Constantinidis v Federal Commissioner of Taxation

The Reasons for the Decision 3 The reasons for decision are long; some 68 pages excluding annexures which comprise the written submissions of both Mr Constantinidis and the Commissioner. The greater part of the reasons is taken up with factual matters. There are long extracts from the oral evidence given in the five days which the proceedings took before the Tribunal. The summary of the Tribunal's reasons which follows is necessarily, therefore, an inadequate summary of the factual matters dealt with in the reasons. However, it suffices for the purposes of understanding the questions of law said to be involved in the appeal. 4 It seems that Mr Constantinidis, along with others, was a shareholder in four companies, namely Aitana Holdings Pty Limited, Nuboye Holdings Pty Limited, Rimwood Pty Limited and Pointell Pty Limited. These companies were the registered proprietor of certain land being situated in either Sydney or country New South Wales. The land in each case appears to have been put to use by leasing it or developing it. For whatever reason the activities carried on on the land produced losses and it is not in dispute that the losses would be allowable deductions to whomsoever it was that carried on the leasing or developing activities. 5 Mr Constantinidis' case before the Tribunal was that while each of the relevant land holdings was held by one of the companies as registered proprietor of the land, the company holding the land was not the beneficial owner of the land but was merely a nominee for the individuals, being the persons who were shareholders in the relevant companies. These individuals (the shareholdings differed in each company) carried on, so it was said, a business on the relevant land in partnership and the losses were incurred by the relevant individuals as partners. Mr Constantinidis was, he said, one of the partners in each of the partnerships. If it was accepted that the partnerships existed, then it was not in dispute that Mr Constantinidis was entitled, pursuant to s 92 of the Act to a deduction for his respective share of the losses. It may, perhaps, add to the confusion to say that each of the partnerships was given the same name as the name of the company which was the registered proprietor of the relevant land holding. Thus the four partnerships were; the Aitana Partnership, the Nuboye Partnership, the Rimwood Partnership and the Pointell Partnership. However, so far as I have been able to deduce, Aitana Partnership and Aitana Pty Ltd played no part in the issues before the Tribunal. Although nothing turns upon this I think that it is likely that Aitana Pty Ltd also held land but that the activity on that land whether carried on by the company or the partnership did not give rise to any losses. 6 From the outset it was Mr Constantinidis' case that there had been written partnership agreements prepared in respect of each of the relevant partnerships. He said that the agreements had been prepared using a short form template given to him by one of the partners in KPMG, the firm of accountants of which Mr Constantinidis was at the time a manager. However, Mr Constantinidis himself no longer had a copy of any of the partnership agreements. 7 The partnerships had been financed by the Commonwealth Trading Bank and Mr Constantinidis suggested that the Bank may have had copies of the partnership agreements. It was no doubt for this reason that Mr Constantinidis arranged for a notice to produce to be served on the relevant branch of the bank requiring it to produce its files relating to the relevant companies. 8 There had, earlier, been proceedings between the bank and some or all of the persons said to be partners in the three or four partnerships. Those proceedings had been brought by the bank to enforce cross guarantees that had been given, and there was a possibility that some at least of the bank's files or the documents in them might have been mislaid as a result of that litigation. 9 There was considerable delay in the application to the Tribunal being ready for hearing. Many pages of the reasons are devoted to a discussion of that delay which resulted in Mr Constantinidis' application to the Tribunal being struck out but ultimately reinstated. Nothing now turns on that. Ultimately the hearing commenced on 2 December 2002, continued until 4 December 2002 and thereafter resumed on 30 January 2003 and concluded on 31 January 2003. After the hearing, the parties were given a further period of time to prepare written submissions. The last of the submissions filed was that of Mr Constantinidis. It was filed some time around the end of May 2003. 10 As the learned Deputy President indicates, there was a large amount of evidence both oral and in writing before the Tribunal. 11 On the afternoon of the first day of hearing the bank produced some nine large folders. They were made available to the parties for inspection. Certainly before the end of the last day of hearing in December, namely 4 December 2002, Mr Constantinidis had perused most, although not all of the folders. It can certainly be inferred that by the time the hearing resumed in January both parties and their legal representatives had perused all of the documents which the Bank produced on the first day. Some of the documents produced were used in the course of cross-examination by counsel for the Commissioner and found their way into evidence in the usual way. Some of the material was likely to have been also included in the T documents which were before the Tribunal. It was common ground between the parties, at least from the time the documents had been produced, that the bank's files contained no written partnership agreements. 12 When the matter resumed in January, further documents were produced by the Bank. Mr Constantinidis was still giving evidence in the proceedings. Counsel for Mr Constantinids was, in consequence, permitted to re-open his case in chief and continue the initial examination of Mr Constantinidis. Thereafter, it would seem, some of the new material produced became the subject of examination and possibly cross-examination. Some was admitted into evidence although later regarded by the Tribunal as irrelevant (see, for example, para 92 of the Reasons). 13 A number of witnesses were called on behalf of Mr Constantinidis. It appears that their evidence was interposed from time to time during cross-examination of Mr Constantinidis. The first was Lynne Phillips who had worked for Mr Constantinidis as a secretary from mid 1986 to mid 1988. The second was Jennifer Narine who had worked on the affairs of Mr John and Mr James Scoufis who were partners with Mr Constantinidis in one of the partnerships. The third was Maria Belomo who had worked for Mr Constantinidis as his personal assistant from 1987 to July 2000. The fourth, Phillip Henry, was a partner in KPMG, a firm of chartered accountants for which Mr Constantinidis worked. Finally, evidence was given by Michael Michael who was an employee of KPMG. I shall return to their evidence later in regard to the second alleged error of law. 14 The learned Deputy President found that Mr Constantinidis had failed to discharge the onus upon him. It is clear from his reasons that he regarded Mr Constantinidis as a very unsatisfactory witness, saying that much of his evidence was "profoundly and demonstratively untruthful". In para [110] (critical to the first alleged error of law) the learned Deputy President listed a number of problems he found with Mr Constantinidis' evidence and continued, "One aspect is of course of major significance. The documentation produced by the Bank was very large indeed. No only does it not contain any partnership agreement or even a reference to a partnership agreement but, and on the contrary, the Bank documentation points strongly (and indeed overwhelmingly so) to the fact that the Bank was dealing with and lending to companies and not partnerships. The answer has to be that there never were any partnerships and the applicant knew that this was so. There was evidence before me that the Brothers [Mr John and Mr James Scoufis] claimed and received refunds; there was also evidence that they may have been obliged to return the refunds, although the evidence in this connection is sparse. The evidence before me as to the manner in which the applicant dealt with the Bank indicates that he was dealing with companies and not partnerships. There are many other criticisms which could be levelled against the applicant; it will however be clear that I rate his credibility as very low indeed. It follows, of course, that I find as a matter of fact that the applicant in claiming the deductions was both reckless and indeed dishonest. This is of course relevant to the penalties issue." 15 The learned Deputy President then turned to consider whether the penalties which were imposed in the assessments, being penalties under s 223(1) and s 222 of the Act (remitted in part under s 227(3)), were correctly imposed and if so, whether the Commissioner should have remitted more of the statutory penalty than in fact he did. 16 It had been submitted to the learned Deputy President that no additional tax should have been imposed by way of penalty under s 222 of the Act because, having regard to PAYE tax which Mr Constantinidis had paid on his salary and wages income, (presumably from KPMG) he was not liable to make any payment of income tax to the Commissioner. The Deputy President felt obliged to follow a decision of Emmett J in Punin v Deputy Federal Commissioners of Taxation 2000 ATC 4288 in the context of sales tax, in holding that the expression "tax properly payable", as it appears in s 222, should be construed as being the tax that would be payable if there had been no impropriety consisting of a false statement, and not as meaning tax of which the Commission might demand payment. It followed that the tax properly payable was the amount calculated before taking into account credits for the PAYE tax paid and that the additional tax was therefore properly imposed. 17 However, the learned Deputy President reduced the additional tax imposed by s 222 to 30% and in doing so that Deputy President took into account the fact that the effect of Mr Constantinidis having in the years of income paid instalments of PAYE tax was that he had substantially paid the primary tax for the years in question.

Was there a Denial of Natural Justice? 18 It was not in dispute that if the Deputy President had denied natural justice to Mr Constantinidis that would be an error of law entitling the Court to intervene and, subject to any discretionary considerations, to set aside the decision of the Tribunal. That denial of natural justice involves an error of law is the subject of a Full Court decision of this Court in Clements v Independent Indigenous Advisory Committee [2003] FCAFC 143. Accordingly denial of natural justice will be a ground of appeal to this Court and need not necessarily involve an application brought by the unsuccessful party to this Court under the Administrative Decisions (Judicial Review) Act 1977 or s 39B of the Judiciary Act 1903. 19 Likewise it was not in dispute that procedural fairness required the Tribunal not to reach its decision based upon material adverse to the applicant without affording the applicant the opportunity to be heard on that material: Kioa v West (1985) 159 CLR 550, Dagli v Minister for Immigration and Multicultural & Indigenous Affairs [2003] FCAFC 298. 20 Counsel for Mr Constantinidis submitted that it was clear from para [110] of the Deputy President's reasons that the Deputy President took into account, in reaching his conclusion on credibility, the documentation produced by the bank but not tendered in evidence. It was submitted that this body of material, namely that which was encompassed within the nine volumes produced, was considered by the Tribunal to be "credible, relevant and significant" to the decision under review. Yet, it was submitted, the Tribunal failed to alert Mr Constantinidis that it proposed to take into account that body of material, thus denying him the opportunity, should he be able to do so, to lead evidence or make submissions dealing with it. 21 It may be said at the outset that if this is what the Deputy President did then it would be clear that the Tribunal breached its obligation to provide to Mr Constantinidis procedural fairness and in consequence had made an error of law. Unless it could be shown that alerting Mr Constantinidis could have made no difference at all to the outcome, the Court would set aside the orders made by the Tribunal and remit the matter to the Tribunal to be reheard. 22 For the Commissioner it was submitted that the Court should not conclude on the material before it that the Deputy President did take into account the nine volumes of material that had been produced by the bank and which had not been tendered into evidence and so did not deny, to Mr Constantinidis, procedural fairness. Alternatively it was submitted that, if the Tribunal did contrary to the main submission, take into account material not tendered in evidence, there was nothing to suggest that Mr Constantinidis would have proceeded in any way differently from the way he in fact proceeded. It was submitted that in the circumstances of the case there was no "practical unfairness", (a reference to the judgment of Gleeson CJ in Re Minister for Immigration and Multicultural Affairs; Ex Parte Lam (2003) 77 ALJR 699 at 705-706), since it was not suggested that Mr Constantinidis could have said anything of consequence to persuade the Tribunal to take a different view of his case. It was further submitted that there was no utility in returning the matter to the Tribunal for further determination and accordingly the Court should not set aside the Tribunal's decision. 23 It is unfortunate that the resolution of the present submission really depends upon an interpretation of what the Deputy President meant in para [110] of his reasons. I would not be quick to reach the conclusion that the Deputy President went through nine volumes of material that had not been tendered in evidence and then based his conclusion at least in part on the documents contained in those nine volumes. That seems a highly unlikely course for the Deputy President to have taken. He was, and is, a highly respected legal practitioner with now many years experience of hearing applications before the Tribunal. No doubt he, like all who are called upon to hear and adjudicate claims could make a mistake. However, if the Deputy President did indeed decide the application before him on material not disclosed to Mr Constantinidis, then clearly and subject to discretionary considerations I would have no alternative but to allow the appeal and set aside the Tribunal's orders. 24 Counsel for the Commissioner submitted that a consideration of the language used by the Deputy President in para [110] would lead to the conclusion that the Deputy President did not take into account in his reasons the material produced to the Tribunal but not otherwise tendered in evidence. Reliance was placed on some semantic matters. For example particular emphasis was placed on the words "evidence before me" on the one hand and the reference to "Bank documentation" on the other, it being suggested that the latter words should be taken as being in contrast with the former. It was suggested that the words "the Bank documentation points strongly (and indeed overwhelmingly so) to the fact that the bank was dealing with and lending to companies and not partnerships" should be taken as a reference to bank documentation in evidence before the Tribunal, and not to the documentation produced by the bank referred to in the preceding sentence. One might hope that the question whether the Deputy President did or did not afford an applicant procedural fairness was not left to be determined by a detailed syntactical analysis of the words used by the learned Deputy President. Indeed, one might hope that the issue did not fall to be determined as a matter of construction of the Reasons for Decision of the Deputy President. As the High Court said, albeit in another context, reasons of a Tribunal are not to be trawled through minutely with "an eye attuned to error.": Minister for Immigration & Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 271-272 per Brennan CJ, Toohey, McHugh, Gummow JJ, referring to Customs v Pozzolanic (1993) 43 FCR 280 at 287. The language of a Tribunal is no more a statute requiring minute scrutiny and verbal analysis than is the language of a Judge of this or any other Court. It should not be subjected to minute scrutiny and verbal analysis. Still, it must be conceded that paragraph 110 is ambiguous. The reference to the "Bank documentation" pointing strongly to the fact that the Bank was dealing with companies rather than individuals in partnership might refer to the whole of the Bank's files as produced subject to the Notice to Produce, or it might refer to only that part of the files that found its way into evidence. It must be said that such of the Bank documentation as was properly in evidence clearly showed that the Bank was lending to companies which it appeared to understand owned land and carried on the business of leasing or otherwise developing that land. There was in that documentation no reference to any partnership.

The Statutory Background 25 Before discussing the way in which the proceedings developed in the Tribunal, it is necessary to say something about the statutory background of that proceeding. 26 First, reference should be made to s 33 of the AAT Act. That section makes it clear, not only that the procedure to be adopted by the Tribunal in hearing an application for review is within the discretion of the Tribunal, but also that the proceeding is to be conducted with as little formality and technicality as inter alia a proper consideration of the matters before the Tribunal permits. Not only that, but the Tribunal is entitled to "inform itself on any matter in such manner as it thinks appropriate": s 33(1)(c). 27 Section 33 does not in any way oust the rules of procedural fairness. If the legislature wishes to legislate against a Tribunal affording procedural fairness, it must do so expressly or by necessary implication, for in doing so it would be legislating to replace a common law right: see McHugh J in Re Minister for Immigration and Multicultural Affairs; Ex Parte Miah (2001) 206 CLR 57 at 93. Before the commencement of the proceedings the relevant decision maker is required to lodge with the Tribunal all material in his or her possession that he or she considers to be relevant to the review of the decision by the Tribunal: s 37(1) of the AAT Act. That was done in the present proceedings and a large amount of material including documents relating to Mr Constantinidis' affairs with the bank were produced and indeed were in evidence. Further the Tribunal has the power under s 40(1A) of the AAT Act to summon a person to appear inter alia and produce books, documents or things in the possession, custody or control of the person. That is the power which the Tribunal exercised in requiring the bank to produce for inspection its records relating to Mr Constantinidis' affairs and the affairs of other relevant entities. 28 Section 39(1) of the AAT Act requires the Tribunal to ensure, inter alia, that all parties before it may "inspect any documents to which the Tribunal proposes to have regard in reaching a decision in the proceeding and to make submissions in relation to those documents." Thus s 39(1) makes clear what would otherwise be implicit that the Tribunal can not rely upon any relevant document it takes into account in its decision without at least giving the parties the opportunity of commenting upon it. 29 Finally, it may be noted that s 43(2B) of the AAT Act requires the Tribunal to refer to the evidence or other material on which the findings it is required to make on material questions of fact were based. Having regard to the requirement that the Tribunal proceed otherwise than with formality it no doubt is not necessary that the Tribunal proceed as if it was a Court by accepting documents in evidence on a tender and marking the documents as exhibits. It would be possible for some other method to be adopted. The procedural fairness requirement is not that some rigid procedure such as that be adopted. It is the need for the Tribunal to afford a person before it the opportunity to answer the case put against it that is mandated, and to do that, the Tribunal will necessarily be required to make that person aware of adverse material which the Tribunal proposes to take into account in reaching its conclusion.

An examination of the Transcript 30 Senior Counsel for the Commissioner took me through the passages in the transcript which made mention of the folders produced by the Bank or which referred to cross-examination of Mr Constantinidis with respect to Bank documentation. The transcript does not, in my view, greatly assist in the resolution of the question. 31 It is clear that at the beginning of the second day Senior Counsel for the Commissioner referred to the documents produced and announced that the documents had been examined by both parties after the adjournment the evening before and that it was common ground between the parties that no partnership agreement or agreements were produced by the Bank in response to the summons to produce documents. Counsel for Mr Constantinidis had the previous day informed the Deputy President that the summons to produce documents would not be called upon until the next day. 32 After some other matters were dealt with the Deputy President returned to the matter of the Bank folders and said of them that they seemed to be rather large and voluminous. He asked for confirmation that the Bank had not produced any partnership agreement. Counsel for Mr Constantinidis then said that he had been through each of the folders and that there was no partnership agreement there. He added: "… equally, in my submission, there are documents which one would have expected to be there, which are not, documents which are not material to the issues of the matter, but in terms of completeness, they seem to be absent. I will draw some evidence to support that from Mr Constantinidis." (AB 451-2) 33 Counsel added that Senior Counsel for the Commissioner had not conceded that to be the case and indeed was not in a position to do so. Mr Constantinidis then returned to the witness box where his examination in chief was continued. He was asked what documents he would expect to have been produced by the Bank. He replied, inter alia, that there were in each case proposals put to the bank and correspondence updating the proposals from time to time (AB 456). He noted that there had been "endless meetings" with the Bank "to accommodate their request for further capitalisation" (AB 456). Accounts had been provided to the Bank from time to time. It was at this point that Mr Constantinidis said that he had not had time to look at two of the folders produced by the Bank. 34 At AB 470 Mr Constantinidis was cross-examined on the T documents. Mr Constantinidis conceded in respect of the Rimwood property that the company had been the borrower, had provided a mortgage and that the money had been borrowed by the company and was used to acquire a property. Mr Constantinidis qualified his evidence, however, by saying that Rimwood had sought the loan and acquired the property on behalf of the partners. He acknowledged that leases had been entered into in the name of the company. The same applied to the transactions entered into by Pointell. Guarantees had been given to the bank by the directors and the bank had cross collateralised its security over different properties as a result of a key tenant having been lost in respect of a property that had been acquired in Maitland. He was asked about financial pressure being applied by the bank when the rents generated were insufficient to meet interest payments. The cross examination continued for many pages dealing with relations between the bank and Mr Contantinidis. To summarise, that cross examination would not assist to resolve the issue before me. It suffices to say that Mr Constantinidis was asked about various documents concerning accounts opened with the bank and the bank statements that were accordingly issued (eg AB 525). 35 At AB 530 Mr Constantinidis was asked some questions concerning the documents produced by the Bank. He pointed out that the files produced contained no documents pre 1986. He was asked which Branch Manager of the Bank had asked him to produce to the Bank a copy of the Pointell partnership agreement. He answered that this was either a Mr Price or a Mr Edmunds (AB 530), adding that all submissions and statements of the partners' assets and liabilities had been dealt with by the North Auburn branch. It may be recorded that no manager of the Bank was called to give evidence. 36 At AB 534 Mr Constantinidis was cross-examined about other bank records among the T documents. 37 Later at AB 574 Mr Constantinidis was asked whether he could point to any document in the material produced by the Bank which indicated that the Bank had been made aware of the partnerships. After some discussion on this question the Deputy President noted that the question could not be answered if Mr Constantinidis had not yet had the opportunity of considering all the documents produced. He suggested that the question be held over until the Tribunal resumed at the end of January. Thereafter, Mr Constantinidis confirmed that in the T documents he had read, there was nothing indicating any partnership. It was put to him (AB 576) that in what he had to that stage read of the Bank documents there was not one document or record which suggested any partnership involving Rimwood, Pointell, Aitana or Nuboye. His answer was somewhat indirect and inferentially might be interpreted as accepting this. 38 Certainly by AB 584 Mr Constantinidis had accepted that in the Bank documents that had been put to him by Senior Counsel for the Commissioner the partners' names had not appeared. He suggested that it was important to two of the partners at least that their names not appear on documents. At AB 585 he was cross-examined on a letter he had written to the Bank on 13 February 1990 (one of the T documents). The letter suggested that the rental received was the income of Rimwood Pty Ltd. The letter made no reference to the partners or any partnership. At AB 597 Mr Constantinidis was cross-examined about extracts relating to Rimwood Pty Ltd, being two documents which had been produced from the Bank's files. The documents became Exhibits R4 and R5. At AB 603 there was some cross-examination about guarantees given to the Bank where it was put to Mr Constantinidis that had the partnership been the borrower, the partners would have been described as principal debtors whereas it would seem that the guarantors' liability was secondary to the relevant corporate borrower. 39 Commencing at AB 610 Mr Constantinidis was cross-examined on a bundle of documents emanating from the Bank and which related to an application for increased accommodation from the Bank in respect of Nuboye Holdings Pty Ltd. One of the documents the subject of cross-examination referred to the assets and tax losses of a company or perhaps more than one company. Another document referred to Rimwood and Pointell both being used "as property investment vehicles for directors/shareholders" (AB 617). The document related to the provision of funds to Rimwood. At AB 619 it was suggested to Mr Constantindis that "from the beginning to the end, in relation to your dealings with the bank, as exemplified in what I've just put to you, you were treating the position as being the companies, Pointell and Rimwood, as being trading companies and that they had generated tax losses which you are asking the bank to assist in utilisation of, by a consolidation into the other group?" 40 Mr Constantinidis did not accept this. The Deputy President then asked whether the Bank had "got it all wrong". 41 At AB 628 Mr Constantinidis was cross examined on a statutory declaration he had given to the Bank in which he swore to the value of his assets. In it he listed no interest in any of the partnerships, but merely said that he had a quarter interest in the companies Rimwood, Pointell and Nuboye Holdings. The document noted that the liabilities of these companies exceeded their assets. 42 When the proceedings resumed in January, the Deputy President noted, once more, that it was critical to him whether a partnership agreement had actually been signed. In the course of that discussion the Deputy President said (AB 760): "The Commonwealth Bank drew up the security documentation. It seems, and I haven't seen the documentation so I'm not going to form any firm views about this, it seems to have worked on the basis that it was lending to a company and was taking guarantees." 43 It may certainly be inferred that at this time at least the Tribunal had not gone through the material produced by the Bank. And, indeed, it might be said rhetorically, why should the Tribunal do that when the material was not put into evidence? Shortly after this passage it would seem that Counsel for Mr Constantinidis (somewhat remarkably) submitted that Counsel for the Commissioner could not use material from the Commonwealth Bank files because these had not been produced by the Commissioner to the Tribunal as the T documents were. As the Deputy President commented, this submission was rather "novel". The objection was subsequently and properly withdrawn. There was then further cross-examination concerning proceedings which the Bank commenced against Mr Constantinidis on the guarantees he had given. It seems that Mr Constantinidis denied liability because the Bank had not properly explained the guarantees to him. It does not seem that thereafter there was any discussion of the material produced on summons to the Tribunal by the Bank. 44 It may, however, be noted that counsel for Mr Constantinidis at the end of his client's evidence then tendered from the "additional" material produced by the Bank to the Tribunal "a small bundle of documents" relating to Nuboye.

Other references in the Tribunal's reasons to the Bank documents 45 Paragraph 110 is not the only paragraph in the Reasons of the Tribunal where reference is made to the Bank documents. The first reference appears to be in paragraph 19 which relevantly reads as follows: "It was common cause that notwithstanding that fact that the Bank produced many volumes of documents it did not produce any partnership agreements. In respect of all real property acquisitions, mortgages and loan documentation, the Bank documentation made no mention of any partnership, but was rather in all cases framed on the basis that the relevant company was the borrower and legal and beneficial owner of the relevant property, guarantees by the participants were required and furnished. Focussing on [Rimwood] and [Pointell] the Applicant, the Brothers and Stephen executed a standard form guarantee. There is no suggestion anywhere in the Bank documentation that the Bank was dealing with any partnership and indeed were this the case, the 'partners' would, as a matter of law, be personally liable and responsible for the partnership debts and in consequence of which personal guarantees would not be necessary. The documentation could take a different form and in which the 'partners' could acknowledge their liability as primary debtors. The Applicant contended that the documents were drawn in this 'vanilla' fashion as a matter of convenience" 46 In my view, what is said in this paragraph about the Bank documentation is, having regard to the evidence which I have noted above, a comment concerning the bank documents which were before the Tribunal properly and which were the subject of cross-examination. (The reference to "vanilla fashion" is a reference to a phrase used in submissions by Counsel for Mr Constantinidis). To the extent that the Tribunal intended to comment about material in the Bank's files generally it was, I think, a matter of irresistible inference more readily drawn from the fact that Counsel for Mr Constantinidis did not seek to tender any material from the files produced from the Bank, that in all cases the bank prepared documentation on the basis that the relevant company was the beneficial owner of the property registered in its name and over which the Bank had security without there being any reference to a partnership. 47 After summarising the evidence of the first hearing day, the Deputy President then notes that at the end of that day "the parties had an opportunity to consider the 9 box files of documents furnished by the Bank and from which it became clear that the Bank had produced no partnership agreements." The Tribunal then continued to summarise (with extracts) the evidence of the second and third hearing day and the evidence taken in January. The Deputy President noted that in the meantime further documents had been produced by the Bank. Presumably it was from these further documents that a tender was made on behalf of Mr Constantinidis. 48 At paragraph [108] of the Reasons the Tribunal notes that Mr Constantinids had "utterly failed to discharge the onus on him" and at paragraph [109] that his case on the merits was "always fatally flawed". Indeed, the Tribunal noted at para [111] that Mr Constantinidis was "an untruthful witness". There is no other reference in the reasons to the Bank documentation. 49 It is unfortunate that paragraph 110 is ambiguous. However, I am not satisfied that the learned Deputy President in that paragraph intended to suggest that in reaching his conclusions he took into account material in the Bank files that were produced other than such of that material as was put into evidence before him or was cross-examined upon, or which formed part of the T documents before the Tribunal. In my view the submission must fail. Alternatively if, contrary to my view, the Tribunal did intend to refer to Bank documentation not in evidence it would clearly be open to the Tribunal to infer from the failure of Counsel for Mr Constantinidis to tender any of that material that it would not assist his case. In my view it should not be found from Paragraph 110 that the Tribunal itself perused documents produced to it but not in evidence and drew adverse conclusions from those documents.

The second issue - failure to consider a submission made on behalf of Mr Constantinidis 50 Again it may be accepted that a failure to consider a submission put on behalf of a party would involve a constructive failure to exercise jurisdiction and would amount to an error of law which would require the Court to set aside the Tribunal's decision: Dennis Wilcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267. The real issue is whether the Tribunal did so. 51 It was the case for Mr Constantinidis before the Tribunal that the Bank records were not determinative of the relationship between the companies and the various partnerships. It was submitted that there were Bank records of accounts opened in the names of the companies styled "nominee" accounts, where the evidence was that these accounts had been opened earlier than the year 1992, that being the year in which there had been a tax audit of the affairs of Mr Constantinidis. Further it was said that the accountants for two of the three partners in the Rimwood and Pointell structure had given evidence that their clients had instructed them that they were engaged in property investment partnerships with the Applicant, that they had lodged returns on behalf of those clients claiming partnership losses and had consequently received tax refund cheques in the late 1980's and that there was evidence of preliminary meetings of the partners to consider investment proposals and the appropriate structure to be adopted. This evidence was, it was submitted, consistent with the Applicant's version of events and inconsistent with the submissions of the Commissioner. 52 There is a difficulty for the submission in that the Tribunal had annexed to its reasons so as to indicate what submissions had been made to it the submissions made by Counsel for Mr Constantinidis. In so doing there is, at least, a prima facie conclusion that the submissions had been taken into account. Of course it is possible that the Tribunal in so doing was only paying lip service to the need to consider all submissions by annexing the submissions. So, it is necessary to turn to the reasons themselves to see what happened. The relevant evidence was the evidence of Phillip Henry and Jennifer Narine, the persons whom the Tribunal refers to as "Peter" and "Jane". 53 The evidence of Phillip Henry is discussed in the Tribunal's reasons from paragraphs [83] to [90]. It seems that the Tribunal was unimpressed with his evidence for two reasons. The first was, as the Reasons disclose at [87] that even if the brothers John and James Scouffis had been initially assessed in a way that allowed losses to them personally, there might have been a subsequent audit where the losses were disallowed. Apparently John and James Scouffis had shown Phillip Henry no source documents regarding the partnership losses and so far as he knew there were none in existence. The other reason was that the accountant suggested that it was unnecessary to lodge a partnership return and sufficient merely to make a claim for losses in the individual partner's return. That was clearly no more the case at the time Phillip Henry may have acted for John & James Scouffis than it is now. No doubt it affected Phillip Henry's credit. 54 The evidence of Jennifer Narine is discussed in the Tribunal's reasons at paras [74] to [80]. As the Tribunal observed, her evidence was that her clients, the "brothers", had claimed a quarter of the relevant losses and had received a tax refund as a result. She had seen no source documents. She too accepted that a consequence of self assessment was that claims would be routinely allowed but after a subsequent audit a revision could be made disallowing the losses and reversing the refund. The Tribunal commented on this evidence (Par 80): "The Tribunal does not think that the evidence of Jane advances the matter to any material extent. Returns were apparently prepared for the Brothers, in which losses were claimed purely and only on the basis of information supplied by the Applicant. Jane accepted that there should have been partnership returns but that there were not." 55 It seems to me not that the Tribunal ignored the submission that was made on behalf of Mr Constantinidis, as is contended, but rather that the Tribunal rejected it for reasons that are logical. The fact that other partners may have claimed losses is not determinative of whether Mr Constantinidis was in partnership with these persons. There are obviously other possible explanations. None of the so-called "partners" gave evidence. There was a suggestion that relations with Mr Constantinidis had soured in the meantime. 56 The fact that there had been references to nominee accounts in the Bank records was likewise not a matter ignored by the Tribunal. Reference is made to this in other paragraphs of the Tribunal's reasons (at paras 18, 59, 65 and 67). 57 In summary, while the submission was not specifically rejected by the Tribunal it is clear that the elements of it were. In my view there is nothing in this submission.

Error of law in construing the meaning of "partnership" 58 Not much attention was given to this or indeed any of the remaining submissions in oral argument before me. That does not mean necessarily that the submissions are without merit. 59 The submission as it is put in writing is that the word "partnership" is defined in s 6 of the Act. That is clearly so, although the definition so far as it extends the concept of a partnership in the ordinary sense had no relevance in the present case and no submission was made to the Tribunal that it did. The case dealt with by the Tribunal was whether in the ordinary sense of the word there was a partnership. The Tribunal did not believe Mr Constantinidis who, in evidence, referred to there being in each case a partnership agreement entered into between the partners. The question what constituted a partnership in the ordinary legal sense played no part at all in the case. The submission is simply irrelevant.

No evidence for the finding that the Applicant knew that there were no partnerships 60 The submission, so far as I can understand it, is that the Tribunal found there to be no partnerships and that the Applicant knew this. However, it is submitted there was no evidence before the Tribunal which would enable it to find that Mr Constantinidis knew there was no partnership. 61 The submission fails to demonstrate an understanding of what the issue was before the Tribunal. In the way the case was presented to the Tribunal the issue was whether there were in existence three (or four) partnerships. The onus lay on the Applicant to show that the partnerships existed. The Tribunal not only found that Mr Constantinidis had not satisfied that onus; it found that Mr Constantinidis had been positively untruthful. It was a matter of inference for the Tribunal to determine whether Mr Constantinidis knew that no partnerships had existed. However, it was open to the Tribunal to so infer. The present is not a case where it can be said that there was no evidence before the Tribunal on which it could make that inference. Rather the case was one where the majority of the evidence before the Tribunal suggested that Mr Constantinidis was simply not telling the truth.

That there was no evidence that the Scoufis brothers "may have been required to repay their tax refund cheques" 62 This submission is to some extent related to the second submission. The Tribunal did not find that the brothers were required to repay to the Commissioner tax which had been refunded to them as a result of their claiming losses. Rather the Tribunal found, and correctly, that any refunds to then arose under a self assessment system so that if an audit had subsequently been made into the affairs of the brothers that audit might have produced the result that the losses were disallowed and as a result the brothers would have had to pay more tax (thus effectively being required to return the refund). That was a question of logical inference rather than a matter of evidence. The submission must be rejected.

The Tribunal's decision was unreasonable 63 Rightly counsel for Mr Constantinidis in oral argument said nothing at all of this submission. It suffices to say that on the evidence before the Tribunal it was open to the Tribunal not to accept the evidence of Mr Constantinidis or to find indeed that he was untruthful. There was nothing at all unreasonable about the decision, even if unreasonableness could in this context involve an error of law.

In construing section 223 the Tribunal failed to take account of the amounts of tax instalments deducted in the relevant years of income in determining the "tax properly payable" 64 In reaching its conclusion the Tribunal relied upon a decision of Emmett J in Punin v Deputy Federal Commissioner of Taxation 2000 ATC 4288, a case decided in the context of sales tax, and not income tax. No doubt it is the case that the decision in Punin is not binding upon me, it being a decision on different legislation. However, clearly any decision of Emmett J will be deserving of respect. 65 Before considering Punin it is necessary to consider the relevant statutory context here. Section 223 operates to impose a penalty where there is, inter alia, a statement made to a taxation officer which is false or misleading in a material particular. It is a prerequisite of the penalty being imposed that: "(b) the tax properly payable by the taxpayer exceeds the tax that would have been payable by the taxpayer if it were assessed on the basis that the statement were not false or misleading as the case may be…" (emphasis added) 66 There is a discretion contained in s 227(3) in the Commissioner to remit the additional tax imposed under s 223 ( and s 222 relevant to the next submission). 67 Hence section 223 requires there to be a comparison made between the "tax properly payable"on the one hand and the "tax that would have been payable if an assessment were made on the basis that the false statement was in fact true" on the other. 68 It is difficult to see the relevance of Punin to the present case. Punin was a case where the taxpayer had sold goods by retail. He had apparently represented that he was, contrary to the fact, registered for sales tax purposes and could quote a certificate and thus obtain goods for sale without payment of sales tax. He sought to argue that the relevant penalty section, which was in similar terms to s 223(b), did not refer to the tax that would be calculated if the false statement had not been made, but rather that it referred to the tax that would be calculated if the false statement were not a false statement. He argued, based on a particular section in the sales tax legislation, that no tax was properly payable by the seller to him, it being an alternative for the imposition of penalty that the tax properly payable by the person to whom the false statement was made (ie the supplier to him) exceeded the tax that would have been calculated had the statement not been a false statement. Emmett J was of the view that the taxpayer's argument gave no effect to the word "properly". His Honour said at 4299: "That word signifies that the inquiry relates to the amount payable by the applicant or by the supplier to the applicant, assuming propriety. The word "properly payable" must be construed as being the tax that would be payable if there had been no impropriety consisting of the false statement upon which the question is predicated." 69 With respect to his Honour I agree entirely with what is there said in the context of sales tax but it has nothing to do with the issue here in question. That issue can be expressed by asking whether, if there had been no impropriety consisting of the false statement, and tax had been assessed on that basis, would that assessment have taken into account the PAYE tax which Mr Constantinidis in fact had paid. There would in the present case be no difference in the amount assessed whether the false statement had not been made or whether a statement was made which was not false. 70 Group Tax (after then referred to as "PAYE Tax") was, in the relevant years, provided for in Division 2 of Part VI of the Act. It was not income tax imposed by any Act. Rather it existed in aid of the ordinary income tax imposed from year to year. 71 The scheme of Division 2 was to require persons who paid "salary or wages", as defined, to an employee to deduct amounts at a prescribed rate and pay them to the Commissioner (ss 221C(1A), in the case of a group employer (s 221F(5)), or otherwise to denote the payment of the tax by the purchase of tax stamps (s 221G). The amounts so paid to the Commissioner were then to be credited against the tax payable by the employee in respect of the relevant year of income in whole or part payment of that tax: s 221H. There is a more detailed discussion of the PAYE system to be found in Stergis v Commissioner of Taxation (1989) 89 ATC 4442 at 4450. 72 Relevantly PAYE tax is not part of the tax assessment process as such. The Commissioner was obliged to make an assessment under s 166 or 167 of the Act. An assessment in its defined sense means, relevantly, "the ascertainment of … the amount of taxable income … and of the tax payable on that taxable income…". The tax which is deducted and paid to the Commissioner forms an integer in determining the amount ultimately payable to the Commissioner for the year of income but not an integer of the assessment itself. Section 223 is concerned with determining what the tax assessed would be and what thus is payable by the taxpayer under the assessment, not that amount after credit is given for the PAYE tax withheld. 73 If there is any ambiguity in s 223 regard may be had to the Explanatory Memorandum to the Taxation Laws Amendment Act 1986 when s 223 was inserted into the Act in the form with which we are here concerned. In that document the following appears: "Tax payable means the gross amount of tax assessed in respect of the taxable income less rebates of certain tax credits such as those applicable to overseas tax paid Credits for tax instalment deductions, prescribed payment system deductions or provisional tax are not deductible in ascertaining the amount of tax payable on which interest is to be charged." 74 Later the document says: "Any crediting or applying of amounts under the various tax collection systems, or advance tax payments made by a taxpayer on account of income tax do not form part of the assessment process or are excluded from calculating the amount of income tax payable on assessment." 75 Of course, the fact that PAYE tax is not to be taken into account in determining the maximum amount of additional tax payable under s 223 does not mean that it should be excluded from account under s 227 when the question of remission of the additional tax comes to be considered. That is what the Deputy President did in reducing the additional tax payable under s 223 to 30%.

The exercise of discretion under s 227 76 Finally it was submitted for Mr Constantinidis that the Tribunal erred in law in failing "to remit adequately" the additional tax imposed under both ss 222 and 223. 77 The returns ultimately lodged by Mr Constantinidis were, to say the least, lodged late and as a result of an audit by the Commissioner of his affairs. It is submitted on Mr Constantinidis' behalf that the Tribunal should have treated the lateness of the returns as involving a single default, even though there were two separate lodgements in the context of an ongoing audit of his affairs. That submission has only to be stated to be rejected. Income tax is an annual tax. Each income year is to be considered separately. 78 Further it is said the Tribunal should have taken into account that there was really no detriment to the revenue through the failure to lodge prior to 1992 on the basis that no tax was really payable because of the credit available to Mr Constantinidis for the PAYE tax withheld. Particularly it is submitted that the Tribunal failed to give consideration to the following matters relevant to the exercise of discretion: (a) the offsetting tax deducted from the Applicant's salary and wage income under the PAYE provisions of the Act; (b) the fact that the Bank had pursued the Applicant and his partners for recovery of the losses generated by the Rimwood and Pointell investments, forcing the Applicant to sell his home; (c) That the Applicant and his partners had intended that the investment structure adopted in each case would give them access to any losses generated and on the strength of which the Applicant's partners had sought and obtained refunds of income tax; (d) that once the investments had begun to fail the Applicant had become engaged in attempting to avoid financial ruin, distracting him from his compliance obligations under the Act; 79 In fact the Tribunal did take into account the payment of PAYE tax. For Mr Constantinidis to succeed in the argument relating to the other factors said not to have been taken into account it would be necessary for him to show that these were all matters which the Tribunal was required by the Statute to take into account: Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1985-1986) 162 CLR 24 at 39-46 per Mason J. None of these matters were factors which the Tribunal was required to take into account in exercising its discretion. Accordingly no question of law was involved in this submission which must be rejected.

Conclusion 80 It follows that the appeal lodged by Mr Constantinidis must be dismissed. I would order him to pay the Commissioner's costs of the Appeal.

I certify that the preceding eighty (80) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill.

Solicitor for the Applicant: Blake Dawson Waldron

Solicitor for the Respondent: Australian Government Solicitor