Federal Commissioner of Taxation v. Brian Hatch Timber Co. (Sales) Pty. Ltd.

Members:
Barwick CJ
Menzies J
Windeyer J
Owen J

Tribunal:
High Court (Full Court)

Decision date: Judgment handed down 7 January 1972.

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Barwick C.J.: The facts and circumstances giving rise to this appeal as well as the text of the statutory provisions relevant to its determination are to be found in the judgments of other members of the Court. The deduction for prior losses which the respondent taxpayer claimed to deduct from the assessable income of the tax year in question could only be allowed if the respondent taxpayer satisfied the appellant Commissioner of the continued beneficial ownership by Mrs. Cleary of the two shares beneficially owned by her in G.A. Cleary (N.S.W.) Pty. Limited in the year in which the losses in question were suffered.

The primary judge rightly regarded the Commissioner's lack of satisfaction as examinable by the Court but only for the limited purposes which are summarised by Dixon J. in
Avon Downs Pty. Limited v. F.C. of T. 78 C.L.R. at p. 360 . As others have observed the respondent taxpayer did not take the course of seeking from the appellant Commissioner an account of the material

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upon which he acted in rejecting the claim to the deduction. All that seems to have been known of the material that was before the Commissioner would suggest that he had the respondent's return and a record of interview, the text of which appears in the reasons for judgment prepared by my brother Menzies. However evidence was led by the respondent before the primary judge as to the circumstances in which further shares were issued in J. Cleary (N.S.W.) Pty. Limited and its name changed to the present name of the respondent. This evidence was subject to an objection by counsel for the appellant Commissioner on the ground that the evidence was irrelevant unless it was shown to have come to the knowledge of the Commissioner before his disallowance of the claim to the deduction. The objection was not upheld. Although this objection was made, it seems to me somewhat unsatisfactory that the Commissioner did not call any evidence of any matter which he had before him at the time he disallowed the claim. In the light of that circumstance I would myself be very loathe to think that the Commissioner had any substantial material at that time other than the return and the record of interview. As I read his Honour's judgment, he did not decide that the Commissioner ought not to have been dissatisfied as to the continued identity of the beneficial ownership of the shares in question because of the evidence produced before him and not shown to have been before the Commissioner when he rejected the claim to the deduction. His Honour held that, having no more than the return which showed the continued identity of the ownership of the two shares and the record of interview, a reasonable mind ought not to have been dissatisfied as to the continued identity of the beneficial ownership, therefore the Commissioner's dissatisfaction must have sprung from some undisclosed error. The case thus fell within the terms of Avon Downs Pty. Limited v. F.C. of T. (supra).

I have found the appeal difficult of resolution but in the long run I have come to think that with due respect to the primary judge the statements contained in the record of interview were sufficient to raise such a doubt in the mind of a reasonable man as to whether or not Mrs. Cleary had throughout retained the beneficial ownership in the two shares in question so as to justify a lack of satisfaction on the part of the appellant Commissioner. Of course if it were concluded that in all the circumstances it was reasonable to think that the Commissioner had other material before him when he disallowed the claim to the deduction quite clearly the respondent taxpayer would have failed to have shown that the lack of satisfaction on the part of the appellant Commissioner was due to error of one kind or another. But, assuming no more material than the return and the record of interview, I am unable to say that it was unreasonable for the Commissioner not to be satisfied.

In expressing this conclusion I would like to say that of course it is not for the Commissioner to entertain dissatisfaction in cases of this kind merely because the taxpayer has sought to produce a state of facts which when they exist entitle him under the statute to benefits in the assessment of income tax. The taxpayer is quite entitled to create such a state of affairs if he can. It is not for the Commissioner because he might regard the use of the statutory provisions in that fashion as detrimental to the interests of the revenue to show his disapproval in any manner whatsoever. But having reached the conclusion in this case that a resonable man might well entertain a doubt as to whether the shares continued to be beneficially owned as required by the statute. I do not suggest that this is a case in which the Commissioner may have overstepped his function.

Consequently in my opinion the appeal should be allowed. I would desire to add that I have had the advantage of reading the reasons for judgment prepared by my brother Menzies and that I agree with his views and conclusions in relation to the provisions of sec. 80B(5). In my opinion the grant of the proxy was the grant of a power which depended for its operation on the beneficial interest of Mrs. Cleary in the shares in question or upon rights carried by those shares.

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