Taxation, Commissioner of v Dalco

The taxpayer's appeals to the Supreme Court of New South Wales consequent on the Commissioner's disallowance of his objections to the assessments were dismissed by Yeldham J. [2] . The taxpayer appealed to the Federal Court. By a majority (Sheppard and Gummow JJ., Wilcox J. dissenting) the Full Court allowed the appeals [3] . The majority did not find any factual error in the findings made by Yeldham J. but they held that the taxpayer had succeeded in showing that each of the assessments was excessive "in that it was not warranted by law" [4] . They remitted each matter to the Commissioner for reassessment. From that order, the Commissioner brings these appeals by special leave.

1. (1988) 88 A.T.C. 4131. 2. (1988) 88 A.T.C. 4649. 3. (1988) 88 A.T.C., at p. 4666.

In the proceedings before Yeldham J., the taxpayer was able to show the bases on which the Commissioner had proceeded in making the assessments and he sought to demonstrate that those bases were erroneous. In brief, he sought to show that the Commissioner had wrongly treated the income of companies or trusts which the taxpayer or his family company acquired or controlled as assessable income of the taxpayer. Yeldham J. found that the taxpayer "completely disregarded corporate structures and entitlements or used them purely for convenience in the lending of money and the claiming of expenses" [5] and his Honour considered that in each of the years of income there was a derivation of income by the taxpayer that was dealt with at his direction with a disregard of corporate rights. His Honour thought that much of the evidence of the taxpayer was unsatisfactory, and he said [6] :

At the very least he had the control and benefit of the moneys which the Commissioner has included as assessable income during the years in question or their equivalent. (See ss. 19 and 25(1).)

It is plain from the authorities that the onus is upon the taxpayer to demonstrate that the Commissioner's figures in relation to taxable income were excessive, by showing the sources of that income year by year and excluding all sources of income other than those which he admits. That onus has not been discharged as there were funds available to him from unexplained sources year by year and shortages of income in each year that were and are unexplained in a satisfactory manner.

As the taxpayer "failed to prove that any relevant assessment [was] erroneous or excessive", Yeldham J. dismissed the appeals [7] . 1. (1988) 88 A.T.C., at p. 4141. 2. (1988) 88 A.T.C., at p. 4142. 3. (1988) 88 A.T.C., at p. 4143.

The majority of the Full Court of the Federal Court noted that the "evidence before the Supreme Court disclosed the existence and some of the activities of numerous trusts and corporations which were associated with the taxpayer in either or both a legal and practical sense" [8] , but their Honours held that the Commissioner had proceeded on a wrong basis in making the assessments. Their Honours said [9] :

it was open to the taxpayer to endeavour to demonstrate that each of the assessments (that is, each of the processes of assessment) was excessive in that it was not warranted by law. It is that submission which we have accepted, but we make it clear that we do not find error in his Honour's findings of fact that Mr. Dalco did not show that in fact his income for each of the tax years was less than the figure arrived at by the Commissioner, and did not show that his only income was disclosed in his income tax returns. 1. (1988) 88 A.T.C. 4651. 2. (1988) 88 A.T.C., at p. 4666.

The divergence of views reveals the question for determination by this Court: In proceedings on appeal to a court pursuant to Div. 2 of Pt V of the Act against an assessment made under s. 167(b), does the taxpayer discharge the burden of proving that the assessment is excessive where (a) he does not prove that the amount assessed as his taxable income in fact exceeds his taxable income, but (b) he shows that the Commissioner formed a judgment as to the amount of his taxable income on a wrong basis? The answer to the question turns, of course, upon a construction of the relevant provisions in Pts IV and V of the Act.

Where one or other of the situations described in pars (a), (b) and (c) of s. 167 exists, the Commissioner or his delegate is empowered to make an assessment of an amount which, in the Commissioner's judgment, is the amount on which tax ought to be levied: George's Case [10] . It is that amount which, for the purpose of s. 166, becomes the taxpayer's taxable income. That amount may not be in truth the taxpayer's taxable income for a particular income year and it may not be so regarded by the Commissioner (as in Trautwein v. Federal Commissioner of Taxation [11] ) but, for the purpose of s. 166, that amount is the taxpayer's taxable income for the income year to which the assessment relates unless it is shown on appeal from, or on review of, the assessment that the amount of the assessment is wrong: Henderson v. Federal Commissioner of Taxation [12] . In a case arising under s. 167(b), there are two functions for the Commissioner or his delegate to perform: first, he must decide whether he is satisfied with the return furnished, and, if he is not, he must form a judgment of the amount on which tax ought to be levied. In George's Case [13] it was held that the former function was a procedural step and was thus part of the making of the assessment, the due making of which is conclusively proved by the production of a notice of assessment: s. 177(1). By contrast, in proceedings on appeal against an assessment the function of forming a judgment of the amount on which tax ought to be levied is not conclusively proved by the production of a notice of assessment. That is because s. 177 distinguishes "between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. The former involves the due making of the assessment": George's Case [13] ; McAndrew v. Federal Commissioner of Taxation [14] ; and see F.J. Bloemen Pty. Ltd. v. Federal Commissioner of Taxation [15] .

1. (1952) 86 C.L.R., at p. 204. 2. (1936) 56 C.L.R. 63. 3. (1970) 119 C.L.R. 612, at p. 648. 4. (1952) 86 C.L.R., at pp. 206-207. 5. (1952) 86 C.L.R., at pp. 206-207. 6. (1956) 98 C.L.R. 263, at p. 271. 7. (1981) 147 C.L.R. 360, at p. 373.

In relation to the proceedings on appeal against the assessments before Yeldham J., s. 190 provides:

(a) the taxpayer shall, unless the court otherwise orders, be limited to the grounds stated in his objection; and

(b) the burden of proving that the assessment is excessive shall lie upon the taxpayer.

Section 190(b) confirms the burden of proof which, apart from that provision, a taxpayer appellant would bear in seeking relief from the court against the liability which is otherwise conclusively imposed upon him by operation of s. 177(1): McAndrew's Case [14] ; McCormack v. Federal Commissioner of Taxation [16] . The term "excessive" in s. 190(b) relates to the "amount" of the assessment which is mentioned in s. 177(1): McAndrew's Case [14] . 1. (1956) 98 C.L.R. 263, at p. 271. 2. (1979) 143 C.L.R. 284, at pp. 301, 306. 3. (1956) 98 C.L.R. 263, at p. 271.

A taxpayer, who seeks to discharge the burden of proving that the amount shown in the notice of assessment is excessive, is limited by s. 190(a) to the grounds stated in an objection against the assessment. An objection must state "fully and in detail" the grounds on which a taxpayer relies (s. 185) and the Commissioner is required, after consideration of the objection, to "disallow it, or allow it either wholly or in part": s. 186. But an objection and a Commissioner's notice of decision on the objection are not pleadings which so confine the issues as to preclude the Commissioner from putting the taxpayer to proof of the true amount of his taxable income. After all, the purpose of the procedure of assessment, objection and appeal or review is to ascertain the true tax liability of the taxpayer under the substantive provisions of the Act. Oftentimes, the grounds of an objection and the Commissioner's notice of decision thereon will define the issues for determination by a court entertaining an appeal against the assessment; but not necessarily so. It is not the grounds of the objection against an assessment but the objection itself which is treated as an appeal and forwarded to a Supreme Court for hearing and determination: ss. 187(1)(b), 197, 199. It would be inappropriate for a court determining an appeal to make an order altering the tax liability assessed (s. 199) unless the court were satisfied that the amount to which it proposed to alter the assessment represented the true tax liability of the taxpayer. Although the grounds of objection limit the grounds of appeal, the ultimate question for the court hearing the appeal is not whether the grounds have been made out but whether the amount assessed as taxable income is wrong. The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.

The matters which are excluded by s. 177(1) from challenge in proceedings on appeal against an assessment (including an amended assessment (s. 173)) have been narrowly confined in accordance with legislative policy "to give to the taxpayer full opportunity on objecting to his assessment of contesting his liability in every respect before a court or before a board of review": McAndrew's Case [17] . It is therefore open to a taxpayer to attack not only the calculation of the amount of an assessment but the authority of the Commissioner to make the assessment. Thus it was held in McAndrew's Case that it was open to a taxpayer on appeal to challenge the fulfilment of the conditions mentioned in s. 170(2) governing the power of the Commissioner to impose a tax liability by amendment of an assessment: see p. 271. Taylor J., in a passage on which the majority of the Full Federal Court relied in the present case, said [18] :

there is no reason for thinking that an assessment, made in purported but not justifiable exercise of a statutory power, may not properly be described as excessive; it purports to impose a specified liability and, upon appeal, the claim of the appellant is that he is not liable to pay any part of it. Whether the particular ground upon which he seeks to escape or reduce the liability merely touches the accuracy of the assessment or assails its validity as an assessment, he is, in the words of s. 185, "dissatisfied with" the assessment because it purports to impose upon him a liability in excess of that to which he may lawfully be subjected and I can see no reason why, in either case, his complaint may not be accurately described as a complaint that his assessment is excessive. This statement was accepted as correct by Mason and Wilson JJ. (with whom Stephen and Aickin JJ. agreed) in F.J. Bloemen Pty. Ltd. [19] . 1. (1956) 98 C.L.R., at p. 270. 2. (1956) 98 C.L.R., at pp. 282-283. 3. (1981) 147 C.L.R., at p. 375.

McAndrew's Case is clearly distinguishable from the present case. Here, it is conceded that, upon the facts of the present case, there was power in the Commissioner to make an assessment under s. 167(b); there, the taxpayer denied the power of the Commissioner, on the facts of that case, to make an amended assessment under s. 170(2). Here, the question is whether the amount assessed is correct; there, the question was whether the Commissioner had power to make an amended assessment. Although the point is not in issue in the present case (for the validity of the assessment is conceded), George's Case establishes either that par. (b) of s. 167 does not create a condition precedent governing the power to make an assessment or that, if it does, the fulfilment of the condition precedent is part of the due making of the assessment not going to substantive liability so that, by force of s. 177(1), the existence of the circumstances mentioned in par. (b) is not open to challenge in proceedings on appeal from an assessment. McAndrew's Case, on the other hand, establishes that s. 170(2) creates a condition precedent governing the power to make an amended assessment and that the satisfaction of the requirements of s. 170(2) is not merely part of the due making of the assessment which does not affect substantive liability. It was held that s. 170(2) creates a condition precedent, the satisfaction of which was not protected from challenge in appeal proceedings by s. 177(1). As the amount of the amended assessment would be shown to be excessive if the requirements of s. 170(2) were not satisfied, s. 190(b) imposed on the taxpayer the burden of showing that the requirements had not been satisfied.

The ground of objection on which the taxpayer here relies is error in the formation of a judgment as to the amount on which tax ought to be levied. But mere error in the formation of that judgment by the Commissioner does not warrant the setting aside of the amount assessed. Given the validity of the exercise of the power to make an assessment under s. 167(b), the ultimate question is whether the amount of the assessment is excessive. The amount of the assessment might not be excessive in fact, though the reasons which led to the assessment were erroneous. In George's Case [20] the Full Court said:

the law has always been taken to be that in an appeal from an assessment the burden lies upon the taxpayer of establishing affirmatively that the amount of taxable income for which he has been assessed exceeds the actual taxable income which he has derived during the year of income. Kitto J., from whose judgment the appeal in George's Case was brought, said [21] : [Section] 190 (b) places the burden of proving that the assessment is excessive upon the appellant; and in order to carry that burden he must necessarily exclude by his proof all sources of income except those which he admits. His case must be that he did not derive from any source taxable income to the amount of the assessment. 1. (1952) 86 C.L.R., at p. 201. 2. (1952) 86 C.L.R., at p. 189.

Counsel for the taxpayer invited the Court to overrule George's Case in so far as it requires a taxpayer to prove that the amount of taxable income assessed exceeds the taxpayer's actual taxable income, but that proposition does not rest on George's Case alone. At base, it rests on s. 190(b) but it is acknowledged in McAndrew's Case, McCormack's Case and F.J. Bloemen Pty. Ltd. (at pages earlier cited). In this respect, George's Case is not open to doubt. It follows that Wilcox J. was right in holding that "the task for the taxpayer, upon an appeal or a review under Pt V of the Act, is to show that the amount of money for which tax is levied by a particular notice of assessment exceeds the actual substantive liability of the taxpayer" [22] .

In Trautwein's Case [23] Latham C.J. expressed a possible qualification upon the general rule that the taxpayer must show "not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or more nearly right." He added:

I say "as a general rule" because, conceivably, there might be a case where it appeared that the assessment had been made upon no intelligible basis even as an approximation, and the court would then set aside the assessment and remit it to the commissioner for further consideration. His Honour evidently had in mind an error which not only affected the correctness of the amount assessed but vitiated the purported exercise of the power to assess conferred by ss. 166 and 167. Such a case would be exceptional, and a court must be careful to maintain the distinction between an error in exercising the power to make an assessment and an error which deprives a purported assessment of validity: see Re Moore; Ex parte Co-operative Bulk Handling Ltd. [24] ; and R. v. Taylor; Ex parte Professional Officers' Association - Commonwealth Public Service [25] . If there could conceivably be such a case as Latham C.J. had in mind, this is not it. The amounts assessed represent the Commissioner's bona fide judgment as to the amount of the taxpayer's taxable income and the power to make the assessment was validly exercised. The assessments being valid, the burden was on the taxpayer to prove that the amounts assessed were excessive. 1. (1936) 56 C.L.R., at p. 88. 2. (1982) 56 A.L.J.R. 697; 41 A.L.R. 221. 3. (1951) 82 C.L.R. 177, at p. 186.

The manner in which a taxpayer can discharge that burden varies with the circumstances. If the Commissioner and a taxpayer agree to confine an appeal to a specific point of law or fact on which the amount of the assessment depends, it will suffice for the taxpayer to show that he is entitled to succeed on that point. Absent such a confining of the issues for determination, the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment, though the taxpayer is limited to the grounds of his objection. In Gauci v. Federal Commissioner of Taxation [26] , Mason J. said:

The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail. That view, expressed in a dissenting judgment, now prevails: Macmine Pty. Ltd. v. Commissioner of Taxation [27] ; McCormack's Case [28] . 1. (1975) 135 C.L.R. 81, at p. 89. 2. (1979) 53 A.L.J.R. 362, at pp. 366, 371, 381. 3. (1979) 143 C.L.R., at pp. 303, 306, 323.

Although the Commissioner is entitled to rely on any deficiency in proof of the excessiveness of the amount assessed, the exigencies of litigation may justify on occasions an order that the Commissioner furnish particulars of the basis on which he proposes to support an assessment: Bailey v. Federal Commissioner of Taxation [29] . In that case, the assessment was based on s. 260. Although the Commissioner was ordered to furnish particulars of the application of s. 260 on which he proposed to support the assessment, Aickin J. (with whom the other Justices agreed) observed [30] that if, in the course of evidence, facts emerged which were not previously known to the Commissioner and which suggested a different or additional application of s. 260 from the application of which particulars had been given, the Commissioner would be permitted to amend the particulars.

1. (1977) 136 C.L.R. 214. 2. (1977) 136 C.L.R., at p. 228.

The majority of the Full Federal Court in the present case treated the error which they held to infect the Commissioner's assessment of the amount of the taxpayer's taxable income as concluding the question whether that amount was excessive. It did not. If this were a case where all the material facts were known and the amount of taxable income depended on the legal complexion of those facts, the taxpayer would succeed upon establishing that the Commissioner erroneously included in the assessed taxable income an amount which, on those facts, ought not to have been included. But where, as here, the taxpayer has not proved that his actual taxable income is less than the amount assessed, the Court does not know all the material facts and it cannot find that the amount assessed is wrong. A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer's taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed. If it were not for s. 190(b), the process of assessment might have to be repeated whenever on appeal an error affecting the amount assessed were found. But s. 190(b), coupled with s. 200, brings to finality the ascertainment of the taxpayer's liability in respect of the income period to which the assessment relates. Unless the amount of the assessment is found to be excessive in the sense of being greater than the taxable income on which tax ought to have been levied, the taxpayer fails on his appeal.

A contrary view derives some support from an observation by Barwick C.J. in Bailey v. Federal Commissioner of Taxation [31] . His Honour said:

It is that process of assessment which, by virtue of s. 190(b), an appellant taxpayer must satisfy the Board of Review or an appellate court is "excessive". If some step in that process which affects the amount of tax lacks the authority of the Act the assessment is "excessive": and the powers of s. 195 or of s. 199, as the case may be, become available. It may be that his Honour had in mind a case where all the material facts were known and the only question was the legal complexion to be attributed to them: cf. his observations in Henderson v. Federal Commissioner of Taxation [32] . But if his Honour did not intend the cited passage to be so understood, I must respectfully disagree with it. Since McAndrew's Case [33] it has been generally accepted that "excessive" refers to the amount of the assessment, not to any unauthorized step in the process of its calculation. 1. (1977) 136 C.L.R., at p. 217. 2. (1970) 119 C.L.R., at p. 648. 3. (1956) 98 C.L.R. 263.

In this case, as the taxpayer failed to discharge the burden of proving that his taxable income was in truth less than the amount assessed, his appeals were rightly dismissed by Yeldham J. These appeals must therefore be allowed, the orders of the Full Court of the Federal Court set aside and the orders of Yeldham J. restored.

I am in general agreement with the judgments of Brennan J. and Toohey J. I add some comments for myself.

In the circumstances of the present case, the respondent taxpayer discharged the onus imposed upon him by the Income Tax Assessment Act 1936 Cth (in particular, s. 190(b)) only if he proved, on the balance of probabilities, that his actual assessable income during the period to which a particular assessment related was less than the amount included as assessable income in that assessment. The learned trial judge (Yeldham J.) found that the respondent had failed to prove that that was so in respect of any of the challenged assessments. In this Court, the respondent has not challenged his Honour's finding in that regard.

In a case where the only issue between a taxpayer and the Commissioner is whether a particular item of income which the Commissioner has treated as assessable income of the taxpayer was derived by the taxpayer or by someone else, the onus which the Act imposes upon the taxpayer will commonly be discharged if the taxpayer establishes, on the balance of probabilities, that the relevant income was derived by the other person. The present is not, however, such a case. Even if it be accepted that the respondent succeeded in proving that particular items of income were primarily derived by one or other of the companies associated with him, there remained in issue the question whether some or all of the relevant amounts had been subsequently derived by the respondent as payments in the nature of income made to him or on his behalf by that company. There also remained in issue the question whether the respondent had derived other undisclosed income. The respondent's failure to discharge the onus which the Act placed upon him in respect of those remaining issues had the consequence that he failed to establish that the Commissioner's assessments of his assessable income were excessive.

It follows that the appeals must be allowed and the orders of Yeldham J. restored.

These appeals involve the application of various sections of the Income Tax Assessment Act 1936 Cth ("the Act") relating to the making of assessments and to appeals against assessments. The Court is concerned with amended assessments raised by the appellant ("the Commissioner") against the respondent ("the taxpayer") in respect of the years ended 30 June 1976, 1977, 1978 and 1980, following an investigation into the taxpayer's affairs.

Yeldham J. held that in each of the relevant years the taxpayer "completely disregarded corporate structures and entitlements or used them purely for convenience", that there was "a derivation of income by the taxpayer that was dealt with at his direction with a disregard of corporate rights" [34] and that the taxpayer "lived at a rate beyond his disclosed cash income and had control of large sums of money in respect of which there was no proper accounting or adequate explanation." [34] His Honour found that the evidence of the taxpayer was unsatisfactory and that "[a]t the very least he had the control and benefit of the moneys which the Commissioner has included as assessable income during the years in question or their equivalent". Yeldham J. concluded that the taxpayer [35] had failed to satisfy the onus cast upon him by the Act of proving that the assessments were excessive. He therefore dismissed appeals against disallowance of objections and confirmed the assessments [36] .

1. (1988) 88 A.T.C., at p. 4141. 2. (1988) 88 A.T.C., at p. 4141. 3. (1988) 88 A.T.C., at p. 4142. 4. (1988) 88 A.T.C. 4144.

An appeal by the taxpayer to the Full Court of the Federal Court was successful (Sheppard and Gummow JJ., Wilcox J. dissenting) [37] . It is crucial to the outcome of the matters now before this Court to appreciate the precise basis upon which Sheppard and Gummow JJ. set aside the orders of Yeldham J. Their Honours said expressly that they did not "find error in his Honour's findings of fact that Mr. Dalco did not show that in fact his income for each of the tax years was less than the figure arrived at by the Commissioner, and did not show that his only income was disclosed in his income tax returns". But, they held, the taxpayer had succeeded in showing that each of the assessments was excessive, "in that it was not warranted by law" [38] . The assessments therefore had to go back to the Commissioner for reassessment.

1. (1988) 88 A.T.C. 4649. 2. (1988) 88 A.T.C. 4666.

Sheppard and Gummow JJ. held that the assessments were not warranted in law because, adopting the language of Taylor J. in McAndrew v. Federal Commissioner of Taxation [39] , they were made "in purported but not justifiable exercise of statutory power". Some reference is necessary to each of the relevant years in order to explain that statement.

The relevant assessment showed a taxable income of $92,043. It is enough for the purposes of the present appeal that this amount was said to have been derived by the taxpayer from an interest in Corporate Consultants (Sydney) Pty. Ltd. which was held by Martine Securities Pty. Ltd., a company which was wholly owned by the taxpayer and his family until June 1976. In the view of the majority, the material available to the Commissioner provided no basis for a conclusion that Martine, still less the taxpayer, dealt with the $92,043 on behalf of Martine or the taxpayer in the 1976 tax year.

Specifically, the majority concluded that the Commissioner had approached the matter on the wrong footing by ignoring legal entities that stood between the taxpayer and Corporate Consultants (Sydney).

The amount shown in the amended assessment was $187,878. This figure was based on the original income declared by the taxpayer plus $183,000, being one-third of $549,000 which, said the majority, might be taken to have been the amount derived by Corporate Consultants (Sydney). In their view, there was no material to warrant a conclusion that the taxpayer, either directly or through Martine, had derived that income.

For this year the assessment showed an income of $450,799, later revised by amended reassessment to $308,618. As to $173,000 of this latter amount, Sheppard and Gummow JJ. concluded, for the same reasons as those expressed in respect of the 1977 assessment, that there was no foundation for treating this as part of the taxpayer's income. As to the balance of $102,086, their Honours were of the opinion that, on the material available to the Commissioner, the money was received by Corporate Consultants Australia Pty. Ltd. after the end of the relevant tax year and that in any event there was no basis for concluding that the sum constituted part of the taxpayer's income. The shareholding in Corporate Consultants Australia was held as to one half by Dalvest Pty. Ltd. as trustee for another Dalco trust, of which the taxpayer was not a beneficiary, and as to the other half, by the taxpayer as trustee for Dalvest.

The amount specified in the amended assessment was $659,204, an amount representing the (erroneous) total of $9,264 originally declared by the taxpayer, and $650,080. In the view of the majority, there was material to show that Trevina Pty. Ltd. had received the sum of $650,080. The shares in Trevina were held by Dalvest and another company on behalf of various Dalco Family Trusts. Trevina itself was trustee for two Dalco Unit Trusts of which the taxpayer was not a unit holder or a beneficiary. Having analyzed the relationship of the various entities, Sheppard and Gummow JJ. said: "That the moneys so received were in truth income in Trevina's hands does not provide a basis for a judgment that an amount equivalent to that sum ought to be treated as having been derived by the taxpayer in the 1980 tax year."

Before this Court it was not the taxpayer's case that he had demonstrated to Yeldham J. that his taxable income for the years in question was less than the assessments concerned. It must also be said that the Commissioner did not seek to show that the conclusions reached by Sheppard and Gummow JJ. as to the way in which he went about making those assessments were unfounded. Each party took a stand on the language of the Act.

The Commissioner's starting point was s. 166 of the Act which empowers, indeed directs, him to "make an assessment of the amount of the taxable income of any taxpayer" from the returns "and from any other information in his possession, or from any one or more of these sources".

Section 166 is to be read with s. 167 (the latter is not an independent power but is "epexegetical to" the former - George v. Federal Commissioner of Taxation [40] ). In the circumstances of the present appeals it is par. (b) of s. 167 on which the Commissioner relies. That is, he says that he was not satisfied with the returns furnished by the taxpayer and was therefore empowered to "make an assessment of the amount upon which in his judgment income tax ought to be levied". Section 6(1) of the Act relevantly defines "assessment" to mean "the ascertainment of the amount of taxable income and of the tax payable thereon". The view of Kitto J. in Batagol v. Federal Commissioner of Taxation [41] , that "assessment" means "the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case" was generally shared by the other members of the Court in that case and was endorsed by Mason and Wilson JJ. in F.J. Bloemen Pty. Ltd. v. Federal Commissioner of Taxation [42] .

1. (1952) 86 C.L.R. 183, at p. 204. 2. (1963) 109 C.L.R. 243, at p. 252. 3. (1981) 147 C.L.R. 360, at pp. 371-372.

Section 175 provides that the validity of any assessment "shall not be affected by reason that any of the provisions of this Act have not been complied with". The section "does not relieve the Commissioner from the necessity of performing his duty to make an assessment" but it does protect "the validity of an assessment, once made, from the consequences which might otherwise flow from the Commissioner's failure to comply with any provisions of the Act": Bloemen [43] . In the present appeals, counsel for the taxpayer eschewed any suggestion that the assessments were invalid.

Section 177(1) then provided that the production of a notice of assessment "shall be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct". The effect of s. 177(1) is that, on production of an assessment, "the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under Pt V": Bloemen [44] .

Finally, in this concatenation of sections, s. 190(b) casts "the burden of proving that the assessment is excessive" upon the taxpayer. It is with the meaning and scope of this provision that these appeals are mainly concerned.

In McAndrew [45] , Dixon C.J., McTiernan and Webb JJ. referred to the term "excessive" in s. 190(b) as "the word chosen to correspond with the word "amount" in s. 177(1)", adding: "It is perhaps not a good choice." At the same time their Honours had no doubt that " "excessive" relates to the amount of the substantive liability". McAndrew was concerned with an appeal against an amended assessment. The Court regarded the term "excessive" as extending over the area in which the conditions precedent to the power to amend mentioned in s. 170(2) found a place. It held that, once a regular notice of assessment was produced, the burden was on the taxpayer to show that he had made a full and true disclosure of all the material facts necessary for his assessment or that there had not been an avoidance of tax [46] .

1. (1956) 98 C.L.R., at p. 271. 2. (1956) 98 C.L.R., at p. 269.

I agree with Wilcox J. in the Federal Court that "the task for the taxpayer, upon an appeal or a review under Pt V of the Act, is to show that the amount of money for which tax is levied by a particular notice of assessment exceeds the actual substantive liability of the taxpayer". As his Honour points out, a taxpayer will generally discharge that onus by satisfying the court or tribunal that his or her true taxable income is less than that appearing in the assessment. He or she may also do so by pointing to some error of computation or, as suggested by McAndrew, by showing non-compliance with statutory conditions precedent to the imposition of liability, in that case arising by reason of an amended assessment. A taxpayer does not necessarily discharge the onus of showing that an assessment is excessive, merely by showing that moneys treated by the Commissioner as income are in truth not the income of the taxpayer, though that may be a step in demonstrating his or her taxable income to be less than the assessment.

the law has always been taken to be that in an appeal from an assessment the burden lies upon the taxpayer of establishing affirmatively that the amount of taxable income for which he has been assessed exceeds the actual taxable income which he has derived during the year of income. There can be no quarrel with that statement. There have been situations in which a taxpayer has argued that his or her taxable income was in fact more than that for which he or she had been assessed. By way of example, a taxpayer has contended for a different basis to that on which the income of a partnership had been calculated (Henderson v. Federal Commissioner of Taxation [48] ), or has complained that the Commissioner attributed to him a loss which the taxpayer sought to attribute to a unit trust: Federal Commissioner of Taxation v. Gulland [49] . Whether such challenges truly fall within the operation of s. 190(b) was not explored in either of the decisions mentioned; in any event the context here is entirely different. 1. (1952) 86 C.L.R., at p. 201. 2. (1970) 119 C.L.R. 612. 3. (1985) 160 C.L.R. 55.

In George [50] , the Court further refined the scope of s. 190(b) by contrasting it with s. 177, saying:

The clear policy of s. 177 is to distinguish between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. Obviously the "due making of the assessment" was intended to cover all procedural steps, other than those if any going to substantive liability and so contributing to the excessiveness of the assessment, the thing which is put in contest by an appeal. Read with the earlier passages quoted, there can be no doubt that, in the view of the members of the Court in George, a taxpayer does not succeed in establishing that an amount is excessive unless he or she can challenge the substantive liability imposed by the assessment. 1. (1952) 86 C.L.R., at pp. 206-207.

As stated, Sheppard and Gummow JJ. adopted the language of Taylor J. in McAndrew [51] , where his Honour said that "there is no reason for thinking that an assessment, made in purported but not justifiable exercise of a statutory power, may not properly be described as excessive". If, as I think, his Honour meant no more than that non-compliance with the statutory conditions precedent to the imposition of liability, in that case arising by reason of an amended assessment, will render an assessment open to challenge, the passage does not assist the taxpayer. In McAndrew the statutory conditions precedent were that the taxpayer had not made a full and true disclosure or had avoided tax. The onus was held to be on the taxpayer to show that neither of these conditions existed. Given those conditions precedent, the taxpayer had necessarily to prove that his declared income was his true income. Only by so doing would he show that the amended amount was excessive. However, it is not the present taxpayer's case that, in raising the assessments, the Commissioner failed to comply with any relevant statutory condition precedent. His complaint is simply that the amounts of taxable income in the assessments are excessive.

Likewise, the taxpayer can derive no comfort from Bailey v. Federal Commissioner of Taxation [52] . Barwick C.J., speaking of the assessment provisions of the Act, said [53] : "It is that process of assessment which, by virtue of s. 190(b), an appellant taxpayer must satisfy the Board of Review or an appellate court is "excessive". If some step in that process which affects the amount of tax lacks the authority of the Act the assessment is "excessive"." But Bailey concerned an application by the taxpayer for particulars of an arrangement which the Commissioner considered attracted the attention of s. 260 of the Act. The High Court reversed an order of the Supreme Court of New South Wales and ordered that the Commissioner give particulars of the arrangement. Barwick C.J.'s remarks were made in the context that avoidance of the arrangement was crucial to the process of assessment, hence the justification for ordering the Commissioner to furnish particulars. Barwick C.J. distinguished George, saying [54] : "In that case, an unsuccessful endeavour was made to obtain details of the assessment of assessable income made by the Commissioner under s. 167 of the Act. This element of the process of assessment in the particular circumstances was not an application of the Act to a factual situation: on the contrary, it was an exercise of the Commissioner's power to determine the principal fact to which the Act should be applied."

1. (1977) 136 C.L.R. 214. 2. (1977) 136 C.L.R., at p. 217. 3. (1977) 136 C.L.R., at p. 218.

The same may be said of the present case, concerning as it does assessments under s. 167 of the Act. But more significant is the finding by Yeldham J. [55] that the taxpayer "[a]t the very least" had control and benefit of the moneys included by the Commissioner in his assessable income. Although such "control and benefit" may not be conclusive proof of the taxpayer's liability, it does entail that the taxpayer do more than show that the Commissioner's assessment was made on a wrong basis.

That is not to say that, in such circumstances, the Commissioner's assessment is completely at large or that particulars of an assessment will not be ordered. If the Commissioner has simply plucked a figure "out of the air" (Reg. v. Deputy Commissioner of Taxation (W.A.); Ex parte Briggs [56] ) or has proceeded "upon no intelligible basis" (Trautwein v. Federal Commissioner of Taxation [57] ), the Commissioner may be in breach of his statutory duty to make an assessment from the information in his possession: see Bloemen [58] . I express no view on that matter for this is not such a case; the assessments were reached after a long and detailed investigation into the taxpayer's affairs.

1. (1987) 14 F.C.R. 249, at p. 269. 2. (1936) 56 C.L.R. 63, at p. 88. 3. (1981) 147 C.L.R., at p. 371.

For this taxpayer to demonstrate that in some respects, indeed it may be in a number of respects, the Commissioner erred in the way in which he attributed income to the taxpayer or otherwise dealt with the material available to him does not prove that an assessment was excessive. It does not prove that the taxable income of the taxpayer was less than the amount of taxable income shown in any of the assessments. It was necessary for the taxpayer to make good the proposition that his income was less; this he failed to do in respect of any of the assessments.

The appeals must be allowed and the appeals to the Federal Court of Australia dismissed with costs. In accordance with the condition attached to the grant of special leave to appeal, the appellant must pay the respondent's costs of the appeals to this Court.

I agree with the judgments of Brennan J. and Toohey J.