[1993] FCA 345; (1993) 43 FCR 449

Income Tax - Income Tax Assessment Act - Appeal from decision of Administrative Appeals Tribunal ("second tribunal") affirming decision of Commissioner of Taxation to disallow taxpayer's objection to inclusion of a sum of $125,000 in income assessment, for year ended 30 June 1986 - second tribunal's decision followed appeal to Federal Court from earlier decision of Administrative Appeals Tribunal, differently constituted ("the first tribunal") - Federal Court found error law in first tribunal's decision and ordered case to be remitted to second tribunal to be determined according to law - whether second tribunal erred in law in concluding that it was open to it to make certain findings of fact without regard to findings of first tribunal - whether second tribunal otherwise made error of law.

with Mr G.J. Davies

Solicitors for the Respondent: Australian Government

Solicitor

1. the appeal be allowed;

2. the decision of the Tribunal made on 28 October 1992 be set

aside;

3. the case be remitted to the Tribunal to be heard and decided

again.

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

SWEENEY J The applicant taxpayer, John W. Blackman, has given notice of appeal against a decision of the Administrative Appeals Tribunal ("the second Tribunal") constituted by a Senior Member, affirming the decision of the respondent Commissioner of Taxation, by which he disallowed an objection by the applicant to the inclusion in the assessment of his assessable income for the year ended 30 June 1986 of a sum of $125,000 paid by a company trading as Radio 3AK ("X. Co.") to John Blackman Pty Ltd ("H. Co.").

2. The background to those proceedings has been set out in paragraphs 2-4 of the reasons delivered by the second Tribunal on 28 October 1992 which read as follows:

"2. This matter came before the Tribunal, differently constituted

('the earlier Tribunal') on 17 and 18 December 1991. On 18

January 1992 the earlier Tribunal handed down a decision setting

aside the objection decision under review and allowing the

applicant's objection in full.

3. The respondent appealed to the Federal Court from that

decision, and on 3 February 1992 Jenkinson J made the following

order (reported at (1992) 92 ATC 4061:

'THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The decision of the Administrative Appeals Tribunal

made on 18 January 1992 in proceeding numbered

VT88/600 be set aside.

3. The case be remitted to the Administrative Appeals

Tribunal to be determined according to law.

4. It be within the discretion of the said Tribunal

whether to receive further evidence.

5. The applicant's costs of the appeal be paid by the

respondent.'

The present proceedings took place in pursuance of that order.

4. The Tribunal had before it all of the documentary material

which had been before the earlier Tribunal, together with the

transcript of the whole of the proceedings before that Tribunal.

In addition, the taxation returns of the applicant, and of a trust

of which he and his wife and child were beneficiaries ('H Trust'),

for the years ending 30 June 1983, 1984 and 1985 were received in

evidence, with some associated correspondence. The applicant was

represented by Mr Searle of counsel and the respondent by Mr

Davies of counsel. By agreement, no oral evidence was taken. The

only oral evidence before the earlier Tribunal had been given by

the applicant."

3. The second Tribunal then proceeded to set out "certain essential facts which are not in dispute" as follows:

"(i) The applicant ('H') has been for more than 20 years a

radio and television personality. In 1976 he and his

wife ('W') caused to be incorporated a company, H Co.

At all material times, H and W have been the only

shareholders and only directors of H Co.

(ii) At some date prior to 1981, in a document which cannot

now be located, H Co entered into an agreement with H

to manage and control the services of H as a radio and

television performer.

(iii) In 1980 H Trust was established, H Co being the

trustee, and H, W and their only child ('C') the

beneficiaries.

(iv) In 1981 and again in 1983 H Co contracted with N Co, a

company operating a radio station, to provide to N Co

H's services as a radio performer. Performance of the

covenants of H Co in the 1981 agreement was guaranteed

personally by H. There appears to have been no such

guarantee in 1983.

(v) In February 1986 the respondent issued adjustment

sheets calculating the applicant's assessable income

for each of the years ending 30 June 1983, 1984 and

1985 on the basis that section 260 and/or Part IVA of

the Act applied to require certain income shown in the

return of H Trust to be included in the assessable

income of the applicant.

(vi) In April 1986 H and one Y, a representative of X Co,

another company operating a radio station, made an

oral agreement that the services of H would be

withdrawn from N Co and transferred to X Co. That

agreement was subsequently converted into a more

detailed agreement between H Co and X Co, constituted

by conversations between Y and one A, who represented

H Co in the negotiations.

(vii) On 9 May 1986, the sum of $125,000 with which these

proceedings are concerned was paid by X Co in

performance of a term of the more detailed agreement.

(viii) On 30 April 1986, H ceased performing services for N Co.

(ix) On approximately 1 July 1986 H commenced to perform

services for X Co.

(x) In March 1987 a written contract for the services of H

was entered into between H Co and X Co, performance by

H Co being guaranteed by H personally.

(xi) In September 1987 and November 1988 H entered

personally into written service contracts with a third

company operating a radio station, the 1988 contract

incorporating a restrictive covenant. H Co was

neither a party to nor a guarantor of either of those

agreements.

(xii) Y died before the hearing of this matter by the

earlier Tribunal."

4. The second Tribunal then dealt with the findings of the first Tribunal as follows:

"6. The earlier Tribunal found, contrary to submissions by

counsel for the Commissioner, that H Co did not receive the

$125,000 as agent for or otherwise on behalf of H, but as

principal in the agreement with X Co for the provision of H's

services. That being so, the money could only be included in H's

assessable income if either section 260 or Part IVA of the Act was

applicable, which the Tribunal found not to be the case."

5. On appeal, Jenkinson J found that the conclusion of the earlier Tribunal in favour of the applicant was based upon an error of law, in that it was inconsistent with a concession made in the hearing before it by counsel for the applicant, upon the basis of which the Commissioner's case had been conducted.

6. Before the second Tribunal, counsel for the Commissioner submitted that the matter required a complete rehearing of the application for review. His submission was accepted, despite the opposition of Counsel for the applicant.

7. The second Tribunal, having reviewed the evidence in detail, said:

"27. The preceding six paragraphs summarise the evidence as to

the consideration for the payment (of $125,000). It should be

noted that the only witness is H, and his recollection is

uncertain and inconsistent even as to whether he was a party to

the negotiations, or whether they took place only between Y and A;

and also as to the purpose of the payment. Although Y had died

before the earlier hearing, both A and H's accountant were said to

be available, and neither was called to give evidence. Nor was

any witness called from X Co. On the principle enunciated in

Jones v. Dunkel [1959] HCA 8; (1959) 101 CLR 298, the Tribunal may draw the

inference that the evidence of A or of the accountant would not

have assisted H. It may well be that, since the death of Y, there

is no-one at X Co with any relevant knowledge, and in my view no

inference can be drawn from the failure to call any representative

of that organisation.

28. Having considered the evidence, I am of the view that there

is insufficient evidence for me to determine what was the

consideration for the payment, and accordingly, whether the

payment is properly characterised as having the nature of capital

or of income. Were I to find that it was intended to compensate

for H's loss of earnings in the period between his leaving N Co

and joining X Co, it would necessarily be characterised as being

of the nature of income (Federal Commissioner of Taxation v Smith

[1981] HCA 10; (1981) 147 CLR 578; Federal Commissioner of Taxation v Inkster

(1989) 89 ATC 5142). Were I to find that it was paid in

consideration of a restrictive covenant, I would need to be

satisfied as to the terms of that covenant in order to

characterise it with accuracy (Dickenson v Federal Commissioner of

Taxation [1958] HCA 62; (1958) 98 CLR 460). Even were I able to find that the

payment was made to secure such a covenant, I could not, on the

material before me, be so satisfied."

"31. Being unable, on the material before me, to characterise the

payment in question as income or capital, I accept the submission

of Mr Davies (for the Commissioner), and find that the applicant

has not discharged the onus imposed on him by section 190(b). For

the reasons given, the objection decision will be affirmed."

9. The submissions of the appellant before us were largely based upon the proposition that the second Tribunal erred in law in concluding that it was open to it to make such findings of fact as appeared to it to be correct without regard to the findings of the first Tribunal.

10. In my opinion this proposition is not well founded. The history of the matter shows clearly that the second Tribunal was free to decide the case upon the material put before it in accordance with law including, of course, the propositions of law in the reasons for judgment of Jenkinson, J.

11. In the course of the hearing discussion took place between bench and bar as to whether the second Tribunal, having posed for itself the initial question whether the payment in question should be characterised as capital or income, and having decided that it could not answer that question, regarded that inability as fatal to the taxpayer's case.

12. Counsel for the Commissioner rightly recognised that the second Tribunal did not make a finding either way in relation to the final question, whether or not the taxpayer had justified his attack on the Commissioner's notice of assessment, which was made, as it said, on the basis that section 260 and/or Part IVA of the Income Tax Assessment Act required that the amount in dispute, $125,000, be included in the taxpayer's assessable income.

13. In my opinion the second Tribunal's inability to make a finding on the initial question did not provide an answer to the final question.

14. Counsel for the Commissioner referred to a series of possibilities as to how the amount might be held to be the income of the taxpayer:

1. it was actually derived by him;

2. it was derived by the trust but distributed to him by

a resolution of the trust;

3. it was the property of the trust, either income or

capital, but because of the anti-avoidance provision,

it is to be attributed to the taxpayer.

15. The reasons for decision of the second Tribunal do not include an examination of these questions. It seems likely that this resulted from the concentration by the taxpayer's counsel on what he submitted was the effect which the second Tribunal should have given to the findings of the first Tribunal, a concentration which continued before us.

16. In my opinion, the failure of the second Tribunal to deal with the three possible questions set out above and to expose its reasons in relation to them amounts to an error of law.

1. the appeal be allowed;

2. the decision of the Tribunal made on 28 October 1992 be set

aside;

3. the case be remitted to the Tribunal to be heard and decided

again.

KEELY J In considering this appeal I have had the advantage of reading in draft the reasons for judgment of Sweeney J and of Gray J. I agree with the reasons for judgment of Sweeney J and with the orders proposed by him. I also agree with the reasons for judgment of Gray J, except that I do not express any opinion upon the question whether the findings of the Tribunal cannot create an issue estoppel.

GRAY J The taxpayer has appealed to this Court from a decision of the Administrative Appeals Tribunal, given on 28th October 1992. The Tribunal affirmed the decision of the Commissioner of Taxation to disallow an objection by the taxpayer. The taxpayer's objection was to the inclusion in the assessment of his assessable income for the year ended 30th June 1986 of a sum of $125,000, paid to a company named John Blackman Pty. Ltd. ("the family company").

2. The taxpayer has been a well known radio and television performer for more than 20 years. In 1976, he and his wife acquired the family company, of which they have since been the only shareholders and directors. Prior to 1981, the family company entered into an agreement with the taxpayer to manage and control the services of the taxpayer as a radio and television performer. In 1980, a family trust was established, with the family company being the trustee and the taxpayer, his wife and their only child being the beneficiaries.

3. In 1981 and again in 1983 the family company contracted with a company operating a radio station to provide the taxpayer's services as a radio performer. In April 1986, the taxpayer and a representative of a company operating a second radio station made an oral agreement that the services of the taxpayer would be withdrawn from the first radio station and transferred to the second radio station. That agreement was subsequently converted into a more detailed oral agreement between the family company and the company operating the second radio station. The more detailed agreement was negotiated on behalf of the family company by a person other than the taxpayer.

4. On 9th May 1986, the sum of $125,000.00, with which these proceedings are concerned, was paid by the company operating the second radio station in the performance of a term of the more detailed agreement. On 30th April 1986, the taxpayer ceased performing services for the first radio station. On or about 1st July 1986, the taxpayer commenced to perform services for the second radio station.

5. When the taxpayer's objection to the Commissioner's decision was referred to the Tribunal, it was initially heard by the Tribunal constituted by a deputy president. The learned deputy president gave his decision on 18th January 1991. He found, contrary to submissions by counsel for the Commissioner, that the family company had not received the sum of $125,000.00 as agent for or otherwise on behalf of the taxpayer, but as principal in the agreement with the company operating the second radio station. Furthermore, the learned deputy president took the view that the money could only be included in the taxpayer's assessable income if either s. 260 or Part IVA of the Income Tax Assessment Act 1936 ("the anti-avoidance provisions") was applicable. The learned deputy president took the view that the anti-avoidance provisions were not applicable.

6. The Commissioner appealed on a question of law and the appeal was heard by Jenkinson J. His Honour held that the Tribunal had erred in law by ignoring a concession which had been made by counsel for the taxpayer, and finding facts which contradicted that concession. On 3rd February 1992, his Honour made an order in the following terms:-

"THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The decision of the Administrative Appeals Tribunal made on 18

January 1991 in proceeding numbered VT88/600 be set aside.

3. The case be remitted to the Administrative Appeals Tribunal to

be determined according to law.

4. It be within the discretion of the said Tribunal whether to

receive further evidence.

5. The applicant's costs of the appeal be paid by the respondent."

7. It is common ground that paragraph 3 of the order was made in the exercise of the power given by s. 44(5) of the Administrative Appeals Tribunal Act 1975 to make an order remitting a case to be "heard and decided again".

8. The effect of paragraph 3 of the order of Jenkinson J was the subject of argument when the matter came back before the Tribunal, then constituted by a senior member. Counsel for the taxpayer contended that the learned senior member was obliged to rely on the facts as found by the learned deputy president, except to the extent to which those findings of fact were affected, directly or indirectly, by the successful appeal. Counsel for the Commissioner contended that the Tribunal was obliged to hear the matter afresh.

9. The learned senior member accepted the latter submission. She relied on the transcript of evidence taken by the learned deputy president and the exhibits which were before him, as well as some additional documents which were tendered to her by consent. The findings of fact which I have outlined above are based on findings expressed in the decision of the learned senior member, which was given on 28th October 1992.

10. The learned senior member identified as "the initial question" the "characterisation of the payment as capital or income". After reviewing the evidence before her, and referring to the failure of the taxpayer to call as a witness either the person who had conducted the negotiations on behalf of the family company with the company controlling the second radio station, or the taxpayer's own accountant, the learned senior member came to the conclusion that she could not answer this initial question. She said, "there is insufficient evidence for me to determine what was the consideration for the payment, and accordingly, whether the payment is properly characterised as having the nature of capital or of income."

11. The learned senior member then referred to a submission of counsel for the Commissioner to the effect that the taxpayer had not discharged the onus imposed on him by s. 190(b) of the Income Tax Assessment Act 1936 of proving that the assessment was excessive. Accordingly, she gave a decision affirming the decision of the Commissioner in relation to the objection.

12. The taxpayer's appeal to this Court was based heavily on the proposition that the learned senior member erred in law by holding that she could make findings of fact without regard to the findings of fact made by the learned deputy president. Counsel for the taxpayer was not willing to embrace the proposition which he had put to the learned senior member, that the earlier findings were binding on the Tribunal, except in so far as they were affected by the successful appeal to Jenkinson J. The argument as put to this Court lacked some of the firmness of that put to the Tribunal. It was put on the basis that it was an error of law for the learned senior member not to have "had regard to" the findings of the learned deputy president. It was suggested, however, that the finding by the learned deputy president, that the sum of $125,000.00 was paid to the family company as principal and not as agent for the taxpayer, was one which should have been adopted by the learned senior member.

13. However the argument is phrased, it is plainly incorrect. The Tribunal stands in the place of the original decision maker, to make the "correct or preferable decision" on the material before the Tribunal. See Drake v. Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409, 419 per Bowen CJ and Deane J. The Tribunal has the responsibility of ascertaining the facts necessary for the making of the decision. By s. 33(1)(c) of the Administrative Appeals Tribunal Act 1976, the Tribunal is not bound by the rules of evidence but may inform itself on any matter in such manner as it thinks appropriate.

14. The obligation of the Tribunal to find facts is not diminished where there has been a successful appeal to the Federal Court of Australia under s. 44 of the Administrative Appeals Tribunal Act 1975. If the Court allows the appeal, sets aside the decision of the Tribunal, and remits the case to be heard and decided again, the Tribunal retains its responsibility to find the facts. If, as is usually the case, the remitted matter is heard and decided by a Tribunal differently constituted from the Tribunal whose decision was the subject of the successful appeal, the differently constituted Tribunal will have to find facts. In the exercise of its powers, and subject to the submissions of the parties, the Tribunal may decide to act on the findings of fact made by the earlier Tribunal, or some of them. It may decide, as the learned senior member did in the present case, to rely upon evidence which was before the earlier Tribunal. It may decide that the proper course is to receive all or some evidence afresh. The parties might agree that some or all of the findings of fact previously made are to be treated as findings of fact by the Tribunal. The order of the Court may limit the ambit of the issues with which the Tribunal is to deal upon a case being remitted. The order of Jenkinson J in the present case cannot be construed as containing such a limitation. The course which the Tribunal takes in relation to any case will depend on the circumstances of that case, but it will be the responsibility of the Tribunal which ultimately decides the case to determine for itself the facts.

15. Counsel for the taxpayer, in support of his argument, referred to Fletcher v. Federal Commissioner of Taxation [1991] HCA 42; (1991) 173 CLR 1. Fletcher's case was an unfortunate example of the results which can occur when a differently constituted Tribunal deals with a case which has been remitted after a successful appeal. The case was heard and decided by the Tribunal three times and was the subject of two appeals to the Federal Court of Australia, one of which was further appealed to the High Court of Australia. In the course of its reasons for judgment in the second appeal to the Federal Court of Australia, the Full Court said, with reference to the first such appeal:-

"The Full Court rejected the Commissioner's arguments on sham and

fiscal nullity; hence those questions ceased to be relevant

thereafter. It remained on the hearing before the Tribunal for it

to consider the application of sec. 51, div. 3 of Pt III and IVA."

See Fletcher v. Federal Commissioner of Taxation (1990) 90 ATC 4,559, at p 4,560.

16. Counsel for the taxpayer in the present case sought to treat that statement as if it embodied a proposition of law, to the effect that the Tribunal dealing with the remitted case was confined to dealing with issues which remained unresolved after the first appeal. The statement carried no such implication. It merely recorded that the parties in Fletcher's case regarded the factual and legal issues involved in the application of the doctrines of sham and fiscal nullity to that case as having been determined. The Full Court went on to say:-

"On the re-hearing before the Tribunal no fresh evidence was led by

either party, so the Tribunal determined the matter on the evidence

which had been before the Tribunal as originally constituted. The

Tribunal adopted the statement of facts as set out in the reasons

for judgment of the Full Court on the first appeal and made certain

additional findings of fact."

17. Plainly, the Tribunal in that case was aware of its obligation to make findings of fact; it used its discretionary power to adopt what had appeared in the first Full Court judgment as a convenient statement of the facts. It is unnecessary to set out the account of the history of the proceeding which is found in the judgment of the High Court in Fletcher v. Federal Commissioner of Taxation [1991] HCA 42; (1991) 173 CLR 1, at pp 6-8. It is clear from that account that the parties to Fletcher's case treated it as common ground that a limited range of issues remained for determination by the time the matter reached the High Court.

18. There is authority that, when a case is remitted to a court for re-trial after a successful appeal, the court is not bound by findings of fact made at an earlier trial. See Roe v. R.A. Naylor Ltd. (1918) 87 LJKB 960, at p 963 per Swinfen Eady MR. There is no reason why the Tribunal should be in any different position. This is particularly so, given that in any event the findings of the Tribunal cannot create an issue estoppel. See Commonwealth of Australia v. Sciacca (1988) 17 FCR 476, 480 and Midland Metals Overseas Ltd. v. Comptroller-General of Customs (1991) 30 FCR 87, 96-98.

19. It is clear, therefore, that the learned senior member was entitled to make findings of fact without regard to those previously made by the learned deputy president.

20. As has been stated, the learned senior member characterised as an initial question the issue whether the sum of $125,000.00 could be characterised as capital or income. Having found that she was unable to answer this question, the learned senior member then seems to have assumed that she was not obliged to deal with any other question. Her conclusion would have been correct only if the taxpayer's failure to establish that the sum was capital resolved all issues in dispute. This was not the case. The taxpayer contends that, even if the sum were characterised as income, it was not his income and he cannot be assessed in respect of it by the application of the anti-avoidance provisions. Whether these contentions are correct is not a matter for this Court to determine. The question whether the anti-avoidance provisions applied would depend upon the making of a number of findings of fact. Because of the view which she took, the learned senior member did not make those findings of fact. The taxpayer has therefore been deprived of the opportunity of having the Tribunal determine his case. In this respect, the Tribunal erred in law. It is therefore necessary for this Court to allow the appeal and to order that the case be remitted to the Tribunal, to be heard and decided again. The question whether the Tribunal hears further evidence will be determined by the Tribunal. The constitution of the Tribunal which re-hears the case will be a matter for the President of the Tribunal.

21. Although the taxpayer has been successful in this appeal, there should be no order as to the costs of the appeal. The taxpayer has failed in relation to the principal argument on which his appeal was brought, which occupied much of the time taken in the appeal, including time during the reply of counsel for the taxpayer. The point on which the taxpayer succeeded, whilst open on the notice of appeal, really emerged in the course of argument and despite concentration on the unsuccessful argument.