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Deputy Federal Commissioner of Taxation v. Saddler.

Judges:
Cox J

Court:
Supreme Court of South Australia

Judgment date: Judgment handed down 15 December 1982.

Cox J.

Action for the recovery of provisional tax and additional tax said to be payable by the defendant with respect to the year ending 30 June 1979.

The relevant events began with the filing by the defendant of an income tax return for the year ending 30 June 1978. In it he described himself as a general surgeon and declared his taxable income as $66,583, of which $58,865 represented the net income from his private practice. As a self-employed person, the defendant was liable to pay provisional tax in accordance with Pt. VI Div. 3 of the Income Tax Assessment Act 1936 (Cth.) as amended. By a Notice of Assessment dated 13 February 1979, the plaintiff informed him that his income tax for the year ending 30 June 1978 had been assessed at $34,329, and that he was also obliged to pay $33,969 by way of provisional tax for the year ending 30 June 1979. The two amounts were to be paid not later than 2 April 1979. The defendant's response was to pay the tax for 1978 and to exercise his right, under sec. 221YDA of the Act, to make his own estimate of the amount of his taxable income for 1978-79. He showed his total estimated gross income as $69,000 (being salary, etc., $4,000 and income from business and other sources $65,000) and his estimated deductions by way of business expenses as $70,000. He therefore reckoned his taxable income for the provisional tax year as nil. The document embodying the defendant's estimate was a printed form, issued by the Australian Taxation Office, headed ``Application for Variation of Provisional Tax''. Although the form contained a notice, in a distinctive colour, stating - ``If the taxable income estimated for the year ending 30 June 1979 is substantially below the taxable income assessed for the year ended 30 June 1978, please attach full details of your estimate including an explanation of the reduction,'' the defendant's estimate was unencumbered with any details at all. The figures I have quoted are the only figures that the defendant supplied, and he offered no explanation for the estimated decline in his taxable income from $66,583 to nothing in a single year. His application (for it is convenient so to describe it, whether quite accurately or not) was dealt with in the plaintiff's Adelaide office by Mr. Gardiner, a senior investigation officer. Mr. Gardiner

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wrote to the defendant on 12 April 1979 requesting him to provide within 14 days a detailed explanation of the reasons for the dramatic estimated change in income. The pro forma letter, signed by Mr. Gardiner on behalf of the plaintiff, specified the kind of information that was required. The defendant did not reply to Mr. Gardiner's request. About the end of May Mr. Gardiner, having in mind the provisions of subsec. (4) of sec. 221YDA, made or purported to make his own estimate of the defendant's 1978-79 taxable income, namely $66,583, calculated the amount of provisional tax payable by the defendant at $32,633, and by notice dated 5 June 1979 advised the defendant accordingly. The notice, as was the case with the other relevant documents, was issued in the name of the plaintiff but was really sent out by Mr. Gardiner. There is no evidence that the plaintiff himself, or the Commissioner, ever saw it personally or, indeed, was even aware of the matter. The defendant declined to pay any part of the provisional tax claimed by the plaintiff, and as a result this action was begun against him.

I set out those parts of sec. 221YDA and 221YDB, as they stood in 1979, that are relevant to this dispute -

``221YDA (1) A taxpayer who receives a notice of assessment on which is notified the amount of provisional tax payable in respect of the income of a year of income (including an accounting period adopted by the taxpayer under this Act) may, not later than -

  • (a) the due date for the payment of the tax notified by that notice; or
  • (b) the thirty-first day of March in that year of income or, in the case of an accounting period, the last day of the ninth month of that accounting period,

whichever is the later, or within such further time as the Commissioner may allow, make an estimate of -

  • (c) the amount of his taxable income for the whole of that year of income;
  • (d) the respective amounts included in that estimated taxable income that represent -
    • (i) salary or wages;
    • (ii) income derived from the carrying on of a business of primary production; and
    • (iii) other income;
  • (da) the sum of the rebates to which he will be entitled in his assessment in respect of income of that year of income under sub-section (7) of section 23AB, under section 79A or 79B or under Subdivision A of Division 17 of Part III;
  • (e) the amount of the deductions which have been and will be made from his salary or wages during that year of income in accordance with sections 221C and 221D, a State income tax law or section 78 of the Income Tax (Arrangements with the States) Act 1978,

and furnish to the Commissioner a statement showing the amounts so estimated.

(1A) Where a taxpayer furnishes to the Commissioner a statement under subsection (1), he shall, if so required by the Commissioner, also furnish to the Commissioner a statement setting out such information as the Commissioner requires for the purposes of the operation of a State income tax law.

(2) Where, in relation to a year of income, a taxpayer duly furnishes to the Commissioner a statement under subsection (1) and any statement required to be furnished by the taxpayer to the Commissioner under sub-section (1A), the amount of provisional tax payable by the taxpayer in respect of the income of that year of income is, subject to sub-section (4), an amount ascertained -

  • (a) by calculating the amount of tax that would be payable in respect of the income of the year of income if -
    • (i) the taxable income of the year of income were an amount equal to the estimated taxable income and included the amounts of salary or wages, of income derived from the carrying on of a business of primary production and of other income included in that estimated taxable income; and

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    • (ii) the sum of the rebates under sub-section (7) of section 23AB, under section 79A or 79B or under Subdivision A of Division 17 of Part III to which the taxpayer was entitled in his assessment in respect of income of the year of income were an amount equal to the estimated sum of those rebates;
  • (b) by deducting from the amount so calculated so much of the estimated amount of deductions referred to in paragraph (e) of sub-section (1) as shown in the statement as is estimated by the Commissioner to represent deductions that have been and will be made in accordance with sections 221C and 221D.

(2A)...

(3)...

(4) Where the Commissioner has reason to believe that the taxable income which will be or has been derived by a taxpayer in a year of income is greater than the estimated taxable income, the Commissioner may -

  • (a) estimate the respective amounts which, in his opinion, should have been the amounts estimated by the taxpayer in pursuance of sub-section (1) in respect of that year of income;
  • (b) calculate the amount of provisional tax that would be payable if the amount so estimated had been shown in a statement duly furnished by the taxpayer under sub-section (1); and
  • (c) serve on the taxpayer notice in writing specifying the amount of provisional tax so calculated,

and the amount of provisional tax so specified is the amount of provisional tax payable by the taxpayer.

(5) The amount estimated by the Commissioner in accordance with sub-section (4) as the amount of the taxable income of the taxpayer shall not be greater than the taxable income of the taxpayer for the year last preceding the year of income and the amount so estimated by the Commissioner as the amount of salary or wages, of income derived from the carrying on of a business of primary production or of other income shall not be greater than the amount of the salary or wages, the income derived from the carrying on of a business of primary production or the other income, as the case may be, derived by the taxpayer in the year last preceding the year of income.

(6)...

(7)...

221YDB(1) Where, in respect of a year of income, the amount of the estimated taxable income of the taxpayer reduced by the amount (if any) representing salary or wages that is included in that estimated taxable income is less than 90% of the amount remaining after deducting from the taxable income of the taxpayer the amount of any assessable income of the taxpayer that consists of salary or wages, the taxpayer is liable to pay to the Commissioner, by way of additional tax, an amount equal to 10% of -

  • (a) the amount by which the tax payable in respect of the taxable income exceeds the amount of provisional tax payable in respect of the estimated taxable income; or
  • (b) the amount by which the provisional tax that would, but for section 221YDA, be payable in respect of the taxable income exceeds the amount of provisional tax payable in respect of the estimated taxable income,

whichever is the less.

(1A)...

(2)...

(3)...

(4)...''

I heard evidence from Mr. Gardiner and from another member of the plaintiff's senior staff, Mr. Marshman. The defendant did not call evidence. He does not for the most part challenge the evidence of the plaintiff's witnesses, and he does not quarrel with their computations in so far as there was any proper basis for them. He says, however, that there was no such basis and he denies his liability to pay the provisional tax specified in the notice of 5 June 1979.

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Mr. Williams, for the defendant, took three points - that whatever Mr. Gardiner's state of mind when he considered the defendant's case, he could not be said to have had a belief, let alone to have had ``reason to believe'', with respect to the defendant's taxable income for 1978-79, as those expressions are to be understood in subsec. (4) of sec. 221YDA; that the figures specified in the notice of 5 June 1979 were simply a stab in the dark (although influenced, improperly, by a departmental direction) and could not properly be regarded as an ``estimate'' by Mr. Gardiner of the amounts that should have been estimated by the defendant in pursuance of subsec. (1); and that in any event Mr. Gardiner was not legally competent to form the belief and make the estimate for which subsec. (4) provides. The notice of 5 June 1979 was therefore ineffectual.

It is convenient to consider the defendant's third point first. It turns on the language of subsec. (4) of sec. 221YDA which says that ``where the Commissioner has reason to believe...'', he may estimate certain amounts and then calculate the provisional tax. Mr. Williams argued that the requisite state of mind and actions have to be those of the Commissioner himself. It is not enough that the belief is held, however soundly based, by a member of his staff, such as Mr. Gardiner. It would have been sufficient had it been the belief of a Second Commissioner or some person to whom the Commissioner by writing had delegated the power or function in question, but Mr. Gardiner was not such a person. The plaintiff, as Deputy Commissioner of Taxation in this State, was, but it appears that the defendant's case was never referred to him. It follows, according to the argument, that no relevant belief was held by the Commissioner or by any duly authorised surrogate, so that the consequent estimate and calculation lacked the foundation that the statutory scheme required. The notice specifying the amount of provisional tax that the defendant is liable to pay was therefore ineffectual.

When an Act of Parliament confers a power or function or duty upon a Minister of State or a public officer, the question arises whether it must be discharged by the Minister or officer personally or whether he may act through his duly authorised servants or agents. If it is a matter of routine administration, there will usually be little difficulty in holding that the actions of a subordinate will be the lawful actions of the person to whom the power or duty or function is committed. The manifold activities of a modern government department could hardly be discharged on any other footing. When it comes to discretionary powers, however, and even administrative powers of an important or particular kind, the position may not be so clear. It will be a matter, in every case under challenge, of discerning the intention of Parliament as disclosed by the language and subject matter and purpose of the legislation in question. That intention may require different answers with respect to different provisions, even within a single Act, possibly notwithstanding the use of the same expression in each instance. It will usually be an oversimplification merely to interpret the words of the statute literally, and unfortunately Parliament does not often spell out its intention in such matters in so many words, but there are certain general principles and policy considerations that may be called in aid and some of them are relevant to the present case.

I start with subject matter, and I concentrate for the moment on the character of the expression ``reason to believe'', by which the power of the Commissioner under subsec. (4) of sec. 221YDA is qualified. The words of the Act postulate a positive state of mind that has been reached after an evaluation of the available evidence, evidence that may fairly be judged to be adequate to support a belief. The forming of the belief, and the existence of ``reason to believe'', are the conditions precedent to the exercise of powers that may impose upon a taxpayer a substantial liability by way of provisional tax. The language, then, describes an important function or duty that is, in a real sense, more ``personal'' than the general run of administrative functions that are involved in even a complex statutory scheme. This is the area of knowledge and judgement and discretion. It is also a function the exercise of which may have far-reaching consequences. A serious error on the Commissioner's part - overlooking some important fact, for instance, or simply making a bad judgement - could result in

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considerable hardship that might or might not be disclosed and corrected later. The same may be said of a great many other sections in the Income Tax Assessment Act that employ the language of evaluation or discretion - ``where the Commissioner has reason to believe'', ``unless the Commissioner is satisfied'', ``where in the opinion of the Commissioner'' and so on. There are a great number of them scattered throughout the Act. Nothing would be gained by examining them in detail. It is enough to observe that the existence and the exercise of these discretionary powers will often be the vehicle for disclosing or establishing, or for that matter avoiding, substantial tax liabilities. That is not to say, for a moment, that they are any the less necessary or desirable. The justification for them is not in question. But it does have something to do with their construction - in particular, whether the Commissioner's state of mind must be that of the Commissioner personally or whether it may be the state of mind of one of his departmental officers acting on his behalf. Having regard to the apparently personal denotation of the words, ``where the Commissioner has reason to believe..., the Commissioner may'', viewed in the light of the importance of the matters to be decided so far as both the task of evaluation and the possible consequences to a taxpayer are concerned, there appears to me to be good reason for interpreting the function as one that must be discharged either by the Commissioner himself or by a person to whom he has expressly and formally delegated it in accordance with the Act.

Mr. Doyle argued that it would be impracticable, if not quite impossible, for the Commissioner himself to deal personally with all these discretionary powers and functions. At any rate, there is clear authority for the view that he is under no such obligation. I was referred to the English decisions about administrative powers and functions conferred by statute upon Ministers of State, often in terms that might at first sight be thought to indicate that it is a power or function to be exercised by the Minister personally. However, the doctrine is firmly established in England that such statutory powers may generally be exercised by a departmental official, and the Courts in that country now assume that Parliament legislates with the doctrine in mind. The leading case of
Carltona Ltd. v. Commrs. of Works (1943) 2 All E.R. 560 dealt with a discretion reposed in the Commissioners of Works. The requisition order in question had been issued by an assistant secretary and had never been considered by the Commissioners, who indeed never met as a body, or by the First Commissioner who had statutory power to act on their behalf. A submission that the requisition notice was for this reason invalid was rejected. On the general question of interpretation Lord Greene M.R. said:

``In the administration of government in this country the functions which are given to ministers (and constitutionally properly given to ministers because they are constitutionally responsible) are functions so multifarious that no minister could ever personally attend to them. To take the example of the present case no doubt there have been thousands of requisitions in this country by individual ministries. It cannot be supposed that this regulation meant that, in each case, the minister in person should direct his mind to the matter. The duties imposed upon ministers and the powers given to ministers are normally exercised under the authority of the ministers by responsible officials of the department. Public business could not be carried on if that were not the case. Constitutionally, the decision of such an official is, of course, the decision of the minister. The minister is responsible. It is he who must answer before Parliament for anything that his officials have done under his authority, and, if for an important matter he selected an official of such junior standing that he could not be expected competently to perform the work, the minister would have to answer for that in Parliament. The whole system of departmental organisation and administration is based on the view that ministers, being responsible to Parliament, will see that important duties are committed to experienced officials. If they do not do that, Parliament is the place where complaint must be made against them''

(at p. 563).

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Professor Wade (Administrative Law, 4th ed., p. 314) comments thus on the nature of this authority:

``Strictly speaking there is not even delegation in these cases. Delegation requires a distinct act by which the power is conferred upon some person not previously competent to exercise it. But the authority of officials to act in their ministers' names derives from a general rule of law and not from any particular act of delegation.
Lewisham Borough Council & Anor. v. Roberts (1949) 2 K.B. 608. Legally and constitutionally the act of the official is the act of the minister, without any need for specific authorisation in advance or ratification afterwards.''

The principle has been applied in many cases. It is not confined to Ministers of State. See, for example, Lewisham Borough Council & Anor. v. Roberts (1949) 2 K.B. 608 and
Reg. v. Race Relations Board; Ex parte Selvarajan (1975) 1 W.L.R. 1686 and, for its limitations,
Nelms v. Roe (1970) 1 W.L.R. 4 where it was held that the alter ego doctrine did not apply to the police. See generally de Smith, Judicial Review of Administrative Action (4th ed.) pp. 307-309; Wade, op. cit. pp. 313-315. The principle appears to have had less attention in Australia. Cf.
Ryan v. The Queen (1872) 3 V.R. (E.) 127;
Boucaut Bay Co. Ltd. (in liq.) v. Commonwealth (1927) 40 C.L.R. 98; and
Ex parte Foster; Re University of Sydney (1963) S.R. (N.S.W.) 723; Sykes, Lanham and Tracey, Administrative Law, ch. 4. It is doubtful whether it has any application here in such important areas as the liberty of the subject (cf.
Lloyd v. Wallach (1915) 20 C.L.R. 299 at p. 304), and there may be a more general restriction of its application than that, particularly where the judgment or discretion is that of an official or statutory authority and not a Minister of the Crown. Cf.
Hinton Demolitions Pty. Ltd. v. Lower (1968) S.A.S.R. 370 at p. 377, where it was held to be, at best, no more than a guide to construction; the actual words in question must be decisive. That is a very different approach to that adopted in England, at least in the case of a Minister, where a suggested distinction on the basis of a serious invasion of the freedom or property rights of the subject was rejected as ``impossibly vague'' and, therefore, inapplicable: In
re Golden Chemicals (1976) Ch. 300 at p. 310. In my opinion, the Carltona principle, though no doubt applicable to a great number of administrative decisions and actions made every day on behalf of the Commissioner of Taxation, cannot be applied simply as a matter of course to a power such as that conferred by sec. 221YDA(4) of the Income Tax Assessment Act. It all depends upon more particular considerations of the precise nature of the power and of the conditions of its exercise, the object of the legislation, and so on, and those factors, in my opinion, point rather to a legislative intention that the words of the subsection, in this case, mean exactly what they say.

There remains, however, the important consideration of practicability. Mr. Doyle argued that, if the defendant is right about the proper construction of the Act, the work of the Australian Taxation Office will quickly grind to a halt. There are simply too many of these discretionary judgements, and too many taxpayers, for all the decisions to be made by the Commissioner and the two Second Commissioners. The Second Commissioners are expressly authorised to exercise almost all of the Commissioner's powers and functions, including those dependent upon the opinion, belief or state of mind of the Commissioner (Taxation Administration Act 1953, as amended, sec. 4; Income Tax Assessment Act, sec. 10 and 13). But that is as far as the self-executing delegation provisions of the legislation go.

I have no doubt that the number of decisions of the ``reason to believe'' type that have to be made by the ``the Commissioner'' in any tax year, involving considerations of judgement or discretion, is enormous. I see that someone estimated the number of discretionary tax powers operating in Australia in 1969 at more than 300 (Tax Essays (ed. O'Neill), 1979, vol.I, p. 3), and there must have been a good number of additions to the list since then. Of course, an official may make a decision of this kind without necessarily having done the investigatory work himself. In the present case, for instance, the defendant could have no possible grounds for objection had Mr. Gardiner done all the preliminary work and then submitted a report on the matter to the Commissioner (or a Second Commissioner), setting out the relevant material upon which

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a belief one way or the other might properly be founded, and even making a recommendation as to what that belief should be. Provided that the Commissioner addressed his mind to the issues and then formed a bona fide belief, he would be doing all that subsec. (4) requires. Indeed, there is no reason why an important decision of this nature should not pass through more than one officer, for checking and report, before it gets to the actual decision maker, thus increasing in the latter's mind the likelihood of the material contained in the report being an accurate and complete foundation for the belief that his subordinates are advising him to form. Even so, I can well believe that the sheer volume of all these decision-making obligations puts them beyond the capacity of the Commissioner and the Second Commissioners, particularly when it is borne in mind that, a decision of this kind having been made, it may also be necessary for the person making it to take time later to explain and justify it to a Court in some such proceedings as those before me now. I see that in
Moreau v. F.C. of T. (1926) 39 C.L.R. 65 the Commissioner himself formed the requisite belief and then gave evidence to justify his decision at the hearing of the appeal in the High Court. Those were more leisurely days. If it were only a question, then, of looking at the ability of the Commissioner and his two senior assistants to handle all this work, the consideration of practicability would provide a strong ground for concluding that Parliament must have intended that beliefs of the sec. 221YDA kind may properly be formed on the Commissioner's behalf by any member of his staff to whom the task has been assigned.

However, the matter does not stop there. Sections 7 and 8 of the Taxation Administration Act were enacted in substitution for the repealed sec. 11 and 12 of the Income Tax Assessment Act, and are as follows -

``7 There shall be such Deputy Commissioners of Taxation as are required.

8(1) The Commissioner of Taxation may, in relation to a matter or class of matters, or in relation to a State or part of the Commonwealth, by writing under his hand, delegate to a Deputy Commissioner of Taxation or other person all or any of his powers or functions under this Act or an Act which is an Act with respect to taxation (except this power of delegation).

(2) A power or function so delegated may be exercised or performed by the delegate with respect to the matter or to the matters included in the class of matters, or with respect to the State or part of the Commonwealth, specified in the instrument of delegation.

(3) Where, under any Act, the exercise of a power or function by the Commissioner of Taxation is dependent upon the opinion, belief or state of mind of the Commissioner of Taxation in relation to a matter and that power or function has been delegated in pursuance of this Act, that power or function may be exercised by the delegate upon the opinion, belief or state of mind of the delegate in relation to that matter.

(4) A delegation under this section is revocable at will and does not prevent the exercise of a power or the performance of a function by the Commissioner of Taxation.

(5) A delegation under this section may be made subject to a power of review and alteration by the Commissioner of Taxation, within a period specified in the instrument of delegation, of acts done in pursuance of the delegation and a decision given upon such a review or alteration shall be deemed to be the decision of the Commissioner of Taxation.''

Whatever the precise limitations of this power of delegation, it is plain that it enables the Commissioner to widen very greatly the field of senior officers who may exercise in his stead the powers and functions that the Income Tax Assessment Act, and other taxing Acts, confer in terms upon him. The plaintiff is a Deputy Commissioner of Taxation and I presume that he is in charge of the Commissioner's Adelaide office. The parties agreed at the hearing that the plaintiff exercise a delegated authority conferred upon him under sec. 8 of the Taxation Administration Act. The instrument of delegation dated 8 December 1976 was admitted in evidence (Exhibit P21). It is

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addressed to ``the person for the time being occupying, or performing the duties of, the office of Deputy Commissioner of Taxation, Adelaide,'' and by it the Commissioner delegated ``such of my powers and functions under the Acts specified in the Schedule to this Delegation, or under those Acts as amended from time to time, as are respectively specified in that Schedule''. So far as the Income Tax Assessment Act is concerned, the Schedule delegates all of the Commissioner's powers and functions except those under certain specified sections. Section 221YDA is not one of the sections excluded from the delegation. It follows that the plaintiff was competent to make a decision with respect to the defendant's case under subsec. (4). It will be noted that the standing delegation to the Deputy Commissioner of Taxation at Adelaide is limited in terms of subject matter but does not contain any geographical limitation, although one may assume that it is generally exercised only with respect to returns lodged at the Commissioner's Adelaide office. There is no evidence of the volume of work in a State office that requires decisions of the ``reason to believe'' type - in particular, whether, given a system of prior investigation and report and recommendation by competent subordinates, making all of those decisions would be beyond the physical capacity of one man. The plaintiff, no doubt, has important departmental duties to perform as well. However, it will be noted that the Commissioner's power to delegate under sec. 8 of the Taxation Administration Act is not confined to a Deputy Commissioner. Whatever the Commissioner may delegate to any other person. Subsection (1) of sec. 8 says as much. I was not told whether there is any other delegate of the Commissioner employed in the plaintiff's office. I should not have thought that sec. 8 is to be interpreted so narrowly as to deny to the Commissioner power to make a delegation to more than one person in relation to the same matter or class of matters - the pretty clear implication of Exhibit P21 is that the Commissioner does not think so - but I did not hear argument on the point and there is no need to express a firm opinion about it. It is enough to say that sec. 7 and 8 of the Taxation Administration Act appear to provide the means, so far as these discretionary matters are concerned, for spreading the load, in one way or another, among so many of the Commissioner's senior officers as are needed to deal with them.

On this view of the statutory scheme the plaintiff's impracticability argument loses a great deal of its force. If, in the opinion of the Commissioner, the plaintiff had too much to do to be able to deal with matters falling under sec. 221YDA, the Commissioner had only to appoint another delegate, either in substitution so far as that section is concerned for the plaintiff or, probably, in addition to him. It could have been Mr. Gardiner or some more senior person in the Adelaide office. That does not mean that the result would have been exactly the same for practical purposes as a mere application of the Carltona principle would have achieved. An act of delegation under sec. 8 of the Taxation Administration Act obliges the Commissioner himself to make a deliberate judgment in the selection of a deliberate judgment in the selection of a suitable officer to exercise the power or function in question. One may assume that instruments of delegation are not issued unnecessarily, and that senior persons are selected carefully on considerations of training and experience and judgement. There is, in such a procedure, some safeguard to taxpayers against the risk of an important decision, possibly involving difficult questions of judgement and discretion, being made by a subordinate officer who happened to have the conduct of the matter under the ordinary devolutionary processes of a large Government department. It would be cynical, and I am willing to suppose incorrect, to assume that the only difference would be one of form.

So far, then, I remain of the view that the opinion required by sec. 221YDA must be formed by the Commissioner himself or by one of his delegates. However, I was referred to a number of decisions of the High Court in which, Mr. Doyle said, the authority of subordinates to make discretionary judgements on the Commissioner's behalf appears to have been assumed.
Avon Downs Pty. Ltd. v. F.C. of T. (1949) 78 C.L.R. 353 was a decision of Dixon J. about the proper construction and application of sec. 80(5) of the Income Tax

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Assessment Act 1936-1944. There was a question about the significance of certain transactions when viewed in the light of the plaintiff company's articles. In the course of his reasons Dixon J. said:

``But the only error suggested is that the Commissioner did not perceive, and give effect to, the significance of the word `member' in the crucial article of association. The proposition that for want of entry in the register, and I suppose, in addition, for want of anterior approval of the transfers by the directors and a valid instruction to enter the names in the register, the transferees were not members, was persistently forced on the attention of the Commissioner. I use the word `Commissioner' to include the officers concerned in the determination of the matter. It was done by the interviews, by the letter of 27th June 1945 and the notice of objections. The legal result was clearly explained''

(at pp. 360-361).

The report does not state whether the information given to the officers was conveyed by them to the Commissioner, but the implication of the judgment, as I read it, is that it was, I should expect that, as a matter of general principle, the knowledge of the Commissioner's subordinates was imputed to the Commissioner as a matter of course, and no doubt it will ordinarily be assumed that the Commissioner forms his judgments and makes his decisions on a consideration of all of the information that is available to him. Cf.
Foster v. F.C. of T. (1951) 82 C.L.R. 606 at pp. 618-619 (including the express reservation by Dixon J. with respect to a statutory delegation) and
Lee v. F.C. of T. (1962) 107 C.L.R. 329 at p. 335. I do not think that the words I have quoted from Dixon J.'s judgment assist the defendant. In
F.C. of T. v. Brian Hatch Timber Co. (Sales) Pty. Ltd. 72 ATC 4001; (1972) 128 C.L.R. 28. which was an appeal against an assessment that turned on the application of sec. 80A(1) of the Income Tax Assessment Act 1936-1967 (``unless the company satisfies the Commissioner''), Owen J. referred to the taxpayer's failure to ascertain what material was before the Commissioner in making his assessment or to enquire from him what matters he had considered in disallowing the deduction claimed or why he had failed to be satisfied about the state of a particular shareholding at relevant times. His Honour said about this:

``Again, the taxpayer might have called the Commissioner or his appropriate officer as a witness in an endeavour to ascertain what matters he took into consideration in performing the task which sec. 80A places upon him or to produce to the Court the material which was before him when he made his assessment''

(at ATC p. 4012; C.L.R. p. 60).

As in the earlier case, the relevance of showing that certain information was given to an officer of the Taxation Department was acknowledged. While the passage I have quoted from Owen J.'s judgment is perhaps not free of ambiguity - his Honour was not confronted with the point raised before me - I do not think it should be interpreted as implying that the sec. 80A decision that was made in that case was made, or could properly have been made, by one of the Commissioner's officers. I expect that it will usually be possible to show upon what information the Commissioner made a decision by calling the officer who submitted the relevant information to him, and I doubt whether Owen J. was implying any more than that. I do not think that either of these cases supports Mr. Doyle's argument.

More to the point, in my opinion, is the decision of the High Court in
Kolotex Hosiery (Australia) Pty. Ltd. v. F.C. of T. 75 ATC 4028; (1975) 132 C.L.R. 535, an appeal complaining of the Commissioner's failure to be ``satisfied'' of the matters referred to in sec. 80A and 80C of the Income Tax Assessment Act 1936-1967. It was submitted in that case that the Commissioner's decision was based upon erroneous grounds. The evidence established that certain officers made a report and recommendation to the First Assistant Deputy Commissioner of Taxation, who endorsed on the file ``Take this action''. The implications of this instruction were much disputed. I assume that the Deputy Commissioner who dealt with the matter had a delegated authority to act on the Commissioner's behalf. (Cf. Exhibit P21, including the annexure, in the case before me.) At any rate, no point appears to have been taken about that aspect

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of the case. It is significant that the reporting officers expressed their own opinions, but the implication of the departmental procedure that was followed is that those opinions, and the accompanying state of mind of the officers, needed to be adopted as the opinion and state of mind of the Deputy Commissioner. See the treatment of the matter by Barwick C.J. at ATC p. 4034; C.L.R. p. 546 of the report. Gibbs J. is more explicit:

``The question whether the Commissioner was satisfied of the matters stated in sec. 80A and 80C is not necessarily to be answered by finding that some of his officers were satisfied of those matters. The satisfaction required is that of the Commissioner himself - although of course if a Deputy Commissioner is exercising delegated powers the satisfaction of the Deputy Commissioner would be enough - see sec. 13 of the Act. It is, however, not enough that the Commissioner's officers are satisfied if the Commissioner does not adopt their views and make their satisfaction his own''

(at ATC p. 4047; C.L.R. p. 566).

I do not read Gibbs J.'s words as referable only to a case in which the departmental officers, although expressing an opinion on the questions raised by the legislation, are not themselves purporting to make a final decision on the Commissioner's behalf. Perhaps it could be said that Mr. Gardiner, in the case before me, was by contrast assuming that authority. I think the better view, however, is that his Honour is there alluding to a legal incompetence in any person, other than the Commissioner himself, to be satisfied, as required by sec. 80A or 80C, unless an appropriate authority has been delegated to that person by the Commissioner. The reference to sec. 13 of the Act gives no encouragement to the view that an ordinary exercise of authority by a subordinate, falling short of a delegation made under the Taxation Administration Act, will do. The Kolotex case related to a state of mind required by certain provsions of the Act that were concerned with corporate interests. I see no reason to suppose that an officer is any more competent, legally speaking, to form the state of mind required with respect to provisional tax by subsec. (4) of sec. 221YDA.

Nothing that I have said should be interpreted as reflecting in any way upon the ability of Mr. Gardiner, the officer who had the carriage of the defendant's case on behalf of the plaintiff. The matter was assigned to him in the ordinary course of his departmental duties. On 18 April 1978 a Second Commissioner issued to the plaintiff a memorandum (Exhibit P16) on the subject of income tax avoidance and provisional tax. It drew attention to certain difficulties arising under the provisional tax scheme and indicated ways in which the legislation could be better enforced. The plaintiff was asked to arrange for ``senior, experienced officers'' to review applications for a variation of provisional tax made under sec. 221YDA, and to that end the memorandum included the following paragraph:

``13. In view of the amounts of tax revenue involved, and because of the difficult nature of the examinations that will have to be made, the review should be carried out by officers not below the level of investigation officer, grade 3 or company assessor.''

Mr. Gardiner was an investigation officer grade 3, at the time he had the conduct of this matter. Mr. Doyle conceded - correctly, in my view - that para. 13 could not be construed as a delegation to Mr. Gardiner within the meaning of sec. 8 of the Taxation Administration Act.

Mr. Williams, for the defendant, relied strongly on the decision of the Full Court of South Australia in Hinton Demolitions Pty. Ltd. v. Lower, supra, to which I have already made a passing reference. That was a prosecution under the road maintenance legislation. A question arose about the validity of a certificate on which had been entered the load capacity of the defendant's vehicle. The authority for the entry was to be found in regulations made under the Motor Vehicles Act 1959-1967, which read as follows:

``1. The Registrar of Motor Vehicles may, pursuant to these regulations, determine the load capacity of any commercial goods vehicle registered under the Motor Vehicles Act 1959-1963

ATC 4670

and enter the same in the appropriate certificate: -
  • (a) for the registration of such vehicle, and
  • (b) for the renewal of the registration of such vehicle.

2. For the purpose of determining the load capacity the Registrar shall have regard to such of the following as in his opinion are relevant for that purpose...''

The evidence showed that the determination in the defendant's case was made by a subordinate officer of the Registrar's department. The matter never came under the personal notice of the Registrar at all, and he never applied his own mind to it. Bray C.J., with whom the other members of the Court agreed, recognised the impossibility or impracticability of the Registrar performing in person every task that the Motor Vehicles Act, and its regulations, imposed in terms upon him, but considered that there was no single answer to the problem of construction. Each particular provision had to be construed separately. The Act provided for the appointment of deputy registrars who were empowered to act on the Registrar's behalf. The Chief Justice regarded it as important that sec. 145(a1) of the Act, by which the regulations were authorised, spoke of a ``determination'' by the Registrar, and that reg. 2 required the Registrar to have regard to certain matters that were, ``in his opinion'', relevant to the discharge of that duty. The language of the legislation was strongly suggestive of an obligation that could be fulfilled only by the Registrar or by a deputy lawfully acting on his behalf. His Honour therefore held that the entry of the load capacity in the certificate by a staff member was a nullity. In my opinion, the reasoning in Hinton Demolitions Pty. Ltd. v. Lower supports the view that I have taken in this case.

For these reasons the defendant must succeed. I reach this conclusion without any satisfaction at all. Everything suggests that the defendant's application for a variation of provisional tax was entirely lacking in merit. The printed form he used invited him, very reasonably, to give details of his estimate of his taxable income, with an explanation of any reduction claimed. He gave no details and no explanation. The notion that the tax laws are some kind of game by which those taxpayers who are resourceful and persistent and so inclined may shift some of the burden of taxation onto the shoulders of the rest of the community is, one may hope, going out of fashion and will in any event become increasingly unprofitable. However, the fact remains that the Commissioner must comply with the Act's provisions and where, as I suspect was the case here, a taxpayer litigant happens to learn of an invalidating procedural error during the course of the litigation he is entitled to exploit it.

In view of the conclusion that I have reached about the third of Mr. Williams's submissions, it is unnecessary for me to express an opinion about the others. However, in case the matter should go further, I should say something about one evidentiary matter. The defendant argued that Mr. Gardiner's reckoning of the defendant's prospective taxable income for the year ending 30 June 1979 was not an ``estimate'', within the meaning of subsec. (4) of sec. 221YDA, because he did not bring an independent mind to the task. As I have said, the defendant gave the Commissioner no information at all, in making his own estimate under subsec. (1), beyond the bare statement that his gross income would be $69,000 (made up of salary, etc., $4,000 and business income $65,000) and his estimated business deductions $70,000. If Mr. Gardiner was justified in re-writing the defendant's estimate, it was understandable that he should take, at least as his starting point, the defendant's taxable income for the previous year. Subsection (5) prevented him from exceeding that figure. In fact, that was the figure that Mr. Gardiner took, and he therefore calculated the defendant's provisional tax for the 1978-79 year at $32,633. He said in evidence that this reflected the conclusion that he reached, on a number of grounds, about the defendant's likely taxable income. Assuming that he was justified in embarking upon the exercise at all - and I express no opinion about that, beyond what I have already said about his legal competence - it is difficult to see how he could have reached any other conclusion. However, Mr. Gardiner also said that he had regard to his head office instructions. The memorandum of 18 April 1978 (P16), to which I have already referred, evisaged the

ATC 4671

possibility that a taxpayer might not be prepared to offer details of his estimated income, and para. 17 included the following passage:

``Because of the provisions of subsec. (5) of the section, the estimated amount can be no greater than the amount assessed for 1976-77 and, unless the taxpayer provides information to support some other amount, the amount of the 1976-77 taxable income should be substituted.''

A later memorandum (P18), dated 28 February 1979, also related to provisional tax variations. It dealt with the case in which the taxpayer failed to give full details of his prospective income, and the pro forma letter of advice to a taxpayer under subsec. (4) contained the following rubric with respect to the method of calculation:

``(Here show amounts of relevant items specified in subsec. 221YDA(1), para. (c) to (e). To the extent that the taxpayer has not given estimates of salary or wages, rebates, and tax instalment deductions, these estimates should be based on the equivalent figures for 1977-78. The estimated taxable income should correspond with the taxable income shown in the 1977-78 assessment notice.)''

It is in the light of these memoranda that the following passages in Mr. Gardiner's evidence must be read:

``Q. Can I ask you, then, what information led you to believe that the taxable income would be at that level?

A. The estimate was based on the lack of information supplied both in the original application and the query letter. In line with the instructions from our head office, the estimate was to be based on the actual income assessed for the previous year.

...

Q. Well, in making the estimate of the provisional income, as I understand your evidence you took the maximum figure available limited by subsec. (5) of the section?

A. Yes.

Q. Because of the clear instruction that you had had, that that was the way it was to be done?

A. Yes.''

I am sure that Mr. Gardiner gave his evidence conscientiously but it is always difficult for someone in these circumstances to recall and explain precisely, a long time after the event, what influenced him in making a decision. Having in mind the peremptory and unqualified nature of the Canberra instructions, I find it difficult to regard Mr. Gardiner's re-writing of the defendant's application as anything more than the mechanical expression of those instructions.

The action is dismissed.


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