Price Street Professional Centre Pty Ltd v Commissioner of Taxation

Federal Court of Australia (Full Court)|2007-09-25|Before: Edmonds J, Greenwood JJ, Kenny J

REASONS FOR JUDGMENT KENNY J: 1 Price Street Professional Centre Pty Ltd ("Price Street") seeks to appeal against the judgment of a judge of the Court, which upheld the decision of the Administrative Appeals Tribunal ('the Tribunal') rejecting Price Street's claim to carry forward losses from the sale of land in Queensland ('the land'). 2 I have had the benefit of reading, in draft, the reasons for judgment of Edmonds J. For the reasons I give hereafter, I too would dismiss the appeal, although I would do so primarily on the ground that there was no relevant question of law that supported the Court's jurisdiction with respect to that part of her Honour's judgment that was the subject of the appeal to this Full Court. If I were not to dismiss the appeal on this ground, then I would dismiss the appeal on its merits, substantially for the reasons given by Edmonds J. 3 The circumstances of the appeal are described in detail by his Honour. For my purposes, it is sufficient to refer only to the following matters, which appear from the Tribunal's reasons. 4 In December 1989, a non-resident foreign businessman entered into a contract to purchase the land, which consisted of 10.32 hectares, for $940,000. In May 1990, the Foreign Investment Review Board ('FIRB') gave the businessman conditional approval for the purchase. Prior to this approval, the solicitors for the businessman had advised the FIRB that he wished to develop dormitory-style cabins on the land that could be rented to overseas students. These solicitors later foreshadowed the possibility that part of the land would be on-sold. In 1991, the businessman retained a new firm of solicitors and the principal of that firm, referred to in the Tribunal's reasons as 'Mr D', began to act for him. Around this time, the FIRB was asked to approve the transfer of the land to a company, the shareholders of which were Australian. The FIRB assented to this proposal, but the businessman did not proceed with it. Instead, he decided to transfer the property to Price Street. 5 The Tribunal's reasons record that Price Street was incorporated under a different name on 15 March 1982. Mr D was a director and the holder of one of two issued shares. On 28 November 1991, at an extraordinary general meeting, the company resolved to allocate Mr D a further 1,449,998 $1 shares. Mr D provided a cheque in that amount to the company. These funds were used to pay for the land. According to the Tribunal, the allocation of the shares and the purchase of the land were part of a "round-robin of transactions", in which the foreign businessman paid $1.45 million to Mr D, which Mr D used to pay for the shares in Price Street. Price Street used these funds to pay for the land it acquired from the foreign businessman. The Tribunal stated: In other words, the transaction was effected by passing a series of cheques. The money paid by the foreign businessman came back to him. 6 The Tribunal referred to discussions in 1992 "about the possibility of developing the company's land", saying: The [Tribunal] documents include correspondence with consultants and the local government authority about sub-division proposals. A letter from the foreign businessman's accountants to Mr D makes it clear the businessman was integrally involved in the decision-making process in relation to the development proposals … As it happened, a decision was made to sell the land instead of undertaking further development. The company contracted to sell the property to Macelcliff Pty Ltd for $1.105 m on 14 October 1992 … The sale realised a significant loss for the company. 7 The Tribunal's reasons record that the businessman gave instructions to wind up the company in September 1992 after the decision had been made to sell the land. This did not occur. The company assumed its present name on 1 May 1993 and, on 1 September 1993, the company's other director transferred his share to Mr D's wife. 8 The company's 1993 tax return, which was lodged about 27 August 1993, disclosed a loss in the amount of $4,422. Subsequently, however, the company's new accountants claimed an error had been made in the return. The effect of the amendment was, so the Tribunal said, "to decease the capital loss to nil and increase the taxable loss from $4,422 to $755,377", which Price Street sought to carry forward to later years. 9 On 27 September 2002, the Commissioner of Taxation ('the Commissioner') disallowed Price Street's objections to amended assessments. In particular, the Commissioner: (1) disallowed a claimed revenue loss of $755,680 incurred upon the sale of the land in the year ended 30 June 1993 upon the basis that the loss was of a capital nature; (2) disallowed the consequential claims for deduction of unrecouped revenue losses carried forward in the years ended 30 June 1995 to 30 June 2000; and (3) imposed a penalty under s 226J of the Income Tax Assessment Act 1936 (Cth) ('the Act') at the rate of 75% in relation to the assessments for the years ended 30 June 1995, 1996, 1997 and 1998. 10 The Tribunal affirmed the Commissioner's decision on 22 November 2005. The Tribunal held that the proceeds of the sale of the land constituted the realisation of a capital asset and the loss was a capital loss. The gravamen of the Tribunal's reasons appear in the following passages: The applicant says this was a profit-making venture. Mr Robertson asked me to infer Mr D owned the shares in the taxpayer beneficially and the foreign businessman was an investor in the company. The company acquired the land with a view to developing it or on-selling the property to another entity. The company investigated various development options before completing a sale and then distributed a portion of the proceeds to the foreign businessman. I am not persuaded by that characterisation of the company's business activity. The taxpayer was a shelf company until it contracted to purchase a parcel of land from a foreign businessman who was a client of one of the company's directors. The correspondence between the businessman's solicitors and the FIRB make it clear the property was acquired by the businessman to construct student accommodation. As it happened, that was the only use to which the property was ever put. The transfer of ownership to the company was completed as part of a reordering of the businessman's affairs because of taxation concerns. The company continued to derive rental income from the accommodation that had been developed on the property. The businessman foreshadowed the possibility that the property might be sub-divided as part of a development project, but I think the evidence makes it clear that was just one option under consideration. While the company was a separate legal entity with a corporate mind of its own, I am not persuaded the company had different intentions with respect to the land. (The evidence makes it clear the businessman continued to play a central role in the decision-making process of the applicant. His intentions are therefore relevant.) The taxpayer did investigate whether the property could be sub-divided or on-sold for the purpose of development, but I do not think the evidence establishes that was the purpose for which the land was acquired. The steps taken towards further development of the property were so limited that the whole undertaking could not be said to be comparable to the situation in [Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355]. 11 Although strictly unnecessary to deal with issues relevant to s 80A of the Act, the Tribunal did so because it thought "the fate of this argument might be relevant to the calculation of penalties". It held that Price Street did not satisfy the continuity of business test in s 80A, because the loss on the sale of the land was incurred while the foreign businessman held the beneficial ownership of all the shares and Price Street did not seek to deduct that loss against its income until after the businessman surrendered his share interest. The Tribunal also held that Price Street did not satisfy the same business test in s 80E of the Act, because there was a significant break in its business activities between November 1992 and 1996 and it was not satisfied that the company was engaged in the same business after the break. 12 The Tribunal rejected Price Street's arguments on penalty. It said: The applicant says a penalty of that magnitude is inappropriate because it acted with the advice of senior counsel. It seems that advice was given orally. It is unclear on the evidence before me what that advice would have been, or to what aspect of the applicant's affairs it related. What evidence there is certainly does not suggest careful thought and evaluation of the decision to carry forward and claim the losses made by the company against its future income. To the contrary: the evidence suggests to me that Mr D (the directing mind and will of the company after the foreign businessman ceased to be involved) recognised what he took to be an opportunity to obtain a tax advantage by exploiting a corporate shell that had been abandoned by one of his clients. To do so, the company had to ignore the plain effect of many of the documents in relation to the sale of the land and the relationship between the foreign businessman, the company and Mr D. The taxpayer could not have believed it was entitled to seek deductions, yet it persisted in its attempts to do so. 13 Price Street appealed to this Court pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 ('the AAT Act'). Section 44(1) provides that "[a] party to a proceeding before the Tribunal may appeal to the Federal Court of Australia, on a question of law, from any decision of the Tribunal in that proceeding". Order 53 of the Federal Court Rules 1979 (Cth) ('the Rules') regulates the practice and procedure to be followed in respect of appeals from the Tribunal. 14 The notice of appeal, which O 53 requires, necessarily formulated the questions of law and the grounds that Price Street might address in this Court. This notice of appeal stated the questions of law as follows: (a) Are the losses incurred by the Taxpayer allowable as deductions under section 51(1) of the Income Tax Assessment Act 1936 ('the 1936 Act'); (b) If yes to (a), in the relevant years of income: (i) did section 80A of the 1936 Act (the substantial continuity of beneficial ownership test) apply to deny the Taxpayer deductions; or (ii) did section 80E of the 1936 Act (the same business test) apply to allow the Taxpayer deductions; (c) if the applicant was wrong in claiming deductions, were penalties correctly imposed under section 226J of the 1936 Act; (d) did the Tribunal err in instructing itself as to applicant's onus of proof and as to its role in reviewing the objection decision …; (e) did the Tribunal err in not providing reasons for its rejection of the preponderance of the evidence as to the beneficial ownership of the shares; (f) did the Tribunal err in finding that the Taxpayer was not carrying on the same business in the relevant years within section 80E; (g) could a reasonable tribunal have made, on the material before it, the findings made; (h) does the Tribunal's apparent error of fact - that Mr D was prosecuted in the criminal courts for causing the Taxpayer to claim deductions - show that the Tribunal failed to give due consideration to the material before it, or give rise to a reasonable apprehension of wrongful bias against the Taxpayer. 15 These were the grounds set out in this notice of appeal: (a) The Tribunal should have found that the facts before it constituted business activities under the revenue provisions of the 1936 Act and that accordingly the losses were deductible under section 51(1). The Tribunal should have found on the facts before it that either section 80A did not apply or section 80E was satisfied. (b) The Tribunal should not have found that section 226J applied to impose penalties at 75%. (c) The Tribunal should have instructed itself that: (i) its role was to stand in the shoes of the Commissioner when making the objection decision and that it was to make that decision on the balance of probabilities on the material before it; (ii) its role was to weigh all the material before it and make findings as to the facts on the balance of probabilities; (iii) the onus of proof provided for in section 14ZZK of the Taxation Administration Act 1953 operated against the applicant only where the balance of probabilities was against a finding of fact required by the applicant or was evenly balanced for and against such a finding of fact. (d) Having held correctly that the rule in Jones v Dunkel did not apply … the Tribunal in fact applied that rule … . (e) The Tribunal failed to give reasons for the rejection of the material before it showing that there was a substantial continuity of beneficial ownership of the taxpayer's shares. (f) The Tribunal erred in its application of s 80A. Having found … that (i) the 1,449,998 shares were acquired with money lent to the applicant's director Mr D by the non-resident, which loan was limited in recourse to the shares; and (ii) Mr D had left the shares to the non-resident's daughter in his will, it should found, if it had applied the correct onus test that Mr D held the shares beneficially. The Tribunal erred in giving weight to the subsequent unsigned and ambiguous document dated 20 December, 1991 to the non-resident's accountant written on behalf of the company and in treating it as effective to create a trust of the shares in favour of the non-resident. The Tribunal erred in not giving weight to the annual returns as public documents. (g) The Tribunal also erred in treating the authority dated 17 September 1993 as effective to change the beneficial ownership of the shares, in that they were not beneficially owned by the maker of that document (the non-resident). (h) The Tribunal erred in its application of section 80E. The evidence before the Tribunal was that the taxpayer's activities before the alleged change of ownership were the same as those after the alleged change of ownership. On the material before it, the Tribunal should have found that the same business test was satisfied. (i) No reasonable Tribunal, properly apprised of its role, could have made the findings that were made. (j) The Tribunal's apparent error of fact - that the controller of the taxpayer had been prosecuted for claiming the deductions - leads a reasonable observer to the conclusion that the Tribunal did not give due consideration to the material before it, and may have been biased against the Taxpayer. In particular, a Tribunal acting under such a misapprehension could more readily make adverse findings of fact against the taxpayer. 16 I interpolate here that the learned primary judge detected no error in the Tribunal's decision that the loss on the sale of land was a loss on capital and not revenue account. Her Honour held that it was unnecessary to consider the application of ss 80A and 80E of the Act. Her Honour also found no error in the Tribunal's decision regarding s 226J of the Act. Further, she held that the Tribunal did not err in instructing itself as to the onus of proof and as to its role in reviewing the objection decision. Her Honour thus rejected the unreasonableness challenge to the findings made by the Tribunal. Her Honour rejected the challenge to the Tribunal's penalty decision on the basis it was infected by a wrong finding of fact. 17 The primary judge was alive to the jurisdictional constraints imposed by s 44(1) of the AAT Act. Her Honour held that two of the supposed questions of law raised by Price Street were not correctly characterized as questions of law. That is, her Honour held that the question as to the failure to provide reasons for rejecting evidence as to the beneficial share ownership and the question as to the Tribunal's finding about the same business test did not constitute questions of law for the purposes of s 44(1) of the AAT Act. 18 Price Street appealed from her Honour's judgment upon seven grounds. They were: 1. Her Honour erred in deciding that the losses incurred by the appellant were not allowable deductions under s 51(1) of the [Act]. In particular, her Honour mistook the Tribunal's finding that the appellant did not have 'the' purpose of profit-making by sale as a finding that the appellant did not have any such purpose. 2. Her Honour erred in failing to treat evidence of the steps that the appellant took towards subdividing the land shortly after it acquired the land as evidence that at least one of the appellant's purposes in acquiring the land was to develop it for subdivision. 3. Her Honour erred in not deciding that different purposes on acquisition could be held for different parts of the land, namely a purpose of subdivision and sale for part (in the present case, the bulk) of the land, which was ripe for such development, and a purpose of deriving rent from another part of the land. 4. Her Honour erred in not deciding, for the purpose at least of determining whether there was an intentional disregard of the tax law under s 226J of the [Act], whether there was a continuity of beneficial ownership of shares in the appellant under s 80A of the [Act]. In particular, her Honour could not properly decide that the appellant intentionally disregarded a change in the beneficial ownership of its shares within s 80A of the [Act] without first deciding whether there had in fact been a change in such beneficial ownership. 5. Her Honour should have held that : (a) the Tribunal erred in law in rejecting the appellant's contentions that there were (i) continuity of beneficial ownership of its shares within s 80A; and (ii) continuity of business within s 80E; and (b) there was no relevant change of beneficial ownership under s 80A of the [Act]; or, alternatively, (c) there was a continuity of business under s 80E. 6. Her Honour erred in finding that there was no error of law in the Tribunal's decision that there was an intentional disregard of the tax law under s 226J. If there was no change in beneficial ownership under s 80A or the issue is arguable either way, then there could be no intentional disregard of a tax law within s 226J of the [Act]. 19 Considering the initiating notice of appeal required by O 53 of the Rules, it is apparent that the appeal from her Honour's judgment was limited to her Honour's treatment of the first three questions set out at [14] above. The appellant did not challenge her Honour's determination of the other matters said to be raised before her. 20 I have set out the two notices of appeal filed in this proceeding in some detail because they indicate what closer examination confirms: namely, that the appeal to this Court under s 44(1) of the AAT Act was very largely incompetent and certainly incompetent in so far as it sought to engage the Court in a broad ranging enquiry into the operation of s 51(1), or ss 80A, 80E and 226J. The Commissioner did not take the point before the primary judge or on appeal. Nonetheless, even in the absence of a challenge, the Court needs to be satisfied that there were relevant questions of law, upon which its jurisdiction to determine the matters in question depended: see also HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 219 ALR 591 at 608 per Stone J, with which Allsop J agreed.

CONSIDERATION 21 At the commencement of the hearing of the appeal, counsel for Price Street was asked to identify the question, or questions, of law said to constitute the appeal from the Tribunal. In response, counsel submitted that the first question identified in the initiating notice of appeal (see [14] above) raised the question whether, on the facts as found, the loss was on revenue account and not on capital account as the Tribunal found. The grounds (set out in [15] above) were not so limited. Counsel argued that the first of the grounds concerning the claimed deduction under s 51(1) (mentioned at (a) in [15] above) was designed to do no more than direct attention to the fact that the Tribunal had adopted a wrong approach, leading it into legal error. Counsel for the Commissioner agreed that her Honour was invited to deal with the matter on the basis that the Tribunal had asked the wrong question. There appeared to be little, however, in the way the notice of appeal before her Honour was formulated to support this manner of proceeding. Nothing further was said regarding the other questions in the notice of appeal supposedly filed in conformity with O 53. 22 The jurisdiction conferred on the Court by s 44(1) of the AAT Act is a limited one. It is to hear and determine an appeal "on a question of law" only. The findings of fact that have been made by the Tribunal are generally not amenable to challenge unless the manner of their making gives rise to a question of law: see, for example, Sharp Corporation of Australia Pty Ltd v Collector of Customs (1999) 59 FCR 6 ('Sharp') at 12 per Davies and Beazley JJ and 16 per Hill J. The distinction between a question of fact, a question of mixed fact and law, and a question of law can be difficult to discern. Notwithstanding this, the competency of an appeal under s 44(1) depends on the identification of a question, which is properly characterized as a question of law, as the subject of the appeal: see also Comcare v Etheridge (2006) 227 ALR 75 ('Comcare v Etheridge') at 80 per Branson J (with whom Spender and Nicholson JJ agreed) and the cases cited. As her Honour said: The legislature, by creating a statutory right of appeal to a party to a proceeding before the tribunal in the narrow terms of s 44(1), disclosed an intention to limit the capacity of the court on an appeal under s 44(1) to review factual findings of the tribunal. An appeal pursuant to s 44(1) is thus quite different from an appeal from a judicial body under s 24 of the Federal Court Act. An appeal under s 24 is an appeal by way of rehearing. 23 In this Court, discussion of s 44(1) commonly commences with the Full Court's statement of the five general propositions in Collector of Customs v Pozzolanic (1993) 43 FCR 280 ('Pozzolanic') at 287 per Neaves, French and Cooper JJ that can ground the characterization of a question as one of fact or one of law. The fifth proposition, which was apparently the assumption on which the case had proceeded in this Court, states that "[t]he question whether facts fully found fall within the provision of a statutory enactment properly construed is generally a question of law": see Pozzolanic at 287 (emphasis added), citing Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47 at 51-52 per Fullagar J. See also Ergon Energy Corp Ltd v Commissioner of Taxation (2006) 153 FCR 551 ('Ergon') at 564 per Sundberg and Kenny JJ and the cases cited. Hill J later commented that the reason for the qualification in Pozzolanic was that "the fifth proposition is in truth … two separate and related propositions": Sharp at 16. The first was that "where the facts have been fully found or there is no dispute as to the facts and the question is whether those facts necessarily fall within the description of a word or phrase in a statute, that will be a question of law": Sharp at 16. As his Honour said, at 16, the rationale for this proposition is comparatively clear since, if only one meaning is open and the tribunal arrives at a different one, there must be an error of law in the tribunal's approach. The second related proposition is that "where the facts found are capable of falling within or without the description used in the statute, the decision which side of the line they fall on will be a decision of fact and not law": Sharp at 16. Again, as his Honour said, "[s]uch a decision will generally involve weight being given to one or other element of the facts and so involve matters of degree": Sharp at 16. I would add a third related proposition, namely: whether the facts reasonably admit of more than one conclusion as to whether or not they fall within the language of the statute is a question of law: see Ergon at 564. 24 Plainly enough, the prior question whether or not the facts were wrongly found is a question of fact, against which there is no appeal. To quote the Full Court in Pozzolanic at 286: The appealable error of law must arise on the facts found by the Tribunal or must vitiate the findings made or must have led the Tribunal to omit to make a finding it was legally required to make. A wrong finding of fact is not sufficient to demonstrate error of law: Waterford v Commonwealth (1987) 163 CLR 54 at 77-78. Where the decision of the Tribunal involves matters of fact and degree, then provided it applies correct principles of law, no appeal will lie: Commissioner of Taxation v Brixius (1987) 16 FCR 359 at 365. 25 Whether there is a question of law upon which an appeal can be grounded will mostly depend on the particular decision under challenge, and the issue a litigant seeks to agitate, rather than the subject matter of the decision. Thus, generally speaking, one cannot say in advance of a decision on a claimed deduction under s 51(1) of the Act whether or not it will give rise to a question of law that will support an appeal under s 44(1) of the AAT Act. Much will depend on how the decision was arrived at and the point that a litigant seeks to challenge. 26 For example, there will be some decisions involving s 51(1) of the Act that will not readily disclose a question of law. Commissioner of Taxation v Brixius (1987) 16 FCR 359 ('Brixius') was a case of this kind. The Commissioner sought to appeal under s 44(1) of the AAT Act against the Tribunal's decision that the applicant's claimed deduction under s 51(1) of the Act should be allowed upon the basis that it was attributable to a home study. Their Honours observed, at 365: The difficulty which confronts the Commissioner is that, once having identified the correct principles of law (a matter which was not challenged) the question for determination by the Tribunal is, in a matter of this nature, essentially a question of fact, or of fact and degree. The Full Court (Forster, Fisher and Spender JJ) held that the Commissioner had not identified any question of law. 27 On the other hand, the application of s 51(1) gave rise to a question of law in Placer Pacific Management Pty Ltd v Federal Commissioner of Taxation (1995) 31 ATR 253, where the Full Court held, at 258, that the decision of the Tribunal turned on the effect of De Bavay's Case (Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation (1935) 54 CLR 295). Accordingly, the issue in Placer was not to be resolved by a finding of fact but whether the effect of prior authority was to bring the facts as found within the statutory provision. 28 As a matter of first impression, the supposed questions of law in this case appear unlikely to attract jurisdiction under s 44(1) of the AAT Act. Relevantly, in this context, in Comcare v Etheridge the Full Court held, at 81, that a question that invited "[a] broad enquiry as to the construction and operation of statutory provisions is not a question of law within the meaning of s 44(1) of the AAT Act". The first three questions set out at [14] above did just this. The remaining questions can be put to one side because the appeal did not seek to challenge her Honour's disposition of them. I note her Honour held that at least two of these remaining questions did not disclose questions of law. 29 Notwithstanding that both parties invited her Honour to determine the proceeding as if a question of law was raised on the s 51(1) point, they could not in this way give the Court jurisdiction it did not have. My impression that Price Street failed to raise a question of law before her Honour as to the applicability of s 51(1) of the Act is confirmed by consideration of the notice of appeal that purported to bring the issue before us and the submissions of Price Street on the appeal. The argument for Price Street on the applicability of s 51(1) made it very clear that Price Street was effectively challenging the factual findings of the Tribunal. Counsel for Price Street asked us, in effect, to remake the Tribunal's findings in light of the evidence before the Tribunal (all of which was documentary). I would eschew this task as one not open to the Court, because of the limited jurisdiction conferred by s 44(1) of the AAT Act. For the reasons already given, it is not open to the Court to second-guess the Tribunal's factual findings. Much of the argument for Price Street also underlined the fact that the field in which it invited us to tread was "very much a matter of fact and degree" in the sense used in Brixius: see Brixius at 365. This part of the argument invited us to take a different view from the Tribunal as to which "side of the line" the purposive facts fell. As Hill J said (see [23] above) this is a matter of fact. 30 As I have already indicated, counsel for Price Street made no separate attempt to characterize as questions of law the second and third questions raised on the notice of appeal before the primary judge: see par (b) and (c) at [14] above. Plainly enough, these were questions of mixed fact and law. Not only did they call for a broad ranging enquiry, they plainly did so in terms that invited consideration of the evidential and factual matrix of the case. They cannot be regarded as "questions of law" for the purposes of s 44(1) of the AAT Act. 31 For these reasons, I conclude that the issues that the appellant sought to agitate on this appeal had no grounding in any relevant question of law that would have accorded the Court at first instance jurisdiction to hear and determine them. If the Court at first instance had no relevant jurisdiction, then neither do we. The fact that the Commissioner did not take the point does not, so it seems to me, overcome this fundamental difficulty. Accordingly, I would dismiss the appeal on this ground. 32 If I am wrong about this, however, I would nonetheless dismiss the appeal, on its merits, substantially for the reasons stated by Edmonds J. I also agree, for the reasons stated by his Honour, that there should be no order as to costs. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: PRICE STREET PROFESSIONAL CENTRE PTY LIMITED

Background 33 This is an appeal from a judge of this Court dismissing an appeal from the Administrative Appeals Tribunal ("the Tribunal"). The jurisdiction exercised by the primary judge was to decide "an appeal on a question of law" within the meaning of s 44 of the Administrative Appeals Tribunal Act 1976 (Cth) ("the AAT Act"). 34 Order 53 of the Federal Court Rules regulates the practice and procedure to be followed with respect to appeals from the Tribunal. Order 53 r 3(2), (3) and (4) provides: "(2) The notice of appeal shall be signed by the applicant or his solicitor and shall state: (a) the decision of the Tribunal from which the appeal is brought, the members constituting the Tribunal and the date when the decision was made; (b) the question or questions of law to be raised on the appeal; (c) the order sought; and (d) briefly, but specifically, the grounds relied upon in support of the order sought. (3) The Court may on such terms and conditions as the Court thinks fit, allow a notice of appeal to be amended. (4) On the hearing of an appeal, the applicant shall not, without the leave of the Court, raise any question of law or rely on any ground in support of the order sought other than those stated in the notice of appeal." 35 In reference to the requirements imposed by O 53 r 3(2), Branson and Stone JJ in Birdseye v Australian Securities and Investments Commission (2003) 76 ALD 321, said at [17] - [18]: "Those requirements include that the questions of law raised by the appeal are to be stated separately from the grounds relied upon in support of the order sought on the appeal. In our view, O 53 r 3(2) discloses an intention that a question of law to be raised on the appeal from the tribunal should be stated with precision as a pure question of law." In other words, a question of mixed fact and law will not suffice to ground jurisdiction. 36 In Australian Telecommunications Corporation v Lambroglou (1990) 12 AAR 515 at 524, Ryan J indicated his view, undoubtedly correct, that merely to assert that the Tribunal had erred in law in making a particular finding was not to state a question of law. A little later his Honour said (at 527): "… it simply begs the question of law to commence it with the words 'whether the Tribunal erred in law'. If the question, properly analysed, is not a question of law no amount of formulary like 'erred in law' or 'was open as a matter of law' can make it into a question of law."

Competency of the Appeal from the Tribunal 37 At the commencement of the hearing of the appeal in this Court, the appellant's senior counsel was asked by the presiding judge to identify the question of law raised by the appeal before the primary judge in the face of the prospect that if such a question could not be identified, the appeal from the decision of the Tribunal was incompetent and the appeal to this Court must fail on that ground, if no other. 38 Not surprisingly, senior counsel for the appellant pointed to para 2(a) of the notice of appeal before the primary judge which was in the following terms: "Are the losses incurred by the Taxpayer allowable as deductions under section 51(1) of the Income Tax Assessment Act 1936." 39 There is strong authority for the proposition that, where the facts have been found and the only question is whether they fall within a statutory provision, the question is one of law: Hope v Bathurst City Council (1980) 144 CLR 1 at 7 per Mason J; Vetter v Lake Macquarie City Council (2001) 202 CLR 439 at 450 per Gleeson CJ, Gummow and Callinan JJ; Ergon v Commissioner of Taxation (2006) 153 FCR 551 at 564 [47] per Sundberg and Kenny JJ, as well as the other cases referred to by their Honours at [47]. 40 But whether or not the ultimate question as framed in para 2(a) of the notice of appeal before the primary judge will be a question raised by the appeal can only be determined by reference to the grounds of appeal. The only relevant error, said to be "error in law", identified as having been made by the Tribunal in the notice of appeal before the primary judge is that "the Tribunal should have found that the facts before it constituted business activities under the revenue provisions of the 1936 Act …" (para 4(a)). In other words, the alleged error is identified as being the Tribunal's failure to characterise the facts found as constituting a business. That does not raise a question of law; at best it might be a question of mixed fact and law; more likely a question of fact. Moreover, that ground of appeal will not raise the question framed in para 2(a) of the notice of appeal before the primary judge in the sense referred to by Gummow J in TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 at 178: "The existence of a question of law is now not merely a qualifying condition to ground the appeal, but also the subject matter of the appeal itself: FCT v Brixius (1987) 87 ATC 4963 at 4967" even if the weight of authority supports the characterisation of that question as a question of law. 41 The prospect that an appellant could appeal on a question of law by framing the question as the ultimate question to be determined - whether the facts as found fall within a statutory provision - so that there could be an appeal to the Federal Court pursuant to s 44 of the AAT Act against the ultimate finding of the Tribunal in every case is, as Gyles J said in Ergon at [85]: "… an unlikely result". 42 In the context of s 51(1) of the Income Tax Assessment Act 1936 (Cth) ("the ITAA 1936"), one is reminded of what was said on this subject by a Full Court of this Court in Commissioner of Taxation v Brixius (1987) 16 FCR 359 at 365: "In setting out the grounds in his notice of appeal the Commissioner did not point to any error of law, with one possible exception hereinafter referred to, but contended rather that the Tribunal came as a matter of law to the wrong conclusion or incorrectly applied the law to the facts. The difficulty which confronts the Commissioner is that, once having identified the correct principles of law (a matter which was not challenged) the question for determination by the Tribunal is, in a matter of this nature, essentially a question of fact, or of fact and degree. As a matter of law the question for determination on the first limb of s 51(1) is whether the outgoing has the necessary relation to the gaining of assessable income, that is, has it the essential character of an outgoing incurred in gaining such income? The Tribunal correctly identified this principle and the Commissioner did not contend to the contrary. Its task was then to apply the law to the facts as found. The application of s 51(1) in this manner is in the varied circumstances of each case very much a matter of fact and degree." 43 In my view, even accepting that the question framed in para 2(a) of the notice of appeal before the primary judge is a question of law, that question is not raised by the only ground of appeal in para 4(a). It follows, in my view, that the appeal to the primary judge was incompetent as not being "an appeal on a question of law" and, but for the circumstance referred to in [44] below, the appeal to this Court should be dismissed on that ground. 44 It was conceded by counsel for the Commissioner that this particular point was not taken before the primary judge. Both parties conducted the appeal before the primary judge on the basis that the appeal raised a question of law namely, that the Tribunal had asked itself the wrong question or applied the wrong test in coming to the conclusion it did. In these circumstances, I do not think the appeal should be dismissed on the ground that the appeal from the Tribunal to the primary judge was incompetent. I shall proceed to address the substantive basis of the appeal but my response to the failure of the Commissioner to take the point before the primary judge is reflected in the orders of the Court.

Transactional Background 45 The transactional background is not in dispute. It is set out in [5] to [24] of the Tribunal's reasons and so far as relevant, is repeated in the primary judge's reasons at [4] as follows: (1) The appellant was incorporated on 15 March 1982 as a shelf company. Two shares in this company were issued on incorporation, one of which was to Mr Paul Doumany who was a principal of Paul Doumany & Co, solicitors. (2) On 13 December 1989 Mr Toshiaki Iwasaki, a non-resident businessman, purchased a 10.32 hectare parcel of vacant land in Rockhampton, Queensland, described as lot 172 on RP612341, for $940,000 ("the land"). (3) Because Mr Iwasaki was a non-resident, he was required to obtain the approval of the Foreign Investment Review Board ("FIRB") to the purchase. (4) Mr Iwasaki's solicitors informed FIRB that the land was adjacent to a tertiary educational institution and that Mr Iwasaki wished to develop the land to provide accommodation for overseas students. On 30 May 1990 FIRB approved the purchase of the land subject to the condition that development of the land commence within 12 months of the approval. (5) In 1991 Paul Doumany & Co commenced acting on behalf of Mr Iwasaki. (6) On 28 November 1991 the following events occurred: (a) Mr Iwasaki paid Mr Doumany $1,449,998; (b) A meeting of the directors of the appellant was held and the directors resolved to allot Mr Doumany 1,449,998 ordinary shares fully paid to $1.00 each. Mr Doumany paid the appellant $1,449,998 for the shares, using the money he had received from Mr Iwasaki; (c) Mr Iwasaki transferred the land to the appellant for the sum of $1,450,000. To pay for the land the appellant used the money it had received from Mr Doumany (which had originally come from Mr Iwasaki); (d) Mr Doumany signed an acknowledgment of his indebtedness to Mr Iwasaki in the sum of $1,450,000, upon the conditions that the debt was not repayable in cash but by the transfer by Mr Doumany to either Mr Iwasaki or his nominee of 1,450,000 ordinary shares fully paid to $1.00 in the appellant, and that while Mr Doumany held the shares in the appellant he would not permit the company to declare any dividend or make any distribution without the written consent of either Mr Iwasaki or his nominee; (e) Mr Doumany executed a codicil to his will devising and bequeathing all shares in the appellant to Ms Yuriko Iwasaki, Mr Iwasaki's daughter; (f) Mr Iwasaki signed a Deed of Conditional Forgiveness of the debt of $1,450,000 owed by Mr Doumany to him, the principal term of which was that Mr Iwasaki forgave and released Mr Doumany from any further obligation in respect of the debt subject to and conditional upon Mr Doumany transferring to him or his nominee the 1,450,000 shares in the appellant allotted to Mr Doumany. (7) Shortly afterwards the appellant entered into a lease of dormitory accommodation on the land with a third party for the period 15 December 1991 to 14 December 1994. (8) In an unsigned letter dated 20 December 1991 from Paul Doumany & Co to Piper & Holmes (Gold Coast North) Pty Ltd ("Piper & Holmes"), Mr Iwasaki's accountants, the letter noted that the paid-up capital of the appellant was: "$1,450,000 made up of 1,449,999 ordinary shares held by PC Doumany in trust for Mr T Iwasaki and 1 ordinary share held by Mr GD Hyland in trust for Mr T Iwasaki. Please note that this trust is a blind trust and therefore undisclosed in any of the records or accounts of the company." (9) During early 1992 the further development of the land was discussed, including in correspondence from Paul Doumany & Co. However, by 30 September 1992, the appellant had decided to sell the land rather than develop it, and in a letter of that date communicated this decision to the lessee. (10) By contract of sale dated 14 October 1992 the appellant sold the land, now described as Student Accommodation and Associated Buildings, lot 172 RP620056, to an unrelated third party for $1,105,000. This amount represented a significant loss for the appellant. (11) After payment of several amounts by the appellant, including in respect of an unregistered mortgage, the appellant was left with $720,794 in total. A cheque in this amount was drawn in favour of Mr Iwasaki by the appellant. (12) As at 1 May 1993 Mr Doumany and Mr Geoffrey Hyland were directors of the appellant. Mr Hyland resigned as a director on this date, and transferred his share in the appellant to Ms Joanne Doumany, Mr Doumany's wife. Ms Doumany was subsequently appointed a director of the appellant. (13) On 1 July 1993 the appellant changed its name to Price Street Professional Centre Pty Ltd. (14) On 27 August 1993 Piper & Holmes lodged a tax return on behalf of the appellant, in which there was an accumulated trading loss as well as a capital loss, with the result that no tax liability existed for the financial year ending 30 June 1993. (15) On 17 September 1993 Mr Iwasaki authorised Paul Doumany & Co to wind up the appellant and for this purpose relinquished and renounced any claim he may have had as to the beneficial ownership of 1,450,000 ordinary shares in the appellant held by Mr Doumany. (16) Some time before 14 July 1994, the appellant appointed as its accountants Lee, Garvey Hunt & Fearnsley, Certified Practising Accountants and Business Advisers ("LGHF"). By letter of that date from LGHF to the Australian Taxation Office ("ATO"), LGHF advised that, in reviewing the financial statements for the year ended 30 June 1993, it noted that an error had been made in relation to the sale of trading stock, namely the land sold by the appellant. This error was that the loss of $755,377 from the sale of the land, being the cost of sale minus the income the appellant received on the sale should have been treated as a revenue, not a capital loss. LGHF on behalf of the appellant requested that the tax return for that year be amended accordingly. (17) The loss of $755,377 was carried forward in the accounts of the appellant into the financial years ended 30 June 1995, 1996, 1997 and 1998. (18) In July 1999 the appellant was selected for audit by the ATO. Following the audit, the ATO issued notices of amended assessment for the years ended 30 June 1995, 1996, 1997 and 1998 which excluded claims for the loss carried forward from the 1993 financial year. A similar approach was taken by the ATO in respect of assessments for the 1999 and 2000 financial years. (19) Further, a 75 per cent penalty was imposed on the assessment for the years ended 30 June 1995, 1996, 1997 and 1998. (20) The appellant lodged notices of objection against the ATO assessments and the penalty imposed. On 27 September 2002 the respondent disallowed the appellant's objections.

The Tribunal 46 In the Tribunal, counsel for the appellant submitted that what was here involved was a profit-making venture. The Tribunal was not persuaded by that characterisation of the appellant's business activity ([32]). At [35] the Tribunal concluded: "I have already observed the applicant would have difficulty establishing the Commissioner's objection decisions were wrong - the task required of the applicant by s 14ZZK of the TAA - in circumstances where the taxpayer did not call any witnesses and relied instead on inferences drawn from the evidence. I do not think the applicant has discharged that burden. The applicant has not persuaded me the land was anything other than a capital asset. The proceeds of the sale of the land should therefore be regarded as the proceeds of a mere realisation of a capital asset. The loss on that sale was a capital loss. The objection decisions under review ought to be affirmed in that respect." 47 The Tribunal's process of reasoning in getting to this conclusion is set out at [32] of its reasons as follows: "The taxpayer was a shelf company until it contracted to purchase a parcel of land from a foreign businessman who was a client of one of the company's directors. The correspondence between the businessman's solicitors and the FIRB make it clear the property was acquired by the businessman to construct student accommodation. As it happened, that was the only use to which the property was ever put. The transfer of ownership to the company was completed as part of a re-ordering of the businessman's affairs because of taxation concerns. The company continued to derive rental income from the accommodation that had been developed on the property. The businessman foreshadowed the possibility that the property might be sub-divided as part of a development project, but I think the evidence makes it clear that was just one option under consideration. While the company was a separate legal entity with a corporate mind of its own, I am not persuaded the company had different intentions with respect to the land. (The evidence makes it clear the businessman continued to play a central role in the decision-making process of the applicant. His intentions are therefore relevant.) The taxpayer did investigate whether the property could be sub-divided or on-sold for the purposes of development, but I do not think the evidence establishes that was the purpose for which the land was acquired. The steps taken towards further development of the property were so limited that the whole undertaking could not be said to be comparable to the situation in Whitford's Beach." (Emphasis added)

The Primary Judge 48 As indicated in [40] above, the appellant's notice of appeal identified the error in the Tribunal's decision as one of characterisation; the Tribunal should have found that the facts before it constituted business activities under the revenue provisions of the ITAA 1936, but this alleged error was never agitated on the appeal; indeed, reliance on it was eschewed in the appellant's submissions (see 49 and (4) below). 49 Before the primary judge, the appellant submitted that: (1) The Tribunal applied the wrong test of deductibility to the facts as found. (2) The Tribunal did not refer to the relevant test of when a profit from the sale of a capital asset - as opposed to the proceeds of sale of a revenue asset - was on revenue account, which it submitted was whether the asset was acquired with a purpose or intention of profit-making by sale. This, the appellant submitted, was the relevant inquiry, not whether the property was trading stock or whether the gross proceeds were on revenue account. (3) The Tribunal failed to direct itself as to the proper test of whether land is acquired as part of a profit-making undertaking, being whether one of the purposes of its acquisition, rather than the purpose, was profit-making by sale. (4) The test was not whether the appellant was in the business of property development, with the land being trading stock: Moana Sand Pty Ltd v Federal Commissioner of Taxation (1988) 88 ATC 4897. In particular, the appellant submitted that in Moana Sand, the profit made by the taxpayer was held to be income because one of the taxpayer's purposes was profit-making by subdivision and sale, even though the subdivision was not in fact carried out and the taxpayer had to sell the property en globo due to a compulsory acquisition. The appellant also cited in support of its case Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42 and Westfield Ltd v Federal Commissioner of Taxation (1991) 28 FCR 333. 50 In rejecting these submissions, the primary judge said: (1) At [34(3)]: "The appellant submitted that the Tribunal erred in that it did not refer to what the applicant defined as the relevant inquiry in the circumstances, namely whether the asset was acquired with a purpose or intention of profit-making by sale. The applicant submitted further that, in failing to direct itself as to the proper test of whether land was acquired as part of a profit-making undertaking, the Tribunal also failed to direct itself as to whether one of the purposes of its acquisition, rather than the purpose, was profit-making by sale. However, in my view the Senior Member made it clear that he had applied the test of whether the applicant had acquired the land with a profit-making purpose, but that in doing so as a finding of fact he was not satisfied that the applicant had had that purpose at all, ie as either 'the' purpose or one of a number of purposes be they significant or otherwise. Rather, the Tribunal considered the range of purposes of acquisition of the land and the characterisation of the applicant's business activity as submitted by the applicant, and on the facts found against the applicant." (2) At [34(4)]: "Notwithstanding the submissions of the applicant, in my view the law is not that, in the absence of a clear intention of a taxpayer in acquiring the property that it be used for a profit-making purpose, any subsequent consideration by the taxpayer of exploitation of a capital asset (for example by the possible options of either subdivision or on-selling) results in the immediate creation of a profit-making scheme and the resultant characterisation of profits or losses made in respect of subsequent dealings with that asset as revenue. A bare claim that this was the intention of the taxpayer is insufficient to manifest that intention in the absence of evidence of that intention, for example, by steps to progress those options. The surrounding circumstances must be taken into account in ascertaining the true intention of the taxpayer, and also characterising the receipts in the hands of the taxpayer. To find otherwise would potentially sanction any manifestation of intention of the taxpayer to convert a capital asset to the revenue account (or vice versa), however meagre or fleeting such manifestation of intention." (Emphasis in original)

The Appeal to this Court 51 The appellant's notice of appeal relevantly raised three grounds: (1) The primary judge mistook the Tribunal's finding that the appellant did not have "the" purpose of profit-making by sale as a finding that the appellant did not have any such purpose. (2) The primary judge erred in failing to treat evidence of the steps that the appellant took towards subdividing the land shortly after it acquired the land as evidence that at least one of the appellant's purposes in acquiring the land was to develop it for subdivision. (3) The primary judge erred in not deciding that different purposes on acquisition could be held for different parts of the land, namely a purpose of subdivision and sale for part (in the present case, the bulk) of the land, which was ripe for such development, and a purpose of deriving rent from another part of the land. 52 In its written submissions, the appellant submitted (at [16]): "In summary, once the Tribunal found that profit-making by sale of the bulk of the land was in contemplation, albeit in conjunction with the contemplated rent-producing activities over a different part of the subject land, and had found that activities had been undertaken in furtherance of what had been contemplated, the Tribunal was bound to find that any profit or loss on sale, even though made in a manner not originally contemplated, was on revenue account. As the Moana Sand case illustrates, the circumstance that the original plan to subdivide and sell was thwarted and had to be replaced by the sale en globo of the land does not change the character of any profit or loss as being on revenue account." (Emphasis added) 53 In his oral submissions, senior counsel for the appellant developed the appellant's argument as follows: (1) The Tribunal's finding as to the appellant's purpose in acquiring the land is ambiguous - it is not clear whether the Tribunal, in saying that the development of the land by subdivision and its subsequent sale was not "… the purpose for which the land was acquired", is referring to the sole or dominant purpose or whether it is saying, as the primary judge construed the Tribunal's finding, that there was no such purpose. (2) On the material before the Tribunal, the Tribunal's use of language in making its finding as to the appellant's purpose in acquiring the land should be construed as a finding that while the development and sale of the land was not the sole or dominant purpose of the acquisition, it was nevertheless a purpose of the acquisition. (3) On the basis of such a finding, had the Tribunal applied the right test, namely, if the appellant had a purpose of profit-making by sale of the land at the time it was acquired, that was sufficient to make any profit on sale assessable income of the appellant, whether the land was first developed by way of subdivision or whether that development was abandoned and the land sold en globo - Moana Sand - any loss on sale was deductible under s 51(1) of the ITAA 1936. (4) In furtherance of its third ground of appeal set out in [51(3)] above - that the primary judge erred in not deciding that different purposes on acquisition could be held for different parts of the land, namely a purpose of subdivision and sale for part (in the present case, the bulk) of the land, which was ripe for such development, and a purpose of deriving rent from another part of the land - it was submitted that this was not a new point, but one which had been run before the Tribunal and the primary judge.

Analysis 54 I am unable to construe the Tribunal's finding at [32] of its reasons as to the appellant's purpose in acquiring the land as amounting to a not insignificant purpose, albeit not the sole or dominant purpose, of profit making from the development and sale of the land. My inability in this regard is fatal to the appellant's case because without the Tribunal's finding going that far, the Tribunal did not fail to ask itself the right question or apply the right test. 55 I accept that there is a tension manifest in the reasoning in the sentence: "The businessman [Mr Iwasaki] foreshadowed the possibility that the property might be sub-divided as part of a development project, but I think the evidence makes it clear that was just one option under consideration" in the sense that "one option under consideration" is arguably a product of contemplation whereas a "possibility" is nothing more than a range of choices limited only by the nature of the property acquired, but as a Full Court of this Court said in Collector of Customs v Pozzolanic Enterprises Pty Ltd (1995) 43 FCR 280 at 287: "The reasons for the decision under review are not to be construed minutely and finely with an eye keenly attuned to the perception of error." Similarly, in Minister for Immigration & Ethnic Affairs v Wu Shan Liang (1996) 135 CLR 259 at 272, Brennan CJ, Toohey, McHugh and Gummow JJ warned that the principles coming out of cases such as Pozzolanic - "…recognise the reality that the reasons of an administrative decision-maker are meant to inform and not to be scrutinised upon over-zealous judicial review by seeking to discern whether some inadequacy may be gleaned from the way in which the reasons are expressed." 56 When the Tribunal said, as it did in [32] of its reasons: "The taxpayer did investigate whether the property could be sub-divided or on-sold for the purpose of development, but I do not think the evidence establishes that was the purpose for which the land was acquired" it was expressing a finding in relation to the onus the appellant carried, not a finding as to what the appellant's sole, dominant or other (not insignificant) purpose was in relation to its acquisition of the land; it was saying that the evidence upon which the appellant relied was not sufficient to discharge the onus it needed to discharge to persuade the Tribunal that any profit that might have been made on the sale of the land would be assessable income; and that therefore the corresponding loss it actually incurred on the sale was an allowable deduction. 57 It seems to me that all the findings the Tribunal made, in particular at [32] of its reasons, were open on the evidence. After all, the appellant ran the review before the Tribunal "on the papers" without calling any evidence. This it was entitled to do, but it cannot complain at the consequence of following that course in the face of the legislative sanction that the onus of proof is on the taxpayer: s 14ZZK(b) of the Taxation Administration Act 1953 (Cth). 58 Moreover, the fact that this Court or the primary judge might have come to a different conclusion to the Tribunal on the material before it, that is, that the Court might have found that the evidence established that the sole, dominant or other (not insignificant) purpose of the appellant in acquiring the land was for profit making by development and on-sale, is not to the point. That possibility does not infect the Tribunal's decision with legal error unless there was no evidence to make a contrary finding and, as I observe in [57] above, it seems to me that all the findings the Tribunal made were open on the evidence. In any event, a no evidence ground was not pleaded. 59 It remains to say something of the appellant's third ground of appeal in this Court - that the primary judge erred in not deciding that different purposes on acquisition could be held for different parts of the land, namely, a purpose of subdivision and sale for part (in the present case, the bulk) of the land, and a purpose of deriving rent from another part of the land. It is notable that the identified error is said to be that of the primary judge and not that of the Tribunal. That is not surprising because the Tribunal did not approach or deal with the appellant's purpose in relation to its acquisition of the land by reference to a bifurcation of the land into two parts and a consideration of whether there was a different purpose in relation to each part. Senior counsel for the appellant suggested that such a bifurcation submission was put to the Tribunal but there was certainly no reference to it in its reasons. A review of those parts of the transcript of the proceedings before the Tribunal to which I was referred does not disclose any submission other than one which goes to the dual purpose argument in relation to the whole of the land, that is, because the rental accommodation was on such a small part of the whole of the land, it could be more readily inferred that there was another purpose with which the whole of the land was acquired. 60 Moreover, as already indicated, this ground of appeal was not raised as a ground of appeal before the primary judge. Again, that is not surprising because in the absence of any finding of bifurcation of the land into two parts and a consideration of the appellant's purpose in relation to each part, there could be no error of law in the Tribunal's process of reasoning. Nor is there any reference to it in the primary judge's reasons. 61 In my view, it is a new point and having regard to the limited jurisdiction exercised by the primary judge - to decide "an appeal on a question of law" within the meaning of s 44 of the AAT Act - it cannot be raised in this Court, on appeal from the primary judge, for the first time. In Condell v Federal Commissioner of Taxation 2007 ATC 4404, Gyles J with whom Kenny and Allsop JJ agreed on this point, considered the scope of an appeal to a Full Court from a s 44 appeal to a judge of this Court and the possible application of s 44(7) of the AAT Act in determining "a totally new case". His Honour said (at 4408 - 9[14]): "Even if there were a full appeal from the AAT to the Court, it would not be appropriate to be raised. To do so would involve the difficulties enunciated in Coulton v Holcombe (1986) 162 CLR 1 and numerous other cases including Dismin Investments Pty Ltd v Federal Commissioner of Taxation (2001) 183 ALR 565; 2001 ATC 4377; (2001) 47 ATR 292 at [26]-[33]. An amendment would certainly not have been appropriate in a case of the limited jurisdiction which was being exercised by the Court. The character of the dividend as income according to ordinary concepts was not the basis of the amended assessment or of the disallowance of the objection. It was not agitated before the AAT and there were no findings of fact and no decision which could throw up a question of law. The attempt to seize on some parts of the AAT's reasons directed to another question was misconceived. An appeal to s 44(7) of the AAT Act would have been of no avail. It cannot alter the jurisdiction of the Court or widen the issues to be decided. It is to facilitate dealing with the issues that are properly before the Court. The position before this Court is even more difficult for the Commissioner as the Full Court sits to correct error on the part of the primary Judge who was not called upon to consider the issue." 62 For the foregoing reasons, the appellant's appeal against the dismissal of its appeal from the decision of the Tribunal affirming the decision under review on the s 51(1) issue, must be dismissed.

Penalty Tax 63 The Commissioner imposed penalty tax equal to 75 per cent of the tax shortfall pursuant to s 226J of the ITAA 1936. The section provides: "Subject to this Part, if: (a) a taxpayer has a tax shortfall for a year; and (b) the shortfall or part of it was caused by the intentional disregard by the taxpayer or by a registered tax agent of this Act or the regulations; the taxpayer is liable to pay, by way of penalty, additional tax equal to 75% of the amount of the shortfall or part." 64 The appellant challenged the imposition of the penalty tax in the Tribunal on three alternative bases: (i) there was no tax shortfall; (ii) there can be no intentional disregard of the law, recklessness or carelessness where the taxpayer seeks the advice of senior counsel expert in taxation law on the very facts that have occurred; (iii) the penalty tax should be remitted in full in the discretion of the Tribunal under subs 227(3) of the ITAA 1936. 65 In the course of its reasons, the Tribunal observed: "48. The applicant says a penalty of that magnitude is inappropriate because it acted with the advice of senior counsel. It seems that advice was given orally. It is unclear on the evidence before me what that advice would have been, or to what aspect of the applicant's affairs it related. What evidence there is certainly does not suggest careful thought and evaluation of the decision to carry forward and claim the losses made by the company against its future income. To the contrary: the evidence suggests to me that Mr D (the directing mind and will of the company after the foreign businessman ceased to be involved) recognised what he took to be an opportunity to obtain a tax advantage by exploiting a corporate shell that had been abandoned by one of his clients. To do so, the company and to ignore the plain effect of many of the documents in relation to the sale of the land and the relationship between the foreign businessman, the company and Mr D. The taxpayer could not have believed it was entitled to seek the deductions, yet it persisted in its attempts to do so. 49. Mr D was prosecuted in the criminal courts in connection with his part in this transaction. I do not see how that casts the taxpayer's activities in a different light. 50. I am satisfied the penalty of 75% under s 226J is appropriate." 66 The relevant ground of appeal before the primary judge was framed: "(b) The Tribunal should not have found that section 226J applied to impose penalties at 75%." 67 The primary judge reasoned as follows: "44. Whether the conduct of the applicant has satisfied s 226J requires findings of fact by the Tribunal. 45. I am not persuaded that the Tribunal acted unreasonably in finding that the taxpayer had ignored the plain effect of many of the documents in relation to the sale of the land and the relationship between Mr Iwasaki, the taxpayer and Mr Doumany, or that it acted unreasonably when it was satisfied on the facts that the conduct of the taxpayer was in 'intentional disregard' of the legislation for the purposes of s 226J. The Tribunal carefully reviewed: · the history of the transaction; · the relationship between the key parties; · the previous advice given by Piper & Holmes that the loss was a capital loss compared with subsequent conduct of the taxpayer in light of later advice, including the revision of the taxpayer's characterisation of the transaction; · the fact that Mr Doumany himself was a solicitor and had had a relationship with the taxpayer from its incorporation including what appeared to be a close professional relationship with Mr Iwasaki; · the fact that it appears the taxpayer acted on oral, rather than written, advice that the loss was in the nature of revenue rather than capital; and · the dearth of evidence as to the nature of that advice or to what aspect of the applicant's affairs it related. 46. In my view the adverse inferences drawn by the Tribunal in para 48 as to the conduct of Mr Doumany and through him, the applicant are open on the evidence. No error of law has been demonstrated on the part of the Tribunal." 68 Accordingly, the primary judge answered the question: "If the applicant was wrong in claiming deductions, were penalties correctly imposed under section 226J of the 1936 Act? Yes." 69 In its notice of appeal to this Court, the appellant relevantly identified three alleged errors: (1) The primary judge erred in not deciding, for the purpose at least of determining whether there was an intentional disregard of the tax law under s 226J of the ITAA 1936, whether there was a continuity of beneficial ownership of shares in the appellant under s 80A of the ITAA 1936. (2) The primary judge should have held that the Tribunal erred in law in rejecting the appellant's contentions that there were (i) continuity of beneficial ownership of its shares within s 80A; and (ii) continuity of business within s 80E, and (3) The primary judge erred in finding that there was no error of law in the Tribunal's decision that there was an intentional disregard of the tax law under s 226J. 70 In this Court, the appellant submitted that the Tribunal based its penalty finding only on the basis of the carry forward losses issue - an issue which the primary judge did not have to address having regard to the terms of the notice of appeal before the primary judge and her finding on the s 51(1) issue. A reading of [48] of the Tribunal's reasons makes it clear, in my view, that this submission is predicated on a false premise. The Tribunal did not base its penalty finding only on the basis of the carry forward losses issue. It had regard to the evidence suggesting that it was only after Mr Iwasaki had ceased his involvement with the appellant that the accounts were amended in order to explore the possibility of deriving some value from the company. In the Tribunal's words: "To do so, the company had to ignore the plain effect of many of the documents in relation to the sale of the land …" That circumstance had nothing whatsoever to do with the carry forward losses issue. 71 In my view, neither the reasoning of the Tribunal which is set out at [65] above nor the reasoning of the primary judge which is set out at [67] above is infected with any legal error. 72 The appeal must be dismissed. For the reasons indicated at [44] above I decline to make any order as to the costs of the appeal. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: PRICE STREET PROFESSIONAL CENTRE PTY LIMITED

REASONS FOR JUDGMENT GREENWOOD J 73 I have had the benefit of reading the draft reasons for judgment of both Kenny J and Edmonds J. I do not propose to repeat the factual background to the questions alive on the appeal as that background is comprehensively set out in the reasons of Edmonds J. I agree that the appeal from the decision of the Administrative Appeals Tribunal ('the Tribunal') to this court and determined by the primary judge fails to disclose a question of law consistent with the orthodoxy of Birdseye v Australian Securities and Investments Commission (2003) 76 ALD 321 and TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175. 74 The difficulty however is that the appellant's contention before the primary judge that the application by way of an appeal pursuant to s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) properly raised, as the subject matter of an appeal, a question of law, was accepted by the respondent. Thus, the parties treated the controversy, as framed, as properly enlivening the court's jurisdiction to make dispositive orders. Since the disposition of the controversy as framed proceeded before the primary judge on that footing, it seems to me the court in its appellate jurisdiction should deal with the merits of the appeal rather than determine the appeal solely on the footing of jurisdictional failure notwithstanding, of course, that an election by the parties to treat the foundation s 44(1) application as enlivening the court's original jurisdiction is misconceived and cannot confer jurisdiction. 75 Although the question of law to be determined before the primary judge must be stated separately from the grounds of appeal, the subject matter of the appeal as a question of law is a function of the symmetry between the question raised and the ground relied upon to demonstrate the error made. The parties conducted the appeal before the primary judge on the footing that the question of law was whether the Tribunal had misdirected itself by applying the wrong test in determining whether a loss on sale of an asset was a loss or outgoing within the scope of s 51(1) of the Income Tax Assessment Act 1936 ('the 1936 Act). 76 That question, so framed, by paragraph 2(a) of the Notice of Appeal before the primary judge was to be answered having regard to the contended ground that the Tribunal should have found something on the facts, namely, it 'should have found that the facts before it constituted business activities under the relevant provisions of the 1936 Act and that accordingly the losses were deductible under s 51(1)' (Ground 4(a)). 77 The error on the part of the Tribunal therefore was said to be that having regard to the matrix of fact, the Tribunal should have found that the appellant was engaged in business activities, receipts from which would result in derived assessable income and thus a loss or outgoing as part of that activity, is a deductible loss for the purposes of s 51(1) of the 1936 Act. 78 There is no symmetry between the question of law framed by paragraph 2(a) and the ground of challenge at paragraph 4(a) relied upon to support that question as the subject matter of the appeal. It might be different if the question of law raised by paragraph 2(a) was to be determined having regard to a ground that the Tribunal, in determining whether a loss as found, in the circumstances found, was within the scope of s 51(1), erred by departing from the recognised approach to the construction of the provision or by formulating and applying a test inconsistent with authority, that is, the wrong test. 79 A question of law formulated in terms of paragraph 2(a), that is to be determined on a ground that is an invitation to the court (and thus the primary judge) to reconsider the principal evidence (or any evidence) and determine what the Tribunal 'should have found' simply invites a factual inquiry. 80 What is the question of law raised by paragraphs 2(a) and 4(a) of the Notice of Appeal before the primary judge that attracted the consensus (at least as to the question of law in issue) of the parties. Apparently, the question is whether in failing to be satisfied that the loss on sale of the property was anything other than a capital loss, the Tribunal failed to consider whether a purpose of acquisition of the asset was profit‑making by sale, that is, a profit‑making undertaking. Rather, the Tribunal is said to have determined the question by asking whether the purpose was profit‑making by sale thus wrongly seeking attribution to a dominant or sole purpose. 81 Plainly enough, paragraph 4(a) of the Notice of Appeal before the primary judge does not raise that question as an exposition of the properly separated question at paragraph 2(a). Let it be assumed, however, that it does so expose the question raised at paragraph 2(a). What is the strength of it? 82 At para [31] of the Tribunal's reasons, the Tribunal posited the appellant's contention that the property was acquired 'with a view to developing it or on selling it to another entity'. The second contention as para [31] was that the appellant 'investigated various development options before completing a sale and then distributed a portion of the proceeds to [Mr Iwasaki]'. 83 The Tribunal then dealt responsively to those contentions at para [32] of its reasons. It rejected that 'characterisation of [the appellant's] business activity'. The whole of para [32] is directed to an analysis on the papers (since that was the basis upon which the appellant sought to discharge its onus) of whether one or more purposes and if so, what purposes, actuated the acquisition and treatment by the taxpayer of the property. 84 For example, the appellant was a shelf company (that is, no pre‑history) until it acquired the land; the correspondence between the solicitors for the prime mover, Mr Iwasaki, and the Foreign Investment Review Board ('FIRB') 'make it clear the property was acquired … to construct student accommodation' (that is, to derive rental income); that was the 'only use to which the property was ever put'; and, the appellant 'continued to derive rental income from accommodation that had been developed on the property'. 85 The Tribunal recognised that the guiding mind of the company, Mr Iwasaki: "… foreshadowed the possibility that the property might be sub‑divided as part of a development project, but I think the evidence makes it clear that was just one option under consideration … I am not persuaded the company had different intentions with respect to the land. The taxpayer did investigate whether the property could be sub‑divided or on sold for the purposes of development, but I do not think the evidence establishes that [that] was the purpose for which the land was acquired. The steps taken towards further development of the property were so limited that the whole undertaking could not be said to be comparable to the situation in Whitford's Beach." (Emphasis added.) 86 The appellant says this analysis betrays a fatal error. The reference to 'just one option under consideration' in the immediate context of a reference to a foreshadowed possibility of sub‑division, and the reference to the evidence failing to establish that 'the purpose of the acquisition' included whether the property could be subdivided or on sold for the purposes of development, strongly suggests, it is said, that the Tribunal was forensically assessing the evidence in search of an actuating purpose; a single reason; an attributed cause; rather than whether a purpose of profit‑making by sale or development, in part, informed acquisition and treatment of the property. 87 However, it seems to me that the references to a foreshadowed possibility that the property might be subdivided and the express rejection of different intentions with respect to the land is decisive of a rejection by the Tribunal of a 'not insignificant' profit‑making purpose. Although, plainly enough, the authorities make it clear that the purpose need not be a dominant purpose, the purpose must be more than a possibility and be found to be a not insignificant purpose (Westfield Limited v Commissioner of Taxation (1991) 28 FCR 333 at 344‑345; Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42 at p 57 per Hill J). 88 The Tribunal in formulating these views was expressly responding to the appellant's contention of a multiplicity of purposes. The Tribunal was not satisfied on the facts before it that a foreshadowed possibility that the property might be subdivided satisfied the test and migrated that mere possibility to a purpose of the appellant. 89 For these reasons, I am satisfied that the Tribunal directed its mind to the proper test. 90 As a result, I am not satisfied that the primary judge has fallen into error by failing to find that the Tribunal applied an incorrect test or that the primary judge mistook any relevant matter. 91 So far as the other grounds of appeal are concerned, I agree with the observations of Edmonds J. The appeal must be dismissed on the jurisdictional question and on the merits as to the grounds contended for by the appellant. I agree with the orders of the court proposed by Justices Kenny and Edmonds. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Counsel for the Appellant: Mr L Harrison QC and Mr M Robertson

Solicitor for the Respondent: Australian Government Solicitor

Income Tax Assessment Act 1936(Cth)ss 51(1), 80A, 80E, 226J, 227(3)

Federal Court Rules 1979(Cth)

Administrative Appeals Tribunal Act 1976(Cth)

At a glance

Court

Decision date

Before

Source

Judgment (17 paragraphs)

Parties

Legislation Cited (5)

Cases Cited (19)