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[1979] HCA 18
High Court of Australia
1979-04-05
Murphy JJ
Original judgment source is linked above.
High Court of Australia Barwick C.J. Gibbs, Stephen, Jacobs and Murphy JJ. McCormack v Commissioner of Taxation (Cth) [1979] HCA 18
ORDER Appeal allowed with costs. Order of the Full Court of the Federal Court of Australia set aside and in lieu thereof order that the appeal to that Court be allowed with costs, the order of that Court be set aside and the matter remitted to the Supreme Court of Western Australia for hearing and determination in accordance with the directions of this Court, the costs of the hearing before the Supreme Court to abide the order of that Court.
The appellant purchased an allotment of land in close proximity to the city of Perth, containing about two acres, in the month of December 1963. There was erected on the land a house containing six rooms with a partly enclosed verandah. The house was in considerable disrepair.
At the time of this purchase, there were current two restrictions on the use of the land. One derived from the Metropolitan Region Town Planning Scheme (gazetted in October 1963) ("the planning scheme"), which included the land in an area put aside for possible use in the construction of a bridge across the Swan River to South Perth. Any development of the land was made subject to the approval of the authority set up by the planning scheme. The planning scheme contained compensation provisions which secured compensation to the owner of land where, because of the restriction imposed by the planning scheme, the full value of the land was not obtained on sale or if the authority set up by the planning scheme did not consent to the development of the land. In either of these events, the authority was bound to pay appropriate compensation.
The other restriction was a local government restriction derived from a City of Perth Zoning By-law (No. 65) limiting the construction of buildings on the land to, at best, low-rise flat dwellings no more than three storeys in height.
It was not shown that the appellant, either by herself or through the agency of her husband, knew of these restrictions at the time of purchase, though there was some evidence of publicity having been given to the former of them.
After purchasing the land, the appellant made some minor renovations to the house to make it habitable. She let the premises to a tenant. That tenant remained in occupation for some three years: thereafter, the property was let again to a tenant until the property ultimately was sold.
In 1966 the local government restriction on the construction of buildings on the land was altered. The council adopted what has been referred to as the Clarke Gazzard code. Consequently, high-rise flat dwellings, so far as the local government restriction was concerned, could be built. The change in the local government restriction resulted in a very considerable increase in value of land affected by the restriction. Of this change and its consequence the appellant became aware at some time after the change had been made. However, she neither had the ability to erect high-rise flats on the land, nor could she have obtained the approval of the authority under the planning scheme to any such development. Indeed, she had never been in a financial position to redevelop the land: nor, as far as I can gather from the evidence, even to have effected any major reconstruction of the house.
The situation which the combination of the planning scheme restriction and the change in the local government restriction brought about was that the appellant had to accept compensation from the authority. It was clear enough that she could not obtain approval for a high-rise development of the land. If she sold it, otherwise than to the authority, she must accept a price less than its full value, unaffected by the restriction of the planning scheme. For the difference she must seek compensation from the authority. The practical situation therefore was that she must seek agreement with the authority on the value of the land unaffected by the planning restriction. Again as a practical matter, there would be little purpose in attempting to sell the land to some person other than the authority and then claim the difference between the agreed unaffected value and the purchase price. Further, from the authority's point of view, there could be little sense in insisting on a sale to some other person with whom the authority would ultimately have to deal. Thus, the only course really open to the appellant and to the authority was for the authority to purchase the land for the figure which was mutually agreed. Consequently, in 1970, the appellant sold the land to the authority for $260,000, payable as to one half in each of two succeeding financial years.
The Commissioner assessed the appellant to income tax on the difference between the purchase price of the land and the sale price to the authority as being a profit derived from the purchase of land for the purposes of resale at a profit: see s. 26 (a) of the Income Tax Assessment Act 1936, as amended.
The appellant objected to the assessment and, upon the objection being disallowed, it was referred at her request to a Board of Review. The Board of Review heard evidence from the appellant and from other witnesses called by the appellant as to the purposes for which the appellant acquired the land.
The appellant's husband was an estate agent, carrying on business as such in partnership with her. He had been associated with real estate for a considerable period of time. The appellant, through the agency of her husband, in March 1963 acquired a small property in Perth, financing the purchase price by mortgage. She immediately sold the property at a profit. In June 1963, she purchased another small property in Perth, again financing the purchase by mortgage. This property she sold in November 1963 at a profit. The appellant was not assessed to income tax in respect of either of these transactions. There was no evidence of any other transactions in real estate by herself or her husband other than the purchase of the subject land.
The appellant and her husband lived with a family of three children in a small house in Perth, which the appellant claimed, to my mind quite understandably, was somewhat small for the purposes of her family. Details were given in evidence but need not be recited. She said that the purpose of the purchases of the small houses was to provide what she called an "investment" for her children, and she explained their sale by the inability to obtain suitable tenants who would pay a rent sufficient to cover the interest on borrowed money with which the purchases were effected. If the question were whether the appellant purchased these properties for profit-making by resale, a tribunal of fact might well conclude that she did so, notwithstanding the explanations she gave.
The appellant said that the purpose of purchasing the subject land was to provide a home for the family when it was properly renovated and because there was sufficient land around the house on which to run a pony for the children. The purchase of the subject land was financed wholly on money borrowed from the same source as had provided the mortgage money in the two previous purchases. She said that the reason for letting the house immediately to a tenant was that her husband had sold a property for the proposed tenants who had, as a result, no residence immediately available to them. To accommodate his client her husband arranged for the subject property to be let. As I have said, sufficient renovation was done to make it habitable.
It is necessary to mention the circumstances in which the purchase of the land was made. The appellant's husband, at the request of a mortgage broker with whom he did business, called to see a widow of considerable age in connexion with the witnessing of her will. When in the company of the widow the appellant's husband learnt that she was desirous of selling the subject house and land. He took an agency from her to sell it at a price of $5,000. Subsequently he successfully negotiated with her to buy it for his wife at $4,000.
The appellant gave evidence that she had on one occasion taken her daughter to the house and told her that this was the place where the family was to reside. She had also told the tenant that it was her purpose to put her family in the house in due course. She also said in evidence that she had informed at some point a government official of this purpose. The first two of these statements were made at a time sufficiently proximate to the purchase to make the statements of evidentiary value. It may be questionable whether the third was reasonably proximate. The daughter, but particularly the tenant, a Mrs. Schwind, gave evidence supporting the appellant's statements. The appellant's husband gave evidence in support of the appellant's purpose in buying the land.
It is patent, to my mind, that the evaluation of the appellant and her husband as witnesses of truth was critical to the resolution of the question whether, on all the material available, an affirmative conclusion could be drawn that the land was purchased for the purpose of profit-making by resale at a profit. It is abundantly clear that, at the time of the purchase, the appellant could not have known of the possible increase in value of the land which took place due to the change in the local government building restriction. As I have said, it was not shown that the appellant knew of the planning restriction or, indeed, of the local government restriction as it existed at the date of purchase. But in any case, on the material which was before the Board of Review, it seems to me more probable than not that the planning restriction, notwithstanding the compensation provisions, would have had a depressing and not an inflating effect on the value of the land. It seems to me also, as indeed I have indicated, that once the change in the local government restriction came about, the appellant had little choice but to dispose of the land to the authority. It seems clear that the authority would not have granted approval for high-rise development of the land which was the only circumstance in which the increased value could be realized by sale to any person other than the authority. Whilst it may be technically correct to say that the sale to the authority was not a compulsory sale, to my mind in substance it was.
It is appropriate if I repeat what I said in Gauci v. Federal Commissioner of Taxation [1] :
Whilst a compulsory sale of property may yield a profit by resale for the purposes of s. 26 (a) of the Act, if the property were purchased with an intention which satisfies the requirements of that section, evidence of that intention being otherwise absent, it cannot be inferred, in my opinion, from the fact of the compulsory sale.
Thus, in the present case, assuming that the appellants had offered no evidence at all, there would, in my opinion, have been no basis for an assessment of any part of the compensation paid for the resumption of the land as income of the appellants by reason of the provisions of s. 26 (a). There is no presumption that property is acquired for resale at a profit. No doubt s. 190 of the Act requires the appellant to show that the assessment is excessive. But the relevant facts being known, if there is no material upon which it may properly be concluded that the property was acquired with the relevant purpose, the assessment is thereby shown to be excessive. As I have said, there is no presumption of purpose to aid the assessment. In particular, s. 190 does not raise any such presumption.
If, on the other hand, the acquired property is resold within what may fairly be described as a time proximate to its acquisition, the requisite purpose may be inferred. Thereafter, the taxpayer must overcome the prima facie inference there drawn. Unless he does so, s. 190 will require the confirmation of the assessment. That was the situation in Pascoe v. Federal Commissioner of Taxation [2] and in Jacob v. Federal Commissioner of Taxation [3] .
The Board of Review quite clearly misunderstood the restrictive provisions relating to the land. Its members mistakenly thought that the change in the local government restriction on building on the land had already taken place at the time of purchase. Further, they did not have the advantage of the decision of this Court in Gauci's Case [4] . Whilst it may be said that they did not accept the explanation of the purchase given by the appellant, it is plain to my mind that they never evaluated the appellant as a witness of truth. Any view they took of her evidence was, in any case, coloured by their mistaken view of the local government restriction and the lack of the directions given in Gauci's Case.
The appellant appealed to the Supreme Court of Western Australia. There, the Supreme Court (Wickham J.) recognized that the Board of Review had been mistaken in their understanding of the restrictions on the use of the land. But the Supreme Court did not itself see and evaluate the appellant and her husband as witnesses. His Honour seems to have treated the matter as if it were an appeal from a tribunal which had decided a question of fact and was content to affirm the decision of the Board of Review on the footing that there was material before the Board on which they could have reached their conclusion [5] . In my opinion, this was an erroneous approach. It was for the Supreme Court, in the circumstances, itself to decide whether the appellant and her husband were witnesses of truth, and whether or not upon all the evidence an inference of the requisite purpose should be drawn.
The appellant appealed to the Federal Court. There Deane J., who wrote the leading judgment, examined the evidence in order to decide whether he believed the appellant. His Honour recognized that the central question was the credit to be afforded the appellant's testimony. He examined the transcript of the evidence before the Board of Review and pointed to what he regarded as inconsistencies and to what he thought were improbabilities. He concluded that the appellant should not be believed [6] .
But the dominant element was missing, namely, the impression of the appellant as she gave her evidence. Nothing she said as to her purpose was, in my opinion, inherently incredible, whether or not one accepted her explanation of the earlier transactions. Whilst it is possible by combing through the transcript of her evidence to find some inconsistencies, it seems to me that it could not be said that she was shown not to be a witness of truth. Whether or not she was to be believed in relation to the instant transaction undoubtedly, in my opinion, called for a viva voce examination of her. It was essential that she be evaluated and a conclusion drawn whether or not she was a truthful person when she said what her intentions were at the time of purchase.
There was, however, one particular matter which was highly influential in his Honour's mind in relation to the appellant's credit, to which I must make specific reference. The tenant, Mrs. Schwind, gave evidence of the statements made to her which, as I have said, were sufficiently contemporaneous to have not merely some but, to my mind, very considerable evidentiary value. There was no suggestion that Mrs. Schwind was not a truthful and accurate person, but his Honour explained away the statement to her of the appellant's purpose in acquiring the land, which statement he seems to have accepted was in fact made, as a form of window-dressing on the appellant's part. His Honour seems to have taken the view that the appellant's statement to Mrs. Schwind was made with a view to making evidence in case she was sought to be taxed. I am wholly unable to accept this approach. There was not the least suggestion that the appellant had any knowledge of the tax provisions at all, or that the appellant could possibly have appreciated what may lie in store for her if the land ultimately realized a profitable price. His Honour seems to have thought that there had been some improper advantage taken of the vendor widow by the appellant's husband and derivably by the appellant in obtaining the land and that this conduct, of which his Honour evidently disapproved, bore on the question of the purpose for which the land was acquired, but particularly on the significance of the statement to Mrs. Schwind. I have mentioned the circumstances of the purchase. In my respectful opinion, they did not warrant his Honour's view of them or of the appellant or her husband in relation to them. In particular, they did not bear on the significance of the statement to Mrs. Schwind.
I have been much exercised as to what is the proper course to take in this appeal. The truth is that the matter has never properly been tried. The Board of Review misunderstood the situation both in point of fact and in point of law. The appellant, who gave evidence before them, was not evaluated as a witness. The Supreme Court did not, it seems to me, adopt a correct approach to the appeal before it. It ought to have insisted on hearing the evidence itself and thus placed itself in a position to evaluate the witnesses. The Federal Court, in my respectful submission, has taken a view of a critical part of the evidence which, in my opinion, cannot be sustained, and has reached a conclusion on a critical question of personal credit without the indispensable opportunity of seeing and hearing the witnesses.
Were it not for the two purchases which preceded the instant purchase, I would have thought there was no material on which it could positively be concluded that the land was purchased for the purpose of profit-making by resale. It was held in all for some seven years during which time it was let. It was in the long run, in substance, sold under compulsion. Had it not been that there was such a dramatic change in value due to the change in the building restrictions I doubt if anyone would have troubled to suggest that the land had been purchased with a view to profit-making by resale, even though it did contain a considerable area of land in close proximity to a fast developing city. The evidence of Mrs. Schwind points strongly against an inference of purchase for profit-making by resale.
But, after consideration, I feel bound to think that an inference that the third sale was of a like kind as the two prior sales was open on this material. I doubt if I would draw it myself. The other sales, even assuming one does not accept the appellant's explanation of them, were effected very quickly. That situation did not obtain in the instant case. So far from being like the prior two sales, the instant sale might well be thought, almost in all its circumstances, unlike.
But, as I think, the inference is open. I am not prepared to say that there was no material, quite apart from the oral evidence, on which the assessment could be supported. After some fluctuation of mind, I have formed the view that the better course, in all the circumstances, is to set aside the decision of the Federal Court and remit the case to the Supreme Court of Western Australia to hear the appeal, itself forming upon oral evidence an opinion whether or not the appellant is to be believed in what she says was her purpose in purchasing the land. I may say I regret this course which, it seems to me, is burdensome on the taxpayer, but it is proper to point out that the appellant was not called as a witness before the Supreme Court as she ought to have been, because the parties, but particularly the appellant, took what to my mind was an erroneous course of allowing the matter to be judged on the transcript of the proceedings before the Board of Review.
In my opinion, the appeal should be allowed, the order of the Federal Court set aside and the matter remitted to the Supreme Court of Western Australia to hear the appeal from the decision of the Board of Review.
In December 1963 the appellant purchased a house and land in Macey Street, East Perth, for $4,000. On 30th June 1970 she sold the property to the Metropolitan Region Planning Authority for $260,000. The land was required for works connected with the building of a new road and bridge, and would doubtless have been compulsorily acquired if the appellant had not agreed to sell it. The Commissioner of Taxation has treated the net profit resulting from this sale, viz., $249,636, as assessable income of the appellant in the two years in which the instalments of the price were received, on the ground that it was "profit arising from the sale by the taxpayer of any property acquired by [her] for the purpose of profit-making by sale" within s. 26 (a) of the Income Tax Assessment Act 1936, as amended ("the Act").
The appellant objected to the assessments, and when the objections were disallowed requested that the Commissioner's decision be referred to a Board of Review. The Board confirmed the assessments and the appellant then appealed to the Supreme Court of Western Australia under s. 196 (1) of the Act. It was not disputed that the decision of the Board involved a question of law or that in the circumstances the court hearing the appeal was bound to reach its own conclusion on the whole case.
Before the Board of Review evidence was given by the appellant that she had bought the property as a home for herself and her family. Supporting evidence was given by a number of witnesses, including the appellant's husband, her daughter and a Mrs. Schwind, who was a tenant of the house for about three years from early in December 1963. Mrs. Schwind gave evidence that she had sold her house through the agency of the husband of the appellant, and was allowed to rent the house at Macey Street until a new house, which she was building, was completed. She said that the appellant had told her (apparently about the time when the letting was made) that she intended to effect some repairs to the house and live there. The Board of Review did not accept the evidence of the appellant. However, it is now common ground that the members of the Board fell into error which affected their conclusion on the issue of credibility. They thought that at the time when the property was bought the appellant was aware that the land had recently been re-zoned for high-rise development and that it was intended to be resumed for purposes connected with the construction of a new bridge and road system, and that those things made it potentially much more valuable. The facts were as follows. At the time when the land was acquired, it was permissible to use it for the construction of residential flats, but not for high-rise flats. That position, it appears, did not change until August 1968 when the Council of the City of Perth applied to the zone in which the land was situated a new set of by-laws ("the Clarke Gazzard code") which had been adopted in 1966. It was those events, long after the acquisition of the property, which had what was described in evidence as a dramatic effect on land values in the area. In the meantime, in about October 1963, there was gazetted a scheme dated 31st July 1963 and prepared by the Metropolitan Region Planning Authority; under that scheme the land in question became reserved land, and no development could be commenced or carried out on it without consent. The scheme itself would not appear to have enhanced the value of the land subject to it, although there was some evidence that the knowledge that the land would be required for the road works did have that effect. Both the appellant and her husband swore that they were unaware, at the time of the acqusition, of the proposed road development or of any re-zoning. Clearly the members of the Board were wrong in thinking that the appellant had knowledge of the re-zoning, and of the effect which that might have on property values.
The appeal to the Supreme Court was heard by Wickham J. The parties tendered the transcript of the evidence given before the Board of Review and the only oral evidence was that of an estate agent, Mr. Mickle, who gave evidence, which was accepted, as to the effect of the gazettal of the scheme and of the later adoption and application of the Clarke Gazzard code. Wickham J. asked counsel for the appellant if he intended to call the appellant as a witness. Counsel replied that he would be happy to do so if the learned judge thought that he would gain any advantage from that course. The learned judge said that he did not think that he should express a view one way or the other as to whether the witness should be called, but he drew attention to the difficulty which he might experience if it appeared that the Board had based its conclusion to some extent on its assessment of the demeanour of the witness. In the end the appellant was not called. When Wickham J. came to give judgment he held that the reasons of the Board of Review were unsatisfactory in a number of respects. He considered whether he should send the case back for a re-hearing, but held, correctly, that he should determine the matter for himself and then said [7] :
Embarking on this task I do not find, upon a consideration of the transcript, any sufficient reason to depart from the Board's decision not to accept the evidence of the taxpayer as to her purpose in acquiring the property. The written word does not cause me to believe that her dominant purpose was to acquire the property as a family home; whether I would have believed that, if I had seen and heard her, I do not know but the Board did see and hear her and, although certain aspects of the approach of the Board to her evidence seem to me to be unsatisfactory, I am not in a position to say either that the Board was wrong or that left to myself I accept her evidence as to her dominant purpose.
In this state of affairs the position is the same as if she had not given evidence in the material respects at all.
He went on to hold that there was evidence from which the conclusion might properly be drawn that the property was acquired for the purpose of resale at a profit, and that this being so, and there being no satisfactory evidence to the contrary, the effect of s. 190 (b) of the Act was that the assessments should be confirmed. He accordingly dismissed the appeals [8] . 1. (1977) 7 A.T.R., at p. 371; 77 A.T.C., at p. 4143. 2. (1977) 7 A.T.R. 368; 77 A.T.C. 4141.
A further appeal was taken to the Full Court of the Federal Court. That appeal was dismissed [9] . Bowen C.J. and Brennan J. held that on the whole of the evidence the probabilities were against the truth of the appellant's evidence as to the intention to use the Macey Street property as a family home, and concluded that the appellant purchased the property for the purpose of profit-making by sale. They adopted the full and careful analysis of the evidence made by Deane J., the third member of the Full Court. Deane J. found that there was evidence that supported a finding that the purpose of the acquisition was profit-making by sale, and evidence which supported a contrary finding. In the event he was unable to accept either the appellant or her husband as a reliable or completely truthful witness. He said that the evidence of Mrs. Schwind that, around the time of the purchase, the appellant indicated to her that the property was being purchased as a future family home was the most telling piece of evidence in the appellant's favour. However, he concluded that in the circumstances it was not to be expected that the appellant or her husband would acknowledge that the property was purchased for the purpose of profit-making by sale, and that the explanation of any mention of the property being acquired for a family home (if mention there was) was to be found "in the circumstances in which the purchase was made rather than by reference to the real purpose motivating the purchase". The appellant and her husband were estate agents and the property was purchased from a very elderly lady who had placed it in the hands of the appellant's husband for sale. On the evidence the findings were open that the property was purchased at an undervalue and in circumstances in which the appellant's husband was guilty of a serious breach of his duty as agent. Deane J. apparently considered that the remark made to Mrs. Schwind was designed to conceal a breach of duty which the appellant's husband had committed and to which the appellant was a party. Having rejected the appellant's evidence, Deane J. concluded, on an assessment of all the evidence, that the property was purchased for the purpose of profit-making by sale. The Federal Court accordingly dismissed the appeal.
In the circumstances of the present case the evidence of the appellant herself as to her intentions when she bought the land was of crucial significance. Her evidence had of course to be weighed in light of the other circumstances, but those circumstances, in themselves, were inconclusive. On the one hand there was evidence that might have been regarded as supporting the appellant's evidence that she needed a large house for herself and her family. It appears that when she made the purchase she could not have foreseen that land values, and with them rates and land tax, would rise in the way that they did. She did not attempt to dispose of the property for a number of years and, when she eventually tried to sell it, may have done so only because its eventual acquisition was inevitable. Also there was the evidence of Mrs. Schwind as to the appellant's stated intentions. On the other hand the appellant did not ever use the property for the purpose for which she said she acquired it and did not move to a new home until 1974 (although she gave explanations of both those matters). Moreover she had previously, in 1963, bought two other houses in circumstances somewhat similar to those in which the land in question was bought; on one view of the evidence, she bought those properties for the purpose of profit-making by resale, but was evasive when she gave evidence on that matter. In these circumstances it cannot be said either that the evidence of the appellant could not be believed or that it must inevitably have been believed. If her evidence was believed, clearly her appeals should have succeeded. However, her evidence was not accepted and if it was properly rejected in my opinion her appeals were rightly dismissed.
(a) the taxpayer shall be limited to the grounds stated in his objection; and
(b) the burden of proving that the assessment is excessive shall lie upon the taxpayer.
In the Federal Court, Bowen C.J. and Brennan J. said that s. 190 (b) is expressed to apply to the reference or appeal provided for in ss. 187 and 188 of the Act and not to the appeal from a board to the Supreme Court provided for in s. 196 (1). Therefore, they said, a judge who is finding the facts on the evidence before him in an appeal from a board of review may not rely upon s. 190 (b), for that section has no application to the issues before him. Deane J. agreed that the provisions of s. 190 (b) do not apply directly to the proceedings before a Supreme Court on an appeal from a board of review, but said that those provisions were indirectly operative on an appeal to the Supreme Court and on the further appeal to the Federal Court.
In support of the view that s. 190 (b) does not apply on an appeal to the Supreme Court from a board of review, their Honours cited Federal Commissioner of Taxation v. Finn [10] . In that case the Commissioner appealed from a decision of a board of review which had allowed an objection by a taxpayer to his assessment. There was no appearance for the taxpayer when the appeal was called on for hearing and it was contended for the Commissioner that he was entitled, without adducing evidence or presenting argument, to have his appeal allowed. Fullagar J. rejected this contention. He said [11] :
His argument prevails if, but only if, on an appeal by the Commissioner from a board of review to this Court, the burden rests on the taxpayer of establishing that the Commissioner's original assessment was excessive. No such burden rests, in my opinion, on the taxpayer. On the contrary, the Commissioner must, in my opinion, fail unless he establishes that the decision of the Board is erroneous. In other words, there is, on such an appeal, no presumption that the Commissioner's original assessment was correct. That original assesment, which ex hypothesi has been reduced by the Board, has ceased to exist. The effect of s. 193 (1) is that the original assessment has been replaced by the Board's reduced assessment, which is the only existent assessment, and which must stand unless and until it is set aside on "appeal" to this Court. The Commissioner, by his "appeal", seeks to have the existent assessment, the reduced assessment, set aside, and the original assessment restored. He may succeed, but he begins without any presumption to help him. Those remarks have no application to a case such as the present, where the Board has confirmed the assessment of the Commissioner. However Fullagar J. went on, to say [12] that s. 190 (b) had no application to such a case as that before him, and to give the following reasons for that conclusion: For the word "such" embraces only references and appeals which have been previously mentioned - that is to say, references of a taxpayer's objection to a board and appeals from the Commissioner direct to this Court or the Supreme Court of a State. Appeals from a board to this Court are not mentioned until later in Pt V of the Act. 1. (1960) 103 C.L.R. 165. 2. (1960) 103 C.L.R., at p. 169. 3. (1960) 103 C.L.R., at p. 170.
Although the introductory words of s. 190, literally understood, suggest that the two limbs of that section apply only on a reference or an appeal under s. 187, that was not in my opinion the intention of the Parliament. From the decision of a board of review on any such reference an appeal may be brought to a Supreme Court (provided that the decision is one that involves a question of law): s. 196 (1). From an order of the Supreme Court made on any appeal brought directly to that Court a further appeal may be brought to the Federal Court or, by special leave, to this Court: s. 200. There can be no doubt that on an appeal under s. 200, which is a true appeal, the appellate court is required to apply the same rule as to the burden of proof as that which governed the decision of the court from which the appeal was brought. Although an appeal to the Supreme Court from a decision of a board of review is not a true appeal, but a proceeding in the original jurisdiction of the court, it is not only called an appeal, but has some of the characteristics of an appeal, and it is natural to conclude that it was intended that the court of appeal would apply no different rule as to the burden of proof from that which the board was required to apply. In George v. Federal Commissioner of Taxation [13] , the Court, after referring to various provisions of the Act, including s. 190, said:
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
"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 [14] .
In a case arising under s. 26 (a) the taxpayer is usually the person best able to give evidence as to the purpose for which the property in question was bought. Although evidence given by a taxpayer as to the purpose with which he acquired property must, for obvious reasons, "be tested most closely, and received with the greatest caution" (Pascoe v. Federal Commissioner of Taxation [19] citing Cox v. Smail [20] ), I completely agree with Barwick C.J. in Gauci v. Federal Commissioner of Taxation [21] , that it would be wrong for a judge to regard the evidence of a taxpayer as prima facie unacceptable. The taxpayer's evidence must of course be considered on its merits, in the light of the circumstances of the case, without any prepossession, favourable or unfavourable. If the taxpayer gives evidence that the property in question was not acquired by him for the purpose of profit-making by sale, and that evidence is accepted, he of course succeeds. In some cases the taxpayer may establish that the case does not fall within s. 26 (a), even though he does not give evidence or does give evidence but is disbelieved. Of course the fact that the taxpayer did not give evidence, if unexplained, could be taken into account in deciding what inferences should be drawn from the evidence (Jones v. Dunkel [22] ). And the fact that the taxpayer was disbelieved could, in appropriate circumstances, itself give rise to an inference adverse to the taxpayer's case (Steinberg v. Federal Commissioner of Taxation [23] ). Nevertheless, if the proper inference to be drawn from the evidence is that the taxpayer bought the property for a purpose other than that of profit-making by sale, the appeal will succeed. An obvious example would be a case in which it clearly appeared that a taxpayer purchased a house and for many years thereafter occupied it as his own home. In those circumstances the natural inference, in the absence of evidence to the contrary, would be that the taxpayer had bought the house for the purpose of dwelling in it, and the fact that the taxpayer was not an honest witness would hardly matter. However, if the taxpayer's evidence of the purpose with which he acquired the property is not accepted, and it does not appear from the other evidence on the balance of probabilities that he did not acquire the property for the purpose of profit-making by sale, he will fail to discharge his onus of proof. When I speak of purpose I mean, of course, the main or dominant purpose actuating the acquisition.
In Gauci v. Federal Commissioner of Taxation, Barwick C.J. said [24] :
There is no presumption that property is acquired for resale at a profit. No doubt s. 190 of the Act requires the appellant to show that the assessment is excessive. But the relevant facts being known, if there is no material upon which it may properly be concluded that the property was acquired with the relevant purpose, the assessment is thereby shown to be excessive. As I have said, there is no presumption of purpose to aid the assessment. In particular, s. 190 does not raise any such presumption. With the greatest respect I cannot agree with this statement, which seems to me inconsistent with earlier decisions of the Court such as George v. Federal Commissioner of Taxation [25] and McAndrew v. Federal Commissioner of Taxation [26] . The taxpayer bears the burden of proving that the assessment was excessive. To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale. The burden may be discharged by drawing inferences from the evidence. In some cases in which all the relevant facts are known, and there is no material upon which it might properly be concluded that the property was acquired for the relevant purpose, the inference may properly be drawn that the property was not acquired for the relevant purpose. But it is not enough, even when all the facts are known, that there is no material upon which it may be concluded that the property was acquired for the purpose mentioned in s. 26 (a). If a taxpayer can succeed, simply because there is no evidence from which it can be concluded that the relevant purpose existed, that must mean that the burden of proving the existence of that purpose lies on the Commissioner. That in my respectful opinion would be to invert the onus of proof. The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the taxpayer acquired the property the appeal must fail. 1. (1975) 135 C.L.R., at p. 87. 2. (1952) 86 C.L.R. 183. 3. (1956) 98 C.L.R. 263.
I would respectfully agree with the statement of Mason J. in his dissenting judgment in Gauci v. Federal Commissioner of Taxation [27] :
The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190 (b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail. The crux of the matter is that when in a s. 26 (a) case an appellant seeks to overcome the onus created by s. 190 (b) by adducing evidence as to his intentions with a view to establishing the purpose of the acquisition was not a s. 26 (a) purpose and that evidence is not accepted, he has not discharged the onus which he bears. At best, from the appellant's viewpoint, the evidence stands in a situation in which it is equivocal, neither establishing a s. 26 (a) purpose nor denying the existence of such a purpose. At worst, the judge may, in the circumstances, be able to infer the existence of a s. 26 (a) purpose. In either event the appellant fails to discharge the onus and the appeal fails. In Williams Property Developments Ltd. v. Commissioner of Inland Revenue (N.Z.) [28] Jeffries J., in the Supreme Court of New Zealand accepted that in this passage Mason J. set out the true position. The judgment of Mason J. is consistent with that of Walsh J. in Krew v. Federal Commissioner of Taxation [29] although that case did not concern s. 26 (a). 1. (1975) 135 C.L.R., at pp. 89-90. 2. (1977) 77 A.T.C. 6036, at pp. 6,039-6,040. 3. (1971) 45 A.L.J.R., at p. 327; 2 A.T.R., at p. 237; 71 A.T.C., at p. 4217.
However, in the present case Wickham J. faced an almost insuperable obstacle in deciding whether the evidence of the appellant should be accepted. He was exercising original jurisdiction, and was therefore called upon to decide whether the appellant had established her case, and not simply whether it was open to the Board of Review to decide as it did: cf. Rowdell Pty. Ltd. v. Federal Commissioner of Taxation [30] ; Krew v. Federal Commissioner of Taxation [31] . No doubt, speaking generally, a Supreme Court, on an appeal from a decision of a board of review, would not be justified in taking a different view of the credibility of a witness from that taken by the board, when the witness was seen and heard by the board, but was not recalled to give evidence before the court: see Charles v. Federal Commissioner of Taxation [32] . However, where the board has rejected the evidence of a witness, and its decision can be seen to have been affected by a mistake, the Supreme Court is in a position of great difficulty if the witness is not recalled. The board's assessment of the credibility of the witness cannot stand, yet the court is not in a position to make its own assessment. In the present case, it cannot be said whether or not the Board would have accepted the evidence of the appellant if it had correctly understood the effect of the scheme and the true position regarding re-zoning. The appellant could only have succeeded before Wickham J. if it had been right to regard the case as though she had never given evidence, and if the proper conclusion to be drawn from the other evidence was that she had not acquired the property for the purpose of profit-making by sale. However, the other evidence is consistent with a finding either way; unless the evidence of the appellant on the relevant matters is accepted it is not possible to say that she has established affirmatively that the property was not acquired for the purpose of profit-making by sale.
The failure to call the appellant as a witness before Wickham J. was due to the decision of her counsel. It was not due to an error on the part of the learned judge. In these circumstances there is much to be said for the view that the appeal should be dismissed. It is of great importance in the conduct of litigation that a litigant should be bound, on appeal, by the manner in which he, or his counsel, has conducted the proceedings at first instance. However, in the end it seems to me that it would be unjust to dismiss the present appeal, not only because there has been no opportunity properly to assess the credibility of the appellant, but also because inadequate weight was placed both in the Board of Review and in the Supreme Court on the evidence of Mrs. Schwind. When Mrs. Schwind gave evidence before the Board she was not cross-examined to suggest that the evidence which she gave as to the appellant's statements was false. Although the Board paid little attention to her evidence, they had no reason to regard her as anything but a truthful witness. Equally, Wickham J. would not have been justified in refusing to regard her evidence on this point as unacceptable. In fact the learned judge did not mention her evidence, whose importance does not appear to have been fully appreciated before the case reached the Federal Court. Deane J. appears to have accepted that the appellant did tell Mrs. Schwind that it was her intention to live in the house, but he explained the appellant's statement as a concoction designed to disguise the truth which he considered was discreditable to the appellant. Evidence of statements made by the appellant, at or about the time of the purchase, of the purpose for which she acquired the property, was admissible as evidence of her state of mind: Elsey v. Federal Commissioner of Taxation [33] ; and see Phipson on Evidence, 12th ed. (1976), pars. 219-221. It was of course necessary for the judge charged with the duty of deciding the facts to decide not only whether the statements were made but also whether, if made, they were a genuine expression of the appellant's state of mind or the result of a deliberate decision to conceal her true purpose. The explanation suggested by Deane J. was never put to the appellant in cross-examination before the Board, or raised for consideration in the Supreme Court at a time when it might still have been possible to adduce further evidence on the point. It would seem to me unjust to depreciate the value of Mrs. Schwind's evidence for reasons which the appellant had no opportunity to refute. In the very exceptional circumstances of the case I consider that it is necessary to order a new trial where the evidence of the appellant and of Mrs. Schwind, and of course the other witnesses, can be assessed by a judge who will have the opportunity to see and hear them. On a re-trial the judge, in my opinion, will not be bound by the opinions as to the facts of the case expressed in the Federal Court and in this Court.
I would allow the appeal and would order a new trial before the Supreme Court of Western Australia.
I have had the advantage of reading the judgments prepared by the Chief Justice and by Gibbs and Jacobs JJ. I agree with the conclusion to which each has come, that there must be a new trial: the difficulties to which the unfortunate procedural circumstances of this case have given rise, of which the members of the Full Court of the Federal Court of Australia were not unaware [34] , appear to me to leave no other course open.
There are only two matters upon which I wish to say anything further. First, lest views expressed in the Federal Court or in this Court about the evidence in this case affect in any way further proceedings, which I think they should not, I should make it clear that my allowance of this appeal does not involve any disapproval on my part of the views expressed by Deane J. about the conduct of the appellant's husband in connexion with the purchase of the Macey Street property in December 1963. Moreover, once the Federal Court determined to embark upon the task of "finding the facts on the evidence before the Supreme Court and determining the appeal accordingly" [34] , it no doubt then became appropriate for his Honour to put those views to use in considering the evidence of Mrs. Schwind.
Secondly, I take this opportunity of expressly agreeing with all that my brother Gibbs has said in his judgment concerning s. 190 (b), both in relation to its applicability to proceedings before a Supreme Court on an appeal from a board of review and before the Federal Court and also in relation to its operation as affecting onus of proof. I too regard as correct the statement of Mason J. concerning the operation of s. 190 (b) which appears in his Honour's dissenting judgment in Gauci v. Federal Commissioner of Taxation [35] .
I would allow this appeal, set aside the order of the Full Court of the Federal Court of Australia affirming the judgment of the Supreme Court of Western Australia and in lieu thereof order pursuant to s. 28 (1) (c) of the Federal Court of Australia Act 1976 Cth that the judgment of the Supreme Court of Western Australia be set aside and the proceeding be remitted to the Supreme Court of Western Australia for further hearing and determination. In order to understand why this course is appropriate it will be necessary to examine the course of the proceedings so far and the facts will emerge in some detail in the course of that examination. They appear fully in the report of the case on appeal to the Federal Court of Australia [36] . I shall now do no more than outline the facts.
On 3rd December 1963 the taxpayer purchased for two thousand pounds the dwelling house and land, comprising an area of approximately two acres, situated at 8 Macey Street, East Perth. Settlement took place three days later and the transfer was registered on 7th Jauary 1964. In early 1970 the taxpayer sold the property to the Metropolitan Region Planning Authority for $260,000 payable as to one-half before 30th June 1970 and as to the other half in the following fiscal year. The Commissioner of Taxation assessed the taxpayer to income tax on the basis that the net profit of the taxpayer, $124,818 in each of the two fiscal years, was part of her assessable income. Objections were disallowed and were duly referred to a Board of Review.
The basis of the Commissioner's assessment was that the sums in question were profit arising on the sale of property acquired by the taxpayer for the purpose of resale at a profit (s. 26 (a)). It was also claimed that the profit was income within s. 25 (1) of the Act but that claim ceased to be pursued after the matter was before the Board of Review. There was a considerable body of circumstantial evidence which would support the inference that the property was acquired by the taxpayer for the purpose of resale at a profit. The taxpayer and her husband gave evidence before the Board of Review that her purpose in acquiring the property was that it should be a home for herself and her husband and family. They were supported in this evidence by their daughter, Mrs. Dodd, and by Mrs. Schwind who became the tenant of the property immediately after its purchase. In particular it should be mentioned that Mrs. Schwind gave evidence that when she first met the taxpayer after she became a tenant the taxpayer said to her "We will have some horses and we will live there".
The decision of the Board was given by two members, Messrs. Dempsey and Thompson, the third member having become ill. They disallowed the objections. Mr. Dempsey surveyed the evidence and then summarized the position as he saw it.
Her case then is that the property was acquired as a future home for herself, her husband and her family. However, as has been shown, it was purchased in the same manner as were two previous properties. In this instance, however, the full cost was by way of loan repayable at the end of three years. Each of the previous properties were sold in a short time at a profit and the claim that they were to be investments for the children finds no support. Where then does this purchase differ from the prior purchases? It is said it was to be the family home. It was a property subject to resumption, in bad repair and could only be repaired to a limited degree and then only with approval of the resuming authority. A tenancy of the property was on the evidence arranged either before or contemporaneously with its purchase. The tenants remained in the house for three years and no action was taken to have them vacate at any time. Actually, when they did vacate, the place was re-let until its sale to the Authority.
The family home, which it was claimed was too small and which it was conceded would have to be sold to provide funds to renovate the East Perth property, was never offered for sale at any time prior to the actual disposal of the East Perth property. It was some years after that the original home was vacated. The move was actually made early in 1974.
There is no doubt that the opportunity to acquire the property came through the family real estate agency and the apparent close association between the husband the the finance broker. The husband was the prime mover in each of the transactions where property was acquired in the name of the wife, this taxpayer, and the motive behind these transactions, it would not be unfair to say, was his.
Accepting this, as I do, there is then his evidence that he knew nothing of the many newspaper articles relating to the plans of the Metropolitan Regional Planning Association, that he made no enquiries in relation to the zoning of the property nor did he even enquire into its valuation for rating purposes and the rates payable. The finance brokers, however, did enquire into some of these matters. These are all matters which the valuer called on behalf of the taxpayer, considered were the normal responsibility of an agent. He did advertise the property for sale, although the reason for so doing is hard to appreciate as the decision to buy it in the name of his wife appears to have already been made.
Taxpayer has called evidence from her daughter, the tenant who first occupied the property and the valuer, to support her case, but none of these people can assist to establish the reason why the property was acquired. Their association with the property occurred later than its purchase. The decision to buy, irrespective of whether it was made by the taxpayer or her husband, or conjointly, was made independently of these people and their evidence does not assist. If anything, the evidence of the tenant casts doubt on the accuracy of certain evidence from the husband.
The only factor that places the purchase of this property in any different light than the purchase of the Leederville and the Ashfield houses is the fact that it was held for a number of years before its eventual sale. However, when it is seen that the efforts to effect a sale commenced a lot earlier than the eventual sale, then this aspect loses some of its weight. Also, if the owner either personally or through an adviser, was fully aware of the position regarding compensation on eventual resumption by the Government body, it will be seen that on a rising market, as then existed, time was a factor working to her benefit.
reveals three acquisitions each in the name of this taxpayer, the purchase of each arranged by the husband and each similarly financed. The first two properties are sold at a profit very soon after purchase and it is stated they were acquired as investments, to be financed from rents and to provide for the children.
The facts show that they could not be financed from the rents obtainable if tenants were available, but in any case, buyers were sought by advertisement, in a very short space of time after purchase. The third property was acquired in the same manner, and no attempt was made to sell the existing home. It was immediately rented for an indefinite period and no pressure was put on the tenants to vacate in a specified time. To clear the mortgage and renovate the property, the family home would have had to be sold.
He expressed his conclusion: having regard to all these considerations and to all the circumstances of the case, I am not satisfied the "purpose" of which Section 26 (a) speaks was not the purpose for which the taxpayer acquired the East Perth property.
In the course of his survey of the evidence Mr. Dempsey had said:
At the time of purchase of the East Perth property, it was zoned for high rise development and had been so zoned for some time. An experienced real estate valuer, who gave evidence on behalf of the taxpayer confirmed this. He also confirmed that a plan referred to as the "M.R.P.A." (Metropolitan Regional Planning Authority) plan had been published in August, 1963, in gazette form and given proclamation by gazettal on 30th October, 1963. This plan reserved the subject land for future resumption.
Newspaper cuttings submitted to the Board by the Commissioner indicated that a very considerable amount of publicity had been given by the daily press to this plan, to the areas it affected, and to its effect on properties in such areas. The rights of owners to compensation were also referred to. Indeed, the press reported in September, 1962, an amendment to the law protecting the rights to compensation in two specific instances. The first was, where a person was forced to accept a depressed price due to the resumption notice and secondly, and more importantly in a consideration of this case, that if development of a property was refused due to the resumption notice, compensation was payable on the basis of injury sustained. The husband of this taxpayer, a real estate agent, and the man who actually negotiated the purchase for his wife, denied any knowledge of the zoning of the property or of the "M.R.P.A." plan and its effect on the property prior to the purchase.
Mr. Thompson in his reasons for decision said: On the evidentiary side of the matter, I now have to decide, on the balance of probabilities, what was the dominant purpose of the taxpayer in acquiring the property. Basically, the contest is between her contention that she acquired the property as a residence to accommodate her family, and that of the Commissioner that the resulting surplus was assessable under either or both of the sections mentioned above. Of course, one must also remember that the statutory burden of proof on the balance of probabilities rests upon the taxpayer. He then surveyed the facts. Taxpayer and her husband had been in business as real estate agents prior to the date of hearing, and her husband, in particular, as at the date of hearing, had been in real estate for 22 or 23 years, and approximately for fourteen years had held his own licence. He had worked in conjunction with another real estate agent and mortgage broker. In short, taxpayer's husband, whom I regard as the dominant force in order to ascertain the purpose of the taxpayer at the date of acquisition, was an experienced estate agent at the relevant time, that is, as at the date of the acquisition of the subject property.
He went with his colleague, an estate agent and mortgage-broker, to the home of the vendor, ostensibly to witness her will. It appears that the vendor was a "very aged" lady and desired to sell the property for £2,500 ($5,000) cash. The land consisted of approximately two acres, being 1 acre 3 rood 23.2 perches, upon which was erected a large house of some six rooms with partly enclosed verandah. The house apparently needed some renovating and was described as very old. On the date of that visit, namely, 29th November, 1963, taxpayer's husband obtained, on behalf of the real estate partnership, written instructions to sell the property from the aged vendor for £2,500 ($5,000) cash. He also, for a consideration expressed of 2s. 0d., obtained sole authority to sell for a period of eight weeks.
Taxpayer's husband succeeded in purchasing the property for his wife for the sum of £2,000 ($4,000) which is evidenced by the Form of Offer and Acceptance dated 3rd December, 1963. Taxpayer let the house and land to tenants for an undetermined term, the first rental being paid on 7th December, 1963. She made some repairs to the house, which I would regard as nothing more than rendering it habitable for occupation by tenants. The renting of the property within such a short space of time after contracting to acquire it, ill accords with the taxpayer's expressed intention of occupying the house and property as a residence for her family. She and her husband stated in evidence that their present dwelling house was too small for the family and created difficulties between the members of the family. She thought that the subject house was large enough and that the area of land would also be suitable to run a pony or ponies for the benefit of one of her children who was interested in riding. However, nothing was done to implement this expressed purpose. On the contrary, it was rented to the first tenants for some three years, and subsequently was rented to another pensioner couple until the property was actually sold.
Taxpayer and her husband also acquired and sold other properties. I do not attach great importance to the evidence on these matters, except that I take it into account in assessing the expressed purpose of the taxpayer. I would conclude that the taxpayer and her husband were aware people who had an eye for a potentially good bargain. They were able to arrange finance on their various transactions, and in particular, it should be mentioned that with respect to the subject property, taxpayer obtained the full purchase price of £2,000 ($4,000) on mortgage for an initial fixed term of three years at £8.10.0d. per cent reducible to £7.10.0d. per cent in the events specified. This mortgage was apparently negotiated through the friend and business associate of taxpayer and her husband abovementioned. So that, for no cash outlay by herself, taxpayer had acquired a property of apparently much greater potential value, which was bringing in rental.
It transpires, from the evidence, that as from the 24th May, 1962, the subject property had been re-zoned and had thus acquired a zoning category which allowed multiple development such as the construction of flats. In addition, a road plan was, on the 30th October 1963, promulgated by the relevant road authority, which related to the area in which the subject land was situated, which meant that the property had acquired a higher potential value. With this development, as the newspaper articles point out, property values began to soar. The evidence further shows that much publicity was given in the press to matters relating to rezoning and particularly to road development in the area. The precise location where the subject land was situated, was mentioned.
Much discussion ensued by experts and others, which appear from the press cuttings exhibited in evidence. Taxpayer and her husband denied any knowledge of those events at the time and claimed that they did not know of the rezoning and proposed road development until some years later. Bearing in mind their association with real estate busines, their close relationship with another real estate agent and mortgage broker, and the magnitude of the publicity given to the relatively recent re-zoning and to the very recent gazettal of the road plan, I cannot accept that taxpayer, either by herself or through her husband or other professional advisers and associates, did not know of these matters. I would fix her with knowledge of the planned rezoning and road development at the time of the acquisition of the subject property, which necessarily means that she must have known that the property possessed a high future potential upon either resumption or negotiated sale. This is consistent with what was outlined in the press cuttings and it follows from the very nature of the situation.
Mr. Thompson then referred to evidence that at the time of purchase the property was worth considerably more than the price paid and to some other aspects and concluded: On the whole of the evidence, much of which is too voluminous in detail to recite here, I would impute to the taxpayer an intention to acquire the subject property for future resale at a profit. This is consistent with what she actually did, namely, rent the property rather than move into it herself with her family, and eventually successfully negotiated to sell it to the road planning authority at a very high figure. On the evidence I cannot be satisfied on the balance of probabilities that she acquired the property in order simply to reside there. I find, therefore, that her dominant purpose comes within the first limb of s. 26 (a) of the Act and that the resulting profit constitutes assessable income.
The taxpayer appealed to the Supreme Court of Western Australia. Neither the taxpayer nor her husband gave any evidence before Wickham J. The transcript of evidence and the exhibits before the Board of Review and the reasons for decision of Messrs. Dempsey and Thompson were admitted into evidence without objection. The only oral evidence given was that of Mr. Mickle, an estate agent and valuer. It went to show that certain of the facts upon which considerable emphasis was placed by the Board of Review were not correct. These facts, in summary, were that the land was at the time of purchase zoned (or at least usable) for "high rise" flat development and that the uses of land in the East Perth area prescribed by the Metropolitan Region Plan would have been well known to interested persons, such as estate agents. Mr. Mickle's evidence refuted both these facts.
There was no finding in the Board of Review that the taxpayer and her husband were either honest or dishonest witnesses. The members of the Board appear to have adopted the approach which is commonly adopted in respect of disputes of fact, namely, the determination of the matter upon the evidence as a whole, both direct and circumstantial, without expressing a conclusion that witnesses whose evidence was not accepted were not honest witnesses. The Board found itself not satisfied on that evidence that the property had not been acquired for the purpose of resale at a profit. Therefore it held that the taxpayer had not discharged the onus which lay upon her by virtue of s. 190 (b) of showing that the assessments were excessive.
On appeal to the Supreme Court of Western Australia Wickham J. dismissed the appeal. In his reasons he said [37] :
In my opinion the Board did not correctly approach its task. I am fairly certain from various passages in the reasons that the Board did approach the case on the basis that there was a presumption that the property was acquired for resale at a profit. This is understandable because the Board did not have the advantage of the decision of the Full Court of the High Court of Australia in Gauci v. Federal Commissioner of Taxation [38] , but only the decision of Lavan J. in that case at first instance. 1. (1977) 7 A.T.R., at p. 369; 77 A.T.C., at p. 4142. 2. (1975) 135 C.L.R. 81.
With respect I am not satisfied that there was any error in the Board's approach in this respect. Mr. Dempsey said that, having regard to all the considerations which he related and to all the circumstances of the case, he was not satisfied that the "purpose" of which s. 26 (a) speaks was not the purpose for which the taxpayer acquired the East Perth property. This correctly reflects the onus cast on the taxpayer by s. 190 (b). He made no reference to Gauci v. Federal Commissioner of Taxation when it was before Lavan J. in the Supreme Court of Western Australia.
Mr. Thompson said that he had to decide, on the balance of probabilities, what was the dominant purpose of the taxpayer in acquiring the property and that it was necessary to remember that the statutory burden of proof on the balance of probabilities rested upon the taxpayer. He concluded that on the evidence he could not be satisfied on the balance of probabilities that she acquired the property in order simply to reside there. He found that her dominant purpose came within the first limb of s. 26 (a) of the Act and that the resulting profit constituted assessable income. He then referred shortly to Gauci when it was before Lavan J. It is true, however, that he did not observe on the difference between the two cases, namely, that in the present case there was a body of evidence which could support an inference that the property was purchased for the purpose of resale at a profit; but I cannot discern from his reference to Gauci that he misunderstood the burden of proof.
It is necessary to say something of Gauci. The conclusion of this Court in that case was that, all the relevant facts being known, there was nothing to support an inference that the property was purchased for the purpose of resale at a profit. It was held that in those circumstances the taxpayer had discharged the onus of showing that the assessment was excessive. If there were a presumption that the property was acquired for the purpose of resale at a profit the absence of evidence, even when all the facts are known, would still leave the presumption itself. A presumption in this way does more than determine the onus of proof. It supplies evidence of the fact presumed. Section 190 (b) does not have this effect. It deals only with the onus of proving that the assessment was excessive. The taxpayer bears that onus. If he produces all the relevant facts, he is entitled to say "Those facts do not disclose anything from which it can fairly be inferred that there was a purpose to resell at a profit". He is not then faced with a presumption to the contrary.
There is by virtue of s. 190 (b) a rebuttable presumption of law that an assessment is not excessive. That is only another way of stating that the burden lies upon the taxpayer to prove that the assessment is excessive. The discharge of that burden where the basis of the assessment is a purpose of resale at a profit will require the tribunal to be satisfied on the balance of probabilities that there was no such purpose. In Gauci's Case the question arose how the tribunal may be satisfied. Must it be able to point to positive evidence, which it finds acceptable, that there was no such purpose? Or is it sufficient if the tribunal be satisfied that all the relevant facts are known and that those facts disclose nothing from which it could be inferred that there was such a purpose? In Gauci it was decided that the latter was the correct approach. The burden has then been discharged of showing that the assessment was excessive because it was not properly based on fully explored facts.
The fact that a taxpayer gives evidence that he had no such purpose will, if it be not accepted, often lead to a conclusion against him. That may be for either of two reasons. First, the fact that a taxpayer is not believed in his evidence of his purpose may enable the court to conclude that he is in his own interest concealing his true purpose and thus an inference of that true purpose may be drawn. In the present case there was no finding of deliberate concealment by the tribunal who saw and heard the taxpayer giving evidence. Secondly, a conclusion against a taxpayer in the predicated circumstances will often be because the reason for not accepting his evidence is not a declining to regard him as a witness of frankness and truth but an acceptance of other evidence which shows either directly or inferentially that his evidence of his purpose is unacceptable. In that kind of case the facts and circumstances outweigh the direct evidence of intention. Ex hypothesi there is something in the known relevant facts from which it may be inferred that there was the requisite purpose. However, in the case where the tribunal refuses to place any weight upon the taxpayer's evidence as a result of his demeanour as a witness, or where his evidence is not available because he is incapable or is dead, and yet the relevant facts, having been made known, disclose nothing from which it can fairly and safely be inferred that he had the requisite purpose, then there is nothing upon which the assessment could have been properly based and thus it is shown to be excessive. This approach was expressed by Windeyer J. in Elsey v. Federal Commissioner of Taxation [39] as follows:
The taxpayer has "the burden of proving that the assessment is excessive" (s. 190). But, unless it appears that there were facts on which the Commissioner could properly rely for including a particular receipt of money as part of the taxpayer's assessable income, that burden is, I consider, discharged. 1. (1969) 121 C.L.R., at p. 108.
The present case was not one where the Board of Review, which alone saw and heard the taxpayer and her husband, expressed a conclusion that they were not witnesses upon whose evidence any reliance could be placed or who could be regarded as deliberately concealing the true purpose. In that way the case resembled Gauci but the existence of other facts and circumstances which could support an inference of purpose makes Gauci inapplicable. On the other hand the conclusion of the Board of Review shows that it did not regard the taxpayer and her husband as witnesses who ought to be believed even in the face of facts and circumstances from which it would otherwise be inferred that there was a purpose of resale at a profit.
Nevertheless, the Board of Review was in error in certain of its conclusions on the evidence as Wickham J. pointed out [40] :
I think that the Board did misunderstand the significance of the zoning of the property and of the impact of the Metropolitan Regional Town Planning Scheme (gazetted in October 1963) at the time when the property was acquired, D.18, T.14, T.15. At the date of acquisition the property was classified for building purposes by the local authority so as to allow residential flats and single dwellings. Owing to the plot ratios, high rise flats were not permitted. This was not a rezoning, it was a first zoning and was restrictive. Under the Metropolitan Region Scheme the land was reserved for proposed public works. The effect of the scheme was not generally known at the time and it was very difficult to find out the status of any particular piece of land. The effect of reservation broadly was that development was prohibited without consent and it was only if that was withheld, or if there was a sale, that a claim could be made for compensation. In respect to zoning the position changed dramatically in 1966 when the local authority adopted what is called the Clark Gazzard Scale which adoption so changed the permissible plot ratios that high rise flats became permissible. There is no doubt that it was this which played a very big part in the spectacular rise in value of this property. At T.15 the taxpayer was fixed with knowledge of the "planned rezoning and road development" at the time of the acquisition of the property. There was no planned rezoning at this time nor at all, and if that expression refers to the Clark Gazzard Scale then the conclusion is not supported by evidence. The significance of this misunderstanding is that it played a part in the conclusion reached by the Board that the property had been acquired for the purpose of profit-making by sale. Such a conclusion is not, I think, supported by these particular matters.
The Board also seems to have taken the view that because the taxpayer's husband was an estate agent in a small way and helped in the transaction, that any purpose he had was that of the taxpayer, D.34, T.10. I respectfully think this to be a view which is unsupportable. Certainly it is not his purpose which is relevant but her purpose.
Wickham J. then posed the problem which he saw before him [41] : Were I sitting as an appellate Court in the true sense I would think it proper to send the case back for rehearing, but I am also sitting as a Court of original jurisdiction, additional witnesses have been called and I may rehear (and indeed I have reheard) the case myself. I have all the material and additional material before me, except that I lack the advantage of having seen and heard the taxpayer and some other witnesses before the Board. It may be that there is no power to remit the matter to the Board but, in any event, convenience seems to dictate that I should determine the matter myself 1. (1977) 7 A.T.R., at p. 370; 77 A.T.C., at pp. 4142-4143. 2. (1977) 7 A.T.R., at p. 371; 77 A.T.C., at p. 4143.
The problem which Wickham J. faced was largely caused by the procedure adopted of simply tendering the evidence before the Board of Review. A very important question which arose for decision in these proceedings was whether the taxpayer's (and to some extent her husband's) evidence was to be accepted as the evidence of a frank and honest witness. Unless the tribunal which heard their evidence made a finding that they were honest witnesses (even if it found on the strength of other evidence that they were mistaken) an appellate tribunal could not practically make a finding that despite the existence of that other evidence the taxpayer was entitled to succeed simply because her evidence was in fact to be believed. The taxpayer by adopting or agreeing or not objecting to this course put out of her reach the argument that her credibility as an honest witness and that of her husband should be found to outweigh other evidence which otherwise supported a contrary conclusion. If there was evidence which was accepted and would support an inference that the property had been acquired for the purpose of resale at a profit, then other evidence (including inferences from evidence), unassisted by the worth of the taxpayer as a witness with her direct evidence on the subject of her intention, would need to outweigh the evidence supporting the inference that the property had been so acquired.
Wickham J. expressed his approach as follows [42] :
Embarking on this task I do not find, upon a consideration of the transcript, any sufficient reason to depart from the Board's decision not to accept the evidence of the taxpayer as to her purpose in acquiring the property. The written word does not cause me to believe that her dominant purpose was to acquire the property as a family home. Whether I would have believed that, if I had seen and heard her, I do not know but the Board did see and hear her and, although certain aspects of the approach of the Board to her evidence seem to me to be unsatisfactory, I am not in a position to say either that the Board was wrong or that left to myself I accept her evidence as to her dominant purpose.
In this state of affairs the position is the same as if she had not given evidence in the material respects at all. No contrary inference is thereby opened. The question now is whether leaving aside the evidence of the taxpayer there was any material upon which it could properly be concluded that the property was acquired with the relevant purpose. If there is, then there being no satisfactory evidence to the contrary, the taxpayer has not overcome the prima facie inference, and by virtue of the provisions of s. 190 the assessments must be confirmed.
The taxpayer started negotiations for the sale of the property to the Authority in October 1967. In the circumstances of this case I would not myself have concluded that the starting of negotiations and the ultimate sale of the property to the Authority opened by itself an inference that it was acquired for the purpose of resale at a profit. Assuming the acceptance of the evidence of the taxpayer that she opened the negotiations because of the rising incidence of rates and because of the fact that she had only just discovered that the property was to be resumed then this sale has many of the incidents of a forced sale and in that respect is analogous to a resumption.
On the other hand there is another consideration which together with the negotiations does in my opinion provide material upon which it could properly be concluded that the property was acquired for the purpose of resale at a profit. Whatever may be said as to the views of the Board as to the taxpayer's knowledge and state of mind when she acquired the property I think that there is ample evidence in a general way and rising from the publicity about the Metropolitan Region Scheme and its effects, (D.19) to open the inference that at the time the property was in an area where the future values would be volatile and much more likely to rise than fall. While the detail of the scheme might not have been known to individuals, I think it open to infer as a probability that the taxpayer was aware of the potential of the property as a profit making venture by way of resale. As no other purpose was established, then I think that this, together with the fact of its ultimate resale, does provide evidence upon which the conclusion as to purpose could be drawn. It is not necessary that it must be drawn or even should be drawn. It is sufficient that there be evidence from which the conclusion may be properly drawn. Although views may differ on a question of "sufficient evidence" my opinion is that there was in this case sufficient evidence to form a basis for the assessments. This being the case and there being no sufficient acceptable evidence to the contrary, s. 190 requires the confirmation of the assessments.
This approach was criticised in the Federal Court of Australia. It does appear that Wickham J. overly concentrated his attention upon the kind of question which was dealt with in Gauci [43] and Elsey [44] , that is to say, whether there had emerged in the case any facts upon which the assessments could properly be supported. He found, and rightly found, that there were such facts. The appeal therefore could be dismissed, particularly as the taxpayer carried the burden of establishing that the appeal should be allowed. It was, however, still necessary for him to weigh those facts in the light of all the facts and circumstances which appeared in the evidence and to determine whether the taxpayer had satisfied him that from the facts, which could support an inference that the property had been purchased for the purpose of resale, that inference should not in fact be drawn and that therefore the appeal should be allowed. Further, because of the course adopted by the parties before him, he could not reach a conclusion whether or not the taxpayer showed herself to be an honest witness and for that reason was to be believed in her direct evidence of intention. I think that he made it sufficiently clear that he was treating the Board's finding as an implicit conclusion that the taxpayer's evidence had no special weight because of her honesty and credibility as a witness. He therefore took the view that her evidence as to her purpose was not entitled to any weight.
If the only evidence against the inference had been the direct evidence of the taxpayer as to her purpose, then the facts from which an inference of the requisite purpose could be drawn would probably lead to a conclusion that the taxpayer had not satisfied the burden of rebutting the inference; but nevertheless this was a question which had to be determined. But there was evidence apart from the unacceptable direct evidence of purpose given by the taxpayer and her husband. There was the evidence of Mrs. Schwind and Mrs. Dodd. The latter could be regarded as a not wholly independent witness as she was the taxpayer's daughter. Also, her evidence related to the taxpayer's declarations of intention a year after the purchase. On the other hand Mrs. Schwind appears to have been a completely independent witness and she spoke of a declaration of intention a very short time after the acquisition of the property. If her evidence was of weight then that evidence, slight as it may have been in quantity, was of very great importance in discharging a burden of establishing the negative assertion that the purpose of acquiring the property was not one of resale at a profit - "slight proof of other circumstances and facts might have been sufficient to rebut a presumption which goes only to establish a negative proposition" (Phillips v. Barker [45] ).
Unfortunately the possible weight of this evidence was not appreciated by the Board of Review or, it would seem, by Wickham J., and as a result no sufficient attention was given to the question whether Mrs. Schwind was to be believed as an honest and credible witness whose memory of somewhat distant events was to be trusted. If her evidence was accepted then a tribunal, before it could find that the taxpayer's evidence of purpose was not acceptable, would have to conclude that at the time the taxpayer was concealing from Mrs. Schwind her real purpose when she made the statement of intention or purpose. The evidence is referred to only in the reasons of Mr. Dempsey:
Taxpayer has called evidence from her daughter, the tenant who first occupied the property and the valuer, to support her case, but none of these people can assist to establish the reason why the property was acquired. Their association with the property occurred later than its purchase. The decision to buy, irrespective of whether it was made by the taxpayer or her husband, or conjointly, was made independently of these people and their evidence does not assist. If anything, the evidence of the tenant casts doubt on the accuracy of certain evidence from the husband. But the statements, provided they can be regarded as contemporaneous statements, are relevant and admissible in establishing the reason why the property was acquired. Contemporaneity requires that they be made at or about the time of the acquisition. Later statements of intention or purpose are only admissible if they are against interest, which these statements were not. The principles are discussed by Morton L.J. in Warren v. Gurney [6] . The statement of the taxpayer to Mrs. Schwind could be regarded as contemporaneous even though it was not made at the moment of acquisition. It would appear that it was made very shortly afterwards and it was capable of being regarded as one of the circumstances surrounding the acquisition of the property. 1. [1944] 2 All E.R. 472, at pp. 473-474.
Deane J. in his reasons in the Federal Court of Australia correctly regarded the statement made to Mrs. Schwind as of importance but he dealt with it as follows [7] :
I have already referred to the evidence of Mrs. Schwind that, around the time of the purchase, the appellant indicated to her that the property was being purchased as a future family home. That evidence is relevant to the question of what the appellant's intention actually was (see per Windeyer J., Elsey v. Federal Commissioner of Taxation [8] ). Mrs. Schwind was purporting to give detailed evidence of a casual conversation which she had had more than eleven years previously. She was not, however, cross-examined as to when and in what circumstances she had first been asked to recall the terms of the conversation. Nor was she asked, in cross-examination, any questions which were calculated to raise doubt as to her ability to remember the conversation or to challenge her veracity in recounting it. Mrs. Schwind's evidence of that conversation constitutes, in my view, the most telling piece of evidence in the appellant's favour in the whole of the material before us. It must however be seen in the context where, as has been said, it was not to be expected that, assuming that the appellant had purchased the property for the purpose of profit-making by sale, either the appellant or McCormack would acknowledge that purpose. 1. (1977) 17 A.L.R., at pp. 100-101; 8 A.T.R., at p. 251; 77 A.T.C., at p. 4562. 2. (1969) 121 C.L.R., at p. 108.
The Federal Court of Australia undertook the task of itself assessing the whole of the evidence. Deane J., with whose analysis of the evidence Bowen C.J. and Brennan J. agreed, felt able from the record of evidence to reach the positive conclusion that the taxpayer was not a reliable or completely truthful witness and that the evidence of the husband was unconvincing. It is very difficult for a court on appeal to make findings on the honesty and credibility of a witness different from those made by the tribunal who heard the evidence or even to make a finding that a witness is not an honest witness without having seen and heard that witness. However, it is not necessary to determine whether the court on this appeal was in a position to make a positive finding on the honesty and credibility of these witnesses. The conclusion reached was no different in effect from that of the Board of Review which heard them give evidence, namely, that their evidence did not, by its special weight as that of honest and truthful witnesses, weigh down the scales in the taxpayer's favour despite the circumstantial evidence which might otherwise point to a contrary conclusion.
However, a finding that the evidence of the taxpayer and her husband did not have such a decisive weight does not itself affect the weight of Mrs. Schwind's evidence. Deane J. felt himself able to conclude that the taxpayer had a motive not to acknowledge to Mrs. Schwind that she had purchased the property for the purpose of profit-making by sale. He could reach this conclusion as to motive on the basis of the view which he reached that the taxpayer and her husband were knowingly engaged in a kind of transaction which they knew to be in some way reprehensible. Such a view would be one which could have bee reached by the tribunal which heard the evidence of the taxpayer and her husband but with respect I do not think that it could be reached by the appeal court particularly when it had not been explored at first instance. The negative finding that the taxpayer's evidence was not entitled to the special weight of an honest witness, a finding which had support from the ultimate conclusion of the tribunal which heard the evidence, is in a different position from the positive finding that immediately after the purchase the taxpayer deliberately concealed her true purpose. I am therefore of the opinion that the course adopted in the Federal Court of Australia was not one which was open to it.
It does not follow that the taxpayer is entitled to have the assessments set aside on the strength of Mrs. Schwind's evidence. The weight that should be given to her evidence has never been assessed by a tribunal which could gauge her credibility as a witness and which appreciated the importance of her evidence if it is accepted. Further, the impact of that evidence if it be accepted on the weight of the taxpayer's own evidence and consequently on her credibility has not been properly determined. I would therefore make the order which I indicated at the beginning of these reasons.
The Commissioner assessed the taxpayer for income arising under s. 26 (a) of the Income Tax Assessment Act 1936, as amended, which provides:
The assessable income of a taxpayer shall include -
(a) profit arising from the sale by the taxpayer of any property acquired by him for the purpose of profit-making by sale, or from the carrying on or carrying out of any profit-making undertaking or scheme.
The taxpayer requested the Commissioner to refer his decision to a Board of Review (see s. 187 of the Act). On this reference, the Board confirmed the assessment; the taxpayer appealed to the Supreme Court of Western Australia on the basis that the Board's decision involved a question of law (see s. 196); the Supreme Court confirmed the Board's decision; the taxpayer by leave appealed to the Federal Court of Australia which dismissed the appeal. The taxpayer now appeals as of right to this Court.
This case concerns the burden of proof placed upon the taxpayer by s. 190 (b) of the Act, which provides:
(b) the burden of proving that the assessment is excessive shall lie upon the taxpayer.
("Such reference" means the reference referred to in s. 187 of the Act.) The legislative scheme is that, although not expressly stated, s. 190 is applicable on appeal to the Supreme Court, the Federal Court and in this Court (see Archer Brothers Pty. Ltd. v. Federal Commissioner of Taxation [9] in relation to s. 190 (a)). Statements by Fullagar J., in Commissioner of Taxation v. Finn [10] which suggest that s. 190 (b) is not applicable on an appeal from a Board of Review are not in accordance with the general legislative intent, particularly that stated in s. 193 (1). The section is applicable on appeal whether or not the Board has varied the assessment (see McTiernan J. in Federal Commissioner of Taxation v. Robinson and Mitchell Pty. Ltd. [11] and Webb J. in Watson v. Federal Commissioner of Taxation [12] ). 1. (1953) 90 C.L.R., at p. 149. 2. (1960) 103 C.L.R. 165. 3. (1941) 64 C.L.R. 612, at p. 618. 4. (1953) 87 C.L.R. 353, at p. 363.
As the evidence stands, the appellant has not discharged the onus of proof which lies upon her. I come to this conclusion because of the understanding of the operation of s. 190 (b) which I expressed in Macmine Pty. Ltd. v. Federal Commissioner of Taxation [13] . In my opinion, Mason J.'s dissenting judgment and reasons in Gauci v. Federal Commissioner of Taxation [14] are correct.
A taxpayer might discharge the burden of proof placed on him by s. 190 (b) in any of several ways. He may prove all relevant circumstances and from these establish that an inference should be drawn that the property (from the sale of which by the taxpayer a profit arose) was not acquired by him for the purpose of profit-making by sale. Or he may prove by direct evidence that such a purpose did not exist. The burden might also be discharged by a combination of direct evidence and inference from other circumstances. He may, of course, rely upon any evidence or any inference from evidence adduced by the Commissioner. The appellant has not discharged the burden in any of these ways. Once that conclusion is reached, the consequence is that the appeal should be dismissed.
I would not single this case out for remission for another hearing, especially if the purpose contemplated is that the court to which it is remitted should find whether the taxpayer or a witness is "honest" or "dishonest". In some cases a tribunal may conclude that a witness is, or is not, an honest witness. It is not required to do so. In civil cases such as this, it is generally undesirable to express such a finding in a proceeding which after all is to be decided on the balance of probabilities. Tribunals should not be encouraged to make findings that witnesses are honest or dishonest. In some cases, the evidence may point to such a conclusion. Even in these cases, assessment is often based on the demeanour of the witness and intuitive perception. The supposed special capacity of judges to decide the honesty of witnesses from demeanour and intuitive perception has never been established, and is, I suspect, grossly overrated. Even where witnesses contradict one another, it is not necessary to find that one is honest and the other dishonest. Both may be honest or both dishonest. It is enough for the tribunal to state that it does, or does not, accept certain evidence, or that it is, or is not, satisfied to the requisite standard. This was the approach taken by the Board of Review in this case and it was a proper approach.
A new peril is introduced if, in every case where a taxpayer seeks review (administrative or judicial), he and his witnesses almost always face the prospect of having a finding whether they are "honest" or "dishonest" witnesses. A witness, not being a party, is generally less able to defend himself than a taxpayer.
The course taken by appellant's counsel in not tendering her as a witness in the hearing before the Supreme Court did not prove successful. In weighing the advantages and disadvantages of calling her, counsel no doubt attempted to take, and may well have taken, the course which gave her the highest chance of success. The difficulty the trial judge would have in assessing the weight to be given to the record of her evidence before the Board was aired at the trial, but appellant's counsel adhered to his course. I am unable to say he was wrong. She may well have lost if she had given evidence. She and her counsel must be presumed to have made a deliberate choice. Even if this were an error of judgment, it is no ground for a rehearing, and I am not satisfied that any other ground has been made out.
As the order of the Court is that the matter is to be remitted for further hearing, I refrain from dealing in detail with the facts.
McCormack
Commissioner of Taxation