George v Commissioner of Taxation

I was informed that the appellant had given to the commissioner certain information as to the annual improvement in his assets position between 1940 and 1947, and that the assessment under appeal was based upon the increase in value which admittedly occurred in the year ended 30th June 1947.

The appellant by his notice of objection asserts that his taxable income in that year was less than the amount assessed; and he also contends that there was no exercise of personal judgment under s. 167 by the commissioner or a second commissioner, or even (if it matters) by the deputy commissioner, and that, that being so, the assessment was not authorized by that section.

The summons asks in the first place that the commissioner be ordered to furnish to the appellant particulars as to the source from which the commissioner alleges that the appellant derived the amount by which the taxable income as assessed exceeds the taxable income disclosed in the appellant's return of income. If at the hearing the onus would be upon the commissioner to establish that the appellant did in fact derive more income in the relevant year than he had disclosed, there would be much to be said for ordering him to give particulars for the purpose of defining the precise issues for trial and preventing surprise. But s. 190 (b) places the burden of proving that the assessment is excessive upon the appellant; and in order to carry that burden he must necessarily exclude by his proof all sources of income except those which he admits. His case must be that he did not derive from any source taxable income to the amount of the assessment. That will involve him, of course, in accounting for the increase in his assets, and it may well be that the commissioner will direct his efforts mainly or even wholly to endeavouring to meet the evidence the appellant adduces on this point. But the source of the increase in the assets is not the actual issue in the case; even if it were proved, for example, that that source consisted of winning bets on the racecourse, the issue would still be whether or not from any source the appellant derived as much taxable income as the assessment treats him as having derived.

The object of the present application is really to have the commissioner say whether he is prepared to assign a source or sources for the moneys included in taxable income in the assessment over and above those disclosed as taxable income in the return, and to admit that if they did not come from that source, or from one or more of those sources, those moneys were not liable to be included in the appellant's taxable income. The commissioner may, if he chooses, voluntarily narrow the possible range of evidence in that way, but there could be no justification for ordering him to do so, under the guise of ordering particulars. If he attempts to prove derivation from a particular source and fails, he is none the less entitled under the Act to point to another source, or, without troubling about source at all, to stand upon his assessment and submit that the presumption in its favour has not been displaced. Even if the commissioner at present has in mind to seek to prove that income not disclosed in the return was derived from a particular source, he cannot be pinned to that source, nor would it be proper to order him to reveal his present plan of campaign. He is entitled to say, "I do not allege anything about source at all; I may have ideas on the subject, but if I have I shall develop or modify or abandon or replace them as occasion may require, until the evidence on the hearing is complete, and then I shall make my submissions to the Court".

I was not referred to any authority on the point, and so far as I know there is none. But an analogy may be found in the cases in which the courts in England have considered applications by plaintiffs upon whom lies the onus of proving a negative, for particulars from defendants who have put in issue the plaintiff's negative allegation. The principle laid down is that if it is clear to the court, either from the nature of the case or from the admission of counsel or otherwise, that the defendant intends under his denial of the negative, to set up an affirmative case, particulars of the defendant's case may be ordered; but not otherwise (Pinson v. Lloyds and National Provincial Foreign Bank Ltd. [1] ; Duke's Court Estates, Ltd. v. Associated British Engineering Ltd. [2] ; cf. Weinberger v. Inglis [3] ). So, if in this matter the commissioner were to admit that he intended to set up a case that the additional income upon which he has assessed tax was derived from a particular source, I should think that he ought to give particulars to enable the appellant to meet that case. But the commissioner has made no admission and there is nothing which could entitle me to infer that he has such an intention. All that appears is, as I have said, that the appellant is put to the proof of his negative case. In my opinion it would not be consistent with the authorities I have cited, or with the commonsense of the situation, to order particulars. If the commissioner's case at the hearing of the appeal develops upon lines which the appellant cannot fairly be expected to be ready to meet, the presiding Judge will be in a position to ensure that no injustice results.

1. (1941) 2 K.B. 72, at p. 80. 2. (1948) Ch. 458. 3. (1918) 1 Ch. 133.

The summons next asks that the commissioner be ordered to furnish to the appellant particulars as to the person or officer who formed or made a judgment under s. 167 upon which the assessment was based. This part of the application is misconceived. It is no part of the case which the commissioner will be making at the hearing of the appeal to prove who was the person or officer referred to in the summons. The relevance of the question to the appeal is only that the appellant desires to argue that the assessment is invalid because the Act, on the true construction of ss. 167, 10, 11 and 12, provides as a condition of the validity of an assessment under s. 167 that the commissioner himself, or the second commissioner, or possibly a deputy commissioner, must decide that he is not satisfied with the return and must form a judgment as to the amount upon which income tax ought to be levied. Accordingly the appellant desires, if he can, to extract from the commissioner an admission that it was someone other than the commissioner or the second commissioner, and perhaps that it was someone lower than the deputy commissioner, who was not satisfied with the return and formed the judgment to which the section refers. No argument was addressed to me on behalf of the appellant to show that I have any power to compel the commissioner, by answering interrogatories or otherwise, to make such an admission; but even if I have some such power, I am of opinion that, having regard to ss. 175 and 177 (1) of the Income Tax Assessment Act, I ought not to exercise the power.

For these reasons I dismiss the summons with costs. Certify for counsel.

The Court delivered the following written judgment: -

Nov. 3 Dixon C.J., McTiernan, Williams, Webb and Fullagar JJ.

These are two appeals, each from an interlocutory order in an income tax appeal. The orders, which were made by Kitto J., dismissed applications by the taxpayer for orders directing the Commissioner of Taxation to furnish him with particulars. The attempt by a taxpayer who appeals from an assessment of the commissioner to obtain an order against him for particulars is a novel experiment, but doubtless the reason for it must be looked for in the circumstances of the case, which at present by no means fully appear.

The appellant is by occupation a dentist. For the year of income ended 30th June 1946 he returned his income from personal exertion at the sum of £1,546 and from property at the sum of £128. For the following year of income he returned his income from personal exertion at the sum of £1,536, or £10 less than the previous year, and his income from property at £203. For the first of these two years of income an assessment of the appellant's taxable income was made in which the figures in his return were accepted. But before the assessment for the second of the two years was made it was ascertained by or on behalf of the commissioner that the amount of the net assets of the appellant had increased very substantially year by year during a period of four or five years. We were told by the appellant's counsel that the appellant supplied the figures. In the year ended 30th June 1946 the increase was £5,788 and in the year ended 30th June 1947, £7,537.

The commissioner, using that expression to include his officers, took these figures and to the first of them he added an amount of £754 to represent what it must have cost the appellant to subsist. To the second he added £806 for subsistence and a further amount of £572 as the cost of maintaining a race horse or race horses. On the other side the commissioner made small allowances for depreciation. He thus obtained for the first of the two income years in question a sum of £6,494, and for the second, a sum of £8,869 and he treated both the amounts as representing taxable income. The commissioner regarded the amounts which the taxpayer had returned as income from property, viz., £128 for the first year and £203 for the second year, as included within these respective sums and he taxed as income from property so much of them as represented the figures so returned. The result was that he treated the taxpayer as having derived income from personal exertion in the sums of £6,366 and £8,666 respectively for the two years. For the year of income ended 30th June 1946 he amended his assessment to increase the amount of income from personal exertion to £6,366. For the year ended 30th June 1947 the commissioner made an original assessment which stated the income from personal exertion at £8,666.

To the amended assessment and the assessment the appellant lodged objections which the commissioner disallowed and the appellant requested him to treat the objections as appeals and forward them to this Court. In both appeals the appellant requested the commissioner to furnish him with certain particulars, which the commissioner declined to do except that he answered no to the question whether it was alleged that any sums derived by the appellant from betting wins on horse races during the years in question were derived by him as a professional gambler and to the further question whether it was alleged that any moneys won by the appellant during those years from betting upon horse races constituted assessable income in his hands. The appellant then applied by summons to Kitto J. in chambers for orders in the respective appeals directing the respondent commissioner to furnish particulars. In each appeal the summons sought "particulars as to the source from which the respondent alleges that the appellant derived the additional amount (stating it) upon which the respondent has arbitrarily assessed the appellant for the year of income" (identifying the year). In the appeal relating to the year ended 30th June 1947 the summons also sought "particulars as to the person or officer who formed or made a judgment under s. 167 of the Income Tax Assessment Act 1936-1947 ". The grounds of objection must be noticed in so far as they raise the issues to which the particulars sought are relevant. In substance the grounds in point with respect to the particulars sought in both appeals are that the assessment was excessive, that the appellant did not derive taxable income from personal exertion in the figures stated but in less sums and that the commissioner should have assessed the appellant on the basis of his returns.

Accompanying the notice of assessment in respect of the year ended 30th June 1947 was a notification that as the appellant's return was considered unsatisfactory, his assessment had been based in terms of s. 167 of the Act upon the amount upon which, in the opinion of the commissioner, tax should be levied against him. In consequence the appellant included in his objections for that year grounds to the effect that the opinion and judgment contemplated by s. 167 had not been formed by the right person and that in any case it had been formed on no material. This explains the additional particulars sought in the appeal concerned with the year of income ended 30th June 1947. The considerations that govern the question whether these additional particulars should be ordered are not the same as those that affect the question whether the commissioner should be ordered to give particulars as to the source from which he alleges that the appellant derived the additional amounts upon which he has assessed the appellant. It is convenient to deal first with the latter question.

Section 190 provides that upon every appeal to the Court the burden of proving that the assessment is excessive shall lie upon the taxpayer. With this provision must be read s. 177 (1), which provides that the production of a notice of assessment, or a document purporting to be a copy under the hand of the commissioner the second commissioner or a deputy commissioner, shall be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all particulars of the assessment are correct. The word "assessment" is defined by s. 6 (1) to mean the ascertainment of the amount of taxable income and of the tax payable thereon. In conformity with this definition s. 166 directs the commissioner to make an assessment of the amount of the taxable income of any taxpayer and of the tax payable thereon. From these provisions both in their present form and in their slightly different earlier form, the law has always been taken to be that in an appeal from an assessment the burden lies upon the taxpayer of establishing affirmatively that the amount of taxable income for which he has been assessed exceeds the actual taxable income which he has derived during the year of income: Stone v. Federal Commissioner of Taxation [1] ; Moreau v. Federal Commissioner of Taxation [2] ; Federal Commissioner of Taxation v. Clarke [3] ; Trautwein v. Federal Commissioner of Taxation [4] . "The justice of that burden cannot be disputed. From the nature of the tax, the commissioner has, as a rule, no means of ascertainment but what is learnt from the taxpayer, and the taxpayer is presumably and generally, in fact, acquainted with his own affairs. The onus may prove to be dischargeable easily or with difficulty according to circumstances", per Isaacs A.C.J., Federal Commissioner of Taxation v. Clarke [5] .

1. (1918) 25 C.L.R. 389, at pp. 392, 393. 2. (1926) 39 C.L.R. 65. 3. (1927) 40 C.L.R. 246. 4. (1936) 56 C.L.R. 63. 5. (1927) 40 C.L.R., at p. 251.

In the present case it might be expected that the source of the large increase year by year in the appellant's assets would be a matter peculiarly within his own knowledge. If it is a form of gain outside the very wide ambit of what is assessable income, proof of its character will be enough to support the material grounds of his appeals. It is a fact outside any knowledge the commissioner can have except from inquiry into the affairs of the appellant and it is not unreasonable that the onus of proof should be placed by law upon the latter.

These are considerations which, it might be thought, are enough to make it quite wrong to require the commissioner to give particulars of what he alleges the source to be of the appellant's gains, which he has treated as assessable income. But it is contended for the appellant that because the commissioner relied for what he did upon s. 167, a different result ensues.

As has been stated, in his communication accompanying the assessment for the year of income ended 30th June 1947, the commissioner referred to the application of s. 167 and, no doubt, it may be assumed that, once the power to amend the assessment for the previous year arose, s. 167 became applicable in making the amendment. Cf. per Williams J., McEvoy v. Federal Commissioner of Taxation [1] . Why the appellant says that a different result ensues once s. 167 is invoked can only be understood from the text of s. 167 and, as its operation is by means of s. 166, it is best to set out both provisions. They are as follows: -

166. From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon.

(a) any person makes default in furnishing a return; or

(b) the Commissioner is not satisfied with the return furnished by any person; or

(c) the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income,

the commissioner may make an assessment of the amount upon which in his judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of the last preceding section.

The contention is that, before the commissioner may fix the taxable income under s. 167 (b) two conditions must be fulfilled and that, in an appeal, the burden is upon him to prove their fulfilment. The first condition is that he must fail to be satisfied with the return furnished. The next is that he must form a judgment of the amount upon which income tax ought to be levied. When, but only when, this has been done, so it is argued, does the amount become, pursuant to the last words of s. 167, the taxable income for the purposes of the process of assessment under s. 166. Almost every step involved in this argument is open to question, but for the moment let it be supposed that it represents the effect of the provisions. Why should it follow that the commissioner ought to be required to give particulars of the source from which he alleges that the appellant derived the additional amount of taxable income? Upon this question the need that the commissioner should not be satisfied with the return may be put on one side. That is agreed. His want of satisfaction is a subjective question and even on the footing that he must prove it, that does not show that he must allege or prove the source of the taxable income he imputes to the taxpayer. What is relied upon is the necessity that he shall form a judgment of what the amount is upon which tax should be levied. But the judgment the commissioner has formed is made abundantly clear by the assessments themselves. They each depend upon the amount which he has fixed and they state it. No particulars of the fact that he has formed a judgment of the amount or what that amount is could possibly be required. It is said, however, that he could not form that judgment without materials or without reaching some opinion of the sources whence the increases in the appellant's assets came so as to make the gains income.

But, even were it true that the commissioner must, upon the hearing of the appeal, affirmatively prove by evidence that he formed a judgment of the amount of the income upon which the appellant ought to be taxed, it could not be part of his case to establish the facts upon which he acted in forming the judgment or the grounds on which he proceeded, the materials before him, or the reasoning actuating him. The need supposed of showing that he formed such a judgment could be no ground for requiring particulars of the sources of the taxable income ascribed by the assessment to the appellant. The assumption made, however, has no foundation. The formation of the judgment as to what is the amount of the income that ought to be taxed is no condition precedent to the power to assess. It is part of the very process of assessment itself. Section 166 and s. 167 do not prescribe distinct duties or functions. They combine to show what the commissioner may or must do in performing his single duty of arriving at an assessment. Section 166 on its own terms covers cases where the commissioner depends exclusively on sources other than a return. It says that he is to make his assessment from (1) the returns, (2) from any other information, or (3) from any one or more of these sources. Clearly enough under s. 166 the commissioner can make an assessment which does not adhere to the income returned and yet to do so must involve some want of satisfaction with the return. Section 167 is epexegetical to s. 166. It is not an independent power. What it does is to mention with particularity three situations which might arise in carrying out the duty imposed by s. 166, and to direct how in those situations the commissioner shall proceed for the purpose of s. 166. Just as under s. 166 considered alone the commissioner ascertains the amount of the taxable income and thus assesses it so does he under s. 167, used in aid of s. 166, ascertain the amount upon which, in his judgment, income tax ought to be levied and thus assesses it. By definition "assessment" means the ascertainment of the amount of the taxable income, and of the tax payable thereon. This is the view of ss. 166 and 167 adopted by Williams J. in McEvoy v. Federal Commissioner of Taxation [1] . The fact is that unless the taxpayer discharges the burden laid upon him by s. 190 (b) of proving that this ascertainment or judgment is excessive, he cannot succeed and it can be no part of the duty of the commissioner to establish affirmatively what judgment he formed, much less the grounds of it, and even less still the truth of the facts affording the grounds. Yet that is what is involved when the demand for particulars of the sources alleged of the appellant's income is justified by reference to s. 167. It is an error to treat the formation by the commissioner of a judgment as to the amount of the taxable income as if it were not the ascertainment of the taxable income which constitutes assessment or a necessary part of that process and as if it were but the fulfilment of a condition precedent to the power or authority to assess. If, however, it were a condition precedent the question would at once arise whether the fulfilment of the condition was not part of "the due making of the assessment" of which s. 177 (1) makes the production of a notice of assessment conclusive evidence. But of this it is unnecessary to speak specifically. It is unnecessary to do so not only because the reasons already given are enough to dispose of the request for particulars of the sources of the appellant's additional taxable income, but also because a similar question must now be dealt with in relation to the additional particulars which the appellant seeks in reference to the year of income ended 30th June 1947, that is to say, particulars as to the person or officer who formed or made a judgment under s. 167. The demand for these particulars arises from the view for which the appellant contends that under s. 167 (b) it is essential that the want of satisfaction with the return should exist in the commissioner or second commissioner and not a deputy commissioner. If, however, it may exist in a deputy commissioner, at all events, so he contends, it cannot be enough that it exists in some lesser officer to whose opinion the deputy commissioner gives effect by authenticating the assessment. Presumably in the same way the judgment as to the amount of income to be taxed must be formed either by the same higher officer or one of like status. Accordingly the appellant by his summons seeks particulars of the person or officer who formed or made a judgment under s. 167. This, doubtless, was meant to cover the failure to be satisfied under par. (b), as well as the formation of a judgment as to the amount of income on which tax ought to be levied.

The contention that it is not competent for a deputy commissioner to invoke s. 167 (b) rests upon an interpretation placed by counsel for the appellant upon s. 12 (1). By that provision the commissioner may delegate to a deputy commissioner or other person all or any of his powers or functions under the Act (except the power of delegation) so that the delegated powers or functions may be exercised by the deputy commissioner or person with respect to the matters or class of matters or the State or part of the Commonwealth specified in the instrument of delegation.

The interpretation which it is sought to place upon this provision limits the application of the expression "powers or functions" so that it does not include the formation of any opinion, belief or state of mind upon the existence of which in the commissioner the operation of any provision of the Act is dependent. The reason advanced for so limiting the expression "powers or functions" is that in s. 10, which deals with the second commissioner, there is an express provision making his opinion, belief or state of mind equivalent to that of the commissioner for such purposes. Section 9 (1) says that for the purposes of the Act there shall be a second commissioner. Sub-sections (1) and (2) of s. 10 are as follows: - 10. (1) Subject to this section, the Second Commissioner shall have and may exercise all the powers and functions of the Commissioner under this Act. (2) Where in this Act the exercise of any power or function by the Commissioner or the operation of any provision of this Act is dependent upon the opinion, belief or state of mind of the Commissioner in relation to any matter, that power or function may be exercised by the Second Commissioner or that provision may operate (as the case may be) upon the opinion, belief or state of mind of the Second Commissioner in relation to that matter.

It is evident that sub-s. (2) was intended to put beyond doubt the equivalence (subject to sub-s. (3) which does not concern this case) of the second commissioner and the first commissioner for purposes of the statute. To infer from the presence of s. 10 (2) in the statute that the wide words of s. 12 (1) are to be read as excluding a power or function if according to the express terms of a provision of the statute it requires, or depends upon an exercise of discretion or judgment would be to defeat the administration of the Act. There may be matters depending upon the opinion, belief or state of mind of the commissioner and second commissioner which because of their character do not fairly fall within the description "power or function" in s. 12 (1). But it seems obvious that these words were intended to bear their wide natural meaning unrestricted by any inference from s. 10 (2) of the kind suggested by the rule of interpretation, expressio unius est exclusio alterius. Of this rule Wills J. in a judgment upheld in the House of Lords (Colquhoun v. Brooks [1] ) said: - "I may observe that the method of construction summarised in the maxim "Expressio unius exclusio alterius" is one that certainly requires to be watched. Perhaps few so-called rules of interpretation have been more frequently misapplied and stretched beyond their due limits. The failure to make the "expressio" complete very often arises from accident, very often from the fact that it never struck the draftsman that the thing supposed to be excluded needed specific mention of any kind; and the application of this and every other technical rule of construction varies so much under differing circumstances, and is open to so many qualifications and exceptions, that it is rarely that such rules help one to arrive at what is meant."

1. (1887) 19 Q.B.D. 400, at p. 406; 14 App. Cas. 493.

In the present case we are concerned with the function of assessing taxpayers. It has already been pointed out that s. 166 and s. 167 are not independent, but together give the directions which the assessing officer must pursue. The discretion or judgment involved in s. 167 forms a practically inseparable part of that function. It seems to be clearly within the contemplation of s. 12 (1) that such a discretion or judgment should be included in the delegation of the duty of assessing taxpayers. Any other view would make it impossible to carry on the work of the Department of Taxation. But in any case the question whether the right officer has applied his mind to the question whether the taxpayer's returns are satisfactory within s. 167 (b) is not a question left open by s. 177. As already has been said, ss. 166 and 167 are together concerned with the process of ascertaining the taxpayer's taxable income and the consequent tax. The clear policy of s. 177 is to distinguish between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. The former involves the due making of the assessment. The production of the notice of assessment is conclusive evidence of the due making of the assessment. It would, for example, be absurd to suppose that in an action brought by the commissioner under s. 209 to recover unpaid tax due upon such an assessment as those now under appeal, evidence must be given for the plaintiff that the right officer was not satisfied under s. 167 (b) and formed a judgment as to the amount of the income to be taxed. Yet that is the consequence of the argument. To avoid this consequence, amounting as it does to a reductio ad absurdum of the argument, it was suggested that under s. 177 (1) the amount of the assessment was conclusive, although fulfilment of what the argument treated as conditions precedent to the power given by s. 167 to make the assessment were not covered by the words "due making". But this would mean that ex hypothesi the power to assess the tax was not well exercised. Accordingly the assessment would be bad and there would be nothing to be treated as good. Since tax is only due after it is "assessed" (see, for example, s. 204) a bad assessment would not do, however conclusive as to the amount of the tax a notice of assessment might be. Obviously the "due making of the assessment" was intended to cover all procedural steps, other than those if any going to substantive liability and so contributing to the excessiveness of the assessment, the thing which is put in contest by an appeal.

The decision of Kitto J. refusing an order for particulars and dismissing the summonses was right.

I am a party to the judgment which has just been delivered. I wish, however, to add for myself that, in my opinion, apart altogether from any question of burden of proof, the application for "particulars" was rightly rejected by Kitto J. It was not really an application for particulars at all. The subject matter of the demand for information was rather subject matter for interrogatories, and I can see no warrant for ordering interrogatories to be answered in a case of this type, even if I am to assume that the Court has power to make such an order, which I doubt. It is common practice, in the Court lists and in the Law Reports to entitle a taxation appeal as if it were a proceeding between a named taxpayer and the Commissioner of Taxation. But the Commissioner is only nominally a "party" to the proceedings. The proceedings are really proceedings between Crown and subject. A similar position exists under the Patents Act 1952 and the Trade Marks Act 1905-1948. The substance of the position in taxation cases is not affected by the fact that the Commissioner is given eo nomine a right of appeal from decisions of the Board of Review. The Commissioner is an officer who, in the performance of his statutory functions, does acts which prima facie create an obligation as between the Crown and a particular subject, and the statute provides means whereby the subject may test before a court or a board the question whether the Commissioner has acted according to law. In proceedings before court or board the Commissioner's acts are called in question, but he is in no real sense a party. This does not mean that he is not, in many respects, subject to orders of the court, but it does mean that certain orders which are quite appropriate as between parties to an action are quite inappropriate as between an appellant taxpayer and the Commissioner.