I have before me seven appeals against assessments of income tax payable by for a time a Mr. S. M. Levy) in a business of manufacturing food preparing machines. The style of the partnership was Brice Scale and Slicer Company, and it carried on its business in Melbourne. (at p450)

2. The years of income to which the assessments relate ended on 30th June in each of the years 1950, 1951, 1952, 1953, 1954, 1955 and 1956. Throughout the first six of these years the partnership had no clerical employees. Mr. Brice concerned himself with the manufacturing side of the business, including some purchasing of materials, and the appellant did the clerical work. This, however, did not include the writing-up of the books of account, which was attended to by a firm of chartered accountants called D.S. and R.M. Martin. The particular employee of that firm who dealt with the partnership's books was a man named Davison. In general, accounts from suppliers of materials were paid by means of cheques drawn on the partnership bank account, the cheques being filled out and signed by the appellant. His practice was to note on the butt of each cheque the date, the name of the payee or the purpose of the payment or both, and the amount. About twice a month Davison was given the cheque book and other materials from which the books were to be written up. He entered in a cash payments journal the payments shown on the cheque butts, showing in respect of each cheque the date, the name of the payee, the serial number of the cheque, the amount, and, by the use of appropriately headed columns, the general nature of the expenditure. One column was headed "Purchases", and in it were shown all purchases of materials for use in the manufacturing processes of the business. Once this book had been written up, no further reference was made to the cheque butts, either by Davison or by anyone else; but they were retained by the partnership. Other books kept included a cash receipts journal, a sales journal and a sales (or debtors') ledger. There was no creditors' ledger, because the habit of the partnership was to pay all its accounts immediately upon receipt. The books of first entry having been written up by Davison, a principal of the firm of accountants, Mr. D.S. Martin, entered up from them the partnership's private ledger, and he prepared the annual balance sheets and accounts, and (usually) the partnership income tax returns. The appellant prepared his personal income tax returns, taking on each occasion from the partnership return as prepared by Mr. Martin the amount to be shown as his share of the partnership profits. I am satisfied that all this was done, so far as the partners and Mr. Martin were concerned, in complete good faith, and that the appellant always believed that the partnership income tax returns were in all respects correct and that his personal return showed the correct amount of his share of the profits. The partnership accounts were never audited, but Mr. Martin has given evidence, which I accept, that in the circumstances of the business he considered, and advised the partners, that an audit was unnecessary. (at p451)

3. Mr. Martin's view was that the system of book-keeping that was observed was satisfactory and adequate for the business. And so no doubt it was, provided that everyone concerned was honest. Davison, unfortunately, was a rogue. From time to time while in possession of the partnership's cheque book he abstracted a sheet comprising two cheque forms and their butts, filled in the cheque forms for amounts which he made payable to himself, and forged the appellant's signature. He paid the forged cheques into his own bank account. Except for a break in the sequence of the numbers of the forms remaining in the cheque book, there was nothing in that book to give cause of suspicion. In the cash payments journal, Davison entered the number of each abstracted cheque form in its proper place according to its serial number; but he showed the amount as having been paid to one of the partnership's suppliers of materials, so that no one looking through the journal would have his attention attracted by an unfamiliar name. By this simple means, Davison misappropriated moneys amounting to 93,000 pounds or thereabouts, during a period of eight years, and, strange though it may seem, no one suspected that anything was amiss. Mr. Martin, and the partners themselves, had implicit confidence in Davison. No one checked the bank statements against the cheque butts so as to notice that cheques had been honoured for which there were no butts; no one checked the receipted invoices for materials against the entries for purchases in the cash payments journal; and neither of the partners, the only persons who did any ordering of materials, observed that there was anything wrong with the records of payments in the cash payments journal. In fact they never examined the book. Mr. Martin drew the appellant's attention at least once to the declining percentage of profits to purchases, but neither of them did more than reflect generally on circumstances which they thought might account for the phenomenon. (at p452)

4. As from 1st July 1955, two proprietary companies which the partners formed took over respectively the manufacturing side and the selling side of the business. The more complicated accountancy methods which the change involved led to the employment of a full-time accountant, who undertook some of the work formerly done by the outside accountants, D.S. and R.M. Martin. It was not long before Davison's peculations were discovered by the new accountant. In fact this occurred in August 1955. Davison made restitution of about 14,571 pounds, and went to gaol. The appellant and his partner sued the bank for the amount of the forged cheques, and obtained a settlement under which the bank paid them 75,000 pounds. (at p452)

5. In the end, therefore, Davison's misappropriations bore most heavily upon the bank, and hardly at all on the partners. But his falsifications of the cash payments journal had resulted in a considerable overstatement of the partnership's purchases in the partnership income tax return for each of the years with which I am concerned. As soon as Davison's misdeeds were discovered, Mr. Martin, on behalf of the appellant and his partner, sought an interview with the Deputy Commissioner of Taxation, Mr. Neal, and saw him on 23rd August 1955. Mr. Martin explained the method Davison had pursued, and how, as a result, the income tax returns of the partnership, and consequently of the individual partners, had come to be incorrect. The amount of Davison's defalcations in each year of income had not yet been ascertained, but it was supplied to the Department later. Mr. Neal asked Mr. Martin to inform him by letter of the exact relationship between Mr. Martin's firm and the partnership, and of the status of Davison with Mr. Martin's firm over the period covered by the irregularities; but these particulars were not supplied until 11th April 1956. (at p453)

6. On 2nd November 1956 the Deputy Commissioner issued to the appellant six notices of amended assessment, one for each of the years of income which ended on 30th June 1950, 1951, 1952, 1953, 1954 and 1955. In respect of five of these years, an original assessment had been made before the discovery of Davison's forgeries. All six were made on the footing that the partnership returns were correct. The amount of tax assessed in each case had been paid. When the appellant received the amended assessments he lodged objections on grounds which denied that the Commissioner was authorized in the circumstances to amend the original assessments. The first six of the appeals before me arise out of the disallowance of these objections, and I shall consider these appeals first. (at p453)

7. The power of the Commissioner to amend assessments is governed by s. 170 of the Act. Sub-section (1) confers a general power to amend an assessment notwithstanding that the tax may have been paid, but it is subject to the later provisions of the section. The appellant relies upon the provisions of sub-s. (3), which is expressed to apply where a taxpayer has made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and an assessment has been made after that disclosure. In such a case no amendment of the assessment is to be made except to correct an error in calculation or a mistake of fact; and no such amendment is to be made after the expiration of three years from the date upon which the tax becomes due and payable under the assessment. The Commissioner denies that in respect of any of the six years the condition of full and true disclosure was fulfilled before the making of the original assessment. He contends that, because of this, the relevant sub-section is sub-s. (2), which applies where the condition has not been fulfilled and there has been an avoidance of tax. In such a case the Commissioner is empowered to amend the assessment either to correct an error in calculation or a mistake of fact or to prevent avoidance of tax; and he may do it within six years from the date upon which the tax became due and payable under the assessment, even though, as here, the avoidance of tax has not been due to any fraud or evasion. The date upon which the tax became payable under the earliest of the assessments here in question was 3rd April 1951, so that all six amendments were within the six year period. On the other hand, only the last three of them were within the three year period to which the Commissioner is restricted if sub-s. (3) applies. As to the first three appeals, then, there is only one question to be decided: whether there was, before the making of the original assessments, a full and true disclosure of all the material facts necessary for the appellant's assessment. As to the second three appeals there is the same question, but if it be answered in favour of the appellant a further question will arise, namely, whether the amendments were made to correct a mistake of fact, there being no suggestion of an error in calculation. (at p454)

8. I am satisfied that the appellant was not aware at any time before August 1955 that the partnership's expenditure for purchases of materials was less than appeared from its income tax returns. The returns agreed with the cash payments journal, and the appellant believed that the payments shown in that journal as having been made to suppliers had in fact all been made for materials bought for the business. His belief was not grounded upon any investigation or checking of his own; it rested entirely on the faith which he had in the honesty of Davison and in the accuracy of Davison's book-keeping. That both he and Mr. Martin should have gone on so long without discovering what Davison was doing, and should have made no check of the figures even when the low percentage of profit struck them as calling for explanation, I do not find easy to understand. But the advice which Mr. Martin gave to the partnership from time to time was, I am sure, always honestly given, and, what is more to the point, I have no doubt that the appellant always believed that there was no need to do more to ensure the correctness of the partnership's books and accounts than was in fact being done. (at p454)

9. In respect of the first five appeals, in which the original assessments were made before the discovery of Davison's dishonesty, the appellant does not deny that the total amount of the partnership's purchases was a material fact necessary for the assessments. He concedes that the Commissioner had not received correct information as to that amount before making the original assessments. But he contends that nevertheless he made a full and true disclosure of all the material facts necessary for his assessment. He says that the use of the word "disclosure" in sub-s. (3) limits the facts which a taxpayer must fully and truly communicate to the Commissioner to those facts not already known to the Commissioner: see Foster v. Federal Commissioner of Taxation (1951) 82 CLR 606 , which he, the taxpayer, "knows"; or of which he is "aware"; or which he has known (or of which he has been aware) at some relevant time even though he may have forgotten them; or which he "knows or is capable of knowing"; or which he honestly, or perhaps honestly and reasonably, believes; or which, if he does not communicate them, he may be said to have "withheld". These various descriptions have been used in the course of the argument, some of them because they are to be found in judgments delivered in this Court, and all of them in an endeavour to express a notion which at least will exclude the case where a taxpayer, having delegated to a competent accountant the task of writing up his books of account, has honestly and correctly informed the Commissioner of every material fact appearing from the books of account, even though by so doing he has unwittingly misinformed the Commissioner upon a matter relevant to the assessment of his tax, as to which the facts were discoverable from other records in his possession or power. (at p455)

10. The passages on which the appellant relies are found in the following cases: Federal Commissioner of Taxation v. Westgarth [1949] HCA 70; (1950) 81 CLR 396, at pp 407, 412, 415, 416 ; Scottish Australian Mining Co. Ltd. v. Federal Commissioner of Taxation [1950] HCA 16; (1950) 81 CLR 188, at p 198 ; Foster v. Federal Commissioner of Taxation (1951) 82 CLR 606, at p 614 ; Australasian Jam Co. Pty. Ltd. v. Federal Commissioner of Taxation [1953] HCA 52; (1953) 88 CLR 23, at p 33 . I do not regard any of them as constraining me to decide this case in favour of the appellant. It is true that he cannot be said to have "known" or been "aware" that the purchases shown in the partnership return were overstated. He honestly believed, and, I am prepared to assume, reasonably believed, that the partnership returns and his own were correct. He did not consciously withhold anything. It is true also that at no time before the making of the original assessments had he known what was the correct total amount of the partnership's purchases in any of the relevant years; so that the case is not one of incorrect returns having been made in forgetfulness of relevant facts once known. Nor is it a case, such as Fullagar J. referred to in the Australasian Jam Co. Pty. Ltd. v. Federal Commissioner of Taxation [1953] HCA 52; (1953) 88 CLR 23, at p 33 , of a mere inadvertent omission to state a fact. But the information which in each year was not correctly conveyed to the Commissioner by the returns was in fact discoverable, at the time the returns were sent in, from documents in the partnership office and accessible to the appellant. I refer particularly to the receipted invoices and the cheque butts. In my opinion that is enough to justify the conclusion that the appellant did not make a full and true disclosure of all material facts before the respective assessments. It may be quite reasonable for a taxpayer to rely on others to extract all relevant information and present it to him for inclusion in his return. Indeed where the taxpayer is a corporation the extraction of the information and the preparation of the return must in the nature of things be done by others. But if a material fact necessary for the assessment is capable of being ascertained from the taxpayer's records, and nevertheless is not communicated to the Commissioner, it seems to me that there is no misuse of language in saying that the taxpayer has not made a disclosure of that fact to the Commissioner, even if the non-communication has been due only to a mistake or a failure in duty on the part of someone upon whom the taxpayer has relied to see that the information in his return is full and correct. In such a case the missing fact is one which the taxpayer is "capable of knowing", to use Williams J.'s expression in the sense which I think he meant it to bear. It is "in the possession" of the taxpayer, to use one (while not adopting the other) of the two forms of expression which Latham C.J. employed in Federal Commissioner of Taxation v. Westgarth (1950) 81 CLR, at p 407 . In National Trustee Executors and Agency Co. of Australia Ltd. v. Federal Commissioner of Taxation (Cain's Case) [1954] HCA 71; (1954) 91 CLR 540, at p 589 , I suggested that the result of the cases was that the taxpayer was not obliged (scil. in order to make a full and true disclosure) to direct the Commissioner's attention to facts of which he was not already aware, or to facts which the taxpayer "did not know or believe or (perhaps) possess the means of knowing". No case decided since has had the effect of deleting the "perhaps", and without it the proposition may possibly be too wide. But I think the conclusion is warranted that a taxpayer has not made such a full and true disclosure as is necessary for the application of s. 170 (3), where he has left the Commissioner uniformed or incorrectly informed, up to the time of the assessment, of a material fact which, when making the return or at a time between the making of the return and the assessment, he either has had present to his mind or has been in a position to ascertain from his own books and records. I do not say that this is an exhaustive proposition, but it is sufficient for present purposes. In my opinion this case is not within sub-s. (3) of s. 170, and the first five of the amended assessments must be upheld. I therefore need not consider the question which would otherwise have arisen with respect to the second three assessments. (at p457)

11. Then as to the amended assessment made on 2nd November 1956 in respect of the year of income ended 30th June 1955. The original assessment in respect of that year was notified to the taxpayer on 28th March 1956, that is to say, after Mr. Martin had made known to the Deputy Commissioner the facts concerning Davison's defalcations, including the amount (17,028 pounds 5s. 0d.) which he had got by his forgeries in the particular year. The appellant's return on which the assessment was based took the amount of his share of the partnership profits from the partnership return, and that return showed the true amount of the purchases, the total of Davison's defalcations in the year having been added back. But in the profit and loss account the gross profit was shown as reduced by an item "Forgery Defalcations 17,028 pounds 5s. 0d."; and the appellant's share of the profits carried into his return was accordingly reduced by one-half of that sum, namely, 8,514 pounds. The original assessment was made on the footing that the 17,028 pounds 5s. 0d. was an allowable deduction to the partnership. The amended assessment retreated from that view and added 8,514 pounds to the appellant's taxable income. (at p457)

12. The Commissioner supports the amendment by contending that at the time of the original assessment the appellant had not made a full and true disclosure so as to bring the case within s. 170 (3), and that in any event the amendment was made to correct a mistake of fact. The first contention I must reject, because I am satisfied that every material fact necessary for the appellant's assessment had been disclosed to the Commissioner before he made the original assessment. The Department received sufficient information from Mr. Martin to enable the item "Forgery Defalcations" to be fully understood. Indeed the only suggestion that has been made of incompleteness in the Department's information at the time of the assessment is that no answer has been furnished to the two questions asked in the Deputy Commissioner's letter of 7th March 1956 to Mr. Martin, viz. what was the exact relationship between Mr. Martin's firm and the partnership, and what was Davison's status within Mr. Martin's firm. These questions, as I have mentioned, had been asked originally by Mr. Neal in the course of the interview in August 1955 when Mr. Martin informed him of Davison's forgeries. In asking them Mr. Neal had been considering whether the case might fall within s. 71, which creates an allowable deduction where a taxpayer has incurred a loss through embezzlement or larceny by a person employed in his business. No doubt it had occurred to Mr. Neal as a possibility that although Davison was primarily an employee of Mr. Martin's firm, there might have been some special arrangement which resulted in his being an employee of the partnership, within the meaning of s. 71, while dealing with the partnership's books. The inquiries were therefore not irrelevant. In fact, however, there was no such special arrangement: Davison was not an employee of the partnership, and s. 71 did not apply to the case. But it is to be remembered that Mr. Martin had never suggested otherwise. Nor did the partnership return suggest otherwise; it did not describe the defalcations either as embezzlement or as larceny. It is clear both from Mr. Martin's evidence before me and from Mr. Neal's memorandum of the interview that Mr. Martin specifically told Mr. Neal that (to quote from the memorandum) "Davison was an employee of D.S. and R.M. Martin, and that the Martin firm acted as Accountants for the Brice Scale and Slicer firm". In my opinion this was a full and true disclosure of the facts concerning Davison's position, and for the assessment of the appellant there was no further fact about Davison which needed to be known. The claim implicit in the partnership return that the defalcations were an allowable deduction could not have been understood as based otherwise than upon the general provision in s. 51. But then the defalcations would have had to be a kind of misfortune which was a material or recognized incident of the partnership: cf. Charles Moore & Co. (W.A.) Pty. Ltd. v. Federal Commissioner of Taxation [1956] HCA 77; (1956) 95 CLR 344 ; and the facts disclosed as to the nature of the business, the position of Davison and the method by which Davison effected his defalcations, were quite sufficient to make it clear that the deduction could not possibly be supported on this basis. There were no further facts necessary for the proper assessment of the appellant. (at p458)

13. The Commissioner's main contention in relation to the 1955 year is that the amendment was made to correct a mistake of fact, and accordingly was authorized by sub-s. (3) of s. 170. What happened in the Commissioner's office is clear, up to a point. On 6th March 1956 Mr. Gleisner, who was acting senior assessor, made a note on the profit and loss account in the partnership return, referring to the item about forgery defalcations and directing that the claim be disallowed. He wrote "The status of master and servant does not exist in this case . . . . In effect a person not an employee stole money from the taxpayer firm. Not allowed under s. 51 or s. 71 . . . . .". Nevertheless Mr. Gleisner did not withdraw an oral direction which he had given five days earlier to the officer-in-charge of the Priority Assessments Branch, Mr. Baum, and which the latter had recorded on the appellant's personal return, that the figures in that return were to be accepted and an assessment was to be issued without waiting for the usual advice from the officer dealing with the partnership return as to the proper amount to be carried into the assessment in respect of the share in the partnership. This direction of the acting senior assessor was obeyed by Mr. Baum. He did what he was told to do, and made no mistake. Nor, in fact, had the direction been given by Mr. Gleisner under any mistake. He gave it in pursuance of a general policy of the Department to issue large assessments of partners on their individual returns as they stood, without waiting for consideration of the partnership returns. No doubt it was found desirable to do this in order to get large taxes paid quickly, the power to amend assessments being relied upon as a sufficient safeguard in most cases against avoidance of tax. But in the circumstances of the present case, to assess the appellant in accordance with his return was not to make any mistake of fact: it was to treat the amount of the "forgery defalcations" as an allowable deduction without stopping to consider whether it really was or not, and to do so notwithstanding that (although Mr. Baum did not know this) the senior assessor had actually decided three weeks before that it was not. The real reason why the appellant's assessment was made without disallowance of the deduction claimed in respect of the defalcations was that the acting senior assessor's decision disallowing the claim did not catch up with the process of issuing the appellant's individual assessment which that officer himself had already set in train. In my opinion an amendment to cure the erroneous assessment which resulted was not authorized by s. 170 (3). (at p459)

14. The seventh appeal is in a class by itself. It relates to the year of income ended 30th June 1956, and is against an original assessment. The notice of assessment was accompanied by an alteration sheet which showed as added to the income appearing in the appellant's return a sum of 45,394 pounds, with the remark "Inclusion of share of recoveries during the year . . . . . on account of amounts stolen from Brice Scale & Slicer Company". The amount is the appellant's share of the moneys restored by Davison and the moneys recovered from the bank. The Commissioner made it clear to the appellant's solicitors as early as 20th January 1959 that this assessment was made by way of alternative to the amended assessments in respect of the preceding six years. (at p460)

15. In my opinion this assessment could not stand whatever was to be decided about the tax position in relation to the previous years. In those years, after moneys had been derived by the partnership from its business and paid into the bank, Davison by his forgeries induced the bank to pay moneys to him and to debit the amounts against the partnership's account. All that happened in the 1956 year was that Davison restored part of the moneys to the partnership, and that the bank partially reinstated the amounts it had debited against the partnership in consequence of the forgeries. There was no derivation of income by the partnership in that year. All the income had been derived in the earlier years. I have been referred to the case of Gray v. Lord Penrhyn (1937) 21 TC 252 , but in my opinion the decision in that case is inapplicable under an Act which is concerned, not with the balance of profits or gains from a business ascertained on commercial principles, but with taxable income ascertained by subtracting artificially defined allowable deductions from gross income derived in the year. (at p460)

16. In the result, I am of opinion that the appeals against the amended assessments in respect of the years of income ended 30th June 1950, 1951, 1952, 1953 and 1954 should be dismissed; the appeal against the amended assessment in respect of the year of income ended 30th June 1955 should be allowed and the original assessment restored; and the appeal against the assessment in respect of the year of income ended 30th June 1956 should be allowed and the assessment remitted to the Commissioner to exclude from the appellant's assessable income the sum of 45,394 pounds referred to in the alteration sheet. (at p460)

17. The question of costs remains. I do not think much weight should be given to the appellant's success in the seventh appeal, because the Commissioner did not support the assessment in that appeal otherwise than as an alternative, and although a submission with regard to it was put in the forefront of the Commissioner's argument not a great proportion of the time of the hearing was devoted to it. My main concern is with the other six appeals. The appellant succeeds in the sixth and fails in the other five. Some of the evidence and argument related exclusively to the sixth; some exclusively to the other five; some bore upon all seven. All things considered, I think that the fairest course to adopt is to make no order as to costs in any of the appeals. (at p460)

18. The Commissioner of Taxation appealed to the Full Court of the High Court from that part of the order of Kitto J. which allowed the appeal of the taxpayer against the amended assessment in respect of the year of income ended 30th June 1955.

19. The taxpayer by cross-appeal appealed from those parts of the said order which dismissed the appeals against the amended assessments in respect of the years of income ended 30th June 1950, 30th June 1951, 30th June 1952, 30th June 1953 and 30th June 1954. (at p461)

20. An objection by the taxpayer to the competency of the appeal by the Commissioner was upheld by Menzies J.: Federal Commissioner of Taxation v. Levy (No. 2) [1961] HCA 12; (1961) 106 CLR 472 . On 5th June 1961 the Full Court of the High Court (Dixon C.J., Fullagar and Menzies JJ.) granted special leave to the Commissioner and to the taxpayer to appeal as aforesaid from the order of Kitto J. The appeals were, by order of Dixon C.J., directed to be heard together. (at p461)

21. L. Voumard Q.C. (with him N.M. Stephen), for the Commissioner. The original assessment for the year of income ended 30th June 1955 was made upon the assumption that the amount of profit shown in the personal return was in fact the profit of the taxpayer for that year, but subsequent events proved his profit to be substantially greater. The assessor who assessed the personal return did not see the partnership return and believed that the taxpayer's share of profit was correctly stated in his return. By 28th March 1956, when the assessment issued, the records in the Commissioner's office showed that the Commissioner was not accepting as correct the amount stated in the personal return, but, notwithstanding that, the assessment issued showing an incorrect figure. The making of the taxpayer's personal assessment on 6th March 1956 and the issue on 28th March proceeded upon an assumption in the mind of the assessor and any officers who subsequently dealt with the assessment that the partnership return was still under query. In fact on 6th March in another section of the Taxation Office an endorsement was made on the partnership file that the claim to a deduction of 17,000 pounds was to be disallowed. It is not necessary to show that there was a mistake on the part of any particular individual. The real question is whether there was a mistake in what might be called the corporate mind of the Commissioner. It is not a question of imputing to the Commissioner all the knowledge which every one of his officials had: Federal Commissioner of Taxation v. Hayden (1944) 7 ATD 441 . In that case all the relevant facts were in the office of the Commissioner but the forgetfulness of an officer when making the assessment was held to be a mistake. The Commissioner is entitled under s. 166 first to accept the taxpayer's return as true; if he later discovers that the figures in the original assessment were not true he is entitled to make an amended assessment. The acceptance of the first figure which was wrong constitutes a mistake of fact. (He referred to Lady Hood of Avalon v. Mackinnon (1909) 1 Ch 476, at p 482 .) (at p462)

22. Dr. E.G. Coppel Q.C. (with him J.M. Lazarus), for the taxpayer. The original assessment was made and issued in pursuance of a deliberate policy that wealthy taxpayers who were members of partnerships should be assessed first on the footing that the partnership return was correct, even when it was known that the net income of the partnership as returned was not accepted by the officers dealing with the partnership return and might be assessed by them at a higher figure. The Commissioner did not accept every item in the individual return as true: he rejected part of the return. The evidence of the senior assessor was that a direction was given that the taxpayer should be assessed on the footing that his share of the partnership net income was what the partnership return showed, although he was not prepared to accept it as correct for the purpose of assessing the partnership. The assessor completed his assessment on 6th March 1956. The evidence of what happened afterwards to the partnership return is irrelevant to whether there was a mistake in assessing the taxpayer. If the Commissioner under s. 166 relies solely upon information contained in the return and ignores other information in his possession and he issues an assessment, it is an issued assessment and legal consequences follow. (He referred to Federal Commissioner of Taxation v. Westgarth [1950] HCA 59; (1950) 81 CLR 396, at pp 400, 408, 412, 416 .) (at p462)

23. (OWEN J. referred to Francis v. Commissioner of Stamp Duties (N.S.W.) [1954] HCA 8; (1954) 91 CLR 368 .) (at p462)

24. In Foster v. Federal Commissioner of Taxation (1951) 82 CLR 606 the assessment was true on the facts which existed when it was made (1951) 82 CLR, at p 615 . The evidence discloses not a mistake of fact but a decision to assess at a particular time. The taxpayer made a full and true disclosure under s. 170. Disclosure is full and complete if the taxpayer reveals all he knows or should know if he makes reasonably proper inquiries. The partners could not have been expected to examine cheque butts after entries were made in the books of first entry. It was not reasonable that the partners should have compared receipted invoices for purchases with the cash payments book. That book was not kept at the business premises. (at p463)

25. (DIXON C.J.: Do you read "truly" in the section as meaning a state of mind or objective correctness?) (at p463)

26. A state of belief. What a taxpayer does not know he cannot be said to fail to disclose. The test to be applied is stated by Fullagar J. in Federal Commissioner of Taxation v. Westgarth [1950] HCA 59; (1950) 81 CLR 396, at p 415 . The test propounded by Williams J. in Westgarth's Case (1950) 81 CLR, at p 411 and in Scottish Australian Mining Co. Ltd. v. Federal Commissioner of Taxation [1950] HCA 16; (1950) 81 CLR 188, at p 197 that a taxpayer is required to disclose all that he knows or is capable of knowing goes too far because it loses the idea contained in the word "disclosure". The view of Fullagar J. was preferred by Latham C.J. in Foster's Case (1951) 82 CLR, at p 614 . (He also referred to Australasian Jam Co. Pty. Ltd. v. Federal Commissioner of Taxation [1953] HCA 52; [1953] HCA 52; (1953) 88 CLR 23, at p 33 .) Kitto J. here accepted the "capable of knowing" test: cf. National Trustees Executors and Agency Co. of Australasia Ltd. v. Federal Commissioner of Taxation [1954] HCA 71; (1954) 91 CLR 540, at p 589 . There was no mistake of fact within s. 170(3). A mistake must be wrong at the time it is made. The only mistake was made by the taxpayer. (at p463)

27. L. Voumard Q.C., in reply. The judgment of Kitto J. is limited to the proposition that to comply with s. 170 the taxpayer must be deemed to know all facts which appear from the books and records which under s. 262A he is required by law to keep. There is nothing in s. 170 about what a taxpayer should reasonably be expected to find out. No conclusion can be drawn from the cases except that disclosure does not involve making known to the Commissioner what he already knows or what the taxpayer cannot possibly know. (at p463)

28. (DIXON C.J.: Or public general facts?) (at p463)

29. Yes. (He referred to Nottingham Patent Brick & Tile Co. v. Butler (1885) 15 QBD 261, at p 271 .) If the test is that the taxpayer should disclose only those facts which he should reasonably be expected to know it is not unreasonable to require a taxpayer at his own peril to know what is in his own books and records. If recourse be had to s. 170(3), the Commissioner was correcting a mistake of fact. The information supplied by the taxpayer concerning 1953 and 1954 was incorrect and at the time the assessment issued the Commissioner had no knowledge to lead him to believe it was incorrect. (He referred to Kelly v. Solari (1841) 9 M & W 54, at pp 58, 59 [1841] EngR 1087; (152 ER 24, at p 26) .) (at p464)

30. Dr. E.G. Coppel Q.C., by leave. Section 262A was introduced into the Act seven years after s. 170 and cannot control the meaning of that section. Section 262A has no bearing upon business conducted as a partnership.

The following written judgments were delivered:-

DIXON C.J. I have had the advantage of reading the judgment prepared by Owen

2. I would add only that, in my opinion, the fact that in the first five cases, those in which it is the taxpayer who appeals, the figures given in the respective trading accounts for purchases were incorrect is in itself enough to make it impossible to hold that there was a full and true disclosure of all the material facts necessary for the assessment of the taxpayer. "True" in this phrase appears to me to refer simply to the correctness of the material facts disclosed and to imply nothing as to the taxpayer's knowledge of the erroneous character of any incorrect fact he may state. This may possibly go a little further than is required by the judgment of Owen J. But it must be remembered that we are here dealing with a fact or figure positively mis-stated, not with an omission to state a fact either because it was not within the knowledge of the taxpayer or was already within the knowledge of the Commissioner or was a matter of public knowledge. (at p464)

TAYLOR J. I have had the opportunity of considering the reasons prepared in these appeals by the Chief Justice and Owen J. I agree entirely with their observations and have nothing to add. (at p464)

OWEN J. We have before us six appeals from orders made by Kitto J. In five of them his Honour dismissed appeals by the taxpayer against amended assessments in respect of his income for each of the five years ended 30th June 1950, 1951, 1952, 1953 and 1954. The sixth is an appeal by the Commissioner against an order made by his Honour allowing the taxpayer's appeal against an amended assessment made in respect of his income for the year ended 30th June 1955. The facts are that during these years the taxpayer was carrying on business in partnership with one Brice manufacturing food-preparing machines in Melbourne. Brice attended to the manufacturing side of the business and the taxpayer did the clerical work. The partnership books were at all times kept by a firm of chartered accountants, D.S. & R.M. Martin, who employed a man named Davison whose duty it was to keep those books. The practice was for the partnership to pay accounts rendered by suppliers of materials by cheques signed by the taxpayer and drawn on the partnership bank account, and it was the taxpayer's practice to enter the particulars of each cheque on the cheque butt. The cheque books were of the kind which contain two cheques on each page. At more or less regular intervals the cheque books were handed to Davison who kept an appropriate set of books of account. He would enter in the cash payments journal the particulars of the payments shown on the cheque butts, entering under suitable headings the purpose for which each cheque was drawn. One of these headings was "Purchases" and under it were entered from the cheque butts the amounts paid to suppliers of materials. From the books Mr. Martin, one of the principals, prepared the annual balance-sheets and the partnership income tax returns. From these in turn the taxpayer prepared his own income tax returns showing his share of the partnership profits. The partnership accounts were never audited, this being, in Mr. Martin's opinion, unnecessary having regard to the fact that no clerical employees were employed by the partnership. Davison, in whom everyone had full confidence, was, unfortunately, dishonest. From time to time he would take out of the cheque books a page containing two cheque forms and their butts in such a way that the fact that the cheques and butts were missing could be discovered only if it were noticed that there was a break in the sequence of the numbers of the butts remaining in the cheque books. Davison would then fill in the stolen cheque forms for sums payable to himself, forge the taxpayer's name and pay the cheques into his own bank account. He would enter in the cash payments journal the serial number of each of these stolen cheques and, under the head of "Purchases", show them as having been paid to one of the usual suppliers of materials to the partnership. No check was made to see whether the receipted invoices for materials supplied corresponded with the entries under "Purchases" in the cash payments journal, nor were the partnership bank statements compared with the cheque butts left in the cheque books. In the result Davison misappropriated moneys totalling approximately 93,000 pounds over a period of about eight years and did so without arousing suspicion. It follows that each year when the partnership balance-sheet was made up the expenditure shown under "Purchases" was considerably greater than the expenditure in fact incurred, and this in turn meant that the profit as shown in the partnership balance-sheet and the partnership income tax return was correspondingly reduced and the taxpayer's personal income tax return, being based on the partnership figures, understated his actual share of the partnership profits. In July 1955 two proprietary companies were formed by the partners, one to take over and conduct the manufacturing side of the business and the other to conduct the selling side. This necessitated the employment by the companies of a full time accountant who took over some of the work which had earlier been done by D.S. & R.M. Martin. In August 1955 the new accountant discovered Davison's defalcations and on the 23rd August 1955 Mr. Martin had an interview with the Deputy Commissioner of Taxation at which he told the latter what Davison had done and that as a result the income tax returns of the partnership and of each of the partners were incorrect and had understated the taxable income. The amount misappropriated by Davison was not then known but as soon as it was ascertained the information was supplied to the Department. For the years ended 30th June 1950, 1951, 1952, 1953 and 1954 and before Davison's defalcations had been discovered, assessments of the tax payable by the taxpayer, based upon the income shown in his returns, had been issued, and on the 2nd November 1956, after the true facts had been ascertained and communicated to the Deputy Commissioner, amended assessments were issued in respect of those years, based upon the income in fact received each year. The original assessment for the year ended 30th June 1955 was issued on the 28th March 1956, many months after Mr. Martin had informed the Deputy Commissioner of Davison's defalcations and of the resulting inaccuracies in the taxpayer's and the partnership returns. The appeal in relation to an amended assessment later issued for that year stands therefore on a different footing to the appeals relating to the earlier years and I will later set out some further facts relating to this amended assessment. (at p466)

2. The Commissioner's power to issue amended assessments is to be found in s. 170 and sub-s. (2) of that section provides that where a taxpayer has not made to the Commissioner a "full and true disclosure of all the material facts necessary for his assessment" and there has been an avoidance of tax the Commissioner may amend the assessment by making such alterations or additions thereto "as he thinks necessary to correct . . . a mistake of fact . . . ". Where the avoidance of tax is, in the opinion of the Commissioner, due to fraud or evasion, the assessment may be amended at any time, but in all other cases it must be made within six years from the date when the tax under the original assessment became due and payable. Sub-section (3) deals with the case in which the taxpayer has made a "full and true disclosure of all the material facts" and an assessment has been made after that disclosure. In such case no amendment of the assessment increasing the taxpayer's liability is to be made except to "correct . . . a mistake of fact" and no amendment is to be made in any event after the expiration of three years from the date on which the tax became due and payable under the original assessment. In none of the present cases does any question of fraud or evasion arise. Kitto J. found, and the fact is not questioned, that the taxpayer and the partnership accountants acted bona fide and in the honest belief, until Davison's misappropriations were discovered, that the figures shown in the partnership books and the income tax returns based upon those figures were correct. In each appeal, except the last one which relates to the year ended 30th June 1955, the Commissioner relies upon s. 170 (2) and claims that in respect of each of the years ended 30th June 1950, 1951, 1952, 1953 and 1954 the taxpayer did not make a "full and true disclosure of all the material facts necessary for his assessment". As to the appeal against the amended assessment for the year ended 30th June 1955, which Kitto J. upheld and which is now the subject of an appeal by the Commissioner, different considerations arise. Kitto J. found, and that finding is not questioned, that a "full and true disclosure of all the material facts" was made when Davison's defalcations were discovered and the facts made known to the Deputy Commissioner. But it is said on behalf of the Commissioner that a mistake of fact was made in the original assessment issued after that disclosure and that the amended assessment was issued later to correct that mistake of fact. (at p467)

3. Kitto J. was of opinion that in his returns for the years ended 30th June 1950-1954 inclusive, the taxpayer had not made a "full and true disclosure" of his financial position. In each of those years the partnership books and balance-sheets showed a figure for "Purchases" greatly in excess of the true figure which had been inflated by the inclusion of amounts misappropriated by Davison but entered by him in the books as purchases. It followed that the figure showing the profits of the partnership business was correspondingly reduced and, since the taxpayer's return showing his share of the partnership profits was based upon the partnership balance-sheet and return, his share of the partnership profits was shown at a lesser figure than it was in fact. The returns therefore did not "fully and truly" disclose all the material facts. The taxpayer had acted in the honest belief that he had disclosed the true facts but he and the accountants employed by the partnership had at all times in their possession the partnership books and accounts which, if they had been examined with care, would have disclosed the true position. The Commissioner had accepted as correct the taxpayer's figures as shown in his returns and had assessed tax accordingly. He had therefore made those assessments under a mistake of fact and was entitled to issue amended assessments under s. 170(2). I agree with his Honour's conclusion. The taxpayer had in fact understated his share of the partnership profits and I myself would have thought that on the true construction of s. 170(2) once it appears that a taxpayer's return upon which an assessment has been made contains an incorrect statement of a material fact necessary for the assessment and an assessment is made based upon that incorrect statement with the result that tax is avoided the Commissioner would be entitled to issue an amended assessment and that it would not be relevant to inquire whether or not the taxpayer knew or had the means of finding out that he had made an incorrect statement except, of course, for the purpose of determining the further question whether any avoidance of tax was due to fraud or evasion. There are, however, some statements to be found in the cases suggesting that s. 170(2) should be given a more benevolent construction. In Federal Commissioner of Taxation v. Westgarth [1950] HCA 59; (1950) 81 CLR 396 a provision of the Commonwealth Estate Duty Assessment Act, similar to s. 170(2) was considered. Latham C.J. said that "a person cannot be said to fail to disclose something which he never knew" (1950) 81 CLR, at p 407 . Williams J. considered that a full and true disclosure was made if the person required to make it "discloses all that he knows or is capable of knowing" (1950) 81 CLR, at p 412 . And Fullagar J. thought that the use of the word "disclosure" involved "the idea of revealing something which is known to oneself" (1950) 81 CLR, at pp 415, 416 . In Scottish Australian Mining Co. Ltd. v. Federal Commissioner of Taxation [1950] HCA 16; (1950) 81 CLR 188 Williams J. again spoke of the duty to disclose as being a duty to disclose "every fact which he knows or is capable of knowing" (1950) 81 CLR, at p 198 , and in Foster v. Federal Commissioner of Taxation (1951) 82 CLR 606 Latham C.J. said that a failure by a taxpayer to tell the Commissioner a material fact which he, the Commissioner, already knew did not constitute a failure to disclose material facts (1951) 82 CLR, at p 615 . The expression "capable of knowing" used by Williams J. in Westgarth's Case [1950] HCA 59; (1950) 81 CLR 396 was thought by Fullagar J. in Australasian Jam Co. Pty. Ltd. v. Federal Commissioner of Taxation [1953] HCA 52; (1953) 88 CLR 23 to go too far if read literally. His Honour went on to say that "a merely inadvertent omission of a material fact may be enough to enable the Commissioner to maintain that the full and true disclosure required has not been made" (1953) 88 CLR, at p 33 . Finally in National Trustees Executors and Agency Co. of Australasia Ltd. v. Federal Commissioner of Taxation [1954] HCA 71; (1954) 91 CLR 540 Kitto J. spoke of the duty to disclose as not involving an obligation to disclose facts of which the Commissioner was already aware or facts which the person required to make the disclosure "does not know or believe or (perhaps) possess the means of knowing" (1954) 91 CLR, at p 589 . Some of the observations which I have quoted seem rather to treat the section as though it spoke of a "failure to make a full and true disclosure", but these are not its words. A "failure to disclose" does not seem to me to mean precisely the same thing as a "non-disclosure", and it might well be thought that there was no "failure to disclose" if the undisclosed fact was unknown to the person upon whom the duty of disclosure lay. (at p469)

4. For the purposes of the present case it is unnecessary to consider whether on its true construction s. 170(2) does not impose a wider duty of disclosure than some of these expressions of opinion suggest because I feel no doubt that here the taxpayer did not make a full and true disclosure. He did not disclose a most material fact, namely the correct amount of his share of the partnership profits, and he and those employed to keep the partnership books had at all times the means of ascertaining what the correct amount was. Accordingly I am of opinion that Kitto J. rightly dismissed the appeals by the taxpayer against the amended assessments for the years 1950-1954 inclusive. The taxpayer, although acting in good faith, did not make a full and true disclosure in his returns for those years and in making his assessments of tax on those returns the Commissioner undoubtedly acted under a mistake of fact. (at p469)

5. Turning then to the remaining appeal relating to the amended assessment for the year ended 30th June 1955 upon which Kitto J. found in favour of the taxpayer, the facts are that Mr. Martin's interview with the Deputy Commissioner after Davison's defalcations were discovered took place on 23rd August 1955. The partnership return and the taxpayer's return for the year in question were lodged on 21st February 1956 and in the partnership return a deduction of about 17,000 pounds was claimed. That figure represented the amount which Davison had misappropriated during the year of income and was claimed as a deduction under the head "Forgery Defalcation". This deduction reduced the figure shown as the partnership profits and the taxpayer's share thereof as shown in his return was proportionately reduced. Whether the deduction of 17,000 pounds shown in the partnership return should be allowed was being considered by the Department but the assessor whose duty it was to deal with the taxpayer's return was told by his superior that, although the partnership return was "under query", he was to accept the figures shown in the taxpayer's return as being correct and to assess the tax accordingly without waiting until it had been decided whether the deduction of 17,000 pounds shown in the partnership returns was to be allowed or disallowed. The assessor obeyed this instruction and an assessment was issued. Later the deduction claimed in the partnership return was disallowed, whether rightly or wrongly need not be considered in the particular circumstances of this case. Its disallowance meant that the net income of the partnership as shown in the return was increased and the taxpayer's share of that income was in fact higher than had been shown in his return. In these circumstances the Commissioner issued an amended assessment of the tax payable by the taxpayer, claiming to have made the original assessment under a mistake of fact and the question is whether s. 170(3) entitled him to do so. In my opinion it did not. All the material facts had been disclosed to the Commissioner months before and the partnership return was being considered in the light of those facts. Without awaiting the result of that consideration, the assessor dealing with the taxpayer's return was directed to assess the tax on the figures shown in it. In other words, the Commissioner elected to treat those figures as correct knowing full well what the true facts were and that in the light of those facts the figures might not be correct. That may have been done in the mistaken belief that if those figures turned out to be incorrect the Commissioner could avail himself of s. 170, but this was not a mistake of fact and s. 170(3) could therefore have no application. In my opinion Kitto J. rightly upheld the taxpayer's appeal against the amended assessment for the year ended 30th June 1955. (at p471)

6. In the result I am of opinion that all the appeals should be dismissed. (at p471)

Appeal of the Commissioner of Taxation (No. 34 of 1960) dismissed. Appeals of the taxpayer (Nos. 22 to 26 of 1960) dismissed.