industrial property means: (a) rights possessed by a person under a law of Australia as: (i) the grantee or proprietor of a patent for an invention; or (ii) the owner of a copyright; or (iii) the owner of a registered design; or (iv) a licensee under such a patent, copyright or design; and includes equitable rights in respect of such a patent, copyright or design or in respect of a licence under such a patent, copyright or design; or (b) rights possessed by a person under a law of a foreign country that are equivalent to the rights referred to in paragraph (a). … (2) Subject to subsection (2A), a reference in this Division to expenditure of a capital nature does not include a reference to: (a) expenditure in respect of which a deduction has been allowed or is allowable under a provision of the previous Act or of this Act, other than a provision of this Division, or which has been or is taken into account in ascertaining the amount of an allowable deduction under such a provision; or … 124L Application (1) This Division applies to the owner of a unit of industrial property who: … (b) incurred expenditure of a capital nature on the purchase of the unit of industrial property; … and, in the year of income or a previous year of income, has used the unit of industrial property of which he is the owner, or the invention, work or other subject-matter or design to which that unit relates, for the purpose of producing assessable income. … 124M Annual deductions (1) Where, at any time during the year of income, a taxpayer is the owner of a unit of industrial property to whom this Division applies, an amount equal to the residual value of the unit in relation to the taxpayer as at the end of the year of income divided by a number equal to the number of whole years in the effective life of the unit in relation to the taxpayer as at the commencement of the year of income shall, subject to this Act, be an allowable deduction in respect of the unit. … 124R Cost of a unit of industrial property (1) For the purposes of this Division, the cost of a unit of industrial property to the owner of the unit shall, subject to subsection 124S(2), be taken to be: (a) … (b) in the case of an owner referred to in paragraph 124L(1)(b): (i) if subsection (3) or (5) of this section is applicable - the cost ascertained in accordance with that subsection; or (ii) if neither of these subsections is applicable - the expenditure referred to in paragraph 124L(1)(b). … (3) Where, in the case of an owner referred to in paragraph 124L(1)(b): (a) the Commissioner is satisfied, having regard to any connection between the owner and the person from whom the unit of industrial property concerned was purchased or to any other relevant circumstances, that the owner and that person were not dealing with each other at arm's length in relation to the purchase; and (b) the expenditure of a capital nature incurred by the owner on the purchase of the unit of industrial property: (i) exceeds the amount that was the cost of the unit to the last preceding owner of the unit; or (ii) does not exceed the amount that was the cost of the unit to the last preceding owner of the unit but exceeds the value of the unit at the time of the purchase; the cost of the unit to the owner for the purposes of this Division shall be taken to be the cost of the unit to the last preceding owner of the unit or the value of the unit at the time of the purchase, whichever is the less. … (5) Where, in the case of an owner referred to in paragraph 124L(1)(b), the unit of industrial property was purchased by the owner of the unit with other property and no separate price was allocated to the unit, the amount of the expenditure of a capital nature incurred by the owner on the purchase of the unit for the purposes of this Division shall be taken to be so much of the purchase price of the unit and the other property as the Commissioner determines. 124S Residual value (1) Subject to this section, the residual value of a unit of industrial property at any time in relation to the owner of the unit shall, for the purposes of this Division, be ascertained by deducting from the cost of the unit to the owner the sum of: (a) any deductions allowed or allowable under this Division in respect of the unit in assessments in respect of income of the owner of a year or years of income which ended prior to that time; and (b) the consideration receivable by the owner in respect of any disposal by him of the unit in part prior to that time.

What the Commissioner did 54 It was common ground, both before the primary judge and on the hearing of this appeal, that there was no allocation of the "Total Purchase Price" amongst the various assets sold, either by the Asset Sale Agreement or pursuant to some other instrument of agreement between the parties; and the Commissioner was entitled to make a determination, pursuant to s 124R(5) of the 1936 Act, as to how much of that purchase price was to be allocated to the unit of industrial property, namely, the copyright in the drawings, plans and other works. 55 The Commissioner determined, pursuant to s 124R(5), that no part of the "Total Purchase Price" was to be allocated to the copyright in the drawings, plans and other works. It does not appear to have been suggested before the primary judge, and it certainly was not suggested on the hearing of the appeal (to the contrary, see T 81.10-86.37), that such a determination was not a valid determination for the purposes of s 124R(5); in other words, it was not suggested that it was not open to the Commissioner to make a "nil" determination, merely that it was erroneous by reference to the assumption of the experts "that the allocation of part of the total amount of the price paid for the transmission assets was to be undertaken on the basis of valuing the copyright", and the view of the majority of such experts that it did have an "ascertainable separate value": see R [17] at [59] below.

What the Primary Judge said 56 At R [15], his Honour, the primary judge, said: The Commissioner's rejection of any valuation as the basis of the deduction under s 124R(5) was based upon the view that the copyright had no separate value … The submissions made to his Honour (see T 86) indicate that this was not the only basis on which the Commissioner contended that no part of the Total Purchase Price could be allocated to the copyright in the drawings, plans and other works; it was also contended that, on the facts of this case, no such allocation was possible. However, for reasons which I shall come to below, in my view, it is irrelevant to the outcome of the first appeal as to why the Commissioner made the determination he did; provided the statutorily specified conditions precedent to the making of the determination were satisfied, the determination could not be challenged and the cost of the copyright to SPI PowerNet was nil: s 124R(1)(b)(i). 57 At R [16], his Honour said: The statutory task required by s 124R(5) is, in effect, that of allocating or apportioning part of a known purchase price to part of what the total amount purchased but the basis of allocation, and the relevance of value, is not easy. The section is directed to allowing to the taxpayer a deduction for that part of a known larger amount which is to be taken to be the cost of the deductible item rather than allowing a deduction for the independent value of the item in question. The task is not, in terms, that of valuing the relevant part of what was acquired, although its value may be relevant to the process of allocation. … The individual market value of an item purchased with others for a composite amount may not be the appropriate portion of the total purchase price which is to be taken to have been paid for the item. That may be so for various reasons and the adoption for the purposes of s 124R(5) of the value of the unit of industrial property which was acquired may not produce the outcome intended by the section. The section assumes that part of the total purchase price was a taxpayer's actual cost of acquiring the unit of industrial property and that the amount to be allocated can be determined. With respect, I have difficulty with the last sentence. The section, s 124R(5), does not make any assumption that part of the total purchase price was a taxpayer's actual cost of acquiring the unit of industrial property. Nor does s 124R(5) assume that the Commissioner can and should allocate, or apportion, the amount of the total purchase price referable to the unit of industrial property. No determination of the Commissioner pursuant to s 124R(5) is conditioned, or conditional, upon any such assumptions. 58 A similar observation is made at R [25], where his Honour says: However, the task contemplated by the section assumes that some part of the purchase price for the total assets has been paid for the unit of industrial property constituted by the drawings in the same way that it may be assumed that some part of an amount to purchase a car with a key may pay an amount for the car and an amount for the key to operate it. The assumption has no predication in the terms of s 124R(5). 59 At R [17], his Honour said: The experts in this case had not been asked specifically to opine on methods by which part of an actual total purchase price might be taken to be the cost of the copyright in question, but were asked whether there was a generally accepted methodology or methodologies for valuing copyright in drawings and documents for a transmission system. That, however, is not the question to which s 124R(5) directs attention. The section is directed to the allocation or apportionment of a known total amount to part of the composite of the assets which the whole amount paid for: it is not directed to valuing the relevant asset except to the extent that the value may inform the task of allocation or apportionment. The dispute between the parties, however, was largely conducted upon the basis that the question posed by s 124R(5) was to be answered by valuing the copyright; although the parties reached radically different outcomes on that basis. Senior counsel for the taxpayer submitted in final submissions that it should be inferred that the experts had agreed, and had assumed, that the allocation of part of the total amount of the price paid for the transmission assets was to be undertaken on the basis of valuing the copyright. The Commissioner did not entirely disavow that approach and, indeed, relied upon the views of one of the valuers to maintain the position that no part of the total purchase price was to be allocated to the copyright because, as a matter of valuation, it had, in his opinion, no ascertainable separate value. The independent value of the copyright may be relevant to the question upon which the application of s 124R(5) depends, and in many cases will suggest or inform the answer to the question posed by the section (where, for example, the unit of industrial property has a ready market for its purchase and where that value can reliably be taken to have been largely reflected in the composite purchase price). Again, it is the last sentence of this extract from his Honour's reasons that I have difficulty with; and that difficulty goes to the relevance of the independent value of the copyright to the determination of the Commissioner under challenge assuming, of course, that the statutory pre-conditions for the Commissioner to make the determination have all been satisfied. 60 Finally, at R [26], his Honour said: There may be cases in the application of provisions like s 124R(5) in which the value of a unit of industrial property acquired as part of the composite acquisition of assets may not be relevant. For that to be so, however, it must be clear that no part of the purchase price was paid for the unit of industrial property. The acquisition of the copyright by SPI PowerNet in this proceeding is not such a case and I do not consider the evidence to permit such a conclusion. Even the evidence of Mr Studley did not go that far: his view as an expert was, rather, that it had no separate value because, like his car key example, it could not be sold separately. The evidence of the other experts, and of those who were involved in the business activities of SPI PowerNet and in the purchase of the copyright, was that the copyright had value, that its separate value was capable of determination and that it had been purchased. Indeed, the evidence of those engaged in SPI PowerNet's business, which I accept, was that the copyright was critical to the proper operation of the business. The information conveyed in the drawings and documents, and the ability to reproduce the drawings and documents, was essential to the operations of the transmission system. With respect, in my view this misconceives both the statutory question and the process of its resolution and answer.

Analysis and Consideration 61 Section 124R is an exclusive code for fixing the cost of a unit of industrial property to the owner of the unit for the purposes of Div 10B, subject only to s 124S(2), which is not relevant for present purposes. 62 In the case of an owner of a unit of industrial property who incurred expenditure of a capital nature on the purchase of the unit of industrial property (s 124L(1)(b)): if s 124R(3) or (5) is applicable, the cost is ascertained in accordance with the relevant subsection (s 124R(1)(b)(i)); if neither of those subsections is applicable, the cost is the expenditure referred to in s 124L(1)(b) (s 124R(1)(b)(ii)). 63 It is common ground that s 124R(3) is not applicable in the present case. 64 It is also common ground that s 124R(5) is applicable in the present case. 65 The Commissioner is only entitled to make a determination pursuant to s 124R(5) where the following condition is fulfilled: the unit of industrial property was purchased by the owner with other property and no separate price was allocated to the unit. 66 It is not in dispute that this condition was fulfilled entitling the Commissioner to make the determination he did. In my view, the outcome of the first appeal turns on the terms of s 124R(5), having regard to ss 175 and 177 of the 1936 Act. Section 177(1) provides that the production of a notice of assessment (or a relevant copy) will be conclusive evidence "of the due making of the assessment", even in proceedings in this Court under Pt IVC of the Taxation Administration Act 1953 (Cth) ("TAA") where the issue on the appeal is whether the assessment is excessive. Section 175 provides that the validity of an assessment is not affected by reason that any provisions of the Act have not been complied with. 67 The phrase, "due making of the assessment" in s 177(1), is "intended to cover all procedural steps, other than those if any going to substantive liability and so contributing to the excessiveness of the assessment": see George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 207. Because of s 177(1), the distinction between the making of a determination as a procedural step and a determination "going to substantive liability" (to adopt the language of Mason CJ in Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 ("Richard Walter") at 184) must always be kept in mind. The making of a determination under s 124R(5) is a procedural step in the making of the assessment; it is not therefore open to a taxpayer to challenge the assessment by showing some error in that making. The making of the s 124R(5) determination is merely a step in the making of an assessment because the making of the determination is not itself an element or criterion for liability to tax. The fact that a determination is made, however, does go to substantive liability and, as a consequence, it would be open to a taxpayer in Pt IVC proceedings to establish in an appropriate case that an assessment was excessive by showing that the Commissioner had not in fact made a determination under s 124R(5), or that the requisite statutory condition enlivening the Commissioner's power under s 124R(5) had not been met. 68 Here, the Commissioner, being entitled to make a determination pursuant to s 124R(5) and having made such a determination, the amount so determined, namely, "nil", is the cost of the relevant unit of industrial property by force of the terms of s 124R(1)(b)(i). In my view, it is not open to SPI PowerNet to challenge that determination on the basis that some error was involved in the making of the determination. The making of the determination is part of the process of making the assessment and carries the benefit of ss 175 and 177 of the 1936 Act: see Richard Walter at 184; Commissioner of Taxation (Cth) v Peabody (1994) 181 CLR 359 at 382; Commissioner of Taxation v Sleight (2004) 136 FCR 211 at [105]-[110] per Hill J; and W R Carpenter Holdings Pty Ltd & Anor v Federal Commissioner of Taxation (2007) 161 FCR 1 at [45]-[56]; at first instance, (2006) 234 ALR 451 at [143], [144] per Lindgren J. 69 It is regrettable that the parties did not advert to the operation of s 177(1) on the hearing of the appeal or (it would appear) before the primary judge. The failure to do so led his Honour into error. The statutory force of this provision cannot, however, be ignored. 70 If it were possible for SPI PowerNet to show that an assessment based on the s 124R(5) determination in the present case is excessive, that burden has not been discharged in the present case. This is because, under the terms of the Asset Sale Agreement, it is not possible to allocate any part of the Total Purchase Price to any particular asset, specifically and relevantly to the copyright in the drawings, plans and other works. 71 That being so, the first appeal must be allowed. The parties should be given an opportunity to make submissions on the question of costs.

The Basis and Calculation of SPANT's Claims 72 As noted in [43] above, the claims for deductions by SPANT are in respect of the period from 19 October 2005 to 31 March 2006, and the years ended 31 March 2007 to 2011 inclusive, in lieu of the succeeding 30 June. On that first-mentioned day, SPI PowerNet became part of a tax consolidated group of which SPANT was the head company. 73 Under the tax cost setting rules in Div 705 of Pt 3-90 of the 1997 Act, SPANT was required to reset the tax costs of the SPI PowerNet assets, including the previously acquired copyright in the drawings, plans and other works ("the copyright"). For the purpose of determining the tax cost setting amounts of these assets, it was necessary to value them as at 19 October 2005. 74 In reliance on a report dated 26 February 2007, referred to in the reasons for judgment below as "the second PwC report", but not admitted into evidence, the value of the copyright as at 19 October 2005 was said to be in a value range of $230 million to $332 million. So much was adduced in oral evidence from Mr Studley (T 286.20-40). 75 The mid-point of this range, which was about $280.7 million, was adjusted to reflect the enterprise value of SPI PowerNet at 19 October 2005 (because the individual values of the assets could not total more than the value of the business). The valuation was adjusted in proportion to the value of the copyright compared to the values of other assets. Based on this approach, the value of the copyright for tax consolidation purposes as at 19 October 2005 was determined to be $239 million, as follows - Proportional Reduction of Market Values Asset Category Original Market Value Percentage of Total Value Adjusted Market Value Freehold land $281,809,700 8.8% $240,013,467 Easements 1,350,263,792 42% 1,150,001,202 Transmission System 1,304,706,000 40.6% 1,111,200,254 Copyrights 280,740,343 8.7% 239,102,710 Total $3,217,519,835 100% $2,740,317,632

The copyright adjusted market value figure of $239,102,710 was adduced in oral evidence from Mr Studley (T 286.20-40), but the other calculations are taken from SPANT's Appeal Statement at [10]. 76 Section 705-35 identifies how the tax cost setting amount is to be calculated in respect of each asset. Section 705-35(1), as it stood in the 1997 Act at the relevant time, provided: For each asset of the joining entity (a reset cost base asset) that is not a retained cost base asset or an asset (an excluded asset) covered by subsection (2), the asset's tax cost setting amount is worked out by: (a) first working out the joined group's allocable cost amount for the joining entity in accordance with s 705-60; and (b) then reducing that amount by the total of the tax cost setting amounts in accordance with s 705-25 for each retained cost base asset (but not below zero); and (c) finally, allocating the result to each of the joining entity's reset cost base assets (other than excluded assets) in proportion to their market values. It is common ground, that the amount in para (a) - the joined group's allocable cost amount ("ACA") for SPI PowerNet in accordance with s 705-60 - was $2,124,334,718. It is also common ground that the amount in para (b) - the total of the tax cost setting amounts in accordance with s 705-25 for each retained cost base asset - was $57,601,240. It is only the allocation of the result under para (c) that is in dispute, and that is solely due to the different positions taken by the parties with respect to the copyright as at 19 October 2005: SPANT contending, in its Appeal Statement, that it was possible to separately value the copyright (separately from other related assets) and contending for a separate value of the copyright of $223,691,397; which amount is said to represent the market value of the remainder of the copyright after bifurcation of copyright created internally between 6 November 1997 and 26 June 2002, pursuant to the internally generated asset integrity rule in s 701A-10 of the Income Tax (Transitional Provisions) Act 1997 (Cth), said to have an adjusted market value of $15,411,313; and the Commissioner contending that the copyright had no separate value as at 19 October 2005. 77 In its Appeal Statement at [14], SPANT values were used for ACA allocation purposes to work out the tax cost setting amounts of SPI PowerNet's reset cost base assets, as shown below - Asset Description Market Value Terminating Values ACA Allocated Retained Cost Base Assets 57,601,240 57,601,240 57,601,240 Reset Cost Base Assets Depreciable property, plant and equipment [excl. WIP] 1,111,200,254 885,890,351 690,485,664 Easements 1,150,001,202 579,533,827 836,504,155 Land 240,013,467 80,996,077 174,584,394 Stores & consumables 15,871,495 15,871,495 11,544,833 Capital Works in Progress 84,950,897 84,950,896 61,792,786 Remaining copyright 223,691,397 113,058,297 162,711,808 Pre 27/6/02 internal copyright 15,411,313 0 11,210,106 Deferred Tax Assets 19,335 0 14,064 Foreign Exchange Hedge Derivatives 124,773 0 90,760 TOTALS 2,898,885,374 1,817,902,183 2,006,539,810

78 SPANT claimed deductions in respect of the copyright after formation of the SPANT tax consolidated group under s 40-25 of the 1997 Act, based on an opening adjustable value of $162,711,808. Section 40-25, broadly speaking, provides an annual deduction for an amount equal to the decline in value of a depreciating asset (which includes the copyright) that a taxpayer holds. The amounts that SPANT deducted are as follows - Tax Year Taxpayer Deductions claimed 2006 SPANT $2,924,355 2007 SPANT 6,508,472 2008 SPANT 6,508,472 2009 SPANT 6,508,472 2010 SPANT 6,508,472 2011 SPANT 6,508,472

The Conduct of the Hearing before the Primary Judge 79 On the second day of the hearing, the primary judge embraced an invitation from senior counsel for the respondents (T 150.15) that the expert valuers have a conclave by reference to questions agreed between the parties and that they produce a joint report on the outcome of that conclave. The invitation further envisaged that the experts would be concurrently examined on the joint report by counsel for each party. Senior counsel for the Commissioner initially suggested that the conclave, and therefore the joint report, should not include Mr Studley, the author of what is referred to as "the second PwC report" and co-author of "the first PwC report", but be confined to Mr Lonergan, engaged by the respondents, and Mr Samuel, engaged by the Commissioner. In the events that occurred, Mr Studley joined the conclave and participated in the production of the Joint Report dated 27 November 2013 ("the Joint Report"). 80 What was not raised with counsel at the time, was the view of the primary judge that pursuit of this course would render it unnecessary to admit the individual expert reports into evidence. This prospect was first raised by the primary judge before lunch on the third day (T 205 and 207), but only came to the surface later that day, after the experts had given concurrent evidence. Indeed, by this time his Honour had come to the view that he would not admit the individual expert reports into evidence despite their admissibility and the attempts of both counsel to tender them. The following exchange took place (T 284.19-286.10): MR GLICK: Before Mr - Mr Samuel is - Mr Studley, I beg your pardon. This had something to do with the other two gentlemen. Mr Studley is staying. We will, as part of our case, seek to tender his reports. HIS HONOUR: Well, the whole process that we've gone through is the substitute for the reports. I said this before lunch. MR GLICK: I know you did, your Honour. HIS HONOUR: And I don't want the process that we've gone through to be [completely] wasted by now tendering the reports. It's not going to happen. MR GLICK: It's - if you don't have that report, you will not know what the value is that Mr Studley [attributed] to the copyright. HIS HONOUR: If you need to ask - if you need to ask a question about valuation, this is your last opportunity. You will not be tendering the reports. MR GLICK: Your Honour pleases. Then I will then need to ask some questions to get into evidence that [he] conducted a valuation on the replacement [cost] methodology and he came to a certain result. HIS HONOUR: All right. And who's that - [who] - do we need to bother with that? Mr Studley, is it? MR GLICK: I beg your pardon? HIS HONOUR: Who do you want to ask of that? MR GLICK: Mr Studley. HIS HONOUR: Right. So, Mr Lonergan, you're off the hook. You may go. Thank you for your attendance. MR LONERGAN: Thank you, your Honour. … HIS HONOUR: Mr Samuel, I think you're still off the hook. You may go. Thank you for your attendance. MR SAMUEL: Thank you, your Honour. … MR GLICK: Thank you, your Honour. Thank you, gentlemen. MR SAMUEL: Thank you. MS SYMON: I'm sorry, your Honour. I apologise. HIS HONOUR: No. That's all right. I assume that Mr Glick - if he wants to ask two or three questions about valuation - about the value rather, not valuation - the value. He ought to go first and then you can ask whatever questions you want to. Is that convenient or not? MS SYMON: It is, your Honour. Perhaps he - Mr Glick can ask his questions and I will see where that gets us. I'm just concerned about questions of reasoning and the information on which the number that he wants to get to is based. HIS HONOUR: Well, I'm not going to stop --- MS SYMON: But it - so it might - in some ways, it's simpler to read the report because one understands how the number is arrived at. HIS HONOUR: Well, I'm not going to repeat what I've said before. MS SYMON: I do understand that. HIS HONOUR: The entire process is wasted if what we then do is add to the sum total of everything by putting them all back in. It's just not - we've had the discussion earlier on. You had plenty of opportunities to deal with it. You could have said, "No, no, no, no, no. We insist on going back to the old method. We want to do the reports." It has been decided, ruled upon, acted upon, finished - too late. If you've got discrete bits of evidence you need to put in, by all means, put it in. Anything that will help me decide the case will obviously be admittable. You will - what you won't do is undo the helpful work that has been done. MS SYMON: Well, I think this is my learned friend's problem at the moment, your Honour. HIS HONOUR: Right. It certainly is. 81 A little later, the following exchange took place (T 288.4-289.31): MS SYMON: ... Your Honour, this is going to take some time and I am rather thrown by the fact that your Honour is not going to receive the report, because there is a good deal of --- HIS HONOUR: You can put the matters in the report to him. MS SYMON: Well, I can, your Honour. But that's going to take quite a while, and I just need to gather together what it is --- HIS HONOUR: You've got --- MS SYMON: I mean --- HIS HONOUR: You've got whatever time you need. It's unfair, as between the parties, if past reports now go on as evidence that were not the subject of the way in which the concurrent evidence went in. But that's not to stop you from being able to cross-examine Mr Studley on any of the matters that you need to cross-examine that will, somehow or other, bear upon the valuation that has purportedly been given by way of his testimony. So I'm not stopping you, in any way, shape or form. MS SYMON: I understand that, your Honour. The difficulty I'm having is that there's a lot of material here. HIS HONOUR: Yes. MS SYMON: And it's late in the afternoon. HIS HONOUR: Yes. If you need some time. MS SYMON: And I would appreciate the opportunity to resume with Mr Studley in the morning. HIS HONOUR: Of course. MS SYMON: Because what you're being asked to do at the moment is to accept a number --- HIS HONOUR: Yes. MS SYMON: --- which is entirely unsupported. HIS HONOUR: I'm happy --- MS SYMON: And what I'd like to consider is whether that is my learned friend's problem or my problem. HIS HONOUR: No. MR GLICK: If it's my problem [indistinct] MS SYMON: Well, I'm not sure at the moment. And I don't want to think it's your - I don't want to be in here at five to four thinking it's my learned friend's problem and not cross-examined material and which, perhaps, should be in the event that it's my problem. HIS HONOUR: Sure. No. I'm conscious of the fact that the party have had to accommodate an unusual day today for other reasons, and I'm perfectly happy to give you some time and, given the time of day, if need be, for Mr Studley to come back tomorrow. MR SYMON: If your Honour would be so good --- HIS HONOUR: Of course. MS SYMON: --- I would appreciate the time. HIS HONOUR: Of course. As long as you all realise that what won't happen is that you won't get the report in and undo the work that you've done. The process of the concurrent evidence was designed to streamline the process. And all you then do is say, well, now, thank you very much, but on top of all that we want all of the report in as well. That's just not going to happen. By all means ask Mr Studley tomorrow about the bases upon which he's reached the number, and presumably what you will want to do, if you think it necessary, is to expose the fact that, presumably, it was taken into account by application of the process that was described earlier so that it would be desirable, I suppose, for you to indicate where in the $239 million there is the taking into account of opportunity costs that may or may not be double counting, or costs referable to copyright that may or may not be appropriate. 82 The following day, during the course of Mr Studley's cross-examination by senior counsel for the Commissioner, the following exchange occurred (T 314.7-314.28): MS SYMON: … Now, Mr Studley, what I'm going to ask you to do is to go to pages 114 and 115 in that folder called Affidavit of John William Studley?---Yes. And what I'm going to do is read the bottom of page 114 and 115 and ask if you would tell me that that is an explanation of why and how you made that adjustment from $280 million to $239 million. Do you understand the process? HIS HONOUR: Would it be better, Ms Symons, so as not to end up with the problems that we had yesterday, to put the matters in there to the witness so that he can adopt them and we end up with the evidence being the --- MS SYMON: Well, that was the idea, your Honour. I'm just partly explaining for your Honour that I'm giving the witness the document so he can follow what I'm saying more readily rather than have to absorb questions which --- HIS HONOUR: No, I know that, but at the moment, the only evidence that's going to be in evidence will be that the witness read something and had it in his head. MS SYMON: No, I'm not proposing to do it that way, your Honour. I will proceed, because I will read it in. HIS HONOUR: All right. Thank you. 83 While the primary judge refused to admit into evidence the individual reports of the experts retained by the parties (in the case of SPANT, Messrs Studley (the second PwC report) and Lonergan, and in the case of the Commissioner, Mr Samuel), his Honour did admit into evidence the Joint Report in which all three experts addressed and answered a series of questions (Ex 8). Exhibit 8 is reproduced in full at R [27]. 84 I find it difficult to understand why his Honour, the primary judge, was so adamant that the individual expert reports were not to go into evidence; I am unable to accept that their admission into evidence would have completely wasted the conclave, the Joint Report and the concurrent examination of the experts. Indeed, and with the greatest respect to the primary judge, I am of the view that his Honour erred in rejecting their tender on the basis he did. Save for Mr Studley and the second PwC report (cf: T 151.47-152.32), there was no suggestion that the individual expert reports had not been prepared for the sole purpose of being tendered in the proceedings; and, in any event, his Honour took the view that all the tendered individual expert reports were otherwise admissible (but subject to weight). That being so, in my view, they should have been taken into evidence. 85 The primary judge's refusal to accept their tender, has had the following consequences: (1) It has denied this Court the opportunity of reading and evaluating the reasons why the respective experts came to the diverse conclusions that they did on the fundamental issue of whether it was possible and appropriate to separately value the copyright as at 19 October 2005; and if it was, on the propriety of the quantitative conclusion reached by Mr Studley. While Mr Studley's quantitative conclusions got into evidence because the primary judge allowed oral evidence in chief of those matters (T 286.20-286.40), the reasoning processes on the fundamental issue in the respective reports of Messrs Studley, Lonergan and Samuel remain hidden from the Court's view. Very little of their individual reports was read onto the transcript, so the Court is faced with the task of considering and accepting, or rejecting, the primary judge's apparent acceptance that it was possible and appropriate to separately value the copyright in the instant case - although his Honour made no express finding in these terms, at R [51] or elsewhere; as well as his Honour's apparent acceptance of the valuation arrived at by Mr Studley - again his Honour made no express finding, at R [51] or elsewhere in this regard; and without the benefit of the reasoning process of either Mr Studley or Mr Samuel. (2) The primary judge has not found it necessary to address the fundamental issue. His Honour's reasons and conclusions on the SPANT appeal at R [43]-[51] are replete with references to the second PwC report; with no reference to the report of Mr Samuel; and certainly no reference to the diversity of views on the fundamental issue. This Court does not have the benefit of the primary judge's reasons for his apparent acceptance of SPANT's contention on the fundamental issue: that it was possible and appropriate to separately value the copyright as at 19 October 2005. At R [51], his Honour said: Mr Studley in the second PwC report had been careful to ensure that the valuation of the copyright assets was not overstated as a proportion of the enterprise value of SPANT. An enterprise value of SPI PowerNet had been undertaken for the purpose of ensuring that the assets recorded in the Initial Public Offering ("IPO") had not been stated in excess of their fair value. The copyright assets valued in the second PwC report had not been identified in the IPO but the assets did exist. The assessed market value of the tangible assets which had been identified at the time of the IPO still exceeded the assessed enterprise value and had been reduced proportionately for accounting purposes on the basis that their aggregate value could not exceed the enterprise value. Mr Studley considered that the value of the copyright assets valued in the second PwC report should be reduced proportionately with the tangible assets because of the close proximity between them. The mid-point value for the copyright assets had been $280 million before the proportionate reduction and $239,102,710 after the proportionate reduction. The ACA allocated on this basis, after other adjustments, was calculated at $162,711,808 and that calculation, which I accept, was not otherwise in dispute. 86 It is true that the calculation of the tax cost setting amount of $162,711,808 based on the copyright valuation of $239 million was not in dispute, but the value attributed to the copyright by the second PwC report was very much in dispute, with the Commissioner contending, based on Mr Samuel's report, that the copyright had no separate value as at 19 October 2005.

The Commissioner's Appeal to this Court 87 In his written submissions, the Commissioner cast the issues on appeal, by reference to the grounds in his notice of appeal, in the following way: (1) Grounds 3(a) - (c): Whether the primary judge erred in relying in his reasons on material that was not admitted into evidence (the "natural justice issue"); (2) Grounds 3(d) and (e): Whether the primary judge erred in accepting SPANT's expert evidence as to the value of the copyright in the absence of any or sufficient evidence of the underlying facts and assumptions upon which that evidence was based (the "basis issue"); (3) Grounds 3(f) - (h): Whether the primary judge erred in accepting a market value of the copyright for the purposes of s 705-35(1)(c) that assumed a hypothetical sale of the copyright on an independent, stand-alone basis (the "independent value issue"); and (4) Grounds 3(i) and (j): Whether the primary judge erred in accepting a market value of copyright in drawings and documents for the purposes of s 705-35(1)(c) of the 1997 Act that was based on the costs of re-gathering information for the purposes of creating a replacement set of drawings and documents and costs associated with being deprived of the drawings and documents (the "nature of copyright issue"). 88 Grounds 3(k) and (l) of the Commissioner's notice of appeal were not pressed.

The Natural Justice Issue: Grounds 3(a)-(c) 89 The alleged grievance here is that the primary judge found that the copyright had a market value of $239,103,710 by relying, principally, upon the second PwC report and, indirectly, upon the first PwC report, and that neither of those reports was received into evidence due to the primary judge's ruling (see [80]-[81] above). There are a number of aspects of this alleged grievance which require comment or observation and I set them out below in no particular order: (1) Nowhere did the primary judge make an express finding that the copyright had a market value of $239,103,710 as at 19 October 2005. In the last sentence of R [51], his Honour did in fact state that: The ACA allocated on this basis [$239,103,710], after other adjustments, was calculated at $162,711,808 and that calculation, which I accept, was not otherwise in dispute. But that conclusion goes no further than finding that the ACA allocated to copyright, namely, $162,711,808, was correctly calculated if the copyright had, subject to other adjustments for internally generated copyright between 6 November 1997 and 26 June 2002 (see [76] above), a market value of $239,103,710 as at 19 October 2005. There is undoubtedly an inference to be drawn from the primary judge's reasons that his Honour accepted the valuation conclusions in the second PwC report, conclusions also adduced in oral testimony from Mr Studley, but on such an important matter - it was, after all, at the core of the dispute between the parties on the second appeal - one might have legitimately expected an express finding. I discuss below the effect of there being no such finding, under the headings "The Independent Value Issue" and "The Nature of Copyright Issue". (2) It is beyond dispute that the primary judge made a number of references to the second PwC report in his reasons for judgment: relevantly, in relation to SPANT's appeal, at R [43]-[47] and [51]. In response, SPANT submits that none of the references draws on any aspect of the second PwC report not in evidence by oral testimony of Mr Studley or Mr Town's evidence about the information which formed the bases for the second PwC report. On my review of the transcript below, this response is substantially correct. (3) The Commissioner complains that the hearing was conducted on the basis that the valuation evidence would consist only of the Joint Report (Ex 8), the oral testimony of the experts in conclave (concurrent examination) and oral testimony of the experts in chief and in cross-examination. According to the Commissioner, the primary judge's reliance on the PwC reports has resulted in unfairness to the Commissioner. There can be no doubt that the primary judge's ruling that no individual expert reports would be taken into evidence for the reasons referred to in [80] above, was contrary to the way in which the Commissioner prepared his case, and took him by surprise. But, it is equally clear from the transcript below that SPANT also prepared its case on the basis that the individual expert reports would go into evidence and it was surprised by the primary judge's ruling. Both sides had to adapt "on the run"; the result below might suggest that SPANT did it better than the Commissioner, but that does not sustain this head of grounds of appeal. (4) The primary judge gave each party the opportunity to lead oral evidence from their respective experts of material in their respective reports; for the other party to cross-examine on those reports provided they first read on to the transcript that part of the report upon which they proposed to cross-examine; and to make submissions on such oral evidence as was adduced in chief and in cross-examination. In my view, none of this amounts to a denial of natural justice to the Commissioner in the conduct of the case; if it does, then it is equally a denial of natural justice to SPANT. The Commissioner's complaint, when one drills down, is that the primary judge made reference to Mr Studley's report in his reasons for judgment and made no reference to Mr Samuel's report. But even if both reports had gone into evidence, exclusive references to Mr Studley's report by the primary judge could not amount to a denial of natural justice to the Commissioner. 90 When the proceedings are considered as a whole, I do not consider that the way in which the primary judge dealt with the expert evidence resulted in a denial of procedural fairness to the Commissioner. The Commissioner suffered no "practical injustice" (to adopt Gleeson CJ's language: Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex Parte Lam (2003) 214 CLR 1 at 13-14 [37]-[38]) particularly bearing in mind that both parties were in the same position as a result of his Honour's rulings: see also Assistant Commissioner Condon v Pompano Pty Ltd and Anor (2013) 252 CLR 38 at 99 [156] (Hayne, Crennan, Kiefel and Bell JJ); TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at 409-410 [86] (Allsop CJ, Middleton and Foster JJ). The grounds under this head cannot sustain the appeal.

The Basis Issue: Grounds 3(d) and (e) 91 This head of grounds was cast as the failure by SPANT to discharge the onus it carried under s 14ZZO of the TAA by reason that there was no evidence, or an insufficiency of evidence, of facts, to support the assumptions upon which Mr Studley's opinions of value were based, or to support the assumptions made by Mr Studley as to the number of drawings and documents in existence as at 19 October 2005. 92 It was also claimed that Mr Studley's opinion as to the actual value of the copyright was not an independent application of his specialised knowledge and, instead, depended entirely for its quantification upon instructions given to him by SPANT. 93 The grievance in [92] above was dealt with by the primary judge at R [44]. The subject of the complaint was not developed by the Commissioner in his submissions on appeal and, in those circumstances, his Honour's response should not be disturbed. 94 The evidentiary base upon which his Honour arrived at the remaining findings complained of under this head of grounds is not optimal, but may be explained by the way in which the primary judge decided how the expert evidence was to be handled and the capacity of the parties to deal with the unexpected change of approach "on the run". The Commissioner cannot be heard to complain if it be the case that his counsel was unable, in the face of the unexpected change of approach, to effectively undermine the conclusions of Mr Studley relied on by SPANT so as to persuade the primary judge that those conclusions should not be embraced, or that the conclusions of Mr Samuel were to be preferred. The Commissioner's grievance is not improved by clothing it as a failure to discharge the onus requirement. 95 The grounds under this head cannot sustain the appeal.

The Nature of Copyright Issue: Grounds 3(i) and (j) 96 It is convenient to deal with the two remaining heads of grounds together if only because without the individual experts reports being in evidence, and in the absence of express findings supported by reasons of the primary judge on what I have called the fundamental issue (see [85] above), it is impossible for this Court to come to an informed view as to whether the primary judge erred in relation to these heads of grounds as claimed by the Commissioner. 97 The starting point for consideration and analysis of these heads of grounds, was what the primary judge had to say at R [23] and [24]: [23] Many examples of the drawings were tendered in evidence and Mr Ficca was asked in oral testimony to explain some to illustrate their use and importance. One of the drawings, which may be used as illustrative of the very many others, was a single line diagram for the West Melbourne terminal station depicting the 220 kV network in Victoria and its subsidiary 66 kV switchyards. Its particular importance lay in the switchyard which provides services to the distribution businesses in the metropolitan area of Melbourne. The diagram does not depict the plant as a two dimensional picture of a three dimensional object but, rather, depicts the electricity movements of the circuitry and the key elements within it. Information contained in boxes at the bottom of the first page of the drawing identified who drew it and who was involved in its design and checking. It also included such information as the various revisions which had been made to the drawing and who had done those revisions and the dates upon which they had been done. It was possible from the diagram, for example, to identify that on 21 June 1994 there had been a revision which had deleted something from part of the system depicted in the drawing. A user of the drawing would be informed, for example, that there was a capacitor bank (being a type of equipment) connected to a common point of voltage via a circuit breaker. A number of switches were identified in the drawings as being on either side of the capacitor bank, thus enabling a person to switch that piece of equipment in and out relative to the common points of voltage. The diagram is filled with marks and symbols which convey meaning both in themselves and, importantly, in relation to each other. Earthing points are identified in relation to the capacitor bank and another earthing switch. Following the line down vertically, a circuit breaker is shown which picks up the flow of current in that circuit and operates various protections. The circuit breaker is depicted as a square box below which is depicted a symbol for a switch. Information of that kind does not just record historical detail; it is essential information for maintenance operations because it informs a user of the drawing of the points where the circuit breaker can be opened safely for servicing. The drawing was not just a visual depiction of information but expressed the information in a way that informed a user about the individual details in the drawing and also about the relationship those details have to each other. Copyright does not protect facts or information (IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458 [28]) but does protect the particular form of expression of the information, namely the words, figures and symbols in which the information is expressed and the selection and arrangement of that information (Ice TV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458 [26], [28]). There were very many drawings of this kind and very many others which differed in detail and presentation of information, but all which expressed information necessary for the use and ongoing operation of the transmission network. The form of expression of the facts and information in the drawings and other documents was useful, critical, necessary and valuable to SPI PowerNet in its transmission business. [24] The Commissioner accepted that copyright subsisted in the drawings and other documents but contended, principally, that they had no separate value capable of being taken as part of the amount paid by SPI PowerNet as part of the Total Purchase Price. Three experts were called to give concurrent evidence concerning the appropriate methodology for valuing copyright in drawings and documents for a transmission system. There was substantial agreement between them but there was a sharp difference on critical matters. The three expert witnesses were Messrs Lonergan, Studley and Samuel who agreed that there were three generally accepted methodologies for valuing intellectual property, but they could not agree that there was a generally accepted methodology for valuing copyright in drawings and documents for a transmission system. The three agreed that the accepted methodologies for valuing intellectual property are an income approach, a market approach and a cost approach. They also agreed in general terms that a replacement cost methodology was appropriate but could not agree about its application in these proceedings. The critical point of difference was between Mr Samuel and the other two. Mr Samuel was of the view that a market approach was relevant to the issues to be determined in the proceedings because there had been contractor agreements which had provided evidence of the amount which a willing buyer was prepared to pay for the relevant copyright from a willing seller. Mr Samuel's opinion, however, was, in essence, that the copyright could not possibly be sold separately from the transmission business any more than a key could be sold separately from the only car it could open. The other two experts were of the view that the market approach was not appropriate for valuing the copyright assets in drawings and documents for a transmission system because of the unique nature of the copyright assets and that there was no readily observable market for such assets. They considered that the existence of the contractor agreements did not provide evidence that the value of the copyright was nil but only that there was no additional payment for the copyright over and above the composite price for the contract performance. Another aspect of disagreement, again dividing Mr Samuel and the other two, concerned whether it was appropriate to make allowance for any costs associated with being deprived of the drawings and documents when calculating the value by the replacement cost approach in these circumstances. 98 What his Honour said in the passages set out above was in the context of the first appeal, but, on the conclusion I have reached on that appeal, was not relevant in that context. But what his Honour there said is relevant to the issues currently under consideration in this second appeal. The Commissioner does not take issue with his Honour's acknowledgment that copyright does not protect facts or information and accepts that it does protect the form of expression of the facts and information, namely, the words, figures and symbols in which the information is expressed and the selection and arrangement of that information. 99 In the context of the second appeal, the primary judge at R [47] said: The Commissioner's many challenges to the valuations relied upon by SPANT are not supported by the evidence. His Honour then gave an example of such a challenge, namely, "the second PwC report is not a valuation". Whilst his Honour's dismissal of that particular challenge was undoubtedly justified, his Honour's final observation at R [47]: [S]uch dispute between the valuers as there was, was about objective theoretical professional differences. is, with great respect, one I am unable to agree with. There was, as his Honour had found at R [24] (see [97] above), "a sharp difference on critical matters" and, apart from there stating what some of the differences were, the primary judge does not appear to have undertaken any analysis as to which of the different views was the preferable one. 100 At R [48], his Honour relevantly said: One of the differences between the valuers, as previously mentioned, concerned the appropriateness of a valuation taking into account indirect costs such as the opportunity costs of, for example, a shut-down where necessary to replace relevant drawings. The issue arose because the only method for valuation before the Court was a replacement cost method. With respect, that last sentence is not correct. Exhibit 8 makes it quite clear that Mr Samuel thought that a "market approach" was relevant to the case at hand. Mr Lonergan did not think it was appropriate, and Mr Studley agreed with him. Moreover, at R [24] (see [97] above), even the primary judge himself commented on this difference as a "critical point of difference", as well as commenting on another aspect of difference, namely, that referred to at the commencement of R [48] reproduced above: the appropriateness of a valuation making allowance for indirect costs such as deprival costs, where again there were real differences between Mr Lonergan (and Mr Studley) on the one hand, and Mr Samuel on the other. 101 Having said this, I do not think it is instructive, nor constructive, to undertake a piece-meal critique of his Honour's reasons for judgment in seeking to resolve these two remaining heads of grounds. Indeed, as I have already indicated, I do not think they can be resolved absent the individual experts' reports going into evidence, nor absent findings, supported by reasons of the primary judge, on the fundamental issue, namely, whether, as Messrs Studley and Lonergan opine, it is possible and appropriate to value the copyright separately from the assets to which it is related and, if so, what that value is, or, as Mr Samuel opines, it is possible, but not appropriate in the circumstances of this particular case, to separately value the copyright. The matter should be remitted to the primary judge to enable these tasks to be undertaken. 102 In undertaking these tasks, I would make the following two observations, albeit merely for guidance: (1) The first concerns the occasion for valuing the assets of SPI PowerNet as at 19 October 2005 including, if it is appropriate, the copyright, and that is the notional acquisition by SPANT of all the assets of SPI PowerNet on it becoming a member of the SPANT consolidated group on that date: s 701-10 of the 1997 Act. Hypothetical transactions, involving hypothetical willing but not anxious parties, which illustrate that ownership of the copyright could be dealt with separately from ownership of other assets, specifically ownership of documents containing the relevant information, and that the copyright is therefore capable of theoretical valuation on a stand-alone basis, may not be appropriate for determining whether, in the circumstances of this case, the copyright does have a separate value, and if it does, what that value is. (2) The second is related, but is sourced from a different perspective. If an actual acquisition by SPANT of all of SPI PowerNet's assets as at 19 October 2005 had not included the copyright, there can be no doubt that by reason of the notion of "necessity", as explained by McHugh and Gummow JJ in Byrne v Australian Airlines Limited (1995) 185 CLR 410 at 450, SPANT would have enjoyed an implied licence to copy and modify the drawings and documents in any event: see Copyright Agency Limited v State of New South Wales (2008) 233 CLR 279 at 305-306 [92] per Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ, and the other cases there cited (also [81], [82] and the cases cited); see too Acohs Pty Ltd v Ucorp Pty Ltd and Anor (2012) 201 FCR 173 at [145]. 103 Whilst the Commissioner has not made out Grounds 3(a)-(c) or (d)-(e), my consideration of grounds (f)-(h) and (i)-(j) discloses errors or omissions upon which the ultimate determination of these grounds depends. In these circumstances, pursuant to s 28 of the Federal Court of Australia Act 1976 (Cth), I consider it appropriate to allow the second appeal; set aside the judgment appealed from in the second appeal; and remit the proceeding to the primary judge for further hearing, specifically to enable: (1) The individual expert reports to be tendered and taken into evidence; (2) the parties to make such further submissions as each wishes to make on such further evidence; and (3) the primary judge to make such reasoned findings as his Honour thinks necessary or appropriate on the fundamental issue of whether it is possible and appropriate to value the copyright separately from the assets to which it is related and, if so, what that value is, or whether it is possible, but not appropriate in the circumstances of this particular case, to separately value the copyright. 104 I would also afford the parties an opportunity to make submissions on the costs of the second appeal. I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Associate: Dated: 6 May 2015 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 216 of 2014

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 218 of 2014

JUDGES: KENNY, EDMONDS AND GREENWOOD JJ DATE: 6 May 2015 PLACE: MELBOURNE

GREENWOOD J 105 These proceedings are concerned with two appeals by the Commissioner of Taxation from orders of this Court setting aside objection decisions made by the Commissioner. The primary judge also made orders remitting each matter to the Commissioner to re-determine each assessment in accordance with his Honour's reasons for judgment published in support of the orders. 106 The two originating proceedings in this Court were commenced by each respective respondent under s 14ZZ and Div 5 of Pt IVC of the Taxation Administration Act 1953 (Cth) (the "TAA"). In those proceedings each applicant (each respondent to each appeal) had the burden by operation of s 14ZZO of proving that each assessment was excessive. 107 I have had the benefit of reading in draft the judgment of Edmonds J. For the sake of consistency, I will adopt the same abbreviations for describing each respondent and other relevant entities as his Honour. Edmonds J has set out the statutory provisions relevant to the questions to be determined and has also set out the relevant provisions of an Asset Sale Agreement (the "Agreement") dated 12 October 1997 which is central to the claims for deductions by the respondents in each income year. I will seek to avoid unnecessary duplication as to those matters in these reasons. 108 Before turning to the questions in issue, it seems to me that it would be helpful to first identify the elements of the statutory regime engaged by the questions in issue in each appeal. 109 In each income year from 1998 to 2006, the respondent to the first appeal, AusNet Transmission Group Pty Ltd formerly SPI PowerNet Pty Ltd ("SPI PowerNet") claimed deductions for expenditure of a capital nature on the purchase of copyright in particular materials as part of the acquisition of a particular bundle of assets. In the 1998 income year, the claim for a deduction was made under Div 10B of Pt III of the Income Tax Assessment Act 1936 (Cth) (the "1936 Act"). In the subsequent years the claim was made under Div 373 of Pt 3-45 of the Income Tax Assessment Act 1997 (Cth) (the "1997 Act") and then under Div 40 of Pt 2-10 of the 1997 Act. It seems to be common ground that SPI PowerNet's claim for deductions in each of the tax years from 1998 to 2006 depended upon the terms of Div 10B of the 1936 Act and that any entitlement obtained under those provisions might then continue in subsequent years through subsequent provisions together with the operation of transitional provisions. The primary judge observes that in the 1999 to 2002 years of income (up to 30 June 2001) any entitlement to a deduction would continue under Sub-div 373B of the 1997 Act and the Income Tax (Transitional Provisions) Act 1997 (Cth). That seems to follow because Div 10B of the 1936 Act was replaced with Div 373 of the 1997 Act and the replacement provisions enabled deductions to be made for un-recouped expenditure for items of copyright which had been acquired before the 1999 income year. 110 The primary judge also observes that the terms of Div 373 were not the same as those in Div 10B of the 1936 Act but SPI PowerNet's claim for the 1999 to 2002 income years depended upon the claim first coming within the terms of Div 10B as they stood in the 1936 Act. SPI PowerNet's claims for deductions for the income period from 1 July 2002 to 30 June 2005 arose under s 40-25 of the 1997 Act and transitional provisions. Div 373 of the 1997 Act was replaced with Div 40 of the 1997 Act with effect from 1 July 2001. The primary judge observes at [4]: SPI PowerNet's accounting period ended 31 December and its claims for the 2002 year were, therefore, under Division 373 for the period to 1 July 2001 and under Division 40 for the period to 31 December 2001. Its claims under Division 40 for capital allowance deductions were for the original un-recouped expenditure under the earlier provisions. In each case, however, the deduction claimed for the periods up to the 2006 year depended upon Division 10B (and s 124R(5) in particular) of the 1936 Act in the 1998 year of income. 111 These propositions are not contested on appeal. 112 Accordingly, I propose to examine the statutory provisions in the form in which they stood relevant to the claims made by SPI PowerNet in the 1998 income year. 113 I will then return to questions relating to the second appeal and the question of the 25% penalty imposed by the Commissioner, later in these reasons. 114 Division 10B of the 1936 Act addresses the topic of "Industrial Property". Section 124L(1)(b) is an application of laws provision. It provides that Div 10B applies to the owner of "a unit of industrial property" who incurred "expenditure of a capital nature on the purchase" of the unit of industrial property and, in the year of income (or a previous year of income), the owner has "used the unit of industrial property" for the purpose of producing assessable income. A unit of industrial property is defined to mean, relevantly for present purposes, by s 124K(1) as (among other things) "rights possessed by a person under a law of Australia as the owner of a copyright; or a licensee under such a copyright; and includes equitable rights in respect of such a copyright or in respect of a licence under such a copyright". 115 Section 124M provides for annual deductions on the following footing. 116 Where, at any time during the year of income, a taxpayer is the owner of a unit of industrial property (to whom Div 10B applies), an amount equal to the "residual value" of the unit of industrial property calculated according to the formula contained within that section "shall, subject to this Act, be an allowable deduction in respect of the unit" [emphasis added]. The allowable deduction is an amount equal to the "residual value" of the unit of industrial property at the end of the year of income divided by a number equal to the number of whole years in the effective life of the unit at the commencement of the year of income. The formula uses the term "residual value". Section 124S provides that the residual value of a unit of industrial property at any time shall, for the purposes of Div 10B, be ascertained by deducting from the cost of the unit to the owner, the sum of any deductions allowed or allowable under Div 10B in respect of the unit in assessments in respect of income of the owner of a year or years of income which ended prior to that time and the consideration receivable by the owner in respect of any disposal by the owner of the unit, in part, prior to that time. 117 The formula in s 124M is applied under the section to determine the relevant amount which shall be an allowable deduction in respect of the unit of industrial property to which Div 10B applies. 118 As mentioned, s 124L(1)(b) applies Div 10B to an owner of a unit of industrial property who has "incurred expenditure of a capital nature" on the purchase. Section 124R addresses the topic of "cost of a unit of industrial property" and provides that the cost of such a unit to the owner shall, subject to s 124S(2), be taken to be, in the case of an owner referred to in s 124L(1)(b), the cost ascertained in accordance with subsection (3) or (5) of s 124R if either subsection is applicable, and if neither subsection is applicable, the expenditure referred to in s 124L(1)(b). Relevantly for present purposes, if subsection (5) is applicable, the cost of the unit of industrial property so determined by operation of that subsection for the purposes of s 124R(1)(b) is taken to be the amount of the expenditure of a capital nature incurred by the owner on the purchase of the unit of industrial property for the purposes of s 124L(1)(b). 119 The parties to each appeal accept that s 124R(3) has no application. 120 However, the primary judge in part relied upon the terms of s 124R(3) in construing the proper operation of s 124R(5). Section 124R(3) is concerned with circumstances in which the Commissioner, in the case of an owner referred to in s 124L(1)(b), is satisfied having regard to particular statutory considerations that the owner (buyer) and the seller were not dealing with each other at arms-length in relation to the purchase and the expenditure of a capital nature incurred by the owner (buyer) either exceeds the cost of the unit to the last preceding owner or does not exceed that cost, but exceeds the "value of the unit" at the time of the purchase. In those circumstances, the cost of the unit to the owner (buyer) for the purposes of Div 10B shall be taken to be the cost to the last preceding owner or the value at the time of the purchase, whichever is the less. 121 The parties accept that s 124R(5) is the applicable provision for the purposes of s 124R(1)(b). That subsection is in these terms: Where, in the case of an owner referred to in paragraph 124L(1)(b), the unit of industrial property was purchased by the owner of the unit with other property and no separate price was allocated to the unit, the amount of the expenditure of a capital nature incurred by the owner on the purchase of the unit for the purposes of this Division shall be taken to be so much of the purchase price of the unit and the other property as the Commissioner determines. [emphasis added] 122 Thus, in circumstances where an owner of a unit of industrial property has incurred expenditure of a capital nature on the purchase of that unit together with other property and no separate price is allocated to the unit, the s 124L(1)(b) expenditure of a capital nature incurred by the owner on the purchase of the unit shall be taken to be an amount represented by so much of the purchase price of the unit and other property as the Commissioner determines. Subsection (5) of s 124R is not expressed to operate upon any state of satisfaction of the Commissioner. Nor does the subsection adopt language such as "as the Commissioner may determine", emblematic of a statutory discretion. Should the Commissioner determine (once subsection (5) is properly engaged), in the exercise of the statutory power, that no part of the undistributed or non-separate price is attributable to the unit of industrial property, it would follow that no amount of expenditure of a capital nature was incurred by the owner on the purchase of the unit of industrial property for the purposes of Div 10B (and in particular s 124L(1)(b)), in which event the Division would have no application to SPI PowerNet as the owner of the unit and no entitlement to a deduction would arise. 123 In each income year from 1998 to 2006, SPI PowerNet claimed deductions under Div 10B of the 1936 Act (or the equivalent provisions as earlier described) for expenditure of a capital nature incurred by it on the purchase of a collection of assets including a "unit of industrial property" comprising the copyright subsisting in a range of materials which, for the purposes of the resolution of these issues, were treated by the parties as works in which copyright could subsist for the purposes of the Copyright Act 1968 (Cth). Those assets were, prior to the purchase, owned by a Victorian government owned corporation, Power Net Victoria, which conducted the substantial commercial undertaking of the transmission of electricity in the State of Victoria. The purchase of the assets by SPI PowerNet relating to the transmission undertaking was effected pursuant to an Asset Sale Agreement (the "Agreement") dated 12 October 1997. The purchase price of the Assets recited in the Agreement is $2,502,600,000 ($2.502 billion). One of the 12 classes of Assets (as defined in cl 1.1 of the Agreement) purchased by SPI PowerNet under cl 2.1 of the Agreement is "the Intellectual Property Rights" which, in turn, are defined to mean, relevantly, "all copyrights"; "rights under each licence in respect of such copyrights"; and "equitable rights in respect of such copyrights". The purchase price of $2.502 billion for the defined Assets is described in cl 2.1 as the "Total Purchase Price" payable to the seller for "the Assets". The term "Total Purchase Price" is defined by cl 1.1 to mean the "sum of the price" of the Assets (including land) but "net" of particular liabilities (and "Creditors" as defined), "assumed under the Agreement" (but not including "Estimated Duty"). The reference to the "sum of the price" in defining the term Total Purchase Price might suggest that each of the 12 classes of Assets purchased under the Agreement had, either, in the Agreement, or otherwise by arrangements made between the parties to the Agreement, a price attributed to each asset and the Total Purchase Price represented the sum of those attributed prices. 124 The primary judge found that no such attribution had occurred in respect of any of the Assets and nor was there any aggregation of distributed prices so as to reach the total price agreed by the parties to the Agreement. There was simply an agreed price for the total bundle of assets acquired for the Total Purchase Price. Moreover, the Total Purchase Price is described in the definition of that term as "fixed" notwithstanding that the "components referred to above" (which seems to be a reference to the components making up "the sum of the price" of the Assets) may be shown collectively to have a different value. 125 One of the other Assets within the 12 defined asset groups acquired under the Agreement is "the Business Records" and that term is defined to mean, relevantly, "all of the Seller's financial and business data, employee data, technical data and all the Seller's other records, data, information and documents, with the exception of any documents relating to the Specified Assets". The term Specified Assets has a defined meaning which does not bear on the questions in issue. 126 The copyright acquired by SPI PowerNet from Power Net Victoria comprised of the copyright subsisting in drawings and various procedures manuals (which I will call "works") relating to the electricity transmission undertaking described at [18] of the primary judge's reasons in these terms: 1. Some 90,000 drawings saved in electronic form on a laptop 2. Easement plans - lines and stations 3. Standard maintenance instructions 4. Plant and equipment policy documents 5. Plant defects report 6. Primary practices and procedures 7. Standard oil procedures 8. Secondary practices and procedures, and relay test instructions (including in secondary practices and procedures) 9. Secondary circuit isolation 10. Solid state principles 11. Electrical instrumentation manual 12. Transducers 13. Demand recording equipment 14. Power system protection 15. Line practices and procedures 16. Live line procedures 17. Transmission field work procedures 18. Electrical plant and equipment - descriptive manual 19. Asset manual strategy 20. Standard lab test procedures and instructions 21. Training materials - TTO training protection 22. Vision 2020 23. Environmental manuals 24. Earthing code for stations 25. Plant and equipment training slides & manuals 26. Bushfire mitigation manual 27. Authority to receive - electrical access permits 28. Lab relay test instructions 29. Wholesale metering manual test procedures 30. GPU PowerNet Yarraville Quality Management Manual 31. NATA Laboratory Quality Management Manual 32. Relay settings software (RESIS). 127 Four other classes of subject matter seem to have been taken into account as falling within the notion of works in which copyright would subsist for the purposes of the Agreement, namely: 33. Lines On line rating software; 34. Transformer On line rating software; 35. Cables On line rating software; and 36. Secondary Equipment Doble Test Routines & Data. 128 In the proceedings before the primary judge, there seemed to be considerable confusion between the parties (focussing on the first appeal for the moment) as to the precise scope of the permissible enquiry to be undertaken by SPI PowerNet in seeking to discharge the burden of demonstrating that the Commissioner's assessment was excessive. That confusion was also bound up with a question of construction of s 124R(5). The primary judge observes at [9] that SPI PowerNet had initially contended that in making a determination under the subsection, the Commissioner had fallen into error in the exercise of a discretion "rather than that the Commissioner had failed to determine the objectively ascertainable correct amount which was allowable under s 124R(5)" [emphasis added]. However, at the hearing SPI PowerNet abandoned that conception of its case and contended, as the primary judge understood the new case, as described at [9], that: ... it was sufficient to establish, in accordance with the decision in [WR Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation [2007] FCAFC 103; (2007) 161 FCR 1 (Full Federal Court) and WR Carpenter Holdings Pty Ltd v FCT (2008) 237 CLR 198], that the assessment was excessive as considered in Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 [see Brennan J at 621, 622] without the need first to establish reviewable error as described in Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 [see, Dixon J at 360]. 129 The primary judge also observes at [9] that the Commissioner had initially contended that the determination by the Court in Pt IVC proceedings of the "amount allowable under s 124R(5) did not depend upon the finding of error in the exercise of the power" [emphasis added] (in the context of the challenge to the Commissioner's determination under the subsection) by the Commissioner in determining so much of the non-separate price of the Assets which represented the amount of the s 124L(1)(b) expenditure. However, at the hearing, the Commissioner contended that s 124R(5) engaged the exercise of a discretion and that SPI PowerNet had failed to show error in the exercise of the discretion. 130 As a result of these changes of position, the primary judge gave leave to the parties to amend their respective Appeal Statements to reflect the changed position. 131 Relevantly for present purposes, in SPI PowerNet's Amended Appeal Statement it puts its central contentions leading to the conclusion that the assessment is excessive, in this way. 40A. The Respondent's determination under section 124R(5) of the capital cost of acquiring the copyright acts like an averment clause in a contract and the Respondent is therefore able to establish the true cost of acquisition by evidence, without also needing to establish legal error: WR Carpenter Holdings Pty Ltd v FCT (2007) 161 FCR 1 132 And further: 40B. If it is necessary to demonstrate an error of law by the Respondent in making his determination under section 124R(5), the Respondent's determination under section 124R(5) should be set aside for one or more of the following reasons - (e) The Respondent relied upon an incorrect valuation of the copyright. (f) The Respondent wrongly assumed that allocating an acquisition cost to the copyright would result in "double counting". (g) The Respondent's determination to allocate an acquisition cost of $Nil to the copyright was so unreasonable that no reasonable person could have made it (h) The Respondent misdirected himself on the legal nature of copyright. 133 Relevantly for present purposes, in the Commissioner's Amended Appeal Statement, the central contentions are put in this way: 23. The Commissioner contends that the assessments are not excessive. 24. The applicant did not incur expenditure of a capital nature on the purchase of any items of copyright within the meaning of s 124L(1)(b) … 25. If the applicant did incur expenditure of a capital nature on the purchase of items of copyright under the [Agreement] (which is denied), there is no basis for setting aside the Commissioner's determination under s 124R(5) that that amount should be taken to be $Nil for the purposes of Division 10B. In amplification: (a) any reliance by the Commissioner on an incorrect valuation of items of copyright would not be a basis for setting aside the said determination; (b) to the extent the Commissioner assumed that allocating an acquisition cost to items of copyright would result in "double counting", that assumption was reasonable (c) the determination was not so unreasonable that no reasonable person could have made it. 134 In other words, SPI PowerNet contended that, in seeking to prove the assessment was excessive, it was entitled (and was sufficient) to challenge in Pt IVC proceedings whether the Commissioner's determination was correct that the amount of expenditure of a capital nature incurred by it on the purchase of the copyright was nil, having regard to evidence of the "true cost" of acquisition, without needing to show legal error in the exercise of the power in the Avon Downs sense. If, however, SPI PowerNet was required to show legal error, then the Avon Downs errors were said to be those recited at para 40B. 135 SPI PowerNet's reference in para 40A to the Commissioner's determination standing in the analogous position of a contractual averment clause is a contention, in effect, that the s 124R(5) determination stands in the same position as the Commissioner's s 136AD(4) (of the 1936 Act) determination the subject of the Full Federal Court's observations at [32] in W R Carpenter 161 FCR 1. On that footing, the Commissioner's determination would not be "irrebuttable" and would operate only as "one means of proof" of the subject matter of the determination with the result that the taxpayer would be entitled to seek to prove that the assessment was excessive by proving to the relevant standard the actuality of the relevant fact (in this case the proportion of the non-separate price paid for the copyright asset) notwithstanding the statutory deeming of the fact (as nil) by operation of the determination (characterised as an averment). 136 SPI PowerNet's reference to the Dalco and W R Carpenter cases and the re-formulation of its case (ultimately expressed as para 40A) raised the question of the intersection between the taxpayer seeking to prove in Pt IVC proceedings that the assessment was excessive by challenging the determination as wrong, that is, objectively incorrect on all the evidence (or otherwise challenging the determination) on the one hand, and the role of ss 175 and 177 on the other hand in precluding a challenge to the determination. 137 In FCT v Futuris Corp Ltd (2008) 237 CLR 146; 69 ATR 41, Gummow, Hayne, Heydon and Crennan JJ re-asserted the well-established principle that Pt IVC meets the requirements of the Constitution that a tax may not be made incontestable, as doing so would place beyond examination the limits of legislative power (MacCormick v Federal Commissioner of Taxation (1984) 158 CLR 622 at 639-640; Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 at 221-222), with the result that in Pt IVC proceedings the contestability of assessments made by the Commissioner is not confined to those grounds of judicial review for jurisdictional error provided by s 75(v) of the Constitution and s 39B of the Judiciary Act 1903 (Cth): Futuris at [10]; W R Carpenter Holdings Pty Ltd v FCT (2008) 237 CLR 198 at 203 [5]. 138 However, although a taxpayer dissatisfied with an assessment may object against it in the manner set out in Pt IVC, the validity of an assessment is not affected by reason of any of the provisions of the 1936 Act not having been complied with: s 175. Moreover, a notice of assessment is conclusive evidence of the "due making of the assessment" and except in Pt IVC proceedings relating to the assessment, the notice of assessment is conclusive evidence that the amount and all the particulars of the assessment are correct: s 177(1). Reading s 175 and ss 175A and 177(1) together, the statutory scheme renders the validity of an assessment unaffected by a failure to comply with any provision of the 1936 Act although in Pt IVC appeal proceedings in the Court's original jurisdiction, the assessment and all particulars of the assessment may be challenged by the taxpayer, with the taxpayer bearing the s 14ZZO burden of proof. Given the presence of Pt IVC of the TAA in the statutory scheme and the recognition that, "in those proceedings the 'conclusive evidence' provision does not apply" (Futuris at [64] and [65]; at least within the limits of the language of s 177(1)), ss 175 and 177(1) of the 1936 Act do not operate by deeming the existence of an ultimate fact. Section 177(1) does no more than give evidentiary effect to s 175 (Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 at 222-223; Futuris at [67]) which renders the validity of an assessment unaffected by a failure to comply with any provision of the 1936 Act. The first evidential effect of s 177(1) is that the notice of assessment shall be conclusive evidence of the due making of the assessment. The second evidential effect is that the notice of assessment is conclusive evidence that the amount and all the particulars of it are correct although the second matter is open to challenge in Pt IVC proceedings. 139 At [11] of the reasons, the primary judge notes the observations of the Full Federal Court in W R Carpenter at [42] where the Court sought to explain why s 177(1) does not prevent examination by the taxpayer of the "due formation by the Commissioner of his [or her] state of mind or satisfaction whereas it does prevent examination of the due making by the Commissioner of his [or her] [s 136AD(4)] determination" [emphasis added]. The point of departure is to be found in the circumstance that due formation by the Commissioner of a statutory state of satisfaction or a statutory state of mind goes to a substantive liability to tax whereas the due making of the subsection (4) determination was merely procedural. The Full Court put it this way (quoted by the primary judge at [11]): Where Parliament intended that the criteria for liability should include the due formation by the Commissioner of his [or her] state of mind, opinion or judgment, either in lieu of objective criteria, or as an addition to incomplete objective criteria, s 177(1) has never denied the ability of a taxpayer to examine the due formation of that state of mind on judicial review grounds. But where Parliament has exhaustively set out the criteria for liability by reference to objective matters, but has made the application of those criteria dependent upon a step being taken by the Commissioner, the step is procedural in the sense that it is not a step which forms part of the criteria for liability. The due making of such a determination is not subject to examination on judicial review grounds. [emphasis added] 140 In this passage, the Court makes two references to "judicial review grounds" (the Avon Downs grounds of review). In W R Carpenter the Full Federal Court was addressing a contention that the Commissioner's determination under s 136AD(1)(d) that subsection (1) of s 136AD apply in relation to the taxpayer's supply of property under an international agreement made between parties not dealing at arms-length with each other, involved the exercise of a discretion which must necessarily, it was said, be free of errors of law of the Avon Downs type; was thus reviewable; and, s 177(1) did not operate to foreclose judicial review of such errors. The taxpayer similarly challenged the Commissioner's determination under s 136AD(4) which deemed the arms-length consideration to be a particular amount. Under that subsection, the Commissioner was entitled to make a determination where "it is not possible or not practicable for the Commissioner to ascertain the arm's length consideration in respect of the supply or acquisition of property". The Full Federal Court observed that the statutory scheme of Div 13 of the 1936 Act (s 136AD) identified a number of objectively ascertainable criteria the satisfaction of which would create a liability to tax including the objectively ascertainable fact (the s 136AD(1)(c) factor) that the consideration received by the taxpayer for supply of property was less than the arms-length consideration for that supply. The consideration either was or was not an arms-length consideration. 141 In Pt IVC proceedings, the taxpayer was entitled to challenge by evidence and argument the existence of the relevant fact being a matter going to a liability to tax. The Full Court characterised s 136AD(4) as analogous to an averment clause in the sense that if the Commissioner avers or asserts that it is not possible or practicable for him (or her) to ascertain the arms-length consideration, the Commissioner is entitled to rely on the averment and determine the arms-length consideration. Having that character (and being "simply" one means of proof of a fact available to the Commissioner rather than an irrebuttable presumption of the arms-length consideration: [32] W R Carpenter) the taxpayer would remain entitled to adduce evidence of the arms-length consideration in Pt IVC proceedings going to the objectively ascertainable s 136AD(1)(c) factor. 142 The Court at [33] observed that, logically, the tax liability must turn on whether the taxpayer had managed to displace the Commissioner's deemed s 136AD(4) figure. In seeking to do so, the taxpayer would be entitled to challenge the existence of any of the statutory pre-conditions necessary to the exercise of the power to make a determination without being foreclosed from doing so in Pt IVC proceedings by s 177(1). 143 These preliminary matters (including the averment analogue at [32] adopted by SPI PowerNet) led to the passage at [42] quoted by the primary judge. The point of that passage is to make clear the Full Court's view, in principle, as to two matters. 144 First, s 177(1) (having regard to its relationship with ss 175 and 175A) does not operate to prevent examination on judicial review grounds of the due formation of the Commissioner's state of mind, state of satisfaction or opinion concerning the particular statutory subject matter in issue where the criteria for liability to tax includes, as an integer of that liability, the due formation by the Commissioner of his or her state of mind, opinion or judgement as to that subject matter. 145 Second, the Court emphasised that where a step such as the s 136AD(1)(d) step by the Commissioner of applying subsection (1) (that is, applying the objectively ascertainable factors at s 136AD(1)(a), (b) and (c)) to the taxpayer in relation to the supply in question does not go to the criteria for liability (and thus the liability of the taxpayer to tax), that step is procedural in the sense that it does not go to the statutory criteria selected by the Parliament for liability to tax. The due making of a determination characterised as such a procedural step is not examinable. 146 These observations are consistent with the well-known remarks of Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ in George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 206 and 207, and the remarks of Mason CJ in Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 at 184. In the High Court decision in W R Carpenter Holdings Pty Ltd v FCT (2008) 237 CLR 198 at 203, the Court (Gleeson CJ, Gummow, Kirby, Hayne, Heydon, Crennan and Kiefel JJ) expressed these observations: 5 Section 14ZZO appears in Pt IVC of the [TAA] and provides that the appellant has the burden of proving that the assessment in question is "excessive" (s 14ZZO(b)(i)). But, as Gyles J pointed out in Syngenta Crop Protection Pty Ltd v Federal Commissioner of Taxation, in discharging that burden the appellant is not limited to grounds of judicial review for jurisdictional error and in an "appeal" under Pt IVC disputed matters of fact may fall for decision by the Federal Court. 6 The selection of the term "excessive" in a provision which preceded the enactment of s 14ZZO (namely s 190(b) of the Act in its original form) was said by Dixon CJ, McTiernan and Webb JJ in McAndrew v Federal Commissioner of Taxation to be "perhaps not a good choice", but their Honours emphasised that "'excessive' relates to the amount of the substantive liability". The adjective "substantive" is used in this field of discourse to contrast those provisions of the Act which relate to what is characterised as the procedure or mechanism of assessment. An error or slip by the Commissioner in following that procedure or in the operation of that mechanism does not necessarily produce any error in the amount of the substantive liability of the taxpayer, a point made by Brennan J in Federal Commissioner of Taxation v Dalco. 7 What is at stake in the Pt IVC appeals by the appellants are the amounts of income tax otherwise due and payable under s 204 of the Act and s 255-5 of the [TAA] as debts due to the Commonwealth and payable to the Commissioner. The phrase "substantive liability" which appears in the case law does not appear in the statutory provisions, but it is to be understood as epexegetical [see George v FCT at 204] or explanatory of them. It is with this in mind that the issues for determination in Pt IVC appeals are to be seen. … 10 References, such as that by Mason and Wilson JJ in the earlier decision of F J Bloemen Pty Ltd v Federal Commissioner of Taxation, to the protection to the taxpayer afforded by what is now Pt IVC, by enabling the taxpayer to contest, within the framework of the taxpayer's objection, substantive liability to an amount of tax, are strengthened if read with an appreciation of the constitutional underpinning of Pt IVC. But where the formation of an opinion by the Commissioner is a criterion of liability, the area of the authority of the Commissioner is "guided and controlled by the policy and purpose of the enactment" [Deputy Federal Commissioner of Taxation v Truhold Benefit Pty Ltd] and the exercise of that authority is examinable in the way explained by Dixon J in Avon Downs Pty Ltd v Federal Commissioner of Taxation. [citations omitted] 147 The primary judge concluded at [13] as a matter of construction of s 124R(5) that the subsection applies "where the parties to the transaction had not allocated part of an overall purchase price to the unit [of industrial property] in question but have otherwise dealt with the purchase at arms-length". Thus, the primary judge concluded that the precondition to the application of the subsection was satisfied and that SPI PowerNet was not seeking to challenge a procedural step characterised as part of the due making of the assessment. Rather, it was seeking in Pt IVC proceedings to prove that the assessment was excessive by contesting, within the framework of the taxpayer's objection, substantive liability to an amount of tax by testing whether the Commissioner's determination of that part of the un-dissected purchase price of the Assets under the Agreement, objectively referable to the purchase of the unit of industrial property, was the amount "properly attributable" to the purchase of that unit. The primary judge at [13] observes that s 124R(5) operates within the following construct: The purpose of s 124R(5) is to enable the Commissioner to determine what the section presumes to be the objectively ascertainable portion of the total purchase price which the buyer of a unit of industrial property must be taken to have paid for the unit of industrial property. … The task may involve questions of judgment similar to those which go to determining the arm's length consideration in provisions like s 136AD(4), but it is a task directed to determining objectively that part of an un-dissected sum which was the cost for the purchase of a deductible asset. 148 Thus, it followed for the primary judge that SPI PowerNet was entitled to seek to prove that the assessment was excessive by challenging in Pt IVC proceedings whether the Commissioner's determination was "objectively correct" because that determination relates to the amount of the taxpayer's substantive liability in the sense in which that term is understood in this field of discourse as a contrast to the procedure or mechanism of assessment itself. It follows from the discussion at [9] to [13] of the reasons that the primary judge did not regard ss 175 and 177(1) as foreclosing SPI PowerNet's challenge to the Commissioner's determination under s 124R(5) as an impermissible examination of a procedural step forming part of the "due making of the assessment". In George v Federal Commissioner of Taxation, the plurality said this at 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. 149 The plurality in George regarded the following notion as axiomatic at 207: Obviously the "due making of the assessment" was intended to cover all procedural steps, other than those if any going to substantive liability and so contributing to the excessiveness of the assessment, the thing which is put in contest by an appeal. 150 At [13] of the reasons, the primary judge adds this observation as to the construction of the language of s 124R(5): It operates where it is assumed that something was paid for the unit of industrial property but that its amount (that is, its cost) was not separately identified. [emphasis added] 151 Although the primary judge makes no express reference to the guiding principles of statutory construction at [9] to [13] of the reasons, applying the principles established in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at 46 [47]; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; and FCT v Consolidated Media Holdings (2012) 250 CLR 503, s 124R(5) applies and is engaged where the parties to a s 124L(1)(b) transaction for the purchase of a unit of industrial property, purchased together with other property (in this case assets), have not allocated a separate price to the unit. In that event, the amount of expenditure of a capital nature incurred by the owner on the purchase of the unit shall be taken to be so much of the purchase price of the unit, and the other property, as the Commissioner determines, for the purposes of Div 10B, by the Commissioner identifying the objectively ascertainable portion of the total price the buyer must be taken to have paid for the unit in the circumstances of the transaction and taking into account (where put to the Commissioner) any relevant conduct of the parties in isolating (if at all) a portion of the purchase price referable to the unit. 152 That step is not simply a procedural step. 153 It is a step which goes to the substantive liability of the taxpayer. In Pt IVC proceedings, the taxpayer is entitled having regard to s 124R(5) to call into question and seek to prove to the relevant standard that the assessment is excessive by seeking to prove that there is no proper objective foundation for the determination. It may be that upon proper analysis of the objective foundation for an allocation, the parties will be taken to have made no allocation of any part of the purchase price to the purchase of the unit of industrial property. In that sense, I would respectfully depart from the observations of the primary judge at [13] of the reasons that s 124R(5) according to its language taken in conjunction with the statutory purpose and function of Div 10B, operates upon a presumption that some part, other than nil, of the total purchase price is to be taken as a part allocated by the buyer to the purchase of the unit of industrial property. 154 Because, as a matter of construction, s 124R(5) involves a step taken by the Commissioner which is one going to substantive liability and so contributing to the excessiveness of the assessment, being the thing which is put in contest by the application (appeal) to the Federal Court under Pt IVC, the taxpayer's entitlement to challenge the objective foundation for the making of the determination is not, in my view, foreclosed by ss 175 and 177(1) read together with s 175A. 155 Moreover, the Commissioner did not contend at the hearing or as part of its case that ss 175 and 177(1) foreclosed the taxpayer's challenge to the making of the determination. Rather, the Commissioner's position was that s 124R(5) engaged the exercise of a discretion and that SPI PowerNet had failed to show error in the exercise of the discretion. In my view, that analytical foundation of s 124R(5) is incorrect but nevertheless, the Commissioner did not conduct the case on the footing that ss 175 and 177(1) operated as a complete answer to any challenge to the making of the determination under s 124R(5). In that sense, I would respectfully disagree with the observations of Edmonds J that ss 175 and 177(1) preclude an examination of the objective grounds upon which the Commissioner's determination was made under s 124R(5). 156 If s 124R(5) is characterised as the exercise of a discretion, the exercise of such a discretion might be called into question in Pt IVC proceedings having regard to the Avon Downs grounds and, as to the proper basis for demonstrating that the exercise of a statutorily conferred discretion has miscarried on the grounds of unreasonableness, Minister for Immigration and Citizenship v Li (2013) 249 CLR 332. 157 SPI PowerNet sought to prove the objectively ascertainable portion of the total purchase price referable to the purchase of the unit of industrial property by undertaking a valuation of the copyright as an analogue for that part of the purchase price to be attributed to the purchase of the copyright. At [16], the primary judge observed that the statutory task required by s 124R(5) is, in effect, that of allocating or apportioning part of a known purchase price to a part of that which was purchased "but the basis of allocation and the relevance of value, is not easy" [emphasis added]. 158 The primary judge also said this at [16]: The section is directed to allowing the taxpayer a deduction for that part of a known larger amount which is to be taken to be the cost of the deductible item rather than allowing a deduction for the independent value of the item in question. [emphasis added] 159 The primary judge considered at [16] that "the task is not in terms, that of valuing the relevant part of what was acquired". However, the primary judge observed that the value of the copyright may be relevant to the process of allocation required by s 124R(5). The question of the relevance of value troubled the primary judge further at [16] when his Honour observed that the individual market value of an item purchased with others for a composite amount may not be the "appropriate portion of the total purchase price" which is to be taken to have been "paid" for the item. Moreover, the primary judge observed at [16] that the value of the unit of industrial property which was acquired may not produce the "outcome intended by the section". The primary judge also observed at [16] that s 124R(5) assumes that part of the total purchase price was a taxpayer's "actual cost" of acquiring the unit of industrial property and that "the amount to be allocated can be determined". That proposition may be true if it is accepted that the part of the total purchase price might be nil as, transactionally, the parties may have attributed no part of the purchase price to the acquisition of the unit of industrial property in question. 160 At [17], the primary judge notes that the experts in the case had not been asked to express an opinion on the methods by which "part of an actual total purchase price might be taken to be the cost of the copyright in question" but rather, had been asked whether there was a "generally accepted methodology or methodologies for valuing copyright in drawings and documents for a transmission system". The primary judge at [17] notes, however, that "[t]hat is not the question to which s 124R(5) directs attention" and observes that the section is directed to the allocation of a known total amount to part of the composite assets for which the total purchase price was paid. Thus at [17], "it is not directed to valuing the relevant asset except to the extent that the value may inform the task of allocation or apportionment" [emphasis added]. 161 The primary judge made this further observation at [17]: The dispute between the parties, however, was largely conducted upon the basis that the question posed by s 124R(5) was to be answered by valuing the copyright; although the parties reached radically different outcomes on that basis. Senior counsel for [SPI PowerNet] submitted in final submissions that it should be inferred that the experts had agreed, and had assumed, that the allocation of part of the total amount of the price paid for the transmission assets was to be undertaken on the basis of valuing the copyright. The Commissioner did not entirely disavow that approach and, indeed, relied upon the views of one of the valuers to maintain the position that no part of the total purchase price was to be allocated to the copyright because, as a matter of valuation, it had, in his opinion, no ascertainable separate value. [emphasis added] 162 After that observation, the primary judge returned to the relationship between value and the question posed by s 124R(5) and observed at [17] that the "independent value of the copyright" may be relevant to the question upon which the application of s 124R(5) depends, and in many cases "will suggest or inform" the answer to the question posed by the section where, for example, there is a ready market for its purchase. 163 I have already identified the field of the materials or works which were the subject of the valuation exercise. The Commissioner contended before the primary judge that the taxpayer's case ought to be rejected because the number of items which had been valued was not consistent and therefore the valuations could not be relied upon by the Court. The primary judge rejected that contention and accepted at [19] that there was shown to be "sufficient identity in the subject matter and the number of drawings in that subject matter, which was valued" by two particular valuers, SKM and PriceWaterhouseCoopers ("PWC"). Put simply, SKM valued 105,410 documents relevant to the transmission system. PWC undertook its valuation exercise in relation to 95,910 documents. The primary judge considered that the taxpayer had discharged the burden of proof on the balance of probabilities by probative evidence in demonstrating that there were "about 105,410 documents falling within the 36 categories acquired by SPI PowerNet". 164 At [20], the primary judge observes that the SKM valuation was undertaken primarily by Mr Toohey an Engineer in the Electrical Works Section for SKM. He valued the copyright at $171 million using the replacement cost methodology. Mr John Studley of PWC was retained to comment upon the reasonableness of that valuation. The primary judge at [20] observes that a key assumption in Mr Studley's report was that in "estimating the cost to recreate the critical copyright it was not possible to copy the drawings and produce manuals". Mr Studley estimated the range of value as between $173 million and $262 million and concluded that the SKM value of $171 million was reasonable. Two other experts gave evidence before the primary judge. Mr Lonergan was retained by SPI PowerNet and agreed generally with the PWC methodology. Mr Samuel was retained by the Commissioner and expressed the view that the copyright had no value separate from the other assets which were acquired. 165 At [21], the primary judge observes that both the taxpayer and the Commissioner contended that the drawings were significant to the operation of the electricity transmission business "but, in part for the same reason, they reached opposite conclusions about their value". The primary judge observes that Mr Ficca, an Electrical Engineer, who had spent his professional working career in the energy industry gave evidence of the critical importance of the drawings to the transmission business for such purposes as: … responding to emergency situations, augmenting works, maintaining and modifying works, replacing and refurbishing works, isolation works, proximity works, decommissioning, to satisfy contractual obligations to other entities in the electricity industry, and to satisfy technical regulators and various workplace safety and bushfire mitigation laws. 166 As to the criticality of the documents to the transmission undertaking, the primary judge said this at [26]: Indeed, the evidence of those engaged in SPI PowerNet's business, which I accept, was that the copyright was critical to the proper operation of the business. The information conveyed in the drawings and documents, and the ability to reproduce the drawings and documents, was essential to the operations of the transmission system. The tasks for which the documents were created typically required reproduction of the documents by display on computer screens or portable hand-held devices, or as printouts for staff to take for use on-site. Reproduction with tracing paper was used before photocopying became possible, as was microfiche. The drawings and documents have been digitized since the 1980s and imported to a management system called "Objective". [emphasis added] 167 At [39], the primary judge said this: The evidence was that the value of the drawings to the business lay in the expression of the information they contained. It may be that the information could be expressed differently but the expressions in the drawings were vital to the operations of the business which SPI PowerNet acquired. It was the expression of that information which SPI PowerNet needed to acquire and did acquire. [emphasis added] 168 The three expert witnesses, Mr Lonergan, Mr Studley and Mr Samuel agreed that there were three generally accepted methodologies for valuing intellectual property but could not agree about a generally accepted methodology for valuing copyright in drawings and documents for a transmission system. The three methodologies were an income approach, a market approach and a cost approach. A replacement cost methodology was also appropriate but the experts could not agree about its application in the circumstances the subject of these proceedings. Mr Samuel was of the view that a market approach was relevant because there had been "contractor agreements" which had provided evidence of the amount a willing buyer was prepared to pay for the relevant copyright from a willing seller. The primary judge notes that Mr Samuel expressed the view that the copyright "could not possibly be sold separately from the transmission business". The other two experts were of the view that the market approach was not appropriate for valuing the copyright in drawings and documents for a transmission system "because of the unique nature of the copyright assets and that there was no readily observable market for such assets". 169 The primary judge at [25] observes that the approach adopted by Mr Samuel upon which the Commissioner relied did "not accord with the task to be undertaken under s 124R(5)". The primary judge at [25] said this: However, the task contemplated by the section assumes that some part of the purchase price for the total assets has been paid for the unit of industrial property constituted by the drawings in the same way that it may be assumed that some part of an amount to purchase a car with a key may pay an amount for the car and an amount for the key to operate it. It is not a sufficient answer to the application of the section that the unit of industrial property may not be capable of independent sale in a hypothetical market. It may be that little of the total purchase price is to be taken as having been paid for the item of industrial property but that conclusion will not necessarily follow just because items which are sold together could not be sold separately. [emphasis added] 170 After that passage, the primary judge returned to the difficulty of the relationship between the statutory question posed by s 124R(5) and the valuation exercise and said this: Similarly, as a matter of general principle, the task required by s 124R(5) is not answered by determining the separate value of one of a number of assets which were acquired together with the payment of one un-dissected purchase price. It may well be that the separate value of the copyright may best be determined by the replacement cost methodology, and that value may inform the answer to the question posed by s 124R(5), but it does not necessarily determine how much of the price actually paid is to be taken as the amount paid for the copyright. The application of any methodology for valuing an asset for the purposes of s 124R(5) will be of assistance only to the extent that it informs the inquiry required by that section: namely, how much of the actual agreed total sum is to be taken to have been paid for the item in question. [emphasis added] 171 At [26], the primary judge observes that there may be cases in which the value of a unit of industrial property compositely acquired may not be relevant. His Honour further observes that for value to be irrelevant, "it must be clear that no part of the purchase price was paid for the unit of industrial property". The primary judge observes that the acquisition of the copyright by SPI PowerNet in these proceedings is not such a case. His Honour observes that Mr Samuel had taken the view that the copyright had no separate value because, like his car key example, it could not be sold separately. The primary judge observes that the evidence of the other experts was to the effect that the copyright had value; its separate value was capable of determination; and that it had been purchased. 172 At [27], the primary judge observes that the preponderance of the expert evidence was that the separate value of the copyright acquired by SPI PowerNet was properly to be determined and able to be determined by the replacement cost methodology and the application of that methodology produced a value for the copyright at the date of acquisition of $171.8 million according to SKM. At [28], the primary judge observes that the exercise undertaken by SKM involved determining the "replacement cost of the intellectual property contained in the copyright" and further observes: The basis of the assessment included an estimate of the time it would take similarly qualified personnel to undertake the necessary work to replace the intellectual content of the drawings and other documents. The report produced by SKM in 1999 [the valuation having been undertaken between November 1998 and January 1999] included a detailed explanation of the work undertaken to produce the estimated value of the intellectual property acquired as at 6 November 1997. [emphasis added] 173 Applying that method, PWC concluded that the $171.8 million value adopted by SKM was reasonable. Mr Lonergan also supported the valuation. However, Mr Samuel did not accept that the replacement cost methodology was an appropriate method to apply. 174 At [32], the primary judge returned to the relationship between the evidence of value and the statutory task and said this: The evidence that the value of intellectual property acquired by SPI PowerNet at the relevant time was $171.8 million does not, however, of itself necessarily determine the amount of the deduction to be allowed under s 124R(5). The value of the unit of industrial property, in this case the copyright acquired by SPI PowerNet, might not be the amount which is to be taken as that part of the total purchase price which is to be taken to be the cost for its acquisition. The replacement cost method does not seek to determine the actual cost of the copyright sold by the vendor, and may produce an amount which differs from that which should be taken to be that part of the total price actually agreed between the parties. [emphasis added] 175 At [32], the primary judge again observes that: … it is not the independent value of the copyright that is required to be determined for the purposes of s 124R(5): what is to be determined is what part of the total amount paid is properly to be regarded as the amount paid for the copyright (even though it might not be capable of independent sale). The replacement cost methodology as employed by SKM seems best able to capture the amount required by [s 124R(5)] to be determined. The replacement cost approach was explained [in a particular text] as seeking 'to measure the future benefits of ownership by quantifying the amount of money that would be required to replace the future service capability of the subject intellectual property'. The copyright in contention in this proceeding was necessary to the operation of the transmission business and had to be acquired with other assets. The cost of acquisition of the copyright is likely to be reflected in the cost to create the copyright as the replacement cost method aims to determine. [emphasis added] 176 At [33], the primary judge finds that the task undertaken by SKM in 1999 establishes with sufficient probability the cost of the copyright as acquired by SPI PowerNet on 6 November 1997. The primary judge finds that the copyright was a necessary incident of what was acquired and that had it not been acquired, "it would have had to be created to enable the business to function": [33]. At [33], the primary judge also says this: The parties expressly provided for the acquisition by SPI PowerNet of the copyright and in doing so acquired something which was reliably estimated to have the separate value of $171.8 million at the time of acquisition. That amount can be taken as that part of the Total Purchase Price paid by SPI PowerNet for the copyright for the purposes of s 124R(5) unless there is some aspect of the calculation of the amount that requires modification to make it accord with the purpose of the section. [emphasis added] 177 The primary judge then considers the role of deprival costs in reaching a final valuation figure. 178 Before the primary judge, the Commissioner contended that no amount of the total purchase price could be allocated to the copyright in part because the copyright was limited to the right to reproduce the drawings and that this right was relatively worthless independently of the information to be reproduced or would be worthless because SPI PowerNet would enjoy an implied licence to use the works in the transmission business. The Commissioner also contended that the experts had valued the wrong thing by seeking to identify the time value of replacing the materials and ought to have sought to value the right to reproduce or modify the drawings as an aspect of use of those drawings. 179 The primary judge at [40] rejects those submissions on the part of the Commissioner and concludes that the SKM valuation "did not value the wrong asset when seeking to determine the cost to replace the drawings". 180 The unit of industrial property in this case is the copyright said to subsist in a range of materials which are said to qualify as original works for the purposes of the Copyright Act 1968 (Cth). The materials have been described in these reasons and they represent either literary works or artistic works for the purposes of the Copyright Act. The computer works also represent literary works. The bundle of rights subsisting in those works are those rights conferred by s 31(1) of the Copyright Act and relevantly for present purposes, in respect of the literary works, the nature of the copyright in original works includes the right to reproduce the work in a material form; publish the work; communicate the work to the public; and make an adaptation of the work. In the case of the artistic works, the copyright comprises the right to reproduce the work in a material form; publish the work; and communicate the work to the public. Some of the works may be unpublished works. I do not propose to examine the provisions of the Copyright Act which govern all of the relevant "connecting factors" concerning the subsistence of copyright in particular works. The case before the primary judge seemed to proceed on the footing, for the purposes of the Div 10B issue, that the works in question were regarded as original works in which copyright subsisted. 181 The question of whether a person is engaging in infringement of the copyright is, relevantly for these proceedings, governed by s 36 of the Copyright Act. Section 36(1) provides that subject to the Act, the copyright in a literary or artistic work (drawings, plans, maps, computer software) is infringed by a person who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia, or authorises the doing in Australia of, any act comprised in the copyright. I will return to the relevance of s 36(1) later in these reasons. 182 To the extent that undertaking a valuation of the copyright is relevant to or might properly inform the statutory task of allocation required by s 124R(5), the relevant valuation exercise is one of determining the value of the particular bundle of rights so described within s 31 of the Copyright Act comprised in the copyright and exercisable by the owner of the copyright. The statutory task of allocation is one of attributing so much of a known un-dissected (non-separate) purchase price of the copyright and other property, to the copyright asset. That, however, is not the task the experts undertook. First, the experts failed to answer the precise question asked by the section, as the primary judge has observed. That question might have been: What are the objectively identifiable considerations going to determining the proper basis upon which, as to method (and the facts relevant to method), a part of an agreed non-separate price for a collection of assets might be allocated, to the copyright subsisting in the various categories of works in question? Second, to the extent that the value of the relevant bundle of rights comprised in the copyright informs either the allocation task under s 124R(5) or the question which might have been asked of the experts, the relevant rights must be valued taking into account the following circumstances. 183 First, SPI PowerNet by operation of the Agreement has ownership of all of the physical (and electronic) versions of the documents necessary to conduct the transmission business. The primary judge found that there are thousands of documents relating to the conduct of the transmission undertaking. For the purposes of the copyright argument in relation to Div 10B, the primary judge found that there were about 105,410 documents falling within 36 separate categories of documents and all of those documents were "vital" and "essential" to the conduct of the electricity transmission undertaking. 184 Second, as a function of ownership of the physical and electronic versions of the documents and the copyright in the documents, SPI PowerNet is in an unconstrained position to use the documents as it may choose in the conduct of the transmission undertaking. Let it be assumed, however, that SPI PowerNet had not acquired the copyright subsisting in the relevant documents under the Agreement, a question would then arise as to the extent to which SPI PowerNet was subject to any constraint in its use of the documents (in particular, reproduction rights and the capacity to port drawings and other documents to hand-held devices) derived from the Copyright Act. 185 Third, any exercise by SPI PowerNet of any of the rights comprised in the copyright would only amount to an infringement of the copyright (had SPI PowerNet not acquired the ownership of the copyright under the Agreement) if SPI PowerNet exercised any of those rights without the licence of the owner of the copyright. Let it be assumed that SPI PowerNet had not acquired the copyright subsisting in the 105,410 documents. Could it be reasonably inferred in such a case, having regard to the terms of the Agreement under which SPI PowerNet acquired all of the relevant assets necessary to conduct the electricity transmission undertaking, that Power Net Victoria (the Victorian government owned corporation which formerly owned the copyright in the documents), would have been the source of an implied licence in favour of SPI PowerNet to use all of the documents in connection with that undertaking in a way which included exercising any and all rights falling within the rights comprised in the copyright? The answer to that question seems plainly enough yes, in which event any exercise of any of the rights subsisting in the copyright would have occurred with the licence of the owner of the copyright. 186 Fourth, in those circumstances, it is not necessary to undertake a time-based analysis of the value of work which would have been necessary to recreate the 105,410 documents in a way which could have expressed the information contained in those documents in a non-infringing form. Such a valuation exercise does not aid or inform the statutory task under s 124R(5). I respectfully disagree with the finding of the primary judge at [33] that had the copyright not been acquired, SPI PowerNet would have had to create the field of documents in which copyright subsisted in a way which conveyed the same information but in a non-infringing way to enable the business to function. 187 Since SPI PowerNet, upon the hypothesis that it had not acquired the copyright under the Agreement, would have been entitled to exercise without infringement all of the relevant rights comprised within the copyright subsisting in the documents, the statutory question is: What portion of the known and actual un-dissected purchase price is to be attributed to the acquisition of the ownership of the copyright having regard to the circumstances in which SPI PowerNet found itself by reason of having entered into the Agreement? 188 For my part, I respectfully depart from the conclusions of the primary judge on the question of the extent to which determining the value of the copyright, according to the methodology adopted by the experts, informs the answer to the statutory question. Once it is seen that upon the hypothesis that SPI PowerNet had not acquired the copyright but was in the position to meaningfully exercise all of the rights necessary to conduct the electricity transmission undertaking (and to that end deal with the documents in a way which would otherwise involve exercising rights comprised in the copyright), the question to be determined is what part of the non-separate purchase price is to be attributed to the acquisition of the legal ownership of the copyright as part of the Agreement. It seems to me that the answer to that question is either nil, or alternatively if not nil, for the purposes of these proceedings the taxpayer has failed to prove its case and has failed to discharge the burden under s 14ZZO of showing that the assessment is excessive. That follows because the analytical exercise undertaken by the experts engaged the wrong question and thus the taxpayer has failed to show error on the part of the Commissioner in making the determination and has thus failed to show that the assessment is excessive. 189 It follows that the first appeal must be allowed. 190 I agree with the orders proposed by Kenny J. 191 As to the second appeal, the claims for deductions by AusNet Services (Transmission) Ltd, formerly SP Australia Networks (Transmission) Ltd ("SPANT") are made in respect of the period from 19 October 2005 to 31 March 2006 and for the years ended 31 March 2007 to 2011 inclusive. On 19 October 2005, SPI PowerNet became part of a tax consolidated group. SPANT was the head company for that group. Under the tax cost setting rules in Div 705 of the 1997 Act, SPANT was required to reset the tax costs of SPI PowerNet's assets including the copyright it had previously acquired under the Agreement. For the purposes of determining the tax cost setting amounts of the assets, it was necessary to value them as at 19 October 2005. For the purposes of the second appeal, the question of value of the copyright was directly relevant. 192 The question of the value of the copyright as at 19 October 2005 was the subject of an expert report from PriceWaterhouseCoopers dated 26 February 2007. That report was not admitted into evidence although Mr Studley gave oral evidence of a value range of $230 million to $323 million. 193 I have had the benefit of reading the reasons for judgment in draft of Edmonds J in relation to the second appeal. I respectfully agree with the conclusions reached by his Honour in relation to the second appeal and generally agree with the reasons in support of those conclusions. 194 I agree with the orders suggested by Kenny J in relation to the second appeal. I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.