2. Three and a half years later, the Taxation (Unpaid Company Tax) Assessment Act 1982 ("TUCTA Act") was passed and on 17 June 1983 each of the Swifts was assessed under the provisions of that Act to vendors recoupment tax in amounts totalling $65,110.34, representing ordinary company tax unpaid by YCO and additional tax for late payment.

3. Their objections to the assessments having been disallowed, the Swifts appealled to the Administrative Appeals Tribunal which exercised a dispensing power under sub-s.5(4) of the TUCTA Act and allowed the objections essentially on the basis that it was "unreasonable" that they should have to pay the tax so assessed. The Commissioner of Taxation now appeals to this Court against those decisions. Central to the appeals is the nature and scope of the dispensing power under sub-s.5(4).

4. Henry Claude Swift and his wife, Cavell Lorraine Swift, were born in 1912 and 1916 respectively. They had two children, a daughter and a son. Their son, Graham, was born on 4 January 1945. On his sixth birthday, on 4 January 1951, the family moved to a farming property called "Yallaroi" which Mr Swift had acquired at Trangie, some 320 miles north west of Sydney. They farmed the land evidently as a husband and wife partnership, until 1956. In that year, acting on advice from accountants, Mr and Mrs Swift incorporated Yallaroi Pastoral Co. Pty Ltd in which they and the children were shareholders. From 1956 until 1979 the farming business was carried on by the company. Shareholdings, after a sale and transfer of shares from the daughter, and at all times material for present purposes were as follows:

H.C. Swift C.L. Swift G.M. Swift

"A" class at

$2 each 1,998 1 1

"C" class at

10 cents each NIL 4,500 4,500

In addition to Yallaroi which comprised some 2,442 acres, Mr Swift Sr. acquired two other smaller properties in the area called Amaroo and Tandyana of 1527 and 1480 acres respectively.

5. Under family arrangements designed to avoid death duties and reduce the impact of gift duties, Graham Swift acquired Yallaroi from his father in 1966, the year he turned 21. In 1970 he married and moved away for 3 years but at the end of that time returned to Yallaroi and lived with his parents until they moved to another house on part of the adjoining Tandyana block. He and his family remained on Yallaroi. The Swifts continued to farm Yallaroi, Amaroo and Tandyana through the company until 1979. Throughout that time Mr Swift Sr. held the controlling interest.

6. According to Graham Swift's evidence, which was not challenged or contradicted on this point, some difficulty arose between himself and his father because of his desire for greater independence. There was also some concern about the father's health, as he had suffered a heart attack in or about 1977. Father and son had discussions together and separately with their family accountant, Mr Ron Rich, about the possibility of effectively dividing the operation up between them. A major stumbling block that they perceived was that any disposal of the stock would be treated as a disposition at market value under the Income Tax Assessment Act and would attract a significant liability which they would be unable to meet. In July 1979 the market value of livestock held by the company was $116,900 of which it was to be expected that some $113,212 would, under sub-s.36(1), be brought to account as income upon disposal unless s.36A could be invoked.

7. As a result of the consultations with Rich and advice from Jim Monson, a Sydney solicitor to whom they were introduced by Rich, the Swifts decided to enter into an arrangement whereby all but a small proportion of the stock would be sold to the corporate trustees of two trusts effectively controlled by father and son respectively. The balance of the stock would be disposed of on the open market to raise money to pay for legal and accounting fees involved in the transaction. The shares in the company were to be sold to a third party. With the company would go the tax liability generated by the disposal of the stock. In the event the company sold 87 head of cattle on the open market for $17,960.55. The remaining stock and other assets including wheat, oats and wool proceeds and plant and vehicles were transferred at market value to Karenina Pty Ltd, as trustee of the H.C. Swift Trust No. 1 and Thiball Pty Ltd, as trustee of the G.M. Swift Trust No. 1. These trusts were each established in July 1979. The results of the transactions were presented in the YCO company accounts for the period 1 July 1979 to 31 July 1979 and in particular the profit and loss account, profit and loss appropriation account and the balance sheet as follows:

"YALLAROI PASTORAL CO. PTY LTD

PROFIT & LOSS ACCOUNT for the Period

1st JULY 1979 to 31st JULY 1979

By Sheep Trading 20,584

Cattle Trading 91,909

Horses Trading 717

Wheat Proceeds 5,403

Oats Proceeds 3,000

Wool Proceeds 8,745

Profit on Sale of Plant and

Vehicles 6,417

Electricity - Private Use 27

$136,805

To Bank Charges 6.45

Depreciation 773.00

Interest Paid 1,180.37

Rural Electricity 111.74

Shearing and Crutching 272.68

Net Profit for period

transferred to Profit and

Loss Appropriation Account 134,460.80

$136,805.04

--------------

YCO PTY LIMITED

PROFIT AND LOSS APPROPRIATION ACCOUNT

as at 1ST JULY 1989 to 31ST JULY 1979

Dr. Balance 1.7.79 538.37

Net Profit 1.7.79 - 31.7.79 134,460.80

Transfer from Retention 21,736.00 156,196.80

Cr. Balance 31.7.79 $155,658.43

--------------

YCO PTY LIMITED

BALANCE SHEET as at 31ST JULY 1979

LIABILITIES

AUTHORISED CAPITAL

Issued & Paid Up Capital

2000 "A" Class Shares @ $2.00 4,000

9000 "C" Class Shares @ $0.10 900 4,900.00

Capital Reserve Account 612.00

Profit & Loss Appropriation Account 155,658.43

Shareholders Funds 161,170.43

ASSETS

National Bank of Australasia Ltd. $161,170.43

No provision was made in the balance sheet for any prospective or contingent liability to income tax by reason of the net profit of $134,460.80 generated by the sale of the assets.

8. On 31 July 1979 the Swifts sold their entire shareholding in the company to what Graham Swift described as "a company buying entrepreneur organised by Jim Monson and Ron Rich". A sale agreement dated 2 August 1979 identified the purchaser of the shares as a company called "Shareholder Pty Ltd". The purchase price was $151,170.43 being precisely $10,000 less than the cash assets appearing in the company balance sheet and substantially representing the proceeds of sale of the stock, crops, plant and vehicles.

9. Although the Tribunal found that the company received "full value neither more nor less" for the assets sold to the two trustees, it seems clear that this occurred through an exchange of cheques in one "big settlement" at Mr Rich's office in Dubbo. The Tribunal found that following the sale of the shares in YCO,the Swifts continued to run their farms as before but through the two trustees.

10. On 13 December 1982 the Taxation (Unpaid Company Tax) Assessment Act 1982 ("TUCTA") came into operation. On 6 January 1983 the Swifts were each sent a written notice by the Commissioner that he had assessed the taxable income of the company for the year of income ended 30 June 1980 at $134,460 giving rise to a tax liability of $61,851.60 and additional tax for late return of $3,202. The notice was sent as a preliminary to the raising of recoupment tax assessments and advised the recipients of their right to object to the assessment against the company. On 17 June 1983 vendor's recoupment tax assessments issued to the Swifts under the TUCTA Act. Mr Swift snr. was assessed to tax of $53,098.14 and Mrs Swift and Graham to $6,006.10 each, making up a total of $65,110.34 representing:

1. Ordinary company tax 61,851.60

2. Additional Tax for late payment 3,442.62

3. Amounted credited (187.68)

These assessments were paid in full on 20 July 1983 but objections lodged in respect of each of them in August 1983. They were disallowed on 21 September and on 3 February 1984 the Swifts requested that their objections be referred to a Taxation Board of Review. On 23 September 1985 the Commissioner complied with their requests and on 1 July 1987 the references were transferred to the Administrative Appeals Tribunal pursuant to the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986. In each case the Commissioner had provided to the Board of Review a statement of reasons for the disallowance of the objections which followed a common form reflected in the reasons relating to Mr Swift Snr:

"As sub-section 5(1) of the Taxation (Unpaid Company

Tax) Assessment Act 1982 is satisfied, under

sub-section 8(1) of this Act, the taxpayer is

liable to vendor's recoupment tax of $53,098.14

based upon the unpaid ordinary company tax due and

payble by Yallaroi Pastoral Co. Pty Limited in

respect of the income year ended 30 June 1980."

11. On 4 February 1983 the Swifts in their capacity as former directors of Yallaroi Pastoral Co. Pty Limited wrote to the Deputy Commissioner of Taxation in New South Wales in the following terms:

"WE, HENRY CLAUD SWIFT, CAVELL LORRAINE SWIFT and

GRAHAM MAX SWIFT being all the persons who

constituted the Board of Directors of the above

company immediately before the last sale time as

that term is defined in the Taxation (Unpaid

Company Tax) Assessment Act ("the Act") HEREBY

REQUEST you pursuant to Section 16 of the Act, that

Section 16 of the Act apply in relation to the sale

of the relevant shares in the above company."

On 24 June 1983 assessments issued to Mr and Mrs Swift Snr. and an amended assessment to Graham Swift pursuant to that request, bringing to account as part of their assessable income for the year ended 30 June 1981, deemed dividends from the company. The amounts were $17,710 in relation to Mr Swift Snr. and $2,003 for Mrs Swift and Graham. Their liability to tax in that year was thereby increased by $5,334, $229.42 and $640.96 respectively. Objections were lodged by father and son on 26 August 1983 and disallowed on 8 January 1984. Requests for reference to the Taxation Board of Review were made on 3 February 1984 and referred on 28 November 1985. Subsequently, they too were transferred to the Administrative Appeals Tribunal.

12. On 4 November 1986 assessments issued against Mr and Mrs Swift and an amended assessment against Graham Swift in respect of the year ended 30 June 1980. In each case the assessment or amended assessment was accompanied by an adjustment sheet which was in common form, reflected in that which issued to Mr Swift Snr.:

"TAXPAYER'S NAME: HENRY C. SWIFT

YEAR OF INCOME: 1980

INCOME PREVIOUSLY ASSESSED: $ $

863

Attached is a notice of assessment

made in reliance of sections 260

and 44 of the Income Tax Assessment

Act in respect of the sale of shares

in Yallaroi Pastoral Co Pty Limited

which took place on or about the

second day of August 1979. An amount

of $127,440 has been included in your

assessable income. The precise

calculation is as follows:-

ADD

TARGET COMPANY : YALLAROI PASTORAL CO PTY LTD

TOTAL SHAREHOLDERS FUNDS 161,170

LESS PAID-UP CAPITAL..... 4,900

SHARE PREMIUM RESERVE.....

PROFITS AVAILABLE FOR DISTRIBUTION 156,270

Shares held x Profits available

Total Shares for distribution 1,998 x 156,270

issued 2,450

= Amount included in assessable income 127,440

AMENDED TAXABLE INCOME 128,303"

The amended taxable income for that year in relation to Mr Swift Snr. was $128,303, for Mrs Swift $15,500, and for Graham Swift, $30,927. The tax liabilities for the year ended 30 June 1980 pursuant to these assessments was calculated as follows:

H.C. Swift L.C. Swift G.M. Swift

Taxable income $128,303 $ 15,500 $ 30,927 *

Primary Tax $ 70,091.86 $ 3,838.43 $ 10,944.80

Additional Tax

for incorrect

return $ 42,055.11 $ 2,003.05 $ 4,832.00

Total Tax $112,146.97 $ 5,838.48 $ 15,776.80

* Tax previously assessed at $16,512

Each of the s.260 assessments was accompanied by a letter in the following terms:

"APPLICATION OF SECTION 260 IN PRE-TAX COMPANY

PROFIT STRIPPING CASES

This advice has been prepared for the information

of taxpayers who were vendor-shareholders of

companies stripped of pre-tax profits. On the

basis of legal advice received following recent

High Court decisions, vendor-shareholders are being

assessed on the gross proceeds from the sale of

their shares in reliance on section 260 of the

Income tax (sic) Assessment Act.

Section 260 applies to make void as against the

Commissioner a contract, agreement or arrangement

made or entered into on or before 27 May 1981 to

the extent to which it has or purports to have the

effect of altering the incidence of income tax or

of relieving any person from liability to pay any

income tax.

The effect of section 260, in the context of

pre-tax company profit stripping, is that the

purported sale of the company shares is void as

against the Commissioner so that the gross proceeds

from the sale of shares are assessable as a

dividend. Notices of assessments and adjustment

sheets will reflect the inclusion of a dividend in

assessable income. Adjustment sheets will detail

the calculation of that dividend.

APPLICATION OF SECTION 260 AND TAXATION (UNPAID

COMPANY TAX) ASSESSMENT ACT

In many instances vendor-shareholders will have,

under the Taxation (Unpaid Company Tax) Assessment

Act, made tax payments reflective of the stripped

companies' liabilities for primary company tax and

undistributed profits tax (Division 7). The

section 260 assessments will call on

vendor-shareholders to pay tax on company profits

effectively distributed to them in the course of

the whole arrangement, without adjustment for

payments made under the Taxation (Unpaid Company

Tax) legislation. This aspect has previously been

brought to the Government's attention and it has

indicated that, as necessary, any "doubling up"

elements that might arise as a result of the

application of section 260 will be eliminated.

RECOVERY OF OUTSTANDING TAX

There are a number of cases awaiting hearing by the

Courts later this year which involve the issue of

assessments to vendor-shareholders of pre-tax

profit strip companies in reliance of section 260.

Pending the outcome of those cases, it is not

proposed to take legal recovery action in respect

of assessments that are now issuing. However,

additional tax for late payment will accrue from

the due date of each assessment."

13. In the matters which are the subject of the appeal to this Court, the Tribunal was dealng only with the referred disallowance of objections to the TUCTA assessments for the year ended 30 June 1980 and the deemed dividend assessments for the year ended 30 June 1981. No reference in relation to the s.260 assessments was before it. Objections have been lodged in respect of these assessments but at the time of trial had not been determined.

14. Before turning to the Tribunal's reasons for decision, it is convenient to collect and set out some of the relevant statutory provisions. Sub-section 3(1) of the TUCTA Act sets out definitions of various terms including the following:

"'ordinary company tax', in relation to a company,

means -

(a) income tax assessed under the Assessment Act

and levied upon the taxable income of the

company, being income tax imposed as such by

an Act; and

(b) additional tax payable by the company under

section 207 of the Assessment Act in relation

to tax referred to in paragraph (a);

'primary taxable amount', in relation to a person,

means an amount that is a primary taxable amount in

relation to the person under section 5;

'vendor's taxable amount', in relation to a person,

means an amount that is a primary taxable amount or

a secondary taxable amount in relation to the

person;

'vendors recoupment tax' means tax assessed under

this Act and imposed by the Taxation (Unpaid

Company Tax - Vendors) Act 1982;

'eligible taxable amount', in relation to a person,

means an amount that is a vendors taxable amount in

relation to the person or is a promoters taxable

amount in relation to an eligible promoters class

in which the person is included;"

Sub-section 5(1) sets out the circumstances in which a "primary taxable amount" shall be taken to exist in relation to a person. It is unnecessary to set them out verbatim here. They arise however, when 90% or more of the shares in a company have been sold for more than the difference between the asset value of the company and the sum of its pre-sale liabilities including liability to company tax. An assessment must have issued, the period for objection expired or any objection finalised and some or all of the company tax remain unpaid. There must have been some arrangement or transaction entered into that secured or achieved the result that at the relevant time the company was unable, having regard to its other debts, to pay to the Commissioner all the company tax due and payable by the company at that time. Alternatively, if the company ceased to exist it must have been unable, having regard to its other debts, to pay to the Commissioner all of the company tax that would have been due and payable immediately before it ceased to exist. It is also a requirement that if the company carried on a business immediately before the sale, other than a business consisting solely of deriving income from property, then it did not continue to carry on the business after the sale. The primary taxable amount which exists in relation to each vendor shareholder in those circumstances, is calculated on a pro rata formula set out in para 5(1)(m).

15. Where a primary taxable amount that is also a vendor's taxable amount exists in relation to a person a liability to pay tax is created by s.8 of the TUCTA Act which provides inter alia:

"8(1) Subject to this Act, where at any time a

vendors taxable amount exists in relation to a

person, the person is liable to pay the tax imposed

on that amount by the Taxation (Unpaid Company Tax

- Vendors) Act 1982."

Provision for notification of the company's tax assessment to persons likely to be liable to pay vendor's recoupment tax is made by s.18, which also confers on such persons the same rights of appeal under Div.2 of Pt.V of the Income Tax Assessment Act in relation to that liability as the company has.

16. Central to this appeal is the power of dispensation conferred on the Commissioner by sub-s.5(4) of the TUCTA Act in the following terms:

"5(4) Where a primary taxable amount exists or

existed in relation to a person in relation to an

amount of company tax payable by a company and -

(a) the Commissioner, having regard to -

(i) circumstances relating to the sale of

the shares or the interest in shares to

which the primary taxable amount

relates;

(ii) circumstances, whether occurring before

or after that sale, that caused or

contributed to the failure of the

company to pay that company tax; and

(iii) such other circumstances as the

Commissioner considers relevant,

considers it unreasonable that the primary

taxable amount should be taken to exist or to

have existed in relation to the person; or

(b) if the primary taxable amount is less than

$100 - the Commissioner considers that the

primary taxable amount should not be taken to

exist or to have existed in relation to the

person,

the primary taxable amount shall not be taken to

exist or to have existed in relation to the

person."

For comparative purposes, reference should also be made to sub-s.6(2) of the Act which, using a verbal formula similar to that in sub-s.5(4) provides for the deemed existence of a "secondary taxable amount" in relation to persons leading ultimately to liability for recoupment tax. The application of the section is conditioned upon a number of matters including in para (c) that:

"(c) The Commissioner is of the opinion that, by

reason of a circumstance mentioned in paragraph

(b), it would be unreasonable that the relevant

company or the trustee of the relevant trust

estate, as the case may be, be liable to pay

recoupment tax on the vendor's taxable amount."

17. Having reviewed the evidence, the Tribunal turned to a consideration of what it called "the pre-history of the TUCTA Act". It referred to Slutzkin v Federal Commissioner of Taxation (1977) 140 CLR 314, the enactment of the Crimes (Taxation Offences) Act 1980, passages from the Interim Report of the Royal Commission into the Activities of the Federated Ship Painters and Dockers Union, the enactment of Pt. IVA of the Income Tax Assessment Act, the Treasurer's announcement of the proposed TUCTA Act and his second reading speech in relation to it. Under the heading "the History of the Assessments" the Tribunal quoted parts of a ruling published by the Commissioner of Taxation on 28 October 1983 setting out standards to be applied in considering the exercise of discretion under sub-s.5(4) and 6(18) of the TUCTA Act. In the relevant parts this ruling, IT2063, provided:

"While this ruling has been prepared with former

owners of public companies in mind, the principles

that it expresses are also applicable in respect of

private companies."

"8. Apart from 'under $100' cases, the legislation

does not specify the circumstances in which the

particular subsections will apply. However, the

broad principle that emerges from the legislation

as a whole is that a person should be granted

relief where that person and closely associated

persons have not in any way benefited from the

evasion giving rise to the recoupment liability in

question. This will mean that the circumstances of

the particular cases will need to be examined to

ascertain whether a benefit was enjoyed.

9. The situations in which it may be possible to

establish that no benefit was enjoyed will vary

considerably. It is not practicable, therefore, to

lay down hard and fast rules as to the various

circumstances in which the relieving power will be

exercised. However, the examples outlined below

are illustrative of situations where the granting

of relief could be expected.

Example 1

A person acquired shares in a public company

through a stock exchange. Subsequently some of

the subsidiaries of that public company were

stripped of pre-tax profits. However, no

dividends or other benefits were thereafter

received from the company and the shares are now

worthless.

Example 2

A person, who held shares in a public company at

the time some of its subsidiaries were stripped

of pre-tax profits, has sold those shares at the

then ruling market price and, having enjoyed no

other benefits from the evasion in the meantime,

at a time when the market price did not reflect

any benefit in relation to the stripping of the

subsidiaries.

10. Generally speaking, it is accepted that where

shares have been sold shortly after the stripping

of the subsidiary the market price would not

reflect any benefit. Conversely, where shares have

been disposed of as a result of a takeover, and the

takeover price represents a valuation of the

company that has taken into account the benefit

which accrued to it from evasion of the tax

liabilities of the subsidiaries, exercise of the

relieving power ordinarily would not be

appropriate. In other words, the situation would

be one where a benefit from the evasion has flowed

to the vendor in the price received for the shares.

Between these two extremes the question of benefit

can only be determined by the facts of the case.

In forming an opinion, regard needs to be had to

such factors as movement in the market price of the

shares in question, movement in the share market

generally, public announcements, accounting records

and reports, issues of bonus shares and rights

issues, participation in the management of the

company, the level of dividends paid and the use

made by the company of its benefit from the

evasion."

As part of this history reference was also made to MacCormick v Federal Commissioner of Taxation [1984] HCA 20; (1985) 158 CLR 622 upholding the constitutional validity of the recoupment tax legislation and to the 1984 Annual Report of the Commissioner in which he referred to contentions that s.260 of the ITAA did not apply to the so called bottom of the harbour cases. Other public statements on that topic by the Treasurer in 1984 and 1987 and the Commissioner in 1986 were quoted in part.

18. The first substantive question which the Tribunal posed for itself, was whether the assessments under the TUCTA Act and under s.260 of the ITAA could co-exist in respect of the same circumstances and taxpayers. It concluded that no such result was intended by the Parliament in enacting the TUCTA Act. In any event, if s.260 applies to a transaction such as that now under consideration, it was the view of the Tribunal that it renders the transfer of shares void as against the Commissioner. That being so, there is no "sale" of shares to attract the application of the TUCTA Act. The s.260 assessments however, were not under review and the Tribunal could not affect their efficacy. Nevertheless it concluded that it was not bound to treat the s.260 assessment as valid. It held that on the evidence there was no scope for the application of s.260 and that the case fell "within the authority of the decision of the High Court of Australia in Slutzkin...". The Tribunal went on to say that "all of the elements of s.5 of the T (UCT) A Act (with the possible exception of sub-section (4) which has as yet to be considered) have been satisfied in relation to each of the Applicants." It then turned to the dispensing discretion under sub-s.5(4). Accepting that it could review the exercise of that discretion on a reference under Pt.V of the ITAA, the Tribunal noted that the sub-section had a markedly different emphasis from s.265 of the ITAA. It involved a decision whether a liability should be imposed, not as, in s.265, whether enforcement of the liability would impose undue hardship. It found that the Commissioner's ruling on the application of the sub-s. was too narrowly based having regard to the width of the discretion.

19. Facts relevant to the exercise of the discretion were then reviewed:

"So far as the parents are concerned, as neither

gave evidence, I can only have regard to matters

established by the other evidence: their ages;

their condition in life as a married couple whose

lives have been spent on a modest farming property

in a somewhat remote rural area; and the

circumstances that, over many years, they have

derived only modest incomes (whether derived

directly or through a company or trust) as primary

producers. As to the son, I have regard to similar

considerations of age and circumstance. In this

case I find that he is not a person of commercial

or fiscal sophistication. However, I find that he,

and also his parents, were persons who placed their

trust in commercial and fiscal matters in the hands

of a qualified chartered accountant and that, on

his recommendation, they consulted with and acted

upon the advice of a Sydney solicitor who arranged

for them the sale of their shares in circumstances

which later exposed them to liability to vendor

recoupment tax."

Various other considerations to which the Tribunal also had regard were enumerated:

(a) that the profit of the company for the year of

income ended 30 June 1980 was exceptionally

high and was theproduct of many years of

income-earning activity coming to be

considered as taxable income in one year;

(b) that the fact that profit was generated to

that extent at that time was a consequence of

restructuring the affairs of the family and

not merely of a desire on the part of

shareholders to realize their shareholding on

a "cum dividend" basis before the taxing of

the company;

(c) that the sale was a by-product of the

re-organization of family affairs instead of

the re-organization only being effected in

order to make possible the sale;

(d) that they did nothing to bring about a

situation whereby the company could not pay

its tax when assessed;

(e) that they were not privy to the "fraudulent"

proposals of their purchasers as to the

operation of the company following their sale

of its shares;

(f) that although vendors in trading and

manufacturing concerns gained almost

immediately a financial benefit approximating

the tax due by the company (less the

promoter's "fee" and costs), for taxpayers

such as these Applicants the same benefit can

only be realised over many years (cf) pa 15);

(g) that nothing was done by any of the Applicants

to increase their advantage such as could have

brought about an artificially enlarged profit

to the company to date of sale with consequent

reduced profits from operations of future

years (such as would have arisen if the stock

had been sold and purchased at above market

value).

Reliance upon any personal characteristics of the taxpayers other than those expressly mentioned was disclaimed, as was any consideration arising out of their present financial hardship or the circumstance that they might be seriously and adversely affected by the continuing existence of the s.260 assessments. The Tribunal concluded:

"Having regard to the circumstances relating to the

sale of the shares and the other circumstances

which I have mentioned as relevant, and especially

the circumstances that the reorganization which

generated the profit was not carried out only to

"do a Slutzkin", I am satisfied that, in this

instance, it is "unreasonable that the primary

taxable amount should be taken to exist or to have

existed in relation to" any of the Applicants."

The Tribunal thereupon ordered that the decisions of the Commissioner upon the objections under review be varied and that the objections be allowed.

20. Each of the appeals is brought in the original jurisdiction of this Court pursuant to s.44 of the Administrative Appeals Tribunal Act and is limited by that section to an appeal on a question of law. The question as identified in each of the notices of appeal is:

"Whether the Tribunal, in finding that it was

unreasonable that a primary taxable amount should

be taken to exist or to have existed in relation to

the respondent, has correctly exercised the

discretion conferred by section 5(4) of the

Taxation (Unpaid Company Tax) Assessement Act 1982

having regard to the matters set out therein."

Thus stated the question does not necessarily constitute or give rise to questions of law. The exercise of a statutory discretion may lead to differing results depending upon the weight accorded to relevant factors by the decision-maker. Each result may be perfectly lawful reflecting a proper exercise of the discretion if not one that is "correct" in the eyes of all its beholders. However, the grounds of appeal attacked the Tribunal's exercise of its discretion under sub-s.5(4) for taking into account irrelevant matters and failing to take into account relevant considerations and as such raised questions which can be characterised as questions of law. As amended at the hearing, they are as follows:

"4. That in exercising the discretion conferred by

s.5(4) of the Taxation (Unpaid Company Tax)

Assessment Act 1982 -

(a) The Tribunal erred in law in giving

weight to extraneous or irrelevant matter

namely:

(i) the respondent's age;

(ii) the respondent's condition in

life;

(iii) that the respondent was not a

person of commercial or fiscal

sophistication;

(iv) that the respondent was a person

who placed his trust in commercial

and fiscal matters in the hands of

a qualified chartered accountant

and that upon his advice he

consulted with and acted upon the

advice of a solicitor who arranged

for the sale of his shares in

Yallaroi in circumstances which

later exposed him to liability to

vendors recoupment tax;

(v) that the profit derived by

Yallaroi during the year ended 30

June 1980 had been exceptionally

high;

(vi) that the extent of the profit

generated by Yallaroi was a

consequence of the restructuring

of the affairs of the respondent's

family;

(vii) that the sale by the respondent of

his shares in Yallaroi was a

by-product of the re-organisation

of the affairs of the respondent's

family;

(viii) that the respondent did nothing to

bring about the situation whereby

Yallaroi was unable to pay its tax

when assessed;

(ix) that the respondent was not privy

to the "fraudulent" proposals of

the purchasers of the shares in

Yallaroi;

(x) that the financial benefit

received by the respondent from

the sale of the shares in Yallaroi

could only be realised over many

years;

(xi) that nothing was done by the

respondent to artificially enlarge

the profit derived by Yallaroi and

thereby increase the advantage to

him.

(b) The Tribunal erred in law in failing to

take into account as relevant matters the

following:

(a) the policy of the Taxation

(Unpaid Company Tax) Assessment

Act 1982 and the fiscal

consequences of what happened;

(b) that the respondents sold their

shares in circumstances to which

the Act applied; and

(c) that the respondents received a

tax benefit from the sale.

(c) The Tribunal erred in acting under a

wrong principle namely, that upon its

proper construction, the occasion for the

exercise of the Commissioner's discretion

is not limited to the case when a person

and closely associated persons have not

in any way benefitted from the evasion

giving rise to the recoupment tax

liability in question and instead should

have acted upon the principle that the

exercise of the discretion was so

limited."

The last ground in para (c) was not pressed at the hearing. Each of the respondents filed a notice of contention raising matters of law said to have been erroneously decided against the respondents by the Tribunal, but did not seek any discharge or variation of the decisions actually made. The matters of law referred to were identified in the notices as follows:

"a) Whether the Tribunal erred in Law in failing

to conclude...from the continued existence of

an assessment ("the section 260 assessment")

made by the applicant against the respondent

in reliance on sections 260 and 44 of the

Income Tax Assessment Act 1936...in relation

to the respondent's sale in August, 1979 of

shares in the company known as Yallaroi

Pastoral Co. Pty. Limited ("Yallaroi") that,

for the purposes of the review being conducted

by the Tribunal, such assessment had been duly

made and that the amount and the particulars

thereof were correct;

b) Whether the Tribunal, in exercising the

discretion conferred by paragraph 5(4)(a) of

the Taxation (Unpaid Company Tax) Assessment

Act 1982 ... erred in failing to take into

account the following factors, or any of them,

namely:-

i) the conclusively presumed liability of

the respondent, as at the time of making

the assessments the subject of review by

the Tribunal...to be assessed for income

tax under the section 260 assessment;

ii) the effects on the respondent of the

existence of the section 260

assessment concurrently with the T(UCT)A

assessments;

iii) facts, matters and circumstances other

than those "existing prior to the making

of the (T(UCT)A) assessments."

21. Sub-section 43(1) of the Administrative Appeals Tribunal Act provides inter alia that "For the purpose of reviewing a decision the Tribunal may exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision...". The Tribunal had, in this case, the same discretion as is conferred on the Commissioner by sub-s.5(4) of the TUCTA Act. Its duty in the exercise of that discretion was not limited to a consideration of the matters that were before the Commissioner, nor to a determination whether his decision was the correct or preferable one. It was, rather, bound to consider the relevant facts proved on the evidence before it and to decide on the basis of those facts what was the correct or preferable decision - Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577, 589 (Bowen CJ and Deane J.): Nevistic v Minister for Immigration and Ethnic Affairs [1981] FCA 41; (1981) 34 ALR 639, 640 (Franki J.); Commonwealth of Australia v Ford (1986) 65 ALR 323, 328 (Wilcox J.); Freeman v Secretary of Department of Social Security [1988] FCA 294; (1988) 15 ALD 671 (Davies J.); Fletcher v Federal Commissioner of Taxation (1988) 84 ALR 295, 306 (Full Court). In that process it was neither entitled nor required to place weight upon the fact that the Commissioner had exercised his discretion in a particular way - Collins v Minister for Immigration and Ethnic Affairs [1981] FCA 147; (1981) 36 ALR 598, 603 (Full Court).

22. In the absence of any statutory direction, the Tribunal is not bound to apply the administrative policies by which the exercise of the discretion under review is regulated at the primary decision-making level. In particular, it was not bound in this case to apply taxation ruling IT2063 to which reference has already been made. It is generally entitled to take administrative policy into account as a relevant factor in the achievement, inter alia, of a desirable consistency in decision-making - Drake v Minister for Immigration and Ethnic Affairs (supra) at 591. For as Brennan J. said in Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) [1979] AATA 179; (1979) 2 ALD 634 at 639:

"Inconsistency is not merely inelegant: it brings

the process of deciding into disrepute, suggesting

an arbitrariness which is incompatible with

commonly accepted notions of justice."

That observation is subject to the caveat that decision-makers can be consistently wrong or consistently unjust and that consistency is safely sought by reference to policy only when the policy is appropriate and acceptable - Nevistic v Minister for Immigration and Ethnic Affairs (supra) at 646 (Deane J.). This does not involve the Tribunal in reviewing policy or deciding what policy a primary decision-maker should adopt - Re Aston (1985) 4 AAR 65, 76 (Davies J.). And, as in that case, which involved the exercise of a discretion to limit the terms of fishing licences under a national quota scheme, a policy which is developed in the political arena after consultation with the relevant industry ought generally to be given great weight. Taxation ruling IT2063 does not appear to be in that category. Nevertheless, the magnitude of the task involved in carrying out original decision-making and supervising and regulating the exercise of delegated authority under the taxation laws, is a powerful indicator that appropriate guidelines are essential for the avoidance of administrative chaos and for the achievement of reasonable consistency. The need to maintain the perception and reality of equal treatment is an important factor in the administration of all laws and not least in those relating to taxation. But such considerations go to the weight to be attributed to policy and that is ultimately a matter for the Tribunal - Nevistic v Minister for Immigration and Ethnic Affairs (supra) at 647 (Deane J.); Re Aston (supra) at 78 (Davies J.). It is said to be essential that the Tribunal be fully informed of reasons for any policy involved in a decision under review. Otherwise, instead of subjecting it to rational analysis and assisting in the development of principled yet flexible decision-making, the Tribunal may "intervene incongruously to disrupt the due course administration" - Commonwealth of Australia v El Hassan (1985) 62 ALR 305, 316 (Burchett J.). That I take to be an exhortation to the parties seeking to invoke the relevant policy rather than an indication that the Tribunal should initiate its own inquiry into policies affecting the decision under review.

23. The function of the Court on an appeal under sub-s.44(1) of the Administrative Appeals Tribunal Act is limited to resolving the question or questions of law upon which the appeal is brought. In so doing it exercises a narrower jurisdiction than that previously conferred on the Supreme Courts of the States by s.196 of the Income Tax Assessment Act which allowed for appeals from Taxation Boards of Review on matters "involving a question of law" and thus, upon identification of a question of law, conferred jurisdiction in respect of the whole of the disputed decision Committee of Direction of Fruit Marketing v Australian Postal Commission [1979] FCA 31; (1979) 37 FLR 457, 467 (Northrop J.); Brown v Repatriation Commission [1985] FCA 194; (1985) 60 ALR 289, 291 (Full Court); Waterford v Commonwealth of Australia [1987] HCA 25; (1987) 71 ALR 673, 689 (Brennan J.); Commissioner of Taxation v Brixius (1987) 16 FCR 359, 363 (Full Court); TNT Skypak International (Aust.) Pty Ltd v Federal Commissioner of Taxation [1988] FCA 119; (1988) 82 ALR 175, 178 (Gummow J.).

24. The proper approach to the exercise of the jurisdiction under s.44(1) is one of restraint, recognising that only in exceptional circumstances, as when an error of law is identified, should the Court intervene - Blackwood Hodge (Australia) Pty Ltd v Collector of Customs (NSW) (1980) 47 FCR 131, 145 (Fisher J.); Federal Commissioner of Taxation v Cainero 88 ATC 4427 (Foster J.). The guiding principle was succinctly stated in the judgment of the Full Court in Repatriation Commission v Thompson (1988) 82 ALR 352 at 357:

"the nature of the task of this Court is clear. It

is to leave to the tribunal of fact decisions as to

the facts and to interfere only when the identified

error is one of law."

The characterisation of a question as one of "law" is not uncommonly attended with difficulty particularly where the interpretation or application of statutes is concerned - see generally TNT Skypak v Federal Commissioner of Taxation (supra) at p 182 (Gummow J.); Collector of Customs v Bell Basic Industries Ltd [1988] FCA 371; (1988) 83 ALR 251, 260 (French J.). But there is no error of law simply in making a wrong finding of fact - Waterford v Commonwealth (supra) at p 689 (Brennan J.). The complaint that a decision is against the evidence or the weight of the evidence does not involve any such question unless there was no material before the Tribunal on which the conclusion it reached could be properly based - Collins v Minister for Immigration and Ethnic Affairs (supra) at 601; Blackwood Hodge (Australia) Pty Ltd v Collector of Customs (NSW) (supra), 132 (Smithers J.), 155 (Sheppard J.).

25. The question whether misattribution of weight to a relevant factor could amount to an error of law occasioned some divergence of view in Tabag v Minister for Immigration and Ethnic Affairs [1982] FCA 276; (1982) 45 ALR 705. Woodward J. said that the weight to be given to a relevant consideration would rarely involve any question of law. However, in a limiting case, the attribution of very little weight to a matter deserving of much could come so close to ignoring a relevant consideration as to amount to an error of law. In so saying, his Honour allowed that once error of law is found it will not necessarily result in an appeal being allowed. Keely J. did not think it open to the Court to allow an appeal on the basis that the Tribunal attached undue importance to some matter or failed to have due regard to another (at 715). And Jenkinson J., with whom Woodward J. expressly differed on this point, was prepared to say that misattribution of weight to a relevant consideration resulting in a wrong or unjust decision would not necessarily involve error of law (at 726). In Commissioner of Taxation v Brixius (supra) at 366, the Full Court accepted that the application by the Tribunal of the relevant principle of law was "very much a matter of fact and degree" as was the weight to be attached to relevant considerations. Their Honours quoted and approved the observation of Diplock LJ in R v Deputy Industrial Injuries Commissioner; Ex parte Moore (1965) 1 QB 456 at 488:

"If it (the evidence) is capable of having any

probative value, the weight to be attached to it is

a matter for the person to whom Parliament has

entrusted the responsibility of deciding the issue.

The supervisory jurisdiction of the High Court does

not entitle it to usurp this responsibility and to

substitute its own view for his."

In Repatriation Commission v Thompson (supra) at 358, the Court made clear that if a relevant factor is taken into account no error is shown should the Tribunal have given less weight to it than would the Court.

26. This discussion and the cases mentioned turn upon the phrase "question of law" which confines the jurisdiction of the Federal Court in an appeal from the Tribunal. The existence of the limiting case, adverted to by Woodward J. derives support from the general discussion of judicial review for failure to consider relevant factors in Minister for Aboriginal Affairs v Peko-Wallsend Limited [1986] HCA 40; (1985) 162 CLR 24. Mason J., with whom Gibbs CJ, Deane and Dawson JJ agreed, observed at p 41 that in the absence of any statutory indication of the weight to be given to various considerations it is generally for the decision-maker and not the Court to determine the appropriate weight to be given to matters that are required to be taken into account in exercising the statutory power. His Honour went on to offer the following qualification:

"I say "generally" because both principle and

authority indicate that in some circumstances a

court may set aside an administrative decision

which has failed to give adequate weight to a

relevant factor of great importance, or has given

excessive weight to a relevant factor of no great

importance. The preferred ground on which this is

done, however, is not the failure to take into

account relevant considerations or the taking into

account of irrelevant considerations, but that the

decision is "manifestly unreasonable"."

The importance of restraint was nevertheless addressed at p 42 where his Honour said that in the context of administrative law a court should proceed with caution when reviewing an administrative decision on the ground that it does not give proper weight to relevant factors, lest it exceed its supervisory role by reviewing the decision on its merits. I would not regard those observations as conflicting with Brixius and Thompson, for in neither was the Full Court addressing the limiting case of a decision said to be so unreasonable as to reflect error of law.

27. As a further expression of the restraint to be applied by the Court in the exercise of its jurisdiction under sub-s.44(1), I respectfully adopt the observations made by Lockhart J. in Politis v Federal Commissioner of Taxation 88 ATC 5029 at 5032. There his Honour deprecated the growing tendency in appeals under s.44(1) for the Court to be asked to construe the Tribunal's reasons "minutely and finely and with an eye keenly attuned to the perception of error". He went on to say:

"The Court should approach its task sensibly and in

a balanced way not reading passages from the

reasons for decision in isolation from others to

which they may be related or taking particular

passages out of the context of the reasons as a

whole."

The Discretion Under Sub-section 5(4) of the TUCTA Act

28. Contrary to its literal reading, sub-s.5(4) does not simply attach a legal consequence to a defined state of the Commissioner's mind. It is functional, conferring a dispensing power to be exercised in the light of enumerated circumstances and by reference to a criterion of reasonableness. That is a relative term which, taken by itself, imports a requirement to consider the circumstances of the case as a whole - R v Archdall and Roskruge; Ex parte Carrigan [1928] HCA 18; (1928) 41 CLR 128, 136; Opera House Investment Pty Ltd v Devon Buildings Pty Ltd [1936] HCA 14; (1936) 55 CLR 110, 116 (Latham CJ), 117 (Starke J.). In R v Archdall (supra), which involved the construction of the phrase "without reasonable cause or excuse" in a provision of the Crimes Act 1914, Higgins J. said at 140:

"As so often happens in recent legislation, such an

issue as "reasonableness" is left to the tribunal,

without any guidance from the Legislature; and the

tribunal has to weigh all the circumstances in

order to decide the issue for itself in each

particular case. It is not a question of law; it

is rather a question of general social standards."

The word "unreasonable" as used in sub-s.5(4) is substantially indeterminate in its operation. In Stone's Human Law and Human Justice (1965) it was said (at 301), that such terms go little beyond restating the problem of justice. But that observation was qualified:

"Not that these notions leave matters quite at

large. First, neither "justice" nor, say,

"reason", is wholly indeterminate, each conveys to

the hearer at least the mood and flavour of what is

meant."

A similar device is used in s.99A of the Income Tax Assessment Act 1936. That section and s.99 provide for the liability of a trustee to taxation in respect of trust income to which no beneficiary is presently entitled. In such a case s.99 will impose liability to tax as though the income of the trustee were that of an individual, not subject to any deduction. But it does not apply if s.99A which imposes a prescribed (and generally higher) rate, applies. Sub-section 99A(2) provides that the section will not apply if in various circumstances which are enumerated "the Commissioner is of the opinion that it would be unreasonable that the section should apply in relation to that trust estate in relation to that year of income". Sub-section (3) sets out various factors to which the Commissioner is to have regard in forming his opinion.

29. In its original form as enacted in 1964, sub-s.(2) had a wider range not being limited in its application to any particular cases and was expressed thus:

"This section does not apply in relation to a trust

estate (other than a trust estate referred to in

the last preceding sub-section) in relation to a

year of income if the Commissioner is of the

opinion that it would be unreasonable that this

section should apply in relation to that trust

estate in relation to that year of income."

On a challenge to its constitutional validity in Giris Pty Ltd v Federal Commissioner of Taxation [1969] HCA 5; (1969) 119 CLR 365, various observations were made concerning its operation. The sub-section was held to be constitutionally valid and opinions formed pursuant to it not impervious to judicial review. But the discretion conferred upon the Commissioner was seen by some members of the court as being of extraordinary width. It was variously described as "a legislative discretion", "a function of the legislature rarely delegated to an official" (372 Barwick CJ), conferring "an extraordinary responsibility" and "an acknowledgement by the legislature of its inability to make laws laying down prospectively what will give rise to a particular taxation liability" (380, 381 Menzies J.). Windeyer J. referred to the absence of any "absolute, precise or objectively determinable tests of what is here reasonable or unreasonable" (at 382). The great difficulty facing the Commissioner in identifying his task in the exercise of the discretion was emphasised by both Kitto and Owen JJ. As to the interpretation of the word "unreasonable", Barwick CJ said at 372:

"I have been unable to find any content for the word

"unreasonable" in the context of the two sections

except considerations of a kind upon which a

legislature acts in deciding whether an enactment

or its particular terms are or are not unreasonable

having regard to the interests of the public

generally, and of the citizen to be affected, of

the revenue and of the requirements of those

policies, political, economic and fiscal which the

Parliament is prepared to sanction. Some facts are

specified for the Commissioner's attention in

arriving at his opinion as to unreasonableness but

he is given no hint of what bearing any or all of

them ought to have or may have on his judgment. In

addition, he is required to have regard to any

facts which he thinks appropriate to be considered

in relation to the formation of his opinion."

30. Windeyer J. acknowledged the deep roots of the concept in the common law and the power of a court to say whether a particular decision is or is not within the bounds of reason. But his Honour went on to comment at 384:

"...in cases of that kind, the circumstances in

which the question arises provide criteria for its

solution. Here the Commissioner's discretion is

apparently at large."

There were nevertheless broadly stated limits on the Commissioner's discretion:

"I assume that he is to be guided and controlled by

the policy and purpose of the enactment, so far as

that is manifest in it. That would exclude from

his consideration any matter which it would be

unlawful for him to take as a criterion, such as

the State of residence of a trustee or of the

beneficiaries of a trust. It would also, I think,

exclude all merely fanciful and prejudiced tests

which were hypothetically suggested in argument,

such as vocation, religion, colour of skin or hair.

Nevertheless the statute seems to allow great

latitude to the Commissioner in forming his

opinion." (p 384)

In a later single judge decision, Perron v Federal Commissioner of Taxation (1972) 128 CLR 595, Stephen J. had occasion to consider the operation of sub-s. 99A(2). In that case the income of the trust estate to which no beneficiary was presently entitled was so large as to attract a higher rate under s.99 than under s.99A. The appeal against an assessment raised under s.99 was dismissed, his Honour noting in so doing, that it was accepted in Giris' case that the formation of the Commissioner's opinion was subject only to a quite limited degree of judicial scrutiny. At 600 his Honour said of that case:

"Implicit in the judgments of McTiernan, Kitto,

Menzies and Owen JJ. is the view that a wide

variety of considerations might be taken into

account by the Commissioner and Windeyer J.

described the Commissioner's discretion as

"apparently at large", controlled only by the

manifest policy and purpose of the enactment, so

that unconstitutional or fanciful and prejudicial

criteria must be excluded."

31. In Deputy Commissioner of Taxation v Truhold Benefit Pty Ltd [1985] HCA 36; (1985) 158 CLR 678, the High Court rejected arguments that sub-s.6(2) of the TUCTA Act was invalid as imposing liability to tax in an arbitrary manner and dealing with the word "unreasonable" as there used, said that:

"Unreasonableness is a relative concept and the

application requires the consideration of all the

relevant circumstances." (p 687)

And as to the limitation on the discretion which might attract judicial review:

"The Commissioner is to be guided and controlled by

the policy and purpose of the enactment and,

whatever the width of his discretion, it is not

unexaminable should he exceed the limits which may

be discerned from its provisions." (p 687)

The only reported decision on sub-s.5(4) appears to be Marsh v Federal Commissioner of Taxation 85 ATC 435 in which Ryan J. in the Supreme Court of Queensland held that the Commissioner was required by the sub-section to have regard to the matters set out therein in considering whether it is unreasonable that the primary taxable amount should be taken to exist in relation to the applicants.

32. Subject to the requirement that the Commissioner have regard to the circumstances mentioned in the sub-section, his discretion and that of the tribunal is as wide as the scope and purpose of the Act. But the "legislative" character and extraordinary width of this dispensing authority marks it as an element of the legislative scheme not to be disregarded in the definition of its scope and purpose. It is notably less confined by the need to refer to particular circumstances than s.99A of the ITAA. The strong statements in Giris about the width of the discretion under that provision cannot have been lost on the draftsman of sub-s.5(4).

33. The primary purpose of the TUCTA Act is to collect company tax which has been evaded. In the service of that purpose it creates liabilities in respect of transactions which pre-dated its enactment and provides for their imposition on persons who may have committed no offence, participated in no fraud and who were at all material times acting within the law. And there may be persons who are liable under the Act although they have received little or no benefit from the transaction in question. Instead of endeavouring to spell out the circumstances in which burdens imposed by the legislation might be lifted, the Parliament has provided for a dispensation that is capable of exercise by reference to the widest range of factors. In this context, the scope and purpose of the Act can be seen as the collection of company tax subject to a dispensing power. The dispensing power is incidental and ancillary to the primary object of the legislation. On the spectrum of cases in which it could conceivably be exercised, there will be a threshold beyond which it would defeat the primary object of the legislation. It is unnecessary to define that threshold for present purposes. The discretion cannot, however, be limited to the case where a person has not in any way benefited from the evasion giving rise to the recoupment tax liability. And in this respect ground 4(c) of the grounds of appeal was rightly abandoned. The absence of such a simply expressed limitation from the language of sub-s.5(4) is indicative of the absence of any such legislative intention. That is not to say that it is not open to consider whether a person claiming dispensation under the sub-section benefited from the sale of shares in the subject company. But, it is not, as a general rule, conclusive.

34. There may of course be irrelevant factors which lie quite outside the framework of the Act, and which, if taken into account, would stamp a decision based upon them as arbitrary, fanciful or manifestly unreasonable. And it is on this basis that the Commissioner's attack is largely founded.

35. The Tribunal's listing of various matters taken into account by it in deciding whether to exercise the discretion in favour of the applicants, embodies various findings of fact. In summary they were as follows:

1. Mr and Mrs Swift Snr. are an elderly couple who

have spent their working lives on a modest farming

property in a remote rural area.

2. They have over many years derived only modest

incomes as primary producers.

3. They and their son lacked any commercial or fiscal

sophistication.

4. They and their son placed their trust in their

qualified chartered accountant and on his

recommendation consulted with and acted upon the

advice of a Sydney solicitor who arranged the sale

of shares in Yallaroi Pastoral Co. Pty Ltd in

circumstances which later exposed them to liability

to vendor recoupment tax.

5. The profit generated by the disposal of the

company's stock in 1979 resulted from the

restructuring of family arrangements and not from

any desire on the part of the Swifts to realise

their shareholding on a "cum dividend" basis before

the taxing of the company.

6. The sale of the shares was incidental to and not

the purpose of the family restructuring.

7. The Swifts were not privy to the fraudulent designs

of the purchasers of their shares and did nothing

to bring about the situation that the company could

not pay its tax when assessed.

8. The Swifts gained no immediate financial benefit

from the transaction, such benefit as they gained

being only realised over many years.

9. They did nothing in the transaction to artificially

enlarge the profit of the company to date of sale

as would have occurred if the stock had been sold

and purchased at above market value.

Whatever criticism may be made of those findings and in particular those in para 8, which were the subject of some debate, they are findings on matters of fact and in my opinion cannot be impeached in these proceedings.

36. The principal thrust of the Commissioner's attack upon the decision under review was that the Tribunal's exercise of the discretion under sub-s.5(4) was based upon a variety of irrelevant factors. Matters personal to the Swifts, their age, condition in life, lack of commercial sophistication and reliance upon professional advice, were said to have nothing to do with the dispensing power. But the Tribunal's reasons in relation to these matters should not be dealt with piecemeal. They must be read in a sensible and balanced way not taking some passages in isolation from others to which they relate - Politis v Federal Commissioner of Taxation (supra) at 5032. In particular the reference to personal factors cannot be disentangled from the consideration of their objectives in entering the transaction that they did and the nature of their participation in it. And if those latter matters, against the background of their personal attributes and history, contribute to some moral or normative element in the assessment, that these applicants do not "deserve" to be subjected to liability for vendors recoupment tax, it cannot be said that such a judgment falls outside the extraordinarily wide discretion under sub-s.5(4). It may well be that the assessment is, in the language of Higgins J. in R v Archdall (supra) not even a question of law, but rather "a question of general social standards". And, accepting the correctness of the findings of fact, it cannot be said that such considerations as the source of the "profit" for the year ended 30 June 1980, its derivation as a by-product of the restructuring of family affairs and the deferred realisation of financial benefits from the transaction, were irrelevant. Further, in my opinion, it is appropriate to take into account the fact that the applicants were not privy to any fraud and did nothing to bring about the situation whereby the company was unable to pay its tax when assessed. And while consideration of the possibility that the Swifts did not derive as great an advantage as they could have by selling the stock at above market value, might be of marginal importance it cannot be excluded from consideration on logical grounds. Taken in isolation any one of the matters to which I have referred might be open to the criticism that it is insufficient to support the exercise of the discretion. Taken together, they covered the bulk of the salient features of the case sufficient to leave open a judgment in favour of the dispensation.

37. In saying that, I accept that the Tribunal appears in its reasons to have placed greatest weight upon the fact, as it found, that the sale of the company's shares was carried out in order to effect a reorganisation of family arrangements and not merely to dispose of an unwanted tax liability. Accepting, as I do, that that is a relevant consideration, the weight to be attributed to it was a matter for the Tribunal and did not involve any question of law. In particular, it did not give rise to the limiting case of manifest unreasonableness adverted to by Mason J. in the Peko-Wallsend.

38. It may be said that the Tribunal's exercise of its discretion has undermined the objectives of the Act. If that be so, then it is for the legislature to consider confining the dispensing power. But the conflict between the primary purpose of collecting evaded company tax and the ancillary function of dispensation has not risen here to such a level that the primary purpose is defeated. Any dispensation under sub-s.5(4) will necessarily undermine the primary purpose, for tax which might have been collected will not be collected. That is an inescapable consequence of the operation of sub-s.5(4). Its invocation by the Tribunal in this case has not, in my opinion, involved the crossing of that threshold beyond which the exercise of the discretion falls outside the scope and objects of the Act.

39. The Commissioner has also complained that the Tribunal failed to take account of certain relevant factors. The first of these is the policy of the TUCTA Act and the consequences of the share sale. As to that I am satisfied that the Tribunal made its decision against a background, which it set out, of the history and policy of the Act including references to relevant portions of the second reading speech. And the fiscal consequences of the transaction were adverted to in the review of the evidence. There was a tax liability in the company as a result of the disposal of stock and that liability was not met. The complaint that the Tribunal failed to consider that the Swifts sold their shares in circumstances to which the Act applied is difficult to understand. It was a matter made explicit by the Tribunal when it said "all of the elements of section 5 of the T(UCT) Act (with the possible exception of sub-section (4) which has as yet to be considered) have been satisfied in relation to each of the applicants". And although the matter was not expressly referred to in the exercise of the discretion under sub-s.5(4), it was implicit for the discretion is conditional upon the existence of a primary taxable amount in relation to the relevant person.

40. Finally it is said that the Tribunal failed to take into account that the respondents received a tax benefit from the sale. But this was expressly mentioned in connection with the exercise of the discretion when the Tribunal held that the benefit gained by the Swifts could only be realised over many years. The factual correctness of that observation as I have already made clear, cannot be the subject of enquiry in these proceedings.

41. In conclusion and for the preceding reasons, I am of the opinion that the Tribunal's decision should not be disturbed and the appeals will be dismissed. Having regard to the conclusion at which I have arrived, it is unnecessary to deal with the matters raised in the Notice of Contention.