Taxation - private rulings - objection to private ruling - objection disallowed by Commissioner - appeal to Federal Court - whether "appealable objection decision" - whether applicant "dissatisfied" - expiry of year of income in respect of which ruling sought without implementation of arrangement.

Taxation - private rulings - objection to private ruling - disallowance of objection - identification of "relevant transaction" - limits upon obligation of Commissioner to comply with applications for private rulings - "assumptions" - when appropriate - nature thereof - request for further information - whether request should have been made - whether objection decision miscarried.

Taxation Administration Act 1953

Taxation Laws Amendment (Self Assessment) Act 1992

Income Tax Assessment Act 1936

Fringe Benefits Tax Assessment Act 1986

Taxation Laws Amendment Act (No. 3) 1991

In re Judiciary and Navigation Acts [1921] HCA 20; (1921) 29 CLR 257

Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564

Attorney-General for the State of New South Wales; Ex rel. McKellar v The Commonwealth of Australia (1977) 139 CLR 527

Mellifont v Attorney-General for the State of Queensland [1991] HCA 53; (1991) 173 CLR 289

Federal Commissioner of Taxation v Offshore Oil NL [1980] FCA 113; (1980) 49 FLR 159

Counsel and Solicitors JI Fajgenbaum QC and E Power

Counsel and Solicitors AH Slater QC and R Hamilton

Government Solicitor

Counsel and Solicitors D Rose QC and E Willheim

(1) The objection decision dated 4 August 1993 be set aside.

(2) The applicant's objection against private ruling No. 5588 be

remitted to the respondent for determination according to

law.

(3) There be no order as to costs.

(1) The appeal be dismissed as incompetent.

(2) The applicant pay the costs of the respondent.

Note: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

JENKINSON J These two proceedings and the circumstances relevant to their determination are expounded in the opinions of the other two members of the court, which I have had the advantage of reading.

2. The assertion by the Commissioner concerning the existence of "a lien or beneficial interest over the funds", which is made in his reasons for each of the two objection decisions now under consideration in these proceedings, is not to be found in the notice of either private ruling. Section 14ZAS provides:

"(1) A notice of a private ruling must set out the matter ruled on

and, in doing so, identify the person, tax law, year of income and

arrangement to which the ruling relates.

(2) If the correctness of a private ruling depends on an assumption,

the assumption is, for the purposes of subsection (1), as aspect of the

arrangement to which the ruling relates.

(3) An arrangement may be identified in a private ruling by reference

to matters set out in a document identified in the ruling and which, or

a copy of which, is available to the rulee."

The effect of the section is that an assumption made in pursuance of s.14ZAQ must be stated in the notice of the private ruling (or in a document of the kind specified in sub-section 14ZAS(3)) as part of the identification of the arrangement which sub-section 14ZAS(1) requires. The question then arises as to whether the power conferred by s.14ZAQ is exercisable after the private ruling has been made (that is, after notice of it has been served on the applicant : s.14ZAT) and in the course and for the purpose of deciding whether to allow or disallow an objection against the ruling, pursuant to s.14ZY(1). It is not obvious to me that grant of a power such as s.14ZY(1) confers, to allow, wholly or in part, or to disallow an objection against a private ruling, implies the grant of a power expressed to be conferred for the purpose, and to be exercisable in the course, of making that private ruling. Both of the other members of the court contemplate that another function expressed to be conferred for the purpose, and to be exercisable in the course, of making a private ruling is also available after the ruling has been made : that conferred by s.14ZAM of requesting further information. Hill J expressly contemplates that the private ruling would have to be set aside if further information furnished in response to such a request were to require that the identification of the arrangement to which the ruling should relate be modified, because of the provisions contained in sub-sections 14ZAS(1). Certainly the availability to the Commissioner, during his consideration of the objection, of powers and functions of the kind conferred by ss. 14ZAM and 14ZAQ would be likely to conduce to efficient administration of Part IVAA. Sub-section 14ZAZB(2) provides:

"If:

(a) the Commissioner makes an objection decision allowing, wholly or

in part, a taxation objection against a private ruling; and

(b) the period in which an appeal against, or an application for the

review of, the decision may be made has ended; and

(c) neither such an appeal nor application has been made;

the ruling is taken to be the ruling as altered by the decision."

That provision is not inconsistent with the availability of those powers and functions. I am not prepared to dissent from the view that they are available to the Commissioner. But each is in my opinion available only after the Commissioner has reached a stage in his consideration of the objection at which he has concluded that the private ruling the subject of the objection was not the correct ruling in relation to the arrangement which the notice of ruling identified. That is because those powers and functions, conferred by ss. 14ZAM and 14ZAQ, are available for use in performance of the function of making a ruling. The Commissioner will have no occasion for exercising those powers in his consideration of the objection unless and until he determines that the ruling the subject of objection was not the correct ruling in relation to the arrangement identified in the notice of ruling and that he will have to determine what the correct ruling upon the application for ruling should be.

3. The practical importance of that analysis emerges when attention is turned to s.14ZAN. It seems improbable that the legislature contemplated that the discretionary powers conferred by s.14ZAL(2) and s.14ZAN would be available in the course of deciding any objection against a ruling even if the Commissioner had not come, in the course of making that decision, to a conclusion that the ruling was incorrect in relation to the arrangement identified in the notice of ruling. I would not accept that any of the powers conferred by ss. 14ZAN and 14ZAL(2), 14ZAM and 14ZAQ are available before that conclusion has been reached. I am not prepared to dissent from the view that they are available once that conclusion has been reached.

4. The assertion in the reasons for the objection decisions concerning "lien or beneficial interest" is, however, incapable of constituting the making of an "assumption" within the meaning of that word in Part IVAA, in my opinion. It is devoid of reference to any factual circumstance by reason of which the legal conclusion asserted may be supported. An "assumption" is in my opinion to be understood in s.14ZAQ and elsewhere in Part IVAA as having reference to fact, not law. (Of course the existence of a law or the occurrence of a judicial decision may be a fact which is what in s.14ZAS(2) is called "an aspect of the arrangement to which the ruling relates.") It may be that an assumption, for the purposes of s.14ZAQ, can be given acceptable expression in the form of a legal conclusion, as in the example, drawn by Gummow J from the Explanatory Memorandum, of beneficiaries assumed to be Australian residents. The expression of a legal conclusion of that kind is a shorthand expression of the existence of a number of facts as the assumptions desired to be made. But such an expression will be acceptable only if the set of facts, or each of several alternative sets of facts, by reason of which the legal conclusion is justified can be confidently identified. That is not the case here. Here the assertion is one for which the information and documents given do not provide a justification and one which leaves unascertainable the facts intended to be the given assumptions.

5. It follows that private ruling No. 5588 was not justified and should have been "altered" by the Commissioner's decision on the objection. The Commissioner's decision on the objection against private ruling No. 5588 should be set aside, and the objection against that private ruling should be remitted to the Commissioner for determination according to law.

6. Subject to the foregoing observations, I agree in the judgment of Gummow J. I concur in the orders he and Hill J propose in both proceedings.

GUMMOW J These two applications were heard together. The original jurisdiction of the Court is exercised by a Full Court, pursuant to a direction by the Chief Justice under sub-s. 20 (1A) of the Federal Court of Australia Act 1976 ("the Federal Court Act").

2. In each application the applicant ("CTC") appeals against the decision of the respondent ("the Commissioner") to disallow its objection against a notice of private ruling. In each ruling the Commissioner had answered adversely to CTC certain of the questions posed in a request for a private ruling made by CTC pursuant to the provisions of Part IVAA of the Taxation Administration Act 1953 ("the Administration Act").

3. The issues presented to this Court involve questions as to the construction and operation of Part IVAA of the Administration Act and related legislation. Part IVAA (ss. 14ZAA - 14ZAZC) is headed "Private Rulings" and was inserted by s. 4 of the Taxation Laws Amendment (Self Assessment) Act 1992 ("the 1992 Act"). The 1992 Act commenced on 30 June 1992. In addition, s. 4 of the 1992 Act inserted in the Administration Act Part IVAAA (which is headed "Public Rulings" and comprises ss. 14ZAAA - 14ZAAL). Section 22 of the 1992 Act inserted in the Income Tax Assessment Act 1936 ("the Assessment Act") ss. 170BA - 170BI, and s. 36 inserted ss. 74A - 74F in the Fringe Benefits Tax Assessment Act 1986 ("the Fringe Benefits Act"). Each set of sections contains provisions dealing with the operation of the new system of public and private rulings.

4. Earlier, s. 112 of the Taxation Laws Amendment Act (No. 3) 1991 ("the 1991 Act") repealed Parts IVAB and IVB of the Administration Act, and substituted a new Part IVC headed "Taxation Objections, Reviews and Appeals" and comprising ss. 14ZL - 14ZZS. Section 112 of the 1991 Act commenced on 1 March 1992, that is to say several months before the commencement of the system of public and private rulings introduced by the 1992 Act. It thus is necessary to construe the provisions for objections, reviews and appeals established by the 1991 Act as accommodating operation of the public and private ruling system established by the 1992 Act.

5. In the case of the present applications, the jurisdiction of this Court is defined (in the sense of s. 77 of the Constitution) by sub-para. (a) (ii) of s. 14ZZ and by s. 14ZZP of the Administration Act, together with s. 19 of the Federal Court Act. It will be necessary to refer further to ss. 14ZZ and 14ZZP. CTC has the burden of proving that the decisions of the Commissioner upon its objections should have been made differently (sub-para. 14ZZO (b) (iii)).

6. Before turning to consider the particular requests for private rulings made by CTC and the outcomes thereof, it is appropriate to refer generally to the nature of the changes introduced by the system of private rulings under Part IVAA of the Administration Act. Before the introduction of the new system, taxation rulings, determinations and advance opinions were, in general, not legally binding on the Commissioner. This apparently was on the footing that no conduct on the part of the Commissioner could operate as an estoppel against the operation of the revenue laws administered by him; see Federal Commissioner of Taxation v Wade [1951] HCA 66; (1951) 84 CLR 105 at 116-117, Commissioner of Inland Revenue v Lemmington Holdings Limited (1982) 1 N.Z.L.R. 517 at 522-523.

7. Under the new system, a person may apply to the Commissioner for a ruling on the way in which, in the opinion of the Commissioner, a "tax law" (being an "income tax law" or "a fringe benefits tax law") would apply to that person in respect of the year of income in relation to an "arrangement" which has been carried out, or is being carried out, or in relation to a proposed arrangement (ss. 14ZAF, 14ZAI). The term "income tax law" means a law under which there is "worked out" the extent of liability for income tax, withholding tax, mining withholding tax, Medicare levy or franking deficit tax (s. 14ZAAA). A fringe benefits tax law means a law under which the extent of liability for tax imposed by the Fringe Benefits Tax Act 1986 "is worked out" (s. 14ZAAA). An "arrangement" includes a scheme, plan, action, proposal, course of action or conduct, transaction, agreement, understanding, promise or undertaking, and "part of an arrangement". This also is the effect of a definition in s. 14ZAAA.

8. The "year of income" to which an application relates may be a past or future year of income or the current year of income (s. 14ZAH). A person with the written consent of another may apply for a ruling as to the application of the law to that other person (s. 14ZAG). An application must be in a form approved by the Commissioner and "give such information, and be accompanied by such documents, relating to the ruling as are required by the Commissioner" (s. 14ZAJ). The provision of information relating to the ruling that is sought thus is an important matter. Subject to qualifications which it will be necessary later to consider in detail, the Commissioner "must comply with an application" (s. 14ZAL). A private ruling may not be withdrawn to any extent, without the consent of "the rulee" (the person the application to whom of a tax law is the subject of the ruling), if the ruling relates to a year of income that has commenced or ended (sub-ss. 14ZAA (1), 14ZAU (4)).

9. The validity of any private ruling is not affected by reason of failure to comply with any of the provisions of the Administration Act, and the production of a notice of a private ruling or a document signed by the Commissioner, a Second Commissioner or a Deputy Commissioner, purporting to be a copy of such a notice, is conclusive evidence of the proper making of the ruling. This follows from ss. 15AA and 15AB of the Administration Act. These also were inserted by the 1992 Act (s. 11).

10. Broadly, if an assessment of a rulee in accordance with the private ruling would result in a lesser tax liability than an assessment in accordance with the terms of the law, the Commissioner must treat the taxpayer in accordance with the favourable ruling (ss. 170BB, 170BE of the Assessment Act, and s. 74B of the Fringe Benefits Act). It will be necessary to return to s. 170BB.

11. Section 170BH of the Assessment Act deals with the situation where a dissatisfied rulee has unsuccessfully taken an objection to the Commissioner and then appeals to the Court either directly against that objection decision or from a decision of the Administrative Appeals Tribunal ("the AAT") on a review of the objection decision. If the Court orders that an income tax law would apply to a person in a particular way in respect of a year of income in relation to an arrangement and that order becomes final, then for the purposes of the Assessment Act that law applies to that person in that way in respect of that year in relation to the arrangement in question.

12. Furthermore, as sub-s. 170BH (3) provides, the law so applies "despite any other order or decision of a court about any application of that law". After the ruling is made, a generally applicable change to the operation of the law may be brought about by court decision, for example arising from the assessment of another taxpayer. The effect of s. 170BH is that the earlier decision of the Court in a proceeding upon the private ruling in relation to a particular person is treated as the factum upon which the legislation, in relation to the particular arrangement, operates upon that person in respect of the year of income in question. In that sense the operation of the general law is modified with respect to a particular taxpayer. There is authority which indicates that a provision of this description does not infringe Chapter III of the Constitution, at least if the provision can operate only in favour of the taxpayer; see The Queen v Humby; Ex parte Rooney [1973] HCA 63; (1973) 129 CLR 231 at 243-244, 249-250, The Australian Building Construction Employees' and Builders Labourers' Federation v The Commonwealth of Australia [1986] HCA 47; (1986) 161 CLR 88 at 95-96.

13. It is appropriate now to turn to the details of the particular rulings sought by CTC. I begin with that which led to proceeding No. NG739 of 1993. I deal with this first because in the course of addresses it became plain that, in substance, the primary submission for the Commissioner was that the application was incompetent, for want of a "jurisdictional fact" required by s. 14ZZ of the Administration Act. This requirement was that CTC answer the description of a person "dissatisfied" with the decision of the Commissioner upon its objection to his ruling. The existence of that jurisdictional fact is for this Court to determine in the ordinary course of dealing with the proceeding before it: The Queen v Federal Court of Australia; Ex parte Pilkington ACI (Operations) Pty Ltd [1978] HCA 60; (1978) 142 CLR 113 at 124, per Mason J.

14. As I have indicated, a private ruling may be sought in respect of a year of income being a past or future year of income or the current year of income, and the ruling sought may be one as to the way in which in the opinion of the Commissioner a tax law would apply to the applicant in relation to a particular arrangement and in respect of a particular year of income.

15. On 21 January 1993 CTC lodged with the Commissioner on a form approved by him under s. 14ZAJ an application for a private ruling on 8 questions. The application was stated as being made by CTC and Westpac Banking Corporation ("Westpac") and was accompanied by the written consent of Westpac, as required by s. 14ZAG. CTC had earlier, on 24 August 1992, received a private ruling under Part IVAA which had dealt with some issues related to those canvassed in the application of 21 January 1993. Item 15 of the form lodged on 21 January 1993 asked "What is/are the year(s) of income to which this application relates?" and CTC answered "Year ended (sic) 30/6/1993".

16. Item 22 asked whether the arrangement had commenced and the response was to the effect that on 27 November 1992 Westpac had offered "an agreement in principle with respect to the proposal" and this offer had been accepted.

17. On 1 April 1993 the Commissioner served on CTC a notice of private ruling number 4777. The Commissioner makes a private ruling by preparing a written notice of it and serving it on the applicant (ss. 14ZAR and 14ZAT).

18. On 16 April 1993 CTC lodged a notice of objection against the private ruling, in particular to the answers given by the Commissioner to 5 of the questions. No objection was lodged by Westpac. Section 14ZAZA provides that in such a case "a rulee who is dissatisfied with a private ruling may object against it in the manner set out in Part IVC". It further provides that such a ruling is a "taxation decision" for the purposes of that Part. Section 14ZAZA is the first of a relevant chain of legislative provisions which uses the term "dissatisfied".

19. Section 14ZQ (which is in Part IVC) defines the term "taxation decision" as meaning the "assessment, determination, notice or decision against which a taxation objection may be, or has been, made". A "taxation objection" is one as to which a provision such as s. 14ZAZA authorises a person "who is dissatisfied" with an assessment, determination, notice or decision to object against it in the manner set out in Part IVC (s. 14ZL so provides). Section 14ZY obliges the Commissioner to decide whether to allow, wholly or in part, or to disallow a taxation objection, and to cause a notice of his "objection decision" to be served.

20. In the present case, in a notice of objection decision dated 4 August 1993, that is to say after the end of the relevant year of income, the Commissioner disallowed in full CTC's objection against the private ruling. The arrangement the subject of the private ruling had not been implemented in the year ending 30 June 1993. This is a significant fact. The proceeding in this Court was instituted by application filed 24 September 1993.

21. As I have indicated, s. 14ZZ provides for an "appeal" to the Federal Court against certain objection decisions by a person who is "dissatisfied" with the decision. The text of s. 14ZZ is as follows:

"14ZZ If the person is dissatisfied with the Commissioner's

objection decision, the person may:

(a) if the decision is both a reviewable objection decision

and an appealable objection decision - either:

(i) apply to the AAT for review of the decision; or

(ii) appeal to the Federal Court against the decision; or

(b) if the decision is a reviewable objection decision

(other than an appealable objection decision) - apply to

the AAT for review of the decision; or

(c) if the decision is an appealable objection decision

(other than a reviewable objection decision) - appeal

to the Federal Court against the decision."

A "reviewable objection decision" is an objection decision which is not "an ineligible income tax remission decision" or "an ineligible sales tax remission decision" (expressions which are further defined) and an "appealable objection decision" means an objection decision other than one made on a taxation objection under s. 63 of the Pay-roll Tax (Territories) Assessment Act 1971, s. 14E of the Administration Act, or s. 43A of the Wool Tax (Administration) Act 1964. Definitions of "reviewable objection decision" and "appealable objection decision" are found in s. 14ZQ of the Administration Act. In the present case, the objection decision was both a reviewable objection decision and an appealable objection decision. The consequence was that CTC had the choice of applying for review by the AAT or instituting an appeal to this Court. It is, of course, trite that the proceeding here in truth is one of a class in which the Court exercises its original jurisdiction: Steele v Defence Forces Retirement Benefits Board [1955] HCA 34; (1955) 92 CLR 177 at 188, McCormack v Federal Commissioner of Taxation (1977) 33 FLR 53 at 55-56, 61-62 (rev'd on other grounds[1979] HCA 18; , 143 CLR 284).

22. The Commissioner's submission, in short, is that CTC is not a person who is "dissatisfied" because the operation of the Administration Act, and related legislation, upon CTC's application for a private ruling dated 21 January 1993 and CTC's objection to that ruling became an abstract or hypothetical matter when the year of income in respect of which the ruling was sought expired without the implementation of the arrangement. The "year of income" to which the application applied, within the meaning of s. 14ZAH, was the year of income current when the application was made on 21 January 1993. Section 14ZAF provided for an application for a ruling "on the way in which . . . a tax law or tax laws would apply" to the applicant in respect of a year of income. (Emphasis supplied)

23. The use of the term "dissatisfied" as an identification of the class of persons who are given a right of further recourse to a court or an administrative body in respect of an adverse decision by the Commissioner on an objection, has a long legislative history. The term appeared in s. 187 of the Assessment Act as enacted in 1936, in s. 50 of the Income Tax Assessment Act 1922, and in s. 37 of the Income Tax Assessment Act 1915. See also Gift Duty Assessment Act 1941, s. 31, Land Tax Assessment Act 1910, s. 44K (inserted by Land Tax Assessment Act 1927 s. 17), and Estate Duty Assessment Act 1914, s. 24. However, in the past, the cause for the dissatisfaction of the taxpayer has been a particular assessment to tax which because it leads to the creation of a debt in favour of the Commonwealth undoubtedly has an immediate and direct effect in a legal sense upon the taxpayer. As a result there has been little discussion in the authorities as to the meaning of the term; cf Henderson v Federal Commissioner of Taxation [1969] HCA 14; (1970) 119 CLR 612 at 618, 646.

24. The answer to the question whether CTC is a person "dissatisfied" with the objection decision of the Commissioner, within the meaning of s. 14ZZ, is presented in a context which involves the following. First, the new system of private rulings with objections and appeals introduces a new species of subject matter which is rather different from the ordinary case of dissatisfaction with an assessment to tax; accordingly, the term "dissatisfied" may take its colour from the particular subject matter to which it is applied by s. 14ZZ. In particular, in a case such as the present, s. 14ZZ is the last of a chain of provisions which mark an avenue to be followed by rulees who have not obtained a private ruling in terms acceptable to them. The term "dissatisfied" appears in s. 14ZAZA, which serves to draw in Part IVC, and in s. 14ZL, which introduces the concept of a "taxation objection" for Part IVC.

25. Secondly, the presumption that a word is used with a uniform meaning in a statute, or even in the one section, readily yields to the context: Murphy v Farmer (1988) 165 CLR 19 at 27. The context here is concerned with objections and "appeals" which deal with private rulings, a somewhat special statutory regime.

26. Thirdly, the presence of a moving party who is in the relevant sense "dissatisfied" is a jurisdictional fact which determines the applicability of s. 14ZZ both as regards review by the AAT and the exercise of the original jurisdiction of this Court; see Pilkington ACI supra. Further, in its application to the Court, the provision is one of that class identified by Dixon J in The King v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett [1945] HCA 50; (1945) 70 CLR 141 at 165-166, as both dealing with substantive legal relations and giving jurisdiction under s. 77 of the Constitution to a federal court with reference to them. The section does so partly by identification of the class of persons entitled to apply and may be compared with s. 58E of the Commonwealth Conciliation and Arbitration Act 1904, considered in Barrett. This posited jurisdiction of the Commonwealth Court of Conciliation and Arbitration upon "complaint by any member of an (registered) organisation". In that special sense it is appropriate to speak of s. 14ZZ as a law with respect to standing. But, in my view, the interpretation of the section is not immediately assisted by recourse to decisions dealing with standing for declaratory relief under the general law or other statutory provisions, such as ss. 5, 6 and 12 of the Administrative Decisions (Judicial Review) Act 1977. (These use the terms "person aggrieved" and "person interested".) Rather, the issues of construction that arise are to be resolved by an analysis of the legislation itself and the purpose that it is designed to achieve; see Re British Columbia Development Corp. v Friedmann (1984) 14 DLR (4th) 129 at 145, per Dickson J.

27. Fourthly, s. 14ZZ, in conjunction with the other provisions to which I earlier referred, is to be read as designed to specify a "matter" within the meaning of Chapter III of the Constitution. In that regard, we were referred to In re Judiciary and Navigation Acts [1921] HCA 20; (1921) 29 CLR 257 and to the need for a controversy concerned with more than hypothetical questions. In Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564 at 581-582, Mason CJ, Dawson, Toohey and Gaudron JJ, in the course of considering the power of superior courts to grant declaratory relief, said that "it is confined by the considerations which mark out the boundaries of judicial power". Then, with reference to, inter alia, In re Judiciary and Navigation Acts, their Honours continued:

"Hence, declaratory relief must be directed to the determination of

legal controversies and not to answering abstract or hypothetical

questions. The person seeking relief must have 'a real interest' and

relief will not be granted if the question 'is purely hypothetical', if

relief is 'claimed in relation to circumstances that (have) not occurred

and might never happen' or if 'the Court's declaration will produce no

foreseeable consequences for the parties'."

See also the authorities discussed in ICI Australia Operations Pty Limited v Trade Practices Commission [1992] FCA 474; (1992) 38 FCR 248 at 264-266. In its application to the original jurisdiction of this Court, s. 14ZZ of the Administration Act and in particular the phrase "person . . . dissatisfied" is to be construed, if this be a course properly open, in such a way as to keep its operation within the limits imposed by Chapter III; see Philip Morris Inc. v Adam P. Brown Male Fashions Pty Limited (1981) 148 CLR 457 at 506-509, per Mason J.

28. Accordingly, on the present application, counsel for the Commissioner, with the support of counsel for the Attorney-General for the Commonwealth (who appeared in response to a notice under s. 78B of the Judiciary Act 1903 ("the Judiciary Act")) submitted that the Administration Act should not be construed in such a fashion that the original jurisdiction of this Court properly could be invoked by a person "dissatisfied" with the objection decision of the Commissioner where the claimed cause of the dissatisfaction was in relation to circumstances that had not occurred and might never happen. It also was contended that because the private ruling dealt with in the objection decision the subject of proceeding No. NG739 of 1993 in this Court, was sought in respect of a proposed arrangement for the year of income ended 30 June 1993, and the arrangement was not carried out by that date, since that date the ruling has been incapable of any practical operation.

29. (I should add that neither party (nor, needless to say, the intervener) contended that s. 14ZZ upon its true construction had any operation which was invalid by reason of Chapter III. The resolution of such an issue, had it arisen, would itself have required more than a decision as to whether upon the proper construction of a law whose validity is unquestioned, the Court had jurisdiction. The issue would have required an exercise of jurisdiction with respect to a "matter", viz. one arising under the Constitution or involving its interpretation, within the meaning of s. 76 (i). This Court would have jurisdiction, in a proceeding such as the present one, to determine that matter: Re Tooth and Co. Ltd (No. 2) [1978] FCA 36; (1978) 34 FLR 112 at 119, 130, 139-140; Grace Bros Pty Ltd v Magistrates of the Local Courts of New South Wales [1990] FCA 283; (1989) 23 FCR 68 at 75-77; O'Toole v Charles David Proprietary Limited (1991) 171 CLR 232 at 307. The Court may direct a party to give a notice, pursuant to para. 78B (2) (b) of the Judiciary Act. But, in the absence of any submission thereafter by a party, or by an intervener, that the law in question was wholly invalid or invalid as to some of its operation, it is difficult to see how there could be a "matter" for the purposes of s. 76 (i). It would be a more extreme case than one at general law in which declaratory relief was sought by a party but without a contradictor and, as a matter of discretion, relief was refused; see Ainsworth v Criminal Justice Commission, supra. The rigour of the rule preventing conferral of federal jurisdiction to give advisory opinions has been mitigated by the broad scope of the declaratory judgment, but this still requires a controversy and a contradictor. Chapter III is concerned with the resolution of justiciable controversies: Fencott v Muller (1983) 152 CLR 570 at 603, 608 per Mason, Murphy, Brennan and Deane JJ; cf Attorney-General for the State of New South Wales; Ex rel. McKellar v The Commonwealth of Australia (1977) 139 CLR 527 at 559-560, 567, where a declaration of invalidity was sought in the writ, and a consequential question asked of the Full Court was answered in favour of validity despite any argument to the contrary by the plaintiff).

30. It is appropriate at this stage to set out the text of sub-ss. 170BB (3) and (4) of the Assessment Act. These provide:

"170BB (3) Subject to sections 170BC, 170BG and 170BH, if:

(a) there is a private ruling on the way in which an income tax

law applies to a person in respect of a year of income in

relation to an arrangement ('ruled way'); and

(b) that law applies to that person in respect of that year

in relation to that arrangement in a different way; and

(c) the amount of final tax under an assessment in relation to

that person would (apart from this section and section

170BC) exceed what it would have been if that law applied

in the ruled way;

the assessment and amount of final tax must be what they

would be if that law applied in the ruled way.

(4) Subsection (3) applies to an assessment whether or not in

respect of the year of income in paragraphs (3) (a) and (b)."

31. Counsel for the Attorney-General developed his argument by reference to sub-s. 170BB (3) and (4) of the Assessment Act. He submitted that, upon their true construction, these provisions were consistent with the submission that the "dissatisfaction" of CTC was not concerned with foreseeable consequences. Sub-section (3) operates where there is a private ruling on the way in which an income tax law applies to a person "in respect of a year of income in relation to an arrangement", but in truth that income tax law applies to that person in respect of that year in relation to that arrangement in a different way. Where the amount of final tax under an assessment in relation to that person would otherwise exceed what it would have been had the law applied in accordance with the private ruling, then "the assessment and amount of final tax must be what they would be if that law applied in the ruled way".

32. The effect of sub-s. (4) is that sub-s. (3) applies to an assessment whether or not it is in respect of the year of income to which in relation to the arrangement the law applies in the ruled way. Thus, there may be instances where a private ruling dealing with an arrangement carried out in a year of income can affect an assessment for a later year of income. So, if a ruling dealing with an earlier loss year is applied in place of the law as it truly stands, the size of the loss to be carried forward and allowed as a deduction in a later year of income may be greater. In such instances the effect of sub-s. 17BB (4) is that the effect of the private ruling is seen in the assessment for the later year of income.

33. Nevertheless, sub-s. (4) is posited upon the existence of a private ruling which deals with an arrangement carried out in the earlier year of income; it is not concerned with treating a private ruling as directly effective in respect of an arrangement carried out in a year of income other than that the subject of the private ruling.

34. This interpretation of sub-s. (4) is consistent with what was said in the Explanatory Memorandum on the Bill for the 1992 Act. On p. 50 thereof it was said:

"There will be some instances, though, where a ruling dealing with an

arrangement carried out in a year of income can affect an income tax

assessment for a later year of income. This could happen, for example,

where the size of a loss to be carried forward and allowed as a

deduction in a particular year of income would be bigger if a ruling

dealing with the earlier loss year was applied instead of the law. In

such a case the binding rulings provisions may apply in an assessment

for a year of income that is later than the year of income covered by

the ruling. A special provision in the law allows for this to happen in

respect of Private Rulings, which deal with a specific year of income

(subsection 170BB (4))."

35. Accordingly, there is substance in the submissions that (i) the situation which is thus revealed is markedly different from that in Mellifont v Attorney-General for the State of Queensland [1991] HCA 53; (1991) 173 CLR 289; there the accused had been discharged, the Attorney-General had referred points of law to the Queensland Court of Criminal Appeal under s. 669A of The Criminal Code (Q) and on the day after the reference, the accused was informed that another indictment would be presented against him on the same charge if the reference were successful (see 173 CLR at 290), and (ii) when 30 June 1993 passed and CTC's arrangement was not implemented, any invocation of the original jurisdiction of this Court with respect to the ruling and the disallowance of CTC's objection to it, would be in relation to circumstances that had not occurred and could never happen; a decision by the Court could produce no legal consequences for CTC under the taxation laws. I accept those submissions.

36. In my view, if regard is had to the context in which s. 14ZZ appears, in its operation upon the jurisdiction of this Court, then the "dissatisfaction" of the person initiating the proceeding is of the following nature. It is a dissatisfaction with the absence of a favourable decision upon the objection which would, if now rectified by the Court, place the party in the position for the administration of the taxation laws which should have applied if the ruling had been made by the Commissioner in the terms sought. A mere curiosity or interest in having a formal ruling by the Commissioner for some collateral commercial purpose of the applicant is not sufficient to amount to "dissatisfaction" in the relevant sense. That being the case, s. 14ZZ clearly is valid. There is thus no occasion to consider what might have been the position if the provision were more widely construed.

37. It also follows that proceeding No. NG739 of 1993 should be dismissed. The applicant should pay the costs of the respondent. There should be no order as to costs of the intervener.

38. Here, the application for a private ruling was lodged by CTC on 15 May 1993 and it concerned a proposed arrangement in relation to the year of income ended 30 June 1994. Thus, the issue upon which the other matter has turned is not present here.

39. The application was lodged under cover of a letter dated 15 May 1993, from a director of CTC. He told the Commissioner that Westpac would prefer to stay out of the matter at the present stage and that accordingly in the application there was a reference only to a "financial institution". It will be necessary further to consider the significance of this lack of active participation by Westpac or by any substitute for Westpac.

40. In the application, the "relevant transaction" was identified as follows:

"(i) The financial institution is owed the sum of $1.97mill.

(plus accrued interest) ('the Debt') by a third party;

(ii) The financial institution accepts a cash payment of a

lesser sum of $650,000 from the third party (or its

nominees) in full and final settlement of the Debt;

(iii) The financial institution enters into a preference share

transaction with the Taxpayer in compliance with the 'Terms

of Issue' and procedures as set out in Regulation 2A of

the Taxpayer's Memorandum and Articles of Association ('Reg.

2A'). The transaction proceeds as follows:-

1. The financial institution purchases 1,000,000

redeemable, convertible non-cumulative preference shares

('preference shares') from the Taxpayer at an issue price of

$9.46 per share for a total consideration of $9,460,000

(represented by $0.01 par value and $9.45 share premium).

2. This amount is placed into, and forms part of the 'Bonus

Pool' as defined in Reg. 2A, with such 'Bonus Pool' being

divided into a Share Premium Account (SPA) and an account

reflecting the par value of the preference shares.

3. Pursuant to the procedures and time limits as set out in Reg.

2A, the financial institution decides to redeems (sic) (but

it may exercise its discretion not to redeem as per the

procedures in Reg. 2A) the 1,000,000 preference shares

for a distribution by the Taxpayer of $9,460,000. This

amount comprises the $0.01 par value and the $9.45 share

premium.

4. This redeemed amount of $9,460,000 comprises $10,000

par value and a distribution of $9,450,000 from the SPA in

the 'Bonus Pool'.

5. This distribution of the amount from the SPA in the

'Bonus Pool' to the financial institution is a 'deemed

dividend' for the purposes of the provisions of the Act and

will be franked.

6. The financial institution will receive a fully franked

dividend of $9,450,000 on which it will subsequently

receive a Section 46 rebate.

(iv) The third party has refinanced and agrees to pay the Taxpayer

a 'success fee' of $400,000."

It will be seen immediately that it is not stated whether these steps are interdependent by reason of a contractual or other arrangement between the third party, CTC and the financial institution. For example, it is not stated whether step (iii) is conditional upon step (ii).

41. The private ruling was sought on 8 questions as follows:

"(1) Does the distribution from the share premium account invoke

the provisions of Sub-section 6 (4) of the Act to 'deem'

such distribution a 'dividend' for the purposes of the Act?

(2) Does Part IVA, including Section 177E, of the Act

(stripping of company profits) apply to the transactions?

(3) Does Section 46A of the Act (Rebate on Dividends Paid As

Part of Dividend Stripping Operation) apply to the transactions?

(4) Does Section 46D of the Act (Dividends paid instead of

interest) apply to the transactions?

(5) Will the financial institution be entitled to a rebate

pursuant to the provisions of Section 46 of the Act in

respect of the distribution of the deemed dividend of

$9,450,000?

(6) Will the deemed dividend of $9,450,000 distributed by the

Taxpayer to the financial institution from the SPA be

'frankable' within the meaning of the term 'frankable

dividend' in Section 160APA of the Act?

(7) Does Section 160APHA (Dividends paid as part of

dividend stripping operations) apply to the transactions?

(8) Is the 'success fee', although a once only payment from the

third party, assessable income pursuant to the provisions of

Section 25 (1), or any other provision of the Act?"

42. The Commissioner gave a notice of ruling on 23 June 1993, number 5588. It dealt only with questions 1, 6, 7 and 8. The Commissioner did not deal with questions 2, 3, 4 and 5, on the footing that the questions were directed to the application of the tax law to an unascertained 'another person' whose written consent had not been provided as required by s. 14ZAG of the Administration Act. The Commissioner answered "yes" to question 8, and "no" to questions 1, 6 and 7. The correctness of the answer to question 8 is no longer disputed. It is also accepted that if question 1 was correctly answered adversely to CTC, then there could be no affirmative answer to questions 6 and 7. Thus question 1 is of critical importance.

43. On 23 June 1993, CTC objected to the ruling and on 4 August 1993 was notified that in part the objection had succeeded. In particular, the Commissioner decided that Part IVA of the Assessment Act did not apply to CTC in relation to the arrangement (question 2). However, by letter to CTC dated 4 August 1993, the Commissioner disallowed the objection to his ruling that the distribution from the share premium account would not be deemed a dividend for the purposes of the Assessment Act (question 1). He stated (p. 4 para. 4) that his reasons for that disallowance were the same as those for disallowing the same ground of objection against private ruling No. 4777. This concerned the private ruling, the fate of the objection to which founded the other proceeding in this Court, No. NG739 of 1993. It will be recalled that here the financier was identified as Westpac.

44. The letter of 4 August also dealt with the objection to private ruling No. 4777. The reasons of the Commissioner included the following (p. 1, para. 2 (a)):

"The Bonus Pool has a capacity to serve several functions and possesses

a character and use not associated with a conventional share premium

account ('the SPA'). The payment of the dividend is virtually

instantaneous and there is no doubt that Westpac will not permit the SPA

to be used for any other purpose. Westpac effectively has a lien or

beneficial interest over the funds in the SPA. In these circumstances I

do not consider that the payment from the SPA is a deemed dividend for

the purposes of section 6 (4) of (the Assessment Act)."

It will be seen later in these reasons that, at least in its application to private ruling 5588, this passage involved the making of "assumptions" within the meaning of Part IVAA. The material before the Commissioner in support of the application of 15 May 1993 included a 16 page submission dealing with the question of whether the distribution from the share premium account of CTC to the financial institution would "invoke" sub-s. 6 (4) of the Assessment Act. On pp. 8 and 9 thereof the taxpayer had stated:

"Broadly, the 'Terms of Issue' of the Preference Shares to the financial

institution can be summarised as follows:

1. The 'Bonus Pool' for the Preference Shares will consist

of the 'Issue Price' of all the Preference Shares issued

under the prospectus.

2. That part of the 'Bonus Pool' not paid from time to time to

holders of Preference Shares shall be deposited by the

Taxpayer in an interest bearing account with a Bank

and held by the Taxpayer on trust for those holders of

Preference Shares the numbers of which are drawn in 'Draws',

as defined in paragraph (9) of Regulation 2A of the Articles,

from time to time and who redeem their Preference Shares

in accordance with the procedure as set down in

Paragraph 14 of that Regulation. Any money not

paid because Preference Shares are not redeemed under

Paragraph 14 is re-included in the 'Bonus Pool'."

(Emphasis supplied)

It is true that the term "trust" is used in the above passage, but in a context which does not support the submission of the Commissioner that the $9.46m. paid by the financial institution is never beneficially the property of CTC and thus cannot provide the means for a distribution by CTC to the institution as a shareholder. Further, under the heading "Summary" on p. 16 of this document it was stated:

"The financial institution has no control of the funds in the 'Bonus

Pool', it holds no lien over those funds, and there is no constructive

trust in place. The relationship is purely contractual.

Finally, it should be stated that this proposal does not involve any

'round robin' of funds between the parties, it is a commercial proposal

which does not have any tax avoidance connotations."

45. Upon the present appeal, counsel for the Commissioner submitted it was a term of the proposed composite transaction that the moneys paid by the financier to CTC nominally as application moneys should be held by CTC on trust for the sole purpose of paying out the redemption amount; if the agreement to redeem the preference shares were frustrated, for example if CTC in the meantime or during a relation back period were forced into insolvency, the funds should be held (or treated as having been held) by CTC on trust to return them to the financier. It followed, counsel submitted, that the Commissioner had taken a correct view of the matter in the passage I have earlier set out.

46. In order to deal with this submission it is necessary first to describe further reg. 2A of CTC's Articles, and the definition of "dividend" in the Assessment Act. I begin with the former.

47. Regulation 2A of the Articles of CTC contains a definition of "Bonus Pool" as follows:

"'Bonus Pool' means an amount equal to 100 per cent (or such lesser

percentage (if any) as is set out in the Terms of Issue) of the

aggregate Issue Price of the Preference Shares together with all

interest thereon (if any) from time to time received by the Company but

less all income tax as is assessed to be payable by the Company in

respect of the Bonus Pool if for any reason all or any part of the Bonus

Pool is taxed pursuant to the provisions of the Tax Act."

The expression "Terms of Issue" is defined in relation to a preference share as meaning the terms upon which the share is issued; the evidence in the present application did not include any such terms. Regulation 2A (9) is headed "Draws". It provides that each preference share shall be distinguished by an appropriate number and that the Board of CTC may from to time cause to be drawn by lot the numbers of up to a maximum of all preference shares on issue, the holders of which are not associated with CTC; on redemption of the preference shares so drawn by lot, CTC shall pay to the shareholder out of the bonus pool the Redemption Amount being the issue price plus any dividend then due or accrued and unpaid, less any discount set out in the Terms of Issue.

48. In sub-s. 6 (1) of the Assessment Act, the term "dividend" is defined in para. (a) of the definition as including "any distribution made by a company to any of its shareholders, whether in money or other property", but as not including:

"(d) moneys paid or credited by a company to a shareholder or

any other property distributed by a company to shareholders

(not being moneys or other property to which this

paragraph, by reason of subsection (4), does not

apply), where the amount of the moneys paid or credited,

or the amount of the value of the property, is debited

against an amount standing to the credit of a share premium

account of the company."

Sub-section 6 (4) provides that, subject to a provision not presently material, para. (d) of the definition of "dividend" in sub-s. 6 (1) does not apply to certain moneys paid or credited or to property distributed. Paragraph (d) does not apply where in pursuance of or as part of an agreement or an arrangement, whether oral or in writing, being an agreement or arrangement made after the commencement of sub-s. 6 (4) two things happen. They are:

"(a) a company issues shares at a premium, being a premium in

respect of which the company credits an amount to a share

premium account of the company; and

(b) the company pays or credits any moneys, or distributes any

other property, to shareholders in the company

and the amount of the moneys so paid or credit or the

amount of the value of the property so distributed is

debited against an amount standing to the credit of that

share premium account"

49. CTC's submission has been that in the transaction in respect of which it sought the private ruling the financier would receive a dividend. This is said to be so because there would be a distribution made by CTC to the financier, and whilst the distribution would be debited against an amount standing to the credit of a share premium account of CTC (as referred to in para. (d) of the definition in sub-s. 6 (1)), sub-s. 6 (4) would apply to negative what otherwise would have been the operation of the exclusion effected by para. (d). Thereby the primary position would govern the case, namely, that a dividend includes any distribution made by a company to any of its shareholders, whether in money or other property. This deemed dividend would be franked and thus the financial institution would receive a fully franked dividend of $9.45m. on which it subsequently would receive a rebate under s. 46 of the Assessment Act. The franking credit would be received by the financier in exchange for its cooperation in satisfactorily resolving the indebtedness of the third party and the credit would supplement the cash payment of $650,000 identified in step (ii) of the relevant transaction as set out in the application for the private ruling.

50. On the other hand, counsel for the Commissioner submitted that by reason of the trust relationship, the $9.46m. was never the property of CTC and was never available for distribution to CTC as a shareholder, within the meaning of para. 6 (1) (a) of the Assessment Act. He also disputed CTC's construction of sub-s. 6 (4) and its effect on para. 6 (1) (d).

51. A difficulty with the construction placed by the Commissioner on the arrangement is that a consequence of it is that the arrangement miscarries in a fundamental respect. This is the existence of an express trust in favour of the financial institution when the existence of such a trust is a matter of intention, to be inferred from the language employed by the parties in its context, including the nature of the transaction and any contract between the parties: Swain v The Law Society (1983) 1 A.C. 598 at 621; Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia [1991] FCA 344; (1991) 30 FCR 491 at 502-503. Would one readily infer such an intention that CTC receive the moneys on trust if the result would be to defeat the expressed object of the arrangement?

52. On the other hand, the position taken by CTC means that the financial institution, whether it be Westpac or some other body, runs the risk I have described in parting with its money without control, in a property law sense, over its return in the form of a distribution by CTC. Nor is it clear from the arrangement as set out in the request for a ruling that step (ii) (the receipt of $650,000 in full settlement of the debt of $1.97m.) is conditional, as a matter of contract, upon the implementation of step (iii).

53. It may be that these considerations were not fully appreciated by those who devised the relevant arrangement. In any event, it appears that the Commissioner was asked to rule upon an arrangement in respect of which he had been given insufficient information to indicate whether the arrangement designedly or inadvertently lacked significant integers. In those circumstances, two questions arise. First, what should have been the course pursued by the Commissioner? Secondly, what is the role of the Court in dealing with the "appeal" against the objection decision in which the Commissioner affirmed the course he had taken?

54. It is necessary to refer more fully to certain provisions of Part IVAA of the Administration Act. Section 14ZAJ deals with the form and content of the application for a private ruling. It states:

"14ZAJ An application for a private ruling must:

(a) be made in a form approved by the Commissioner; and

(b) give such information, and be accompanied by such documents,

relating to the ruling as are required by the Commissioner."

The Commissioner is not required to comply with certain applications for private rulings, although he may do so. This follows from a combination of sub-s. 14ZAL (2) and s. 14ZAN. In particular, the Commissioner is not required to comply with an application if, in the terms of s. 14ZAN:

"(h) the arrangement to which the application relates has

neither been, nor is being, carried out and is not

seriously contemplated by the rulee; or

(i) in the opinion of the Commissioner, the applicant

has not given sufficient information, in spite of a

request under section 14ZAM, to enable the ruling to be

made . . ."

"14ZAM If the Commissioner considers that:

(a) a private ruling cannot be made without further

information; and

(b) if that information were given, there would be no

reason for the Commissioner not to comply with the

application for the ruling;

the Commissioner must request the applicant to give that

information to the Commissioner."

The "further information" referred to in para. (a) includes, at least, information relating to the ruling for which the application has been made (see s. 14ZAJ set out above) and thus the terms of the arrangement in question.

55. The scheme of Part IVAA is that the primary obligation of the Commissioner is to comply with applications for private rulings (sub-s. 14ZAL (1)). But this is subject to at least 4 classes of exception and qualification. They are as follows:

(1) The Commissioner may decline to make a ruling if he

considers that its correctness "would depend on which

assumptions were made about a future event or other matter"

(para. 14ZAQ (a)), but he may, alternatively, make such

assumptions as he considers to be most appropriate (para.

(b)) and then give the ruling.

(2) If the application is made more than 4 years after the

due date for lodging a tax return for the particular year

covered by the application, then it appears that the

Commissioner has no choice in the matter and is required not

to comply with the application; this seems to be

the effect of the awkward conjunction between sub-s.

14ZAL (2) and para. 14ZAN (f).

(3) The Commissioner is not required to comply if any of

paras. 14ZAN (a)-(e) and (g)-(j) applies; but he may do so

(sub-s. 14ZAL (2)).

(4) As a special sub-class of (3), the liberty of the

Commissioner not to comply with an application for a

private ruling where in his opinion the applicant has not

given sufficient information (para. 14ZAN (i)), is

qualified by the mandatory requirement of s. 14ZAM. This

provision, with para. 14ZAN (i), which I have set out

above, ensures that the Commissioner cannot refuse an

application merely because the applicant has provided

insufficient information at first instance and thereby

strengthens the primary obligation of the Commissioner

to comply with an application.

56. In this context, what is the relationship between these provisions as to the furnishing of information (class (4)) and the "assumptions" referred to in s. 14ZAQ (class (1))? That section states:

"14ZAQ If the Commissioner considers that the correctness of a

private ruling would depend on which assumptions were made

about a future event or other matter, the Commissioner may:

(a) decline to make the ruling; or

(b) make such of the assumptions as the Commissioner considers

to be most appropriate."

An assumption is an aspect of the arrangement to which the ruling relates and so must be identified in the notice of private ruling (s. 14ZAS). It may be sufficiently identified by reference to matters set out in a document identified in the ruling and which or a copy of which is available to the "rulee" (sub-s. 14ZAS (3)). In the present case, in the notice of ruling dated 23 June 1993, it was stated under the heading "ASSUMPTIONS" that the ruling was given solely on the basis of information provided in the application. That was not the identification of any assumption with which ss. 14ZAQ and 14ZAS are concerned.

57. An "assumption" in s. 14ZAQ would not ordinarily be a fact or matter which, if given the Commissioner by the applicant, would assist the Commissioner to comply with the application for a private ruling. In such a case, if s. 14ZAM applies, the Commissioner must request the supply of the information. This, as I have indicated, is consistent with the general scheme of the legislation favouring compliance. But what if the "assumption" concerns "a future event or other matter" which could not be the subject of provision of information by the applicant, but upon which the Commissioner considers the correctness of the private ruling would depend?

58. In such a case the applicant should not be entitled to complain if the Commissioner either declines to make the ruling or proceeds to make assumptions as permitted by para. 14ZAQ (b). In the Explanatory Memoranda (p. 36) the example is given of an arrangement involving a trust where it is not known whether the beneficiaries will be Australian residents; it is said that the Commissioner may make an assumption, for example, that they will be Australian residents for the purpose of giving a ruling, even though that is something which could not presently be known to be the case.

59. However, in my view, the interrelation between the provisions I have discussed is such that the Commissioner should not make assumptions as to information which the applicant might be given the opportunity to provide under s. 14ZAM. The present is such a case. It is not one for the making of assumptions under s. 14ZAQ. However, as I have already indicated, with reference to p. 1 para. 2 (a) and p. 4 para. 4 of the objection decision letter of 4 August 1993, this is what was done in the present case.

60. The application by CTC was in a form unsatisfactory in at least two respects. First, it was apparent from the terms of the covering letter of 15 May 1993 that there was no commitment by Westpac to participate in the arrangement, nor was there any other body with any commitment to participate as financier in the arrangement. It is true that it was not essential for the ruling sought by CTC also to deal with the application of the tax law in relation to the arrangement to that financial institution. Nevertheless, the nature of the arrangement was such that the possibility that it involved the creation of a trust of the moneys furnished by the financial institution to CTC was of critical importance to the arrangement as a whole, including the position of CTC. Without the active involvement, even if not then at the contractual level, of a financial institution in the proposed arrangement, could it be said that the arrangement was "seriously contemplated" by CTC? The Commissioner was not required to comply with an application for a private ruling if the arrangement was not seriously contemplated by the rulee (para. 14ZAN (h)).

61. Further, should the Commissioner have considered that the private ruling could not be made without further information? In particular, should he have considered the need for information as to the integers of the arrangement, including whether the financial institution and CTC put the arrangement forward on the basis that the financial institution took the risk of parting outright with its moneys without the protection of some overriding contractual or trust arrangement to protect the funds whilst at the disposition of CTC before the distribution?

62. In my view, as matters stood before the Commissioner, he should not have made the ruling without first having considered 2 matters. The first was whether the arrangement was not "seriously contemplated" by CTC and the second whether the private ruling could not be made without further information. Absence of "serious contemplation" would have triggered the operation of para. 14ZAN (h). A consideration that a ruling could not be made without further information would, if para. (b) of the section also applied, have obliged the Commissioner to request the information (s. 14ZAM). Depending upon the outcome of the request, the Commissioner might be relieved of his requirement to comply, by reason of para. 14ZAN (i). In either case, it would then have been for the Commissioner to decide whether to comply with the application, even though not required to do so (sub-s. 14ZL (2)).

63. The objection decision miscarried because the ruling relevantly was upheld without attention to these matters, and, in addition, assumptions were wrongly made. What happened, at least upon the objection decision, was not consideration of a request for information (s. 14ZAM) but the making of assumptions within the meaning of s. 14ZAQ as to the existence of a "lien or beneficial interest (of the financial institution) over the funds in the (share premium account)". This extract is from p. 1 para. 2 (a) of the objection decision of 4 August 1993. I have dealt more fully with the text earlier in these reasons. The taking of this course was an error by the Commissioner in the application of Part IVAA.

64. The powers of the Court on the "appeal" against the objection decision are set out in s. 14ZZP of the Administration Act, as follows:

"14ZZP Where the Federal Court hears an appeal against an

appealable objection decision under section 14ZZ, the Court

may make such order in relation to the decision as it

thinks fit, including an order confirming or varying the

decision."

It was not submitted to us that the powers of the Court under this section include the re-exercise of the functions and discretions of the Commissioner under the provisions I have set out above.

65. However, in my view, the Court may and should set aside the objection decision and in place thereof direct that the objection be returned to the Commissioner for determination according to law. This will include consideration by the Commissioner of the questions (i) whether he is not required to comply with the application by reason of para. 14ZAN (h), and (ii) further, or alternatively, whether he considers that paras. (a) and (b) of s. 14ZAM apply. In my view, all these provisions have an operation upon the process of decision-making upon an objection. The outcome of that reconsideration by the Commissioner may then require consideration of sub-s. 14ZAL (2) and reconsideration of the remaining questions 6 and 7, the rulings upon which were also challenged on the appeal. That will be for the Commissioner to determine.

66. There should be no order for costs of the intervener. As between CTC and the Commissioner, neither party has fully succeeded in the position which it took and there should be no order as to costs. Orders

67. In my view, the proceedings should be disposed of by orders to the following effect:

Proceeding No. NG738 of 1993

(1) Set aside the objection decision dated 4 August 1993.

(2) Remit to the respondent the applicant's objection against

private ruling No. 5588, for determination according to law.

(3) No order as to costs.

Proceeding No. NG739 of 1993

(1) Dismiss the appeal as incompetent.

(2) The applicant pay the costs of the respondent.

HILL J Before the Court are two applications brought by CTC Resources NL ("CTC") in the original jurisdiction of this Court under the provisions of Division 5 of Part IVC of the Taxation Administration Act 1953 ("the Act"). By direction of the Chief Justice, pursuant to s.20(1A) of the Federal Court of Australia Act 1976, the Court, although exercising original jurisdiction, was constituted as a Full Court.

2. Each of the applications concerns a private ruling made by the respondent, the Commissioner of Taxation, pursuant to the provisions of Part IVAA of the Act.

3. The first application (numbered NG739 of 1993) concerns a private ruling sought on 1 December 1992. That private ruling is hereafter referred to as the "First Ruling". The Commissioner initially took the view that the request for the ruling should not be responded to because questions asked in it related to the taxation position of Westpac Banking Corporation Limited ("Westpac"), and accordingly he declined to entertain it. Subsequently the application was relodged with the consent of Westpac endorsed upon it, in accordance with s.14ZAG, on 21 January 1993 and a private ruling was thereafter received by CTC on 1 April 1993. CTC, being dissatisfied with the private ruling, objected to it by an objection dated 16 April 1993. That objection was disallowed by the Commissioner on 3 August 1993 and CTC then commenced the present proceedings in this Court by way of appeal against the Commissioner's objection decision, pursuant to s.14ZZ of the Act. No objection was lodged by Westpac.

4. The First Ruling was limited to the year of income ended 30 June 1993. It will have been noted that by the time the Commissioner had disallowed CTC's objection, that year of income had passed. It is an agreed fact that the transaction the subject of the First Ruling was not implemented before the expiration of that year of income. The Commissioner accordingly objected to the competency of the Court to hear this first application.

5. On 15 May 1993 CTC lodged a further request for a ruling, this time in respect of what it referred to as a proposed arrangement in relation to the year of income ended 30 June 1994. The relevant "proposed arrangement" was virtually identical to that which had been the subject of the First Ruling. However, the request for the second ruling made no reference to Westpac, but referred instead to the arrangement as being one proposed to be entered into by CTC with a "financial institution". Certain questions posed in the application for the First Ruling, to the extent that they concerned the application of the provisions of the Income Tax Assessment Act 1936 ("the ITA Act") to Westpac, were not, however, repeated in relation to the unnamed financial institution.

6. On 23 June 1993 the Commissioner forwarded to CTC a private ruling in respect of this second application. This ruling, hereafter referred to as the "Second Ruling", applied to the year ended 30 June 1994. CTC, being dissatisfied with that ruling, objected to it, and that objection being also disallowed on 3 August 1993, CTC appealed to this Court in respect of that second objection decision. That application is numbered NG 738 of 1993.

7. The application for the First Ruling provided the following background information:

"(a) On the 24th August 1992, CTC Resources N.L. ('CTC')

received a Private Income Tax Ruling (Reference: ADVR 4026)

with respect to an innovative issue of preference shares

offering investors substantial cash redemptions when chosen

by lot pursuant to Regulation 2A of the Articles of

Association of CTC.

(b) On or about 26th November 1991, a Director of CTC, Mr

Allan Endresz, was approached by his wife's uncle Mr Graeme

Arnold, seeking CTC's assistance in refraining

Westpac Banking Corporation Ltd ('Westpac') from

liquidating Mr Arnold's trading companies and

bankrupting all family members. Accordingly, the

following should be noted:-

(i) Graeme Arnold and Sons Pty Ltd

('Arnold') owes Westpac the sum of $2.2 million (plus

accrued interest) being secured by a rural property

located at Berrigan NSW, personal guarantees of Mr G

Arnold, his wife and four sons (all residing on the property)

and company debentures.

(ii) Due to the severe rural recession, Arnold has been

unable to service the outstanding debt whilst a sale

of the property would realise no more than $900,000 at

present day prices. Accordingly, a substantial

shortfall would result thereby making bankruptcy a formality.

(iii) Pursuant to Section 63 of the Income Tax Assessment Act

('the Act'), Westpac is presently entitled to a

deduction for the bad debt written off. In this regard,

calculated as the difference between $2.2 million and

$900,000 recoverable.

(iv) On the 20th December 1991, CTC presented Westpac with a debt

restructuring proposal incorporating the preference

share issue as previously detailed to the Australian

Taxation Office. The sole objective of the proposal

being to settle in full the Arnold debt, thereby avoiding

liquidation and eviction of all family members from the

property.

(v) On the 27th November 1992, Westpac finally agreed in

principle to a settlement proposal. Accordingly,

Westpac has requested a further Ruling prior to

settlement."

8. The application then defined the proposed arrangement in the following terms:

"(a) Westpac is owed the sum of $2.2 million by Arnold

(hereinafter referred to as 'the debt')

(b) Westpac assigns all its rights, title and interests

(including but not limited to secured property and any

corporate and personal guarantees) in the debt to CTC

for $10,000.

(c) Westpac entered into a preference share transaction

with CTC as follows:-

(i) CTC makes a placement of 10,000,000 redeemable,

convertible non-cumulative preference shares ('preference

shares') to Westpac at an issue price of $0.23 per share

for a total consideration of $2,300,000 (represented by

$0.01 par value and $0.22 share premium per preference

share).

(ii) Pursuant to Regulation 2A (copyright of CTC's Articles

of Association, 10,000,000 preference shares are redeemed

by CTC for a cash consideration of $2,300,000.

This amount comprises $0.01 par value and $0.22 share

premium.

(iii) The total cash redemption of $2,300,000 comprises $100,000

par value and a $2,200,000 distribution from CTC's share

premium account. Pursuant to Private Ruling ADVR 4026,

CTC's share premium account is created as part of a scheme

for making a distribution of moneys and is therefore a

'deemed dividend'. Such a dividend may be franked.

(iv) The share redemption, which is deemed to be a dividend and

able to be 'franked', would result in Westpac receiving a

dividend of $2,200,000 (with appropriate franking credits)

and receiving a Section 46 rebate.

(d) Arnold refinances the rural property and agrees to pay CTC

the sum of $650,000. Upon receipt of same, CTC assigns

all its rights, title and interests as received from

Westpac in Clause (b) above to the financial institution as

nominated by Arnold."

9. The questions upon which the ruling was sought, apart from a question as to the entitlement of Westpac to write off the difference between the face value of the $2.2 million debt and the amount of $900,000, being what was said to be the appraised value of the debt in the books of Westpac, were as follows:

"(b) Upon Westpac entering into the above preference share

transaction with CTC DOES CTC's Private Ruling ADVR 4026

continue to apply?

(i) Does the distribution from the share premium account involve

sub-section 6(4) of the Act?

(ii) Does Section 177E of the Act (stripping of Company Profits)

apply to the arrangement?

(iii) Does Section 46A of the Act (rebate on Dividends paid as

part of Dividend Stripping operation) apply to the arrangement?

(iv) Does Section 46D of the Act (Dividends paid instead of

Interest) apply to the arrangement?

(v) Given the overall nature of the transaction, will the

Section 46 of the Act (Rebate on Dividends) apply to Westpac?

(vi) Will the dividend paid out of the Share Premium Account be

frankable within the meaning of the term 'frankable

dividend' in paragraph (a) of Section 160 APA of the Act?

10. The request for ruling referred to the fact that Westpac, CTC and Mr Arnold had agreed in principle with respect to the proposal, but that acceptance of what was said to be a Westpac offer to CTC had to be made on or before 31 December 1992. There was certain correspondence attached which related to an in principle agreement on the part of Westpac and CTC.

11. The First Ruling contained the following summary of facts:

"Mr Allan Endresz is a director of a listed public company, CTC

Resources (CTC) based in Albury. The other two directors of the company

are the parents of Mr Endresz.

The uncle of Mr Endresz's wife, Graeme Arnold, has sought the assistance

of Mr Endresz in relation to the financial difficulties currently being

suffered by Graeme Arnold and Sons Pty Ltd. The Arnold company is

currently indebted to Westpac for an amount of approximately $2 million.

That debt is secured over a property with a value of $1 million.

Westpac have apparently threatened to foreclose and bankrupt members of

the family which guaranteed the company debt.

CTC proposes to pass franking credits to Westpac in exchange for

Westpac's co-operation in satisfactorily resolving the debt problems of

Graeme Arnold.

The features of the proposal are:

1. Westpac acquires 1,000,000 redeemable convertible non-cumulative,

preference shares issued by CTC at a price of

$9.46 per share. The par value of each share is $0.01

and the premium is $9.45. Westpac therefore pay

$9,460,000 to CTC.

2. The shares are immediately redeemed by CTC for a cash

consideration of $9.46 million, (being the price paid

for them). This payment of $9,460,000 comprises $10,000

in par value and a $9,450,000 distribution from CTC's share

premium account.

3. There is an arrangement between CTC and Westpac that

the $9,460,000 investment will be immediately returned. The

effect of this arrangement is that subsection 6(4) of the

Income Tax Assessment Act (ITAA) ('the Act') applies to

treat the $9,450,000 as a dividend. In the absence of

subsection 6(4) of ITAA applying, the payment to

Westpac would be tax free.

4. The benefit received by Westpac is that this payment,

which is treated as a dividend for tax purposes, will be

fully franked. Westpac pays $9,460,000 and eventually

receives the exact amount back together with about $6,000,000

worth of franking credits.

5. Originally it was planned that Westpac would then accept

$650,000 in full settlement of its debt of $2,000,000 and the

balance would be claimed as a bad debt. However, in

accordance with a letter from Professor Bernard Marks dated

5 March 1993 to Tony Long, Manager of Banking and Finance

cell, Melbourne Taxation Office, Westpac will no longer

be claiming a tax deduction for the difference between the

face value of the debt and the amount received of $650,000.

6. For supplying its services, CTC receives a 'success fee'

of $400,000 from Graeme Arnold and Sons Pty Ltd.

7. Graeme Arnold and Sons Pty Ltd is left in the position of

having paid Westpac $650,000 and CTC $400,000. It

therefore has a debt level approximately equal to the

value of this security.

8. CTC intends to have sufficient franking credits in its

accounts prior to the transaction. It appears from

comments made by the solicitor for CTC, Cain and Cleeves Pty

in Melbourne, that the company will obtain those credits by

entering into a similar arrangement with another

company. In other words CTC will acquire preference shares

in another company and then have those shares redeemed.

The credits 'sold' to CTC will then be 'passed on' to

Westpac."

12. The ruling, in question and answer form, was in the following terms, so far as is now relevant:

"(a) Does the distribution from CTC's Share Premium Account to

Westpac invoke sub-section 6(4) of the Act?

No, sub-section 6(4) of the Act has no application as the payment to

Westpac is not from a SPA (within the meaning of the Act).

...

(c) Does section 46A of the Act (Rebate on dividends paid as

part of dividend stripping operations) apply to the

arrangement?

Yes, section 46A of the Act applies.

...

(e) Will Westpac be entitled to a dividend rebate pursuant to

section 46 of the Act in respect of the deemed dividend

of $9,450,000?

No, the rebate under section 46D of the Act is not available.

(f) Will the dividend of $9,450,000 paid out of the

share premium account be frankable within the meaning

of the term frankable dividend in section 160APA of the Act?

Yes, the amount $9,450,000 is frankable under section 160APA of the

Act."

13. There was forwarded with the ruling an explanation which was said not to form part of the notice of the private ruling. That explanation elaborated the Commissioner's reasons for the answers given.

14. The application for the Second Ruling was accompanied by a letter explaining the substitution of an anonymous financial institution for Westpac. That explanation, after referring to a conference, said to have been held with officers of the Australian Taxation Office, continued, so far as is presently relevant:

"During those discussions, it was indicated to the Taxpayer's

representative... that you had discussed matters with the Westpac Bank

and that their legal officer had indicated to you that Westpac had no

interest in pursuing the objection against the Ruling. In this regard,

we have since spoken to Westpac and they have indicated to us that they

are not disinterested in the matter but would prefer to stay out of

negotiations at this stage. Westpac indicated that its interests would

certainly be reactivated if our company was to gain a favourable Ruling

from the Commissioner. The possibility of Westpac withdrawing its

interest in the outcome of the objection against the Ruling was

canvassed at the conference and tacit approval was given for our company

to seek another Ruling by substituting 'the financial institution' for

Westpac in the application."

15. Attached to the application for ruling was a submission to which reference will later be made.

16. When the Second Ruling was received it dealt with four only of the questions asked, but not with another four questions that had been asked in the second application. The Commissioner indicated that he had not answered the other questions because there was no ascertainable "other person" to whom a tax law would apply, and these unanswered questions were concerned rather with the liability for tax of the financial institution than with that of CTC. The ruling states, as "an assumption", that it is given solely on the basis of the information provided in the application and the arrangement described in it. That is not an assumption of the kind to which s.14ZAQ refers. It is a short hand statement of the facts upon which the ruling is given. The questions posed, so far as is now relevant, were as follows:

"(1) Does the distribution from the share premium account to the

financial institution invoke the provisions of sub-section

6(4) of the Income Tax Assessment 1936 ('the Act') to

'deem' such distribution a 'dividend' for the purposes of

the Act?

(2) Will the deemed dividend of $9,450,000 distributed by CTC

Resources NL to the financial institution from the share

premium account be 'frankable' within the meaning of the term

'frankable dividend' in section 160 APA of the Act?

(3) Does section 160APHA of the Act apply to the transactions."

17. The ruling, so far as is now relevant, provides as follows:

"1. No. Subsection 6(4) of the Act does not deem the distribution

from the share premium account to be a dividend for the

purposes of the Act. We take the view that any construction

of subsection 6(4) must preserve the cooperation

between it and paragraph (d) of the definition of

'dividend'. The two provisions must be construed

in a way which allows them to co-exist with each other.

Paragraph (d) of the definition of dividend and

subsection 6(4) were introduced into the Income Tax

Assessment Act by Income Tax Assessment Bill (No. 4) of

1967. In the Explanatory Memorandum to that Bill the

then Treasurer said that subsection 6(4) was meant to

qualify the operations of the new paragraph (d) definition

of 'dividend'. He said that subsection 6(4) was designed

as a safeguard against special arrangements which may be

entered into for the purpose of exploiting the proposed

exemption of distributions out of share premium accounts.

Subsection 6(4) was intended to apply where a share premium

account is created as part of a scheme for making a tax-free

distribution of money or other property to shareholders.

In our opinion it is reasonable to infer from the

comments of the Treasurer and the fact that the designated

role of subsection 6(4) is to qualify paragraph (d) of the

definition of 'dividend', that an agreement as contemplated

by subsection 6(4) must provide an outcome which is at

variance with that contemplated by paragraph (d)

of the definition of 'dividend'. If this was not

so then the paragraph (d) definition of 'dividend' would

be rendered irrelevant. We believe that our view of the

interrelationship of subsection 6(4) and paragraph

(d) finds support in the decision of the Full High

Court in FCT v. Lutovi Investments Pty Ltd 78 ATC 4708.

In the present case the agreement or arrangement is

one pursuant to which redeemable preference shares

are to be issued by CTC to a financial institution at a

very large premium (in relation to the par value of

the share) which premium is to be credited to a share premium

account. Those shares are subsequently to be redeemed by

CTC for the identical sum paid for them comprising $10,000

par value and $9.46m from the share premium account. In our

view this is not an agreement or arrangement which corrupts

the stated effect of paragraph (d) of the definition of

'dividend'. In that case it is not an agreement or

arrangement as provided for in subsection 6(4) and therefore

the proposed payment of $9.46m out of the share premium

account back to the financial institution would not be a

'dividend' as defined in section 6(4) of the Act.

2. Because of the answer to 1. above, the payment made by CTC

to the financial institution would not be a 'frankable

dividend' within the meaning of that term in section

160APHA of the Act.

3. No. Because of our answer to 1. above, we do not consider

the arrangement to be part of a dividend stripping

operation."

18. The Act confers upon a person the right to apply to the Commissioner for a private ruling upon the way in which, in the Commissioner's opinion, a tax law would apply to the applicant in respect of a year of income in relation to a particular arrangement: s.14ZAF. In the present case the relevant tax law was the ITA Act. Ordinarily, the application will concern the applicant's liability for tax in a particular year or years of income. However, there is no reason to suppose that s.14ZAF is limited to rulings concerning the applicant's tax liability. An applicant might, for example, seek a ruling upon that applicant's obligations under the relevant tax law, for example, in respect of keeping of records or the fulfilment of other obligations imposed by the tax law.

19. The word "arrangement" to which s.14ZAF refers is widely defined in s.14ZAAA and includes, inter alia, a proposal or course of action. By virtue of the definition of "tax law" contained in s.14ZAAA, the ability to obtain a private ruling under the Act is limited to the obtaining of a private ruling in respect of an income tax law or a fringe benefits tax law, as those expressions are also defined in s.14ZAAA.

20. Application for a ruling may be sought in respect of the way in which the tax law applies to some person other than the applicant in respect of a particular year of income in relation to a particular arrangement. But in such a case it is necessary to have the written consent of that other person before the ruling can proceed: s.14ZAG. It was pursuant to this section that CTC raised questions as to the operation of the Act in respect of Westpac in the application for the First Ruling.

21. An arrangement in respect of which a ruling may be given may be an arrangement already carried out, an arrangement that is in the course of being carried out, or an arrangement that is merely proposed: s.14ZAI. Correlatively the relevant year of income may be a past year, the current year, or a future year. In the present cases, the arrangement was merely proposed. The first ruling dealt with the 1993 year of income; the second the 1994 year.

22. Application for a ruling is required to be in a form approved by the Commissioner and to be accompanied by relevant information and documents as required by the Commissioner: s.14ZAJ. If the Commissioner is of the view that there is a need for further information before the ruling can be given, he must request the applicant to supply that information: s.14ZAM. Further, if the Commissioner is of the view that the correctness of the ruling depended upon an assumption about either a future event or some "other matter", the Commissioner is empowered to either decline to make the ruling or to make such of the assumptions as the Commissioner considers to be the most appropriate: s.14ZAQ. Subject to this the Commissioner must give the ruling, unless the case is one which falls within s.14ZAN: s.14ZAL(1). Even though the case falls within s.14ZAN, the Commissioner may, nevertheless, except in a case not presently relevant, give a ruling: s.14ZAL(2).

23. Among the circumstances in which the Commissioner is not required to provide a ruling, are cases where the application is "frivolous or vexatious" or concerns an arrangement which has not been carried out, but further is not seriously contemplated. Even in such cases the Commissioner, it would seem, may proceed to provide a ruling. All s.14ZAN purports to do is remove the obligation to give a ruling imposed on him by s.14ZAL(1), see s.14ZAL(2).

24. The ruling has to be served upon the applicant: s.14ZAR, and must set out the matters ruled upon, identifying the relevant person affected, the tax law, the year of income and the arrangement to which the ruling relates. It must also identify the assumptions made: s.14ZAS.

25. The right to object against a ruling is conferred by s.14ZAZA(1) upon "a rulee who is dissatisfied with a private ruling". The expression "rulee", in relation to a private ruling, is defined in s.14ZAA as meaning the person the application to whom of a tax law is the subject of the ruling. Thus, in respect of the First Ruling, where a part of the ruling related only to the application of the ITA Act to Westpac, the expression "rulee" would, in respect of that part, include Westpac and Westpac only. Where, however, the questions in the rulings concern the application of the ITA Act to CTC, then it is CTC who is the rulee. The objection is to proceed in the same manner as an objection against a taxation assessment, that is to say, the procedure is to follow that now contained in Part IVC of the Act, the private ruling being treated, for the purpose of that Part, as being a "taxation decision".

26. If there is no appeal against the private ruling, or in the event that there is an unsuccessful appeal, the ruling is, by virtue of s.170BB of the ITA Act, given the force of law. Thus s.170BB(3) provides:

"Subject to sections 170BC, 170BG and 170BH, if:

(a) there is a private ruling on the way in which an income tax

law applies to a person in respect of a year of income in

relation to an arrangement ('ruled way'); and

(b) that law applies to that person in respect of that year

in relation to that arrangement in a different way; and

(c) the amount of final tax under an assessment in relation to

that person would (apart from this section and section

170BC) exceed what it would have been if that law applied

in the ruled way;

the assessment and amount of final tax must be what they would be if

that law applied in the ruled way."

27. A similar result follows in respect of a ruling to the extent to which it is altered on appeal, by virtue of s.170BH, once the Court's order has become final.

28. Protection is sought to be given to private rulings against collateral challenge by virtue of the provisions of ss.15AA and 15AB of the Act and production of a notice of a private ruling or document purporting to be a copy of such a notice signed by the Commissioner is made conclusive evidence of the proper making of the ruling. The Commissioner in the present case eschewed the tender of a document complying with s.15AB of the Act and accordingly we are relieved of the necessity to consider either the operation of that section or the extent to which that section may affect the validity of the legislative scheme.

29. The procedure for objections and appeals against objection decisions relating to private rulings has, as already noted, been amalgamated with that relevant to appeals against tax assessments now contained in Part IVC of the Act. For present purposes, however, it is to be noted that the right to appeal to this Court, so far as it concerns a private ruling, is to be found in s.14ZZ, which relevantly provides:

"If the person is dissatisfied with the Commissioner's objection

decision, the person may:

(a) if the decision is both a reviewable objection decision

and an appealable objection decision - either:

(i) apply to the AAT for review of the decision; or

(ii) appeal to the Federal Court against the decision;...".

30. Where the appeal is brought to this Court, s.14ZZO provides as follows:

"In proceedings on an appeal under section 14ZZ to the Federal Court

against an appealable objection decision:

(a) the appellant is, unless the Court orders otherwise,

limited to the grounds stated in the taxation objection to

which the decision relates; and

(b) the appellant has the burden of proving that:

(i) if the taxation decision concerned is an assessment

(other than a franking assessment) - the assessment

is excessive; or

(ii) if the taxation decision concerned is a franking

assessment - the assessment is incorrect; or

(iii) in any other case - the taxation decision should not

have been made or should have been differently."

31. I may interpolate that having regard to the statutory issue posed by s.14ZZO, the reference to "burden of proof" seems singularly inapt.

32. The Court's powers on an appeal are described in s.14ZZP of the Act as being to:

"make such order in relation to the decision as it thinks fit, including

an order confirming or varying the decision".

33. Under that section the Court could vary the ruling if of the view that the ruling should have been made differently or could set the ruling aside and refer the request for ruling back to the Commissioner if further facts be necessary. The Court, if of the view that the ruling was correct in all the circumstances, would make an order confirming the objection decision.

34. Reference must finally be made to the very important provisions of s.14ZVA of the ITA Act which provide:

"If there has been a taxation objection against a private ruling, then

the right of objection against an assessment relating to the matter

ruled is limited to a right to object on grounds that neither were, nor

could have been, grounds for the taxation objection against the ruling."

35. The obvious policy behind s.14ZVA is that a taxpayer must object to the ruling itself and if the ruling has not been objected to, is bound by it. The taxpayer has no further right to object later should the transaction have been entered into and the Commissioner assess in accordance with the ruling. In this way s.14ZVA complements the provisions of s.170BB, to which reference has already been made.

36. In summary, therefore, a taxpayer may seek the opinion of the Commissioner, inter alia, upon an arrangement proposed to be entered into in the future. Based on information supplied to the Commissioner and any assumption that the Commissioner may make, the Commissioner is, subject to certain exceptions, required to give a ruling which then is given the force of law, but subject to the right of the person applying for the ruling to object to it. In other words, a ruling may operate to overrule the real effect of an income tax law once that ruling becomes final and no longer subject to appeal.

37. A preliminary question which was the subject of argument was whether the determination of the objection decisions the subject of the present application involved the determination of a "matter" within Chapter III of the Commonwealth Constitution. Notices having been served under s.39B of the Judiciary Act 1903 only the Commonwealth sought to intervene.

38. At the heart of this argument was the question whether the Court was being required to determine issues which were merely hypothetical or moot being raised in the context of determining the taxation outcome of conduct which might never be entered into. Both parties and the Commonwealth Crown Solicitor intervening submitted that the legislation conferring upon the Court jurisdiction to hear the application was valid. No-one argued that the question whether the Court had jurisdiction was in these circumstances itself not a "matter" within Part III.

39. It may be argued, as Gummow J argues, that while, if there be a controversy between the parties as to the existence of jurisdiction, the Court could determine that controversy as a "matter" (as to which there can be no doubt) in the absence of a controversy no "matter" arises for the Court to determine. I understand the force of that argument. Taken to its logical conclusion the question whether there is or is not a "matter", itself involves an issue whether that question involves a "matter". No controversy arose as to that question for the parties tacitly acquiesced that there was and all argued for the validity of the jurisdiction.

40. I think the preferable course is to deal with the issue as the High Court did in Attorney-General for the State of New South Wales; Ex rel McKellar v The Commonwealth of Australia (1977) 139 CLR 527 and the Full Court of this Court did in Federal Commissioner of Taxation v Offshore Oil NL [1980] FCA 113; (1980) 49 FLR 159. In the former case the Attorney-General initially claimed declarations that certain sections, including s.10 of the Representation Act 1905 (Cth), were invalid. Gibbs J directed questions to be argued before the Full Court including a question whether s.10 was a valid law of the Parliament.

41. Between the time the proceedings were commenced and the time of argument it seems that any controversy regarding s.10 disappeared.

42. All the judgments contain a discussion on the validity of s.10 and all judges answered the question reserved for the Full Court. Stephen J (at 559-560) expressed the opinion that although the parties were unanimous in urging the validity of s.20, the question having been squarely raised by the question stated, it should be answered. Jacobs J (at 567) said:

"The Court is placed in an unusual situation in relation to question

(iv) in that no argument to the contrary of an affirmative answer has

been presented. It might be arguable on the present state of authority

(In re Judiciary Act and Navigation Act) that there is no 'matter' before

the Court which raises this question, but I would be loathe to reach

such a conclusion. It is most convenient that this Court should be able

to be called on and should have a discretion to determine questions of

this kind respecting the validity of legislation and in many ways I

regard the conclusion in In re Judiciary Act and Navigation Act as,

regrettable, unless it does no more than affect the manner of bringing

such questions before the Court."

43. There being no amendment to the original writ his Honour proceeded to answer the question.

44. In Federal Commissioner of Taxation v Offshore Oil NL (supra) in the course of a tax appeal against certain assessments of the appellant the Supreme Court heard and determined whether it had any jurisdiction to entertain the appeals, deciding that it did giving judgment on the preliminary point. An appeal was lodged to the Full Court of this Court. There was a question whether this Court had jurisdiction to hear the appeal as the orders appeared to have been made by the Supreme Court under s.199(1) of the Income Tax Assessment Act 1936 and there was a question whether they constituted a final order. None of the parties to the appeal decided to contest the jurisdiction of this Court. Franki and Lockhart JJ were of the view that the Court did have jurisdiction, the former giving reasons. Deane J said that he entertained doubt on the matter but in the circumstances bowed to the views of the other members of the Court. None of their Honours expressed the view that the Court should refuse to deal with the matter.

45. Like Jacobs J in McKellar I think that it is convenient to express my opinion, especially as it was fully argued by the Commonwealth Crown Solicitor and counsel for the Commissioner of Taxation.

46. Early in its history the High Court refused to give declaratory relief where to do so involved hypothetical questions of law, such as the validity of certain provisions of the Trade Marks Act 1905 when the application for registration under that Act had been withdrawn. In so doing the Court adopted the approach of the Privy Council in Attorney-General for Ontario v The Hamilton Street Railway Co (1903) AC 524 and of the Supreme Court of the United States in California v San Pablo and Tulare Railroad Co [1893] USSC 165; (1892) 149 US 308. In the latter case Gray J, delivering the opinion of the Court, said (at 314), in a passage cited with approval by the High Court, that the duty of the Court was:

"limited to determining rights of persons or of property, which are

actually controverted in the particular case before it...But the court

is not empowered to decide moot questions or abstract propositions...

which cannot affect the result as to the thing in issue in the case

before it."

(see Bruce v The Commonwealth Trade Marks Label Association (1907) 4 CLR

1569 at 1571.)

47. The cases cited in Bruce perhaps left open the question whether the refusal to consider a hypothetical question involved merely the exercise of a discretion in a matter in which the Court otherwise had jurisdiction or turned upon a lack of jurisdiction, although the passage cited from the judgment of the United States Supreme Court spoke in terms of "power". If but a matter of discretion, Bruce's case may be seen as a precursor to the now well-established principle that it is a requirement of any court exercising jurisdiction to grant declaratory relief that:

"The question must be a real and not a theoretical question; the person

raising it must have a real interest to raise it; he must be able to

secure a proper contradictor, that is to say, some one presently

existing who has a true interest to oppose the declaration sought."

(Russian Commercial and Industrial Bank v British Bank for Foreign Trade

Ltd (1921) 2 AC 438 at 448 per Lord Dunedin, cited with approval in

Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421 at 437-438 per

Gibbs J)

48. In In Re The Judiciary Act and The Navigation Act [1921] HCA 20; (1921) 29 CLR 257, the High Court held that in so far as Part XII of the Judiciary Act purported to confer upon that Court jurisdiction to determine questions of law referred to it otherwise than by real parties to a controversy, that Act was invalid. That case has been cited since 1921 in a large number of cases and never doubted. It is upon it that a submission that a Federal Court has no jurisdiction to decide the legal consequences of steps which might or might not be taken in the future turns. Accordingly it is important to consider not only what was said in that case, but the context in which the case was decided.

49. Under the then provisions of Part XII of the Judiciary Act the Governor-General was empowered to refer to the High Court for determination any question of law as to the validity of any Act or enactment of the Commonwealth Parliament. All available justices of the High Court were then required to hear and determine the question or questions referred. The Court's determination was to be more than a "mere advisory opinion". It was intended, so the majority of the High Court said, that it be an authoritative declaration of the law.

50. The issue before the Court was whether a reference under Part XII involved a "matter" within the meaning of s.76 of the Constitution. The Court rejected a submission that "matter" meant no more than "legal proceeding". Rather it meant the "subject matter for determination in a legal proceeding". At 265-266 Knox CJ, Gavan Duffy, Powers, Rich and Starke JJ said:

"In our opinion there can be no matter within the meaning of the section

unless there is some immediate right, duty or liability to be

established by the determination of the Court. If the matter exists,

the Legislature may no doubt prescribe the means by which the

determination of the Court is to be obtained, and for that purpose may,

we think, adopt any existing method of legal procedure or invent a new

one. But it cannot authorise this Court to make a declaration of the

law divorced from any attempt to administer that law."

51. After a consideration of the various views expressed in State of South Australia v State of Victoria [1911] HCA 17; (1911) 12 CLR 667 as to the meaning of the word "matter" in s.75 the judgment continued (at 266):

"All these opinions indicate that a matter under the judicature

provisions of the Constitution must involve some right or privilege or

protection given by law, or the prevention, redress or punishment of

some act inhibited by law. The adjudication of the Court may be sought

in proceedings inter partes or ex parte, or, if Courts had the requisite

jurisdiction, even in those administrative proceedings with reference to

the custody, residence and management of the affairs of infants or

lunatics. But we can find nothing in Chapter III, of the Constitution

to lend colour to the view that Parliament can confer power or

jurisdiction upon the High Court to determine abstract questions of law

without the right or duty of any body or person being involved."

52. Higgins J, dissenting, pointed out the utility of the Court being able to make such determinations, a view which obviously appealed to the 1928 Royal Commission on the Constitution which proposed an amendment to the Constitution to permit the High Court to give "advisory opinions". Subsequent proposals to confer upon the Court advisory jurisdiction, announced by the Senate Standing Committee on Constitutional and Legal Affairs in 1977 and the Standing Committee of the Australian Constitutional Convention in 1981, similarly failed to attract support (see Current Topics - The High Court and advisory opinions - a new revised proposal 56 ALJ 2-3).

53. As Mr Stephen Crawshaw in an article, "The High Court of Australia and Advisory Opinions" (1977) 51 ALJ 112 points out, the inconvenience of the attitude of the High Court has in practice been mitigated by a willingness by the Court to give declaratory relief in circumstances where it might have been argued that the Court was presented with an abstract matter. (See too Foster M "The Declaratory Judgement in Australia and the United States" in (1957-1958) 1 Melbourne University Law Review, 207 and 347 at 391. So, the Court has entertained applications at the suit of the Attorneys-General of the States as to the constitutionality of legislation (Attorney-General for Victoria v The Commonwealth [1935] HCA 31; (1935) 52 CLR 533), or by the Attorneys-General for the States against the Commonwealth or each other, eg The Commonwealth v State of Queensland [1920] HCA 79; (1920) 29 CLR 1; State of Tasmania v State of Victoria [1935] HCA 4; (1935) 52 CLR 157. Likewise the Court has entertained proceedings for declaration brought by private parties against the Commonwealth challenging legislation. Famous examples cited by Crawshaw include Australian Communist Party v The Commonwealth [1951] HCA 5; (1951) 83 CLR 1 and the Bank Nationalisation case, Bank of New South Wales v The Commonwealth [1948] HCA 7; (1948) 76 CLR 1.

54. In granting declaratory relief, the Court has not refused to entertain jurisdiction on the basis that the case concerned a proposed future transaction: Toowoomba Foundry Pty Ltd v The Commonwealth [1945] HCA 15; (1975) 71 CLR 545 at 570 per Latham CJ and The Commonwealth v Sterling Nicholas Duty Free Pty Ltd [1972] HCA 19; 126 CLR 297 at 305 per Barwick CJ. As the passages cited indicate, there will be no impediment to the jurisdiction of the Court being exercised where the plaintiff desires and intends to do that which the law challenged seeks to make illegal, or where the circumstances are such that the plaintiff will "probably" engage in the conduct sought to be proscribed. In the relevant sense such a case is not hypothetical.

55. A perusal of the case law suggests that a case will be "hypothetical", and in consequence involve no "matter" where there is no controversy between parties, where the decision has no legal or practical consequences upon the plaintiff or where either party might ignore the result. The Court must also be apprised of, or find, the facts necessary to determine the controversy.

56. The conferral upon a federal court of judicial power presupposes that there must be a controversy between the parties: Huddart,Parker and Co Pty Ltd v Moorehead [1909] HCA 36; (1909) 8 CLR 330 at 357 per Griffith CJ. The power to decide controversies is, as Brennan J observed in Harris v Caladine [1991] HCA 9; (1990-1991) 172 CLR 84 at 107, "at the heart of judicial power". It may be argued that in In Re Judiciary and Navigation Acts there was no real controversy at the time the referral to the High Court occurred and thus no real question of the exercise of judicial power arose: cf R v Kirby; Ex parte Boilermakers' Society of Australia [1956] HCA 10; (1956) 94 CLR 254 at 272-3 per Dixon CJ, McTiernan, Fullagar and Kitto JJ and on appeal to the Privy Council, sub nom Attorney-General for Australia v R (1957) AC 288 at 316. The argument is, however, inconsistent with the views of the majority in In Re Judiciary and Navigation Acts, as is pointed out by Jacobs J in The Commonwealth v Queensland [1975] HCA 43; (1975) 134 CLR 298 at 327. In any event, it is clear that the case stands for a proposition wider than that the giving of an advisory opinion is not an exercise of judicial power.

57. A case having no practical or legal consequences between the parties will obviously be of mere academic interest only and on any view of the matter hypothetical; cf Saffron v The Queen [1953] HCA 51; (1953) 88 CLR 523, but see Mellifont v Attorney-General for the State of Queensland [1991] HCA 53; (1991) 173 CLR 289. Thus if the result of the case can not determine rights or liabilities which are litigated or affected, but is merely advisory, it will be hypothetical and not involve a "matter": Saffron at 528 per Dixon CJ. Although Saffron was ultimately overruled in Mellifont v Attorney-General (supra at 305-306), it may be doubted whether the principle stated above (at least in the context of civil cases) was thereby affected. The Mellifont case is discussed subsequently.

58. A case where there are practical, although not legal consequences, may, however, not be hypothetical: cf Ainsworth v Criminal Justice Commission [1992] HCA 10; (1991-2) 175 CLR 564 at 582 per Mason CJ, Dawson, Toohey and Gaudron. Closely related will be the class of case where the result of the case is one which may be ignored. Thus in Minister for Immigration and Ethnic Affairs v Pochi [1981] HCA 58; (1981) 55 ALJR 706, a majority of the High Court, in rescinding a grant of special leave to appeal, said (at 708-709):

"This Court should not be placed in a position where the substance of a

decision which it has affirmed can be overridden by ministerial fiat and

the reasons for its judgment may be treated by the Minister as no more

than advice which he is at liberty to disregard"

59. A question will be hypothetical in the relevant sense if the outcome depends upon facts which remain in doubt or have not yet been decided. So in Australian Commonwealth Shipping Board v Federated Seamen's Union of Australasia [1925] HCA 27; (1925) 36 CLR 442 Isaacs J said (at 451):

"It is abundantly established by cases of the highest authority that a

Court does not give judgments on hypothetical facts. That is

fundamentally not the function of any ordinary Court. Of this Court,

resting on a statutory basis (the Constitution), that is so in a special

degree, as is seen by the decision in In re Judiciary and Navigation

Acts. But quite apart from that special position, the ordinary

jurisdiction of a Court does not extend to answering questions as

problems of law dependent on facts yet unascertained."

60. It follows from what I have said that the determination of the legal outcome of a proposed course of action where all the facts relevant to that proposed course of action are known, will not be hypothetical in the relevant sense. This is particularly so having regard to the fact that failure to appeal or the outcome of an appeal will govern the rights and obligations of the taxpayer in respect of that proposed transaction thereafter, whatever the income tax law might otherwise provide: cf R v Humby; Ex parte Rooney [1973] HCA 63; (1973) 129 CLR 231 at 243-244 per Stephen J, 249-250 per Mason J. There is, in a very real sense, an immediate right or duty established by the determination of the Court and the outcome of the appeal will be relevant to the administration of the tax laws by the Commissioner, vis a vis, that taxpayer by reference to that proposed transaction. To adopt the language of the submission made by the Commonwealth Attorney-General, the ruling once final:

"operates like an Order-in Council ... directed to a specific Company in

relation to a future transaction of a description falling within the

terms of the Order-in-Council."

61. It follows equally from what I have said that if there were no proposed transaction, or if the facts relevant to the transaction were not known and in either case the Court were required to give an opinion on the taxation effects of a transaction, a different result could follow.

62. In the first of the two applications it will be noted that whatever might have been the intention of the applicant at the time it requested a ruling, by the time the applicant came to appeal against the disallowance of his objection to the ruling, the year of income in respect of which the ruling was sought had passed. Thus if the Court were required to determine now the tax consequences of a transaction which could never be entered into the Court would be required to give a sterile opinion of law. There would be no "matter" within the Constitution.

63. Two arguments were raised to avoid this consequence. First, it was submitted that because the ruling could affect future rulings this was sufficient to constitute a "matter" within the Constitution. Reliance was placed upon the decision of the High Court in Mellifont (supra). Secondly, it was submitted that in such a case the applicant lacked standing as being neither a "rulee" as defined, nor a "person dissatisfied" with a ruling so that the Court was not required to assume jurisdiction and in consequence the validity of the legislative scheme was saved.

64. It is unnecessary to consider in detail the first submission. It suffices to say that although in Mellifont the former accused could not again be charged upon the same indictment as that in respect of which the questions of law had been reserved, the reservation of those questions arose in the course of proceedings between the parties: the relevant matter was the subject-matter of the original proceedings (see per Mason CJ, Deane, Dawson, Gaudron and McHugh JJ at 305). The emphasis placed by their Honours (at 305) upon the criminal nature of the initial proceedings and the fact that the procedure involved was the "standard procedure" for correcting an error of law in criminal proceedings without exposing the accused to double jeopardy, may also distinguish that case from the present.

65. A simpler ground for upholding validity is that the scheme of the Act contemplates both that as at the time the ruling is given and as at the time the appeal to this Court is instituted, there will be a transaction proposed to be entered into (if not a transaction already entered into) which is capable of having taxation consequences. The Commissioner's power to rule depends, in the case of a proposed arrangement, upon there being a person to whom the relevant tax law "would apply... in relation to" the arrangement: s.14ZAF of the Act. That section and s.14ZAG make it clear that there is no power in the Commissioner to rule in respect of the taxation consequences of a transaction to some hypothetical person. The right of objection is, by s.14ZAZA of the Act, conferred upon a "rulee" who is "dissatisfied". A "rulee" must, by force of the definition of that expression in s.14ZAA(1), be a person to whom the tax law is capable of applying. Although the general power to seek a review of or to appeal from objection decisions is expressed by s.14ZZ to apply to a "person" rather than a "rulee", the requirement that that person be "dissatisfied" remains.

66. There is no definition of "dissatisfied" in this context but the word must bear more than its ordinary dictionary meaning of "displeased with" or "not contented with". More is required than mere lack of satisfaction with the objection decision. It can hardly be said that a university lecturer, learning of the disallowance of an objection by a public company of which he or she was neither a director or shareholder, could, because he or she was not happy with the objection decision, refer the matter to the Court, thus binding the Court to hear and determine an appeal in the original jurisdiction of the Court. The existence of the constitutional requirement that a federal court's jurisdiction be limited to a "matter" requires that the word "dissatisfied" be interpreted in a way which would lead to the legislation being valid, rather than in a way which would lead to its being struck down: Davies and Jones v State of Western Australia [1904] HCA 46; (1904) 2 CLR 29 at 43 per Griffith CJ.

67. In my opinion a person will only be "dissatisfied" in the relevant sense if that person is a person to whom the "ruling" is still capable of having legal effect. In the case of a ruling relating to a proposed arrangement, that means that the arrangement must be one which, if entered into, will fall within the ruling. If the ruling relates to a year of income which has passed before the appeal is instituted (or perhaps before the appeal has been heard) so that the ruling can not affect the taxation liability of a putative appellant, that person, no matter how discontented, will not be a "person dissatisfied".

68. It may be that s.14ZAQ is beyond power in purporting to permit the Commissioner to make assumptions of future facts or "other matters" which then must be taken into account by the Court in an appeal. If there be facts relevant to the making of the ruling, these will, in the first instance, be supplied by the taxpayer, and if deficient the Commissioner may require additional facts to be supplied to supplement those already given: s.14ZAM. The Court is not empowered in exercising its jurisdiction to find facts and if the facts were inadequate would be obliged to refer the matter back to the Commissioner to exercise the power given to him under s.14ZAM. As presently advised I doubt the ability of the Court to draw inferences from the given facts, but if the Court had that power there is a big difference between the drawing of inferences and the making of assumptions. The Court is given the statutory task of deciding whether the objection decision ought to have been made differently: s.14ZZO, or in other words, whether the ruling is wrong. In so doing the Court must rely upon the facts stated in the ruling in coming to its conclusion. But to empower the Commissioner to make assumptions (it must be presumed that the only assumptions contemplated are assumptions of fact the Commissioner could hardly make assumptions of law which would render the ruling useless) and then to require the Court to rule upon assumed facts would, in my view, involve the Court in being forced to decide a question of law on facts not put forward by the taxpayer as relevant to the proposed arrangement. Facts assumed by the Commissioner, albeit that the assumption made is that which the Commissioner under s.14ZAQ considers the most appropriate, may bear no real relationship to the actual facts upon which the ruling is sought. However, that question does not arise for decision here. Neither ruling proceeds upon any real assumption.

69. It follows, in my view, that in respect of Application NG 739 of 1993 (the First Ruling) the appeal was not validly instituted and the Commissioner's objection to competency must be upheld.

70. The same argument is not available, however, in respect of the Second Ruling.

71. Counsel for the Commissioner sought at the hearing to object to the competency of the second application on the ground that as a matter of fact there was no arrangement proposed to be entered into by CTC. I have no doubt that it is again inherent in the concept of a "person dissatisfied", that at the time an appeal is entered into there must be an arrangement into which that person in fact proposes to enter and the taxation effect of which on that person is the subject of the ruling. Whether the person appealing to the Court is a person dissatisfied is a jurisdictional fact which the Court may determine. The Court is not required to determine an abstract question if it should turn out that in truth the arrangement was no longer proposed, or never had been proposed. Section 14ZAN(h) empowers the Commissioner to decline to give a ruling where he forms the view in respect of a proposed arrangement that it is not seriously contemplated. That power was not exercised by the Commissioner in the present case. Ordinarily the fact that there is an appeal of a later objection decision in respect of a ruling will, absent any other evidence, lead to the inference that at the time the appeal is brought (and at the time of hearing) the arrangement is still proposed. But if the Commissioner challenges the competency of the Court to hear the appeal, the Court will determine whether as a matter of fact the arrangement is still proposed and if not will dismiss the appeal as incompetent.

72. In the present case, however, the objection to competency was, it would seem, a last minute decision, in respect of which no evidence was sought to be adduced on behalf of the Commissioner. The only evidence thus before us was CTC's statement that the arrangement was proposed. The mere fact that the party to the transaction the subject of the Second Ruling was unnamed does not lead to the conclusion that there was no proposed arrangement. Anonymity rather than hypotheticality might explain the form the second request for ruling took. Ultimately counsel for the Commissioner withdrew the objection, except so far as it depended upon the fact that the party to the second transaction was unnamed. The attack on the competency of the second application must, in the absence of evidence challenging the taxpayer's assertion that the transaction was proposed, therefore fail.

73. It now becomes necessary to consider shortly the issues raised in the ruling. In so doing the practical difficulties inherent in the scheme for obtaining the views of the Court upon the ruling become most apparent.

74. Each of the three questions answered in the Second Ruling are predicated upon the question whether there has been a "dividend" within the meaning of s.6 of the ITA Act. Section 6(1) provides relevantly as follows:

"'dividend' includes-

(a) any distribution made by a company to any of its shareholders,

whether in money or other property;

(b) any amount credited by a company to any of its shareholders as

shareholders and

(c) ...

but does not include-

(d) moneys paid or credited by a company to a shareholder or any other

property distributed by a company to shareholders (not being moneys or

other property to which this paragraph, by reason of subsection (4),

does not apply), where the amount of the moneys paid or credited, or the

amount of the value of the property, is debited against an amount

standing to the credit of a share premium account of the company;".

"Subject to sub-section (5), where, in pursuance of or as part of an

agreement or an arrangement, whether oral or in writing, being an

agreement or arrangement made after the commencement of this sub-section

(a) a company issues shares at a premium, being a premium in

respect of which the company credits an amount to a share

premium account of the company; and

(b) the company pays or credits any moneys, or distributes any

other property, to shareholders in the company

and the amount of the moneys so paid or credited or the

amount of the value of the property so distributed is

debited against an amount standing to the credit of that

share premium account,

paragraph (d) of the definition of 'dividend' in subsection (1) does not

apply to the moneys so paid or credited or to the property so

distributed."

76. It is clear from a perusal of these provisions that it is critical to the applicant's case that there be an allotment of shares by the financial institution under the proposed arrangement and that there have been moneys credited to a share premium account of the applicant, out of which moneys are paid or credited to the financial institution. Whether that will be the case will involve both questions of fact and questions of law.

77. The application for ruling which sets out the facts to be taken into account in making the ruling states that the transaction is entered into:

"in compliance with the 'Terms of Issue' and procedures as set out in

Regulation 2A of the Taxpayer's Memorandum and Articles of Association

('Reg 2A')."

78. In fact at no time was the Commissioner supplied with the proposed terms of issue of the shares. Accompanying the application for ruling (and for present purposes taken to form part of it) was a document entitled "Submission in support of request for private ruling". That document, while not attaching a copy of the articles of association of the applicant, contains extracts from the articles. As to the terms of issue it refers to a "prospectus" to be issued and summarises the terms of issue. It refers to the moneys forming part of the "Bonus Pool" and not paid from time to time to holders of preference shares as being:

"held by the Taxpayer on trust for those holders of Preference shares

... who redeem their Preference Shares...".

79. Although the material supplied to the Court did contain a copy of Regulation 2A, it is not clear whether this regulation was before the Commissioner at the time of the ruling. Even if available for us to consider, it adds nothing to CTC's case.

80. It would seem likely that the financial institution might require that at no time could the applicant in fact utilise the funds provided by way of subscription money for any purpose other than to redeem the shares. That this is contemplated might be said to flow from the fact that the subscription for the shares by the financial institution and the redemption of those shares are part of the same transaction. Indeed it is an integral part of the applicant's argument that there is a dividend paid by the applicant to the financial institution and that the redemption was part of the arrangement for subscription of those shares.

81. A question immediately arises whether the subscription moneys ever became part of the funds of the company or whether the moneys were at all times held by the company for the financial institution. If the latter, then there could, for reasons other than those taken into account by the Commissioner in giving the ruling, be no dividend. This question depends upon knowing the precise terms of the proposed arrangement between the financial institution and the applicant, the intentions of the parties and the terms of issue of the shares and relevant provisions of the articles of association. None of these matters are known to us. To attempt to decide the issue without this information would be unprofitable, for the consequence of the Court's decision is intended by the Act to decide the taxation outcome between the parties in the 1994 year of income (if the arrangement in fact be entered into). This intention could only be carried out if all the facts of the actual arrangement entered into accord with those of the proposed arrangement ruled upon.

82. In these circumstances the Court can do no more than refer the matter back to the Commissioner to exercise his powers under s.14ZAM of the Act to obtain further facts concerning the proposed arrangement which will bear upon the issue whether the subscription monies, and particularly the share premium proposed to be paid by the financial institution to the applicant, are ever proposed to become the property of the applicant available to it for its own purposes. Without that information the ruling should not have been made. Since ultimately the ruling must set out the "matter ruled on", it seems to me that the ruling, as it presently stands, would need to be set aside and the outcome of the Commissioner's factual enquiry stated in a new ruling.

83. Accordingly, I agree with the orders in each application proposed by Gummow J.