The authorities
41 Recently in Syngenta Crop Protection Pty Ltd & Anor v Commissioner of Taxation (2005) 61 ATR 186 ("Syngenta"), a case in which the taxpayer also sought particulars of the kind sought here, Gyles J observed (at 188):
"I do not propose to track through all the authorities or endeavour to reconcile all of the statements in them on the topic. Such statements are not always easy to reconcile, partly because appeals cover many situations."
I agree with the second sentence, although I will refer below, in chronological order, to those authorities which seem to me to be the most important.
42 Two matters should be noted at the outset:
1. Subsection 177(1) of the ITAA expressly recognises a distinction between reviews or appeals under Pt IVC of the TAA and other proceedings, in relation to the conclusive evidence of the due making of an assessment that is provided by production of a notice of the assessment. The reason is that s 14ZZO within Pt IVC contemplates that if an assessment is excessive, the taxpayer should, in a proceeding under that part, have the opportunity of proving that it is. The tension between s 177(1) of the ITAA on the one hand, and s 14ZZO(b) of the TAA (or its predecessor, s 190(b) of the ITAA) on the other hand, permeates the cases.
2. It will prove to be important to identify precisely the conditions of tax liability specified in the ITAA, and to distinguish between provisions referring to the Commissioner's state of mind, eg his "opinion", or his being "satisfied" or "not satisfied", on the one hand, and provisions referring to his taking a step, such as making a "determination" or "decision" on the other hand. I will refer to them as "state of mind" and "Commissioner's determination" classes of cases, respectively.
43 Avon Downs Pty Ltd v Commissioner of Taxation (1949) 78 CLR 353 ("Avon Downs"), a state of mind case, was an appeal to the High Court in its original jurisdiction against an objection decision. It concerned the deductibility of past years' losses. In order to be entitled to a deduction, a taxpayer had to establish certain things (for convenience, I will use the expression "continuity of beneficial ownership") to the satisfaction of the Commissioner: ITAA s 80(5). Dixon J stated (at 360):
"But it is for the commissioner, not for me, to be satisfied of the state of the voting power at the end of the year of income. His decision, it is true, is not unexaminable. If he does not address himself to the question which the sub-section formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from consideration some factor which should affect his determination, on any of these grounds his conclusion is liable to review. Moreover, the fact that he has not made known the reasons why he was not satisfied will not prevent the review of his decision. The conclusion he has reached may, on a full consideration of the material that was before him, be found to be capable of explanation only on the ground of some misconception."
44 There was no reference to s 177(1) or s 190(b). Nonetheless, Dixon J may be taken to have accepted:
· that it was open to the taxpayer to prove the excessiveness of the assessment by showing that the Commissioner's not being satisfied as to continuity of beneficial ownership could not stand on judicial review grounds; and
· that if it was established that at law the Commissioner had been bound to be satisfied, the taxpayer would be entitled to the deduction for past years' losses.
45 Avon Downs does not address the question whether the Commissioner could be required to give particulars. It appears, however, that Dixon J contemplated that the taxpayer would have to proceed on the basis that the Commissioner was not obliged to disclose his reasons, but that the taxpayer would have available the materials that had been before the Commissioner.
46 The role of ss 177(1) and 190(b) of the ITAA arose in George v Commissioner of Taxation (1952) 86 CLR 183 ("George"). A condition of the enlivening of the Commissioner's power to make an assessment under s 167 was, relevantly, his not being satisfied with the return furnished by a person. There were also alternative conditions, namely, default in making a return, or the Commissioner's having reason to believe that a person who had not furnished a return had derived assessable income. Mr George, however, had lodged a return. On appeal to the High Court in its original jurisdiction against the Commissioner's objection decision, the taxpayer sought an order for particulars of the sources of the additional income that the Commissioner had assessed to tax. Thus, like Avon Downs, George was a state of mind case, but the particulars sought did not relate to the Commissioner's state of mind.
47 At first instance, Kitto J dismissed the application for particulars. His Honour's exposition of the effect of s 190(b) is clear and deserves to be quoted at some length. His Honour stated (at 189-190):
"If at the hearing the onus would be upon the commissioner to establish that the appellant did in fact derive more income in the relevant year than he had disclosed, there would be much to be said for ordering him to give particulars for the purpose of defining the precise issues for trial and preventing surprise. But s 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. That will involve him, of course, in accounting for the increase in his assets, and it may well be that the commissioner will direct his efforts mainly or even wholly to endeavouring to meet the evidence the appellant adduces on this point. But the source of the increase in the assets is not the actual issue in the case; even if it were proved, for example, that that source consisted of winning bets on the racecourse, the issue would still be whether or not from any source the appellant derived as much taxable income as the assessment treats him as having derived.
The object of the present application is really to have the commissioner say whether he is prepared to assign a source or sources for the moneys included in taxable income in the assessment over and above those disclosed as taxable income in the return, and to admit that if they did not come from that source, or from one or more of those sources, those moneys were not liable to be included in the appellant's taxable income. The commissioner may, if he chooses, voluntarily narrow the possible range of evidence in that way, but there could be no justification for ordering him to do so, under the guise of ordering particulars. If he attempts to prove derivation from a particular source and fails, he is none the less entitled under the Act to point to another source, or, without troubling about source at all, to stand upon his assessment and submit that the presumption in its favour has not been displaced. Even if the commissioner at present has in mind to seek to prove that income not disclosed in the return was derived from a particular source, he cannot be pinned to that source, nor would it be proper to order him to reveal his present plan of campaign. He is entitled to say, 'I do not allege anything about source at all; I may have ideas on the subject, but if I have I shall develop or modify or abandon or replace them as occasion may require, until the evidence on the hearing is complete, and then I shall make my submissions to the Court'."
His Honour then said, by reference to English authorities, that a defendant may be ordered to provide particulars where it is clear that he intends to establish his denial of the plaintiff's averment of a negative by proving a positive. His Honour said that if the Commissioner had admitted that he intended to set up a case that the additional income was derived from a particular source, he should give particulars sufficient to enable the taxpayer to meet that case. But the Commissioner had made no such admission, express or implied.
48 In a joint judgment dismissing the taxpayer's appeal, the Full Court said (at 204):
"The fact is that unless the taxpayer discharges the burden laid upon him by s. 190(b) of proving that this ascertainment or judgment is excessive, he cannot succeed and it can be no part of the duty of the commissioner to establish affirmatively what judgment he formed, much less the grounds of it, and even less still the truth of the facts affording the grounds. Yet that is what is involved when the demand for particulars of the sources alleged of the appellant's income is justified by reference to s. 167. It is an error to treat the formation by the commissioner of a judgment as to the amount of the taxable income as if it were not the ascertainment of the taxable income which constitutes assessment or a necessary part of that process and as if it were but the fulfilment of a condition precedent to the power or authority to assess. If, however, it were a condition precedent the question would at once arise whether the fulfilment of the condition was not part of 'the due making of the assessment' of which s. 177(1) makes the production of a notice of assessment conclusive evidence. But of this it is unnecessary to speak specifically."
49 At 206-207, their Honours said that s 177 distinguished 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, their Honours said, involved the "due making" of the assessment, as to which production of the assessment was conclusive. They concluded (at 207):
"Obviously the 'due making of the assessment' was intended to cover all procedural steps, other than those [apparently, procedural steps] 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."
The distinction between two classes of procedural steps is a difficult one. A taxpayer is to be at liberty, by attacking procedural steps of one class, to prove in an appeal that the amount of the assessment is excessive, but may not attack other procedural steps which are left shielded by the "due making" of the assessment.
50 As noted earlier, in his SFIC in each of the present cases, the Commissioner has stated, in accordance with a familiar formula, that he relies on s 14ZZO of the TAA, and requires the Taxpayer "to discharge its burden of proving that the assessment is excessive" (see [39] above).
51 The Commissioner has identified the various objective conditions, the determinations made, and the amounts of the respective arm's length considerations involved ($17,897,644 in the case of WRCH, and $986,180 in the case of WRCA). He has not, however, positively asserted, or foreshadowed an intention to prove, that he had regard to any particular matters in making the determination. Why would he? His having regard to any particular matters is not made a condition of liability to tax.
52 George is at least clear authority against the Taxpayers' right to particulars on the second ground on which the Commissioner relies.
53 McAndrew v Commissioner of Taxation (1956) 98 CLR 263 ("McAndrew") was also an appeal to the High Court in its original jurisdiction against an objection decision. Subsection 170(2) of the ITAA provided that where a taxpayer had not made to the Commissioner a full and true disclosure of all material facts necessary for his assessment, and there had been an avoidance of tax, the Commissioner might amend the assessment. Where the Commissioner was of opinion that the avoidance was due to fraud or evasion, he might do so at any time, otherwise there was a six year time limit. Thus, the power to amend was conditioned upon the objective fact of the taxpayer's not having made a full and true disclosure, and on the subjective fact of the Commissioner's being of the opinion that there had been an avoidance of tax. At the parties' request, Dixon J stated a case which submitted certain questions for the opinion of a Full Court.
54 The Full Court held, referring, inter alia, to s 190(b) of the ITAA, that upon production of a notice of assessment, the Commissioner did not bear the onus of establishing satisfaction of the conditions, but that the taxpayer bore the onus of establishing their non-fulfilment.
55 In a joint judgment, Dixon CJ, McTiernan and Webb JJ referred to the distinction, recognised in George at 206, 207, between the procedure or mechanism by which taxable income and tax are assessed on the one hand, and the substantive liability to tax on the other. They said that the conditions went to substantive liability, and that it was open to the taxpayer to dispute their existence on an appeal against an assessment. If the conditions were not satisfied, the Commissioner's power to amend would not be enlivened and the amended assessment would be shown to be "excessive" (at 271).
56 Similarly, Kitto J said (at 274-275) that the expression "due making" in s 177(1) covered "all procedural steps, other than those (if any) which go to substantive liability and so contributing to the excessiveness of the assessment" (his Honour also cited George at 207). His Honour added (at 275):
"It [the expression 'due making' is s 177(1)] therefore covers the step of forming the opinion that an avoidance of tax is due to fraud or evasion, and the step of thinking that particular alterations or additions are necessary to correct an error in calculation or a mistake of fact or to prevent avoidance of tax. The correctness of these steps may be challenged on a reference to a board of review, for s. 177(1) seems clearly enough to be a provision relating only to evidence in the sense of material to be considered by judicial tribunals. (Doubtless it is for that reason that the words of exception in the sub-section, which refer to proceedings on appeal, make no mention of proceedings on a reference.)"
His Honour referred to a statement by Isaacs ACJ in Commissioner of Taxation v Clarke (1927) 40 CLR 246 at 276 that the legislation does not contemplate "a curial diving into the many official and confidential channels of information to which the commissioner may have recourse to protect the Treasury".
57 The case was neither a state of mind class of case (as to the enlivening of the power to amend) nor a Commissioner's determination class of case. The power to amend was enlivened by the fulfilment of two objective conditions.
58 Consistently with the joint judgment in McAndrew, the Taxpayers seek to establish non-satisfaction of the conditions that enliven of the powers to make the par (d) and subs (4) determinations. Only Kitto J in McAndrew addressed the question of the Commissioner's antecedent thought processes, and his view, as expressed above, was that by reason of s 177(1) they were not to be inquired into on an appeal to the court.
59 The Taxpayers rely on Giris Pty Ltd v Commissioner of Taxation (1969) 119 CLR 365 ("Giris"). Giris concerned the alternative bases of assessment of the income of trust estates provided for by ss 99 and 99A of the ITAA. Section 99A did not apply only if the Commissioner was "of the opinion that it would be unreasonable" that it should apply, in which case s 99 applied. The Commissioner assessed under s 99A.
60 In the High Court, Menzies J referred to a Full Court the question of the constitutional validity of relevantly, s 99A. All members of the Court held that s 99A was not constitutionally invalid as imposing an incontestable tax, because the taxpayer had access to the court to challenge the Commissioner's opinion.
61 Barwick CJ and Windeyer J indicated how this access might be availed of. The Chief Justice said that the Commissioner was under a duty to form an opinion and that the taxpayer was entitled to be informed of it, "and upon the taxpayer's request, the Commissioner should inform the taxpayer of the facts he has taken into account in reaching his conclusion" (p 373). His Honour added (at 374):
"Thus the Commissioner must hold the opinion. The Court can decide whether or not he did hold it. In my opinion, the Court can require him to form it. It can determine whether the opinion is held bona fide and, although as I have said, the discretion is wide and though being really legislative in nature, what is relevant to its formation may range over an extremely wide spectrum of fact and consideration, the Court can determine whether or not the opinion was formed arbitrarily or fancifully, or upon facts or considerations which could not be regarded as relevant even to such a question as the unreasonableness of applying a taxing provision to a particular taxpayer in respect of the income of a particular year. In my opinion, it cannot properly be said that there is here an unchallengeable tax as that expression is used in reasons for decisions given in this Court."
Windeyer J also observed (at 384) that the Commissioner could be asked by a taxpayer to state the grounds of his opinion, and, if asked, that he should do so.
62 Owen J approached the matter differently. His Honour seems to have accepted that the taxpayer might not be in a position to prove that the Commissioner had taken into consideration irrelevant matters (at 388-389). His Honour said that all that mattered for constitutional validity purposes, was that the taxpayer was not prevented from invoking the aid of the courts to determine whether his tax liability had been lawfully and correctly assessed. It did not matter for that purpose that it might be "difficult or impossible to exercise the right of appeal successfully because the facts necessary to success [could not] be established" (at 388).
63 Neither Kitto J at first instance nor the members of the Full Court referred to the relationship between ss 177(1) and 190(b) of the ITAA.
64 Giris was another state of mind case. Moreover, examinability of the Commissioner's opinion was, in substance, all that stood between a contestable tax and an incontestable one. On the assumption that there was no challenge to the Commissioner's assessment of the taxpayer's taxable income, the only question going to the excessiveness of his assessment of tax was his opinion that it was not unreasonable that the special rate of tax imposed pursuant to s 99A should apply.
65 In Duggan & Anor v Commissioner of Taxation (1972) 129 CLR 365 ("Duggan"), an appeal to the High Court against objection decisions, Stephen J set aside assessments under s 99A. The Commissioner had informed the taxpayer of the three grounds on which he had relied in thinking it not unreasonable for s 99A to apply. Stephen J held that while the grounds stated relevant considerations, they involved errors of fact, with the result that the Commissioner's opinion ceased to be of any legal effect. His Honour added (at 370): "[i]t is as if he has failed to reach any opinion or has reached it upon the basis of irrelevant facts".
66 Duggan is distinguishable from the present case on two grounds: first, it was a state of mind case, whereas the present case is a Commissioner's determination case; secondly, the Commissioner had positively stated the matters he had taken into account in arriving at his state of mind.
67 Like Avon Downs, Commissioner of Taxation v Brian Hatch Timber Co (Sales) Pty Ltd (1972) 128 CLR 28 ("Brian Hatch") concerned the carry forward loss provisions. A necessary condition of deductibility under s 80A of the ITAA was the taxpayer company's satisfying the Commissioner concerning continuity of beneficial ownership - a state of mind case. At first instance, Walsh J upheld the taxpayer's appeal, applying the passage from Dixon J's judgment in Avon Downs. The only material before the Commissioner that was before his Honour was the taxpayer's return and a record of interview. In substance, Walsh J held that on this slim material, the Commissioner had not been entitled not to be satisfied of continuity of beneficial ownership.
68 In allowing an appeal, all members of the Full Court also referred to Dixon J in Avon Downs, but considered that the taxpayer had not established any of the grounds to which Dixon J had referred. In other words, so far as the evidence led by the taxpayer showed, the Commissioner had been entitled not to be satisfied.
69 Barwick CJ said (at 45) that the primary Judge had rightly regarded the Commissioner's lack of satisfaction as examinable on Avon Downs grounds, noting that the taxpayer had not taken the course of seeking from the Commissioner "an account of the material upon which he acted in rejecting the claim to the deduction" (at 45). The Chief Justice added that it was unsatisfactory that the Commissioner had not led evidence of any matter that he had before him. It is implicit, I think, that Barwick CJ thought that the taxpayer would have been entitled to particulars of the material that was before the Commissioner, and, perhaps, of the matters he had taken into account.
70 Menzies J likewise thought it "unfortunate that the basis of the Commissioner's not being satisfied of what was requisite for allowing the deduction claimed was not revealed" (at 52). His Honour noted that the taxpayer might properly have inquired of the Commissioner why he was not satisfied, and observed that "[s]uch an inquiry would no doubt have been answered" (ibid).
71 Windeyer J pointed out (at 56) that the question was not whether a discretion was properly exercised, but whether a fact existed: did the taxpayer in fact satisfy the Commissioner of beneficial ownership as prescribed by s 80A?
72 Owen J (with whom Windeyer J agreed) noted that the taxpayer had not taken various courses that had been open to it, one of which was to inquire of the Commissioner what matters he had considered in disallowing the deduction claimed, or why he had not been satisfied about the state of the shareholding at the relevant times (at 59-60). Again, it seems clear that in their Honours' view, the Commissioner would have been compellable to answer such inquiries.
73 In Brian Hatch, there are fairly clear obiter dicta that upon request, the taxpayer would have been entitled to compel the Commissioner to expose his reasons for his state of mind and to identify all the material that was before him when he disallowed the objection. Again, however, there was no reference to s 177(1) or s 190(b) of the ITAA.
74 In Master Butchers, the Commissioner contended that s 260 of the ITAA applied. The taxpayer requested that its objection be treated as an appeal to the Supreme Court of New South Wales pursuant to s 187 of that Act. The taxpayer requested particulars of the way in which the Commissioner contended s 260 applied, including particulars of the contract, agreement or arrangement relied on. The Commissioner, referring to s 190(b), replied to the effect that he reserved the right, at the conclusion of the evidence to advance such arguments based on s 260 as seemed appropriate.
75 Mahoney J held that the Court had inherent power to order further and better particulars where the requirements of justice so dictated, and cited Isaacs J in Northern Collieries at 740 (see [38] above). While his Honour accepted that in an appropriate case, the Court had power to order the Commissioner to provide further and better particulars "of a matter in issue in the proceeding" (at 356), he did not order the Commissioner to provide any of the particulars sought. For his Honour, the test to be applied was whether it appeared to the court, upon the material before it, that there was "a real and a substantial danger that the party seeking the particulars [would] be prejudiced by not knowing the nature of the case to the [sic - be] made out against him" (at 357). His Honour said that in a proper case, such a party may be entitled to an order that the other party furnish particulars of "the general nature and of the constituent facts, of the case to be relied upon or to some other order appropriate in the circumstances" (ibid).
76 Kolotex Hosiery (Australia) Pty Ltd v Commissioner of Taxation (1975) 132 CLR 535 ("Kolotex") was another case concerning the carry forward loss provisions. On the taxpayer's appeal to the High Court against the Commissioner's disallowance of its objection, the Commissioner's file was in evidence before the primary Judge, Mason J, who held that the Commissioner had been entitled to be "not satisfied" of continuity of beneficial ownership.
77 The Full Court affirmed his Honour's decision. The majority, Gibbs J and Stephen J, in separate judgments, thought that, although the course of reasoning the Commissioner had followed in reaching the conclusion that he was not satisfied involved errors of law, it was not open to the Court to regard the Commissioner as having had the required state of satisfaction that there was continuity of beneficial ownership. Indeed, their Honours thought that, for other reasons, on the law and the facts he could not properly have been satisfied that there was. On that basis, his state of non-satisfaction and the assessment must stand, and the appeal be dismissed.
78 Barwick CJ dissented. His Honour said (at 541) that the Commissioner should have recorded "his relevant state of mind and the facts or his view of the facts on which it is based", and that it should not be left to the Court to draw inferences as to whether he had considered a matter. The Chief Justice added, citing his own judgment in Giris,that the Commissioner "must expose to the taxpayer, particularly if so requested, both his state of mind at the relevant time and its basis" (at 541) (emphasis added). Like the majority and Windeyer J in Brian Hatch, his Honour saw the issue as being one of fact: was the Commissioner in fact satisfied at the point of assessment or not? His Honour disagreed with the majority, however, as to the Commissioner's right to support his state of dissatisfaction at the time by a course of reasoning devised later.
79 The Chief Justice also said (at 543) that the Commissioner's purported state of dissatisfaction would be negated if the taxpayer could prove the existence of relevant facts which ought to have satisfied him. His Honour thought it unacceptable that by not fully investigating or by being in ignorance of relevant facts, the Commissioner might be regarded as having been properly dissatisfied on such material as happened to be in his possession.
80 All Judges accepted that the Commissioner's state of non-satisfaction was reviewable on Avon Downs grounds. However, none of the judgments referred to the interaction between ss 177(1) or s 190(b) of the ITAA.
81 The operation of s 190(b) of the ITAA was explained by Mason J (dissenting) in Gauci v Commissioner of Taxation (1975) 135 CLR 81 at 89 as follows:
"Section 190(b) of the Act imposed on the appellants the burden of proving that the assessments were excessive. The appellants relied on their evidence and that of Graham [their land agent who acted for them] in order to show that the assessments were excessive. Once that evidence was rejected, the appellants' case necessarily failed.
The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail."
The view expressed by Mason J in this passage has been endorsed: see McCormack v Commissioner of Taxation (1979) 143 CLR 284, esp at 302-304 (Gibbs J), 306 (Stephen J), 323 (Murphy J); Macmine Pty Ltd v Commissioner of Taxation (1979) 53 ALJR 362, esp at 371 (Stephen J), 381 (Murphy J); Commissioner of Taxation v Dalco (1990) 168 CLR 614 esp at 624-5 (Brennan J with whom Dawson, Gaudron and McHugh agreed, and Deane J generally agreed) ("Dalco"). Practice Note No 22, referred to at [37], is consistent with it.
82 A question of the Commissioner's liability to supply particulars arose in Bailey. The Commissioner had relied on the then general anti-avoidance rule in s 260 of the ITAA. The Court ordered him to provide particulars of the arrangement he alleged was rendered void against him by s 260.
83 Aickin J delivered the leading judgment (Barwick CJ, and Gibbs, Mason and Jacobs JJ expressed agreement with his Honour's reasons). His Honour said that the particulars sought were necessary so that the case would "proceed in an orderly and comprehensible manner" (at 227). His Honour thought that it was not in the interests of the proper administration of justice that on the hearing the appellant should have to "speculate about, and adduce evidence to negate, every possible kind of agreement or arrangement and avoidance which the imagination of his advisers can conjure up" (ibid). It did not matter that s 260 was "self-executing" and did not depend on the Commissioner's forming an opinion or reaching a state of satisfaction. With his Honour's approach may be contrasted that of Kitto J in George (see [47] above).
84 Barwick CJ referred to s 190(b). His Honour stated that if some step in the process of assessment lacked "the authority of the Act", the assessment would be shown to be excessive. His Honour continued (at 217):
"I have elsewhere indicated, and now confirm, that, in my opinion, it is that process which must be exposed to the Court and with which the Court is exclusively concerned in an appeal by the taxpayer."
The Chief Justice stated (ibid): "Quite clearly, the taxpayer is entitled to know the basis on which the assessment has been made".
85 In this case, again, Barwick CJ expressed himself in favour of disclosure and particularisation by the Commissioner. However, apparently his Honour contemplated only a brief particularisation of the assessment by the Commissioner. He said (at 218) that "a statement by the Commissioner in his adjustment sheet of the assessable income as determined by him would be a sufficient compliance with … [his] obligation in informing the taxpayer of the basis of the assessment".
86 A little confusingly at times, the judgments in Bailey contain references to both particulars of the assessment, and particulars of the Commissioner's case to be raised on the hearing. The adjustment sheet which accompanied the notice of assessment showed that the Commissioner had included the taxpayer's proportion ($77,235) of a distribution of $411,920 by Bailey Holdings Pty Ltd. In the course of correspondence, the Commissioner informed the taxpayer that he was relying on s 260 in including that amount. The particulars ordered to be provided were further particulars of the distribution and particulars of the arrangement said to be within s 260. Thus, the order was for further particulars of matters that the Commissioner had already positively asserted as having formed part of his assessment.
87 There is no suggestion that the Commissioner would not have been permitted to identify the arrangement concerned in alternative ways, or to amend later the particulars given of the arrangement, subject to any special order as to costs.
88 Bailey was neither a state of mind nor a Commissioner's determination class of case. I understand Bailey, like Master Butchers, as a case concerned with the practical running of a trial. It does not determine the question whether the Commissioner should be ordered to provide particulars, not of positive assertions made by him, but of his thought processes antecedent to a positive statutorily required step that he does assert - the making of a determination.
89 The judgments in Bailey do not refer to s 177(1), and make only passing reference to s 190(b).
90 FJ Bloemen Pty Ltd v Commissioner of Taxation (1981) 147 CLR 360("FJ Bloemen") comprised two appeals, heard together, from decisions of the New South Wales Court of Appeal: FJ Bloemen Pty Ltd v Commissioner of Taxation (unreported) and Dorney v Commissioner of Taxation and Simons v Commissioner of Taxation [1980] 1 NSWLR 404 ("Dorney and Simons"). The appeal against the Commissioner's objection decision in the FJ Bloemen proceeding was heard by Rath J: (1978) 36 FLR 191. However, by reason of the judgments which that Court had in meanwhile delivered in the Dorney and Simons appeals, the Court of Appeal dismissed the FJ Bloemen appeal. Thus, the reasons of the Court of Appeal are to be found in the Dorney and Simons appeals.
91 Taxpayers sought declarations that certain notices of assessment were void in that there had been no valid assessments. The taxpayers filed points of claim and, the Commissioner, points of defence. Certain questions raised by the points of defence were ordered to be separately determined and were referred to the Court of Appeal. The question that was pursued in that Court was whether the facts alleged by the taxpayers entitled them to the declaratory relief claimed.
92 Hutley and Glass JJA answered the separate questions, in so far as they related to the jurisdiction of the Supreme Court of New South Wales to grant the declaratory relief sought, but Mahoney JA, dissenting, held (at 414) that the questions were not appropriate to be answered.
93 Both Hutley JA and Mahoney JA made certain observations relevant to the scope of an appeal, then under Pt V of the ITAA, against an objection decision. Hutley JA said (at 411), referring to Duggan and George, that an appeal under Pt V was of "the most comprehensive kind", so that, for example, it could be shown on such an appeal that a belief by the Commissioner as to the existence of certain facts was unsound.
94 Mahoney JA stated (at 423):
"(74) ... Ordinarily, whether an assessment was 'duly made' would be affected by, eg, whether the Commissioner took into account irrelevant matters, or failed to take into account relevant matters, in the exercise of a discretion affecting a component of the taxable income. But this is a matter which obviously is open for consideration on an appeal under Pt V; and the production of the notice of assessment cannot, as conclusive evidence that the assessment was 'duly made', prevent the taxpayer raising such a matter. Therefore, the suggestion was, the operation of s 177 must be read down.
(75) Were the matter free from authority, this argument would, in my opinion, carry substantial force. But, as Mr Simos [senior counsel for the Commissioner] properly pointed out, the course of decision has been so to construe s 177 that such matters fall, not within 'the due making of the assessment' in the first part of the section, but within 'the amount and all the particulars of the assessment' in the second part of it. On that basis, the production of the notice of assessment is not conclusive on appeal against it: George [at 206, 207]; McAndrew [at 270, 271, 274, 275, 281, 282]."
His Honour seems to have accepted the general proposition that in an appeal, any exercise of discretion by the Commissioner affecting a component of the taxable income is open to attack on judicial review grounds.
95 The question raised on the appeal to the High Court in FJ Bloemen was stated by Mason and Wilson JJ in their Honours' joint judgment to be whether the Supreme Court of New South Wales, in a statutory appeal under the ITAA or in a proceeding for declaratory relief, has jurisdiction to determine that an assessment of the taxpayer to income tax under s 166 of the ITAA is invalid, notwithstanding that a notice of assessment is produced by the Commissioner, and that the notice has the force of conclusive evidence (except in proceedings on appeal against the assessment) under s 177. Their Honours noted (at 365) that the case presented by the taxpayers had been that the Commissioner did not in truth make final assessments, but purported to make assessments which, if made at all, were only tentative or provisional, in neither case being authorised by the ITAA. In the FJ Bloemen case, the taxpayer also contended that the Commissioner had not made his assessments from the return or from any other information in his possession, in accordance with s 166, and that his real purpose was not to assess the amount of taxable income or of the tax payable thereon, but to cause a debt for tax to come into existence so that he could exercise his powers under s 218 of the ITAA (at 365-366).
96 In the High Court, the taxpayers argued that s 177(1) was enlivened only where something amounting to an "assessment" had been made, and that production of a notice of assessment did not preclude inquiry into whether that condition was satisfied. However, the Court unanimously rejected the submission. Mason and Wilson JJ, with whom Stephen J agreed, said that upon production of a notice of assessment that was final and definitive on its face, as distinct from provisional or tentative, the notice was conclusive evidence that an assessment was actually made, not merely conclusive evidence that an assessment, if made, was duly made (at 378).
97 The High Court judgments in FJ Bloemen do not assist greatly in the present appeals.
98 Part IVA was introduced into the ITAA by Act No 110 of 1981, replacing s 260 as the ITAA's general anti-avoidance rule. Div 13's more specific anti-avoidance provision was introduced the following year as complementary to Pt IVA (see [13] above). Part IVA and Div 13 are similarly structured. Unlike the former s 260, they both provide for the making of determinations by the Commissioner as conditions of liability to tax. None of the cases considered above were of such a Commissioner's determination class of case.
99 In Jackson v Commissioner of Taxation (1989) 87 ALR 461 ("Jackson"), the Commissioner made a determination pursuant to s 177F that the amounts of certain tax benefits should be included in the taxpayer's assessable incomes for two years. The taxpayer served on the Commissioner a notice to produce. Gummow J set aside certain questions for separate decision.
100 The first question was whether, on the hearing of an appeal against the disallowance of an objection against an assessment made consequent upon the making of a determination under s 177F(1), it is necessary or relevant for the court to inquire into the matters taken into account by the Commissioner, or his reasoning process, when he formed the view that a tax benefit had been obtained, or would have been obtained, but for the operation of s 177F, by a taxpayer in connection with a scheme to which Pt IVA applied. His Honour answered this first question "No".
101 This holding is instructive but not presently relevant. The obtaining of a tax benefit was one condition precedent to the arising of the Commissioner's power to make a determination under s 177F. Whether that condition was satisfied was to be decided by the application of objective criteria. The condition was thus akin to the present objective condition that the taxpayer supplied property under an international agreement, or that the amount of the consideration received or receivable by the taxpayer was less than the arm's length consideration.
102 While, no doubt, the Commissioner did think that that condition was satisfied, his opinion that it was not made an element of the liability to tax, and his reasons for being of that opinion were therefore irrelevant. Defective reasoning on his part would not advance the taxpayer's case if the condition was in fact satisfied.
103 The second separate question was related to the Commissioner's determination pursuant to s 177F, but not to the provision of particulars. The question was whether, in an appeal, documents are discoverable by the Commissioner or liable to be the subject of a subpoena or notice to produce addressed to the Commissioner, by reason only that the documents record or comprise, in substance, the submissions and internal memoranda prepared by the Commissioner's officers for consideration by the officer who made the determination under s 177F, and any decision or reasons for decision recorded by that officer, or the facts, matters or circumstances referred to in such submissions and memoranda.
104 Gummow J answered this second question "Yes" because like the Taxpayers in the present case, the taxpayer was attempting to show that the Commissioner's determinations were not authorised by the ITAA.
105 His Honour observed:
(1) (at 469-470) that s 177F fell into "that category where an opinion formed by the Commissioner or a determination by him or his state of mind, is made a crucial element in the process of assessment", citing Bailey at 225 (Aickin J);
(2) (at 470) that the assessment would be "excessive" if some step in the Commissioner's process of ascertainment of the amount of tax lacked the authority of the ITAA, citing Bailey at 217 (Barwick CJ); and
(3) (at 470) that a determination by the Commissioner under s 177F would lack the authority of the ITAA if, inter alia, the Commissioner had regard to irrelevant considerations or omitted to have regard to relevant ones, citing Avon Downs at 360 (Dixon J).