Krew v. Federal Commissioner of Taxation.

Judges:
Walsh J

Court:
High Court

Judgment date: Judgment handed down 14 May 1971,

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Walsh J.: The appellant Leon Krew lodged objections to amended assessments of income tax in respect of each year from that which ended on 30 June 1950 to that which ended on 30 June 1964 and also to an original assessment for the year which ended 30 June 1965. The objections were disallowed by the respondent. The decisions disallowing the objections were referred to a Board of Review which decided that in respect of the first of the years in question the appellant's objections should be upheld to the extent of reducing the taxable income by $9,000 and that all the respondent's decisions in respect of the other years should be upheld. The appellant filed an appeal to this Court: see Income Tax Assessment Act 1936-1970 (Cth), sec.196(1).

At the outset it is necessary to refer to a question as to this Court's jurisdiction. The principal contest between the parties has been a contest as to a question of fact. The respondent conducted an investigation into the appellant's affairs and claimed to have discovered that in each year of the period under review the appellant must have received income which should have been included, but was not included, in his return of assessable income. That claim was based upon an assets betterment statement (Exhibit 1) which shows in each year a discrepancy between what is called the ``betterment income'' and the income returned by the appellant. The statement indicates that amounts, totalling about £70,000, were available to the appellant in excess of his returned income.

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ATC 4215

Some criticism has been directed to particular items in the statement, but the principal case for the appellant is, and has always been, that at or near the beginning of the period he had in cash in a safe at his place of residence about £52,000 derived from successful gambling, that this gambling continued throughout the period and provided additional funds and that these funds were the source of the large increase in his assets and provide the explanation of what the statement regards as a discrepancy.

The Board was not satisfied that the appellant in July 1949 had an amount of £52,000, or any amount which could be ascertained, in cash in the safe or that the improvement in his net assets was referable to winnings from gambling. At first sight this appears to be a decision on the facts and not a decision involving a question of law. The notice of appeal sets out no less than twenty-two paragraphs purporting to state the questions of law involved. Most of these are unworthy of the slightest attention. Early in the hearing of this appeal when I raised this matter, counsel for the appellant stated what he claimed to be the questions of law involved. These included the two questions to which I shall refer below. Counsel for the respondent declined to submit that the appeal was incompetent. I indicated that the hearing would continue without a final decision, at that time, on the question of the jurisdiction of this Court.

Upon a perusal of the joint reasons of two members of the Board of Review, it appears to me that they regarded the cases before the Board as depending upon decisions of fact on the evidence, but that they gave consideration to two matters which had been raised by counsel as being matters of law. One of these was stated to be that ``no evidence was adduced by counsel for the Commissioner concerning the formation of his opinion that the taxpayer had been guilty of fraud or evasion and, in consequence, he submitted that sec.170(2) precluded the amendment of the taxpayer's assessments beyond the period of six years from which the tax under the original assessments had become due and payable''. The submission was held to fail because the Board regarded as applicable the decision in
McAndrew v. F.C. of T. (1956) 98 C.L.R. 263, with the result that the taxpayer had the onus of proof as to compliance with the requirements of sec.170(2). I must refer later to some arguments addressed to this Court in relation to that provision. But at this point I express the opinion that there was a ruling of law by the Board on this matter and that it can be said that, in that respect, the decision of the Board involved a question of law. But this point was not relevant to all the matters which the Board had before it. Therefore, it is necessary for the appellant to show that the decisions of the Board upon the other matters, namely the assessments made within the six-year period, involved some other question of law.

The joint reasons of two members of the Board referred to another submission made by counsel for the appellant. It was to the effect that having regard to sec.98B of the Evidence Act 1958-1970 (Vict.) and to certain judicial observations made in this Court, the production by the appellant of the books of account of his business and the evidence given concerning their accuracy, combined with the evidence concerning the appellant's gambling, were sufficient as a matter of law to establish the taxpayer's case. In this Court counsel has put his submissions in a somewhat different form. But I think that what he wished to contend would include the question set out in the following terms in the notice of appeal to this Court -

``Whether the Board was correct in holding that the production of the books of account of appellant when combined with the operation of sec.98B of the Evidence Act 1958 of the State of Victoria, and all of the evidence in relation to such books and the uncontradicted evidence of the appellant were not in combination sufficient to require a determination by the Board in favour of the appellant.''

What is there being claimed is that upon the evidence only one conclusion was possible and that seems to have been claimed also before the Board. That is not the same as a claim that there is no evidence to support an affirmative conclusion to which one party asks a tribunal to come. But it is, I think, a contention that can be regarded as raising a question of law. I have, therefore, come to the conclusion, not without a good deal of doubt, that I can entertain the appeal.

In reaching that conclusion I have accepted as correct the view that the jurisdiction of this Court under sec.196 does not depend upon a decision by it that the Board of Review has made an error of law which has affected its decision. This is a point on which judicial opinion has not been unanimous, but I think that the view which I should accept is that this Court may, and should, hear an appeal if it is satisfied that a question of law arose for decision by the Board and that it does not matter for this purpose whether or not this Court holds that the decision of the Board on that question was right or wrong: see
F.C. of T. v. Sagar (1946) 71 C.L.R. 421 at p.423;
F.C. of T. v. Shaw (1950) 80 C.L.R. 1 at pp.6-8; and
Fisher v. D.C. of T. of the Commonwealth (1966) 40 A.L.J.R. 328. As I have reached the conclusion that the appeal is properly before me the consequence is that the whole decision of the Board, and not merely the question of law, is open to review: see
Ruhamah Property Company Limited v. F.C. of T. (1928) 41 C.L.R. 148 at p.151.

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ATC 4216

What is open to review is the decision of the Board. It has often been stated that in hearing such an appeal this Court is exercising original jurisdiction and it has been said that ``the appeal may be conducted as an original cause brought in this Court'': see
F.C. of T. v. Lewis Berger & Sons (Australia) Limited (1927) 39 C.L.R. 468 at p.469. Nevertheless, it is not true, in my opinion, that the matter of a taxpayer's liability to tax is to be considered in the same way in all respects as it would be considered if it had never been before a Board of Review. The effect of the exercise by a Board of its powers under sec.193(1) of the Act may be that the assessments made by the Commissioner have ceased to exist and have been replaced by the Board's assessments: see
F.C. of T. v. Finn (1960) 103 C.L.R. 165 at p.169. Again, it may be the duty of the Court to consider only a part and not the whole of what the Board has decided: see
Caltex Limited v. F.C. of T. (1953) 10 A.T.D. 301. The foregoing considerations show that, as Windeyer J. said in
Buckland v. F.C. of T. (1960) 34 A.L.J.R. 60 at p.62, the ``jurisdiction of this Court in an appeal of this kind is peculiar''. In that case his Honour considered that if the conclusion of the Board was open on the evidence, the appeal must fail whether or not he would have reached the same conclusion. But his Honour had before him only the evidence which had been given before the Board and, as I understand the case, he considered that if the conclusion of the Board was open to it on the evidence, there remained no question of law which could provide the foundation for the consideration by this Court of the facts in order to form its own view about them. The present case is different. I have stated that I think that there are questions of law which make the appeal competent. I have heard additional evidence to that which was given before the Board. In the circumstances of this case I think that I am not limited to the question whether the Board's decision was open to it on the evidence which it heard. I have to consider whether or not its decision was right. In
F.C. of T. v. Miller (1946) 73 C.L.R. 93 at p.98, Latham C.J. indicated that the Court should give ``due weight'' to the Board's decisions on questions of fact. But I am of opinion that I am not restricted in hearing this appeal in the way in which appellate courts are restricted, according to established principles, when hearing appeals (by way of rehearing) from a lower court. I have a duty to reach my own conclusions on the questions of fact which have to be decided and to give effect to those conclusions. I am not limited to asking myself whether the findings of the Board were based on a misapprehension of the evidence or of the questions which had to be decided or were manifestly wrong. I must make my own decisions as to the facts. This view is, I think, in accordance with the observations of Dixon C.J. in
Rowdell Pty. Limited v. F.C. of T. (1963) 111 C.L.R. 106 at p.119.

It is necessary to consider the question of the burden of proof, which I think is a question of much importance in this case. I leave aside for later discussion some submissions in relation to the opinion of the Commissioner mentioned in sec.170(2) of the Act. I think it is clear that the onus of proof in relation to the main issues of fact in the case is on the appellant. Furthermore, it is not sufficient, in my opinion, for the appellant to make it seem probable that the overall discrepancy of about £70,000 disclosed by the betterment statement is not wholly correct. Each year must be considered separately and it must be shown in respect of a particular year that the challenged assessment was wrong. If it is not proved that the whole of the amount of income which is in dispute has been wrongly included as taxable income, then material must be provided upon which the amount of income which should have been excluded can be ascertained. What I have just stated is subject to the qualification that in some cases it may be enough for a taxpayer to show that the assessment has proceeded upon a wrong basis or upon wrong principles: cf.
Henderson v. F.C. of T. (1970) 70 ATC 4016; 44 A.L.J.R. 115. But, in my opinion, the qualification has no operation in the present case.

It is plain that when the matters were before the Board of Review sec.190(b) of the Act applied. The appellant had to show in respect of each assessment that it was excessive. Even if it be accepted that sec.190(b) has no direct application in an appeal to this Court from the Board of Review (see F.C. of T. v. Finn (1960) 103 C.L.R. at p.170), it remains true that in this Court the appellant must show that the Board of Review's decisions were wrong and, more particularly, he must show that the assessments as affirmed or as varied by it were wrong and must produce evidence which is accepted and which provides material for determining the amount by which they should be held to be wrong. In McAndrew v. F.C. of T. (1956) 98 C.L.R. 263, the Court was concerned with an appeal to the Court against the Commissioner's assessment and not with an appeal from a Board of Review. But the opinions I have stated are supported by the reasons given by the Court in that case. I refer to the joint judgment of three members of the Court in which, at p.271, the view is expressed that even without sec.190(b) the burden of establishing his objections would be cast upon the taxpayer and I refer, also, to what was said by Kitto J. at p.273.

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ATC 4217

I think that some of the submissions made to me failed to recognise the foregoing considerations. It was said that, where there is a surplus of assets, over those which would be explained by returned income, there is no presumption that that surplus is income, or is assessable income. In a sense that is true: cf.
Elsey v. F.C. of T. (1969) 69 ATC 4115; 43 A.L.J.R. 415 at p.422. But, in my opinion, that is of no assistance in deciding the present case. It was argued, also, that the basic question (described as a question of law) was whether in the circumstances the surplus was income or was capital and that there was no presumption that it was income. In my opinion this misconceives the problem which was before the Board of Review and the problem which is now before this Court. The case is not one in which nothing more is known than that there was a surplus. It is a case in which it appears that in every year over a long period the appellant's position improved in a way for which his disclosed income cannot account. He has offered the explanations that the opening figures taken in the betterment statement as to his assets (although correct so far as they went) were wrong in that they did not include the sum of about £50,000 then held by him in cash, and that this had been derived from successful gambling which continued throughout the period, and that all these funds had been so used that they were absorbed into his known assets. His total assets at the beginning of the period (apart from the money said to have been in the safe) were worth about £20,000 and consisted mainly of money in bank accounts and stock in hand. It was natural that the appellant's account of his gambling should be regarded with suspicion and it was not accepted by the respondent or by the Board of Review. In each year the respondent treated the betterment for that year as being income. He did not prove how it had been earned. He could not provide evidence showing affirmatively that it was assessable income. If the onus had rested upon the respondent he would have failed. But when the respondent made assessments which included the betterment funds as assessable income and disallowed the appellant's objections, the matters were taken to the Board of Review and the onus was then on the appellant to show that the assessments were wrong. He gave evidence of his ordinary business activities and of his gambling activities and of the way in which these were interrelated. If his account of the matter had been accepted in full, it would have been shown that the disputed accruals to his wealth were not assessable income and that the assessments were wrong. I say that this would have been shown because it was not contended (and is not now contended) by the respondent that the funds in dispute would have been assessable as being the profits of a business of gambling carried on by the appellant. If his evidence had been accepted in full it would have been proved that, at any rate in the earlier years of the period, his activities in horse-racing and in betting and other forms of gambling were so regular and extensive that it might well have been thought that the proceeds of those activities were taxable. But that can be put on one side. Counsel for the respondent has not sought to uphold any of the assessments on that basis. But the explanations of the appellant were not accepted and that meant that he had not discharged the onus of showing that the assessments were wrong.

It is one thing to say that the failure of the respondent to produce positive evidence of activities of the appellant, which produced money not recorded in the books of his business of dealing in metal and other goods, is a matter to be taken into account when deciding the question whether his evidence should be accepted. It is a different thing to say that as a matter of law the appellant must succeed if the respondent has not proved affirmatively that the disputed receipts were taxable income, because (as was submitted) there is no presumption that they were. The former proposition is correct. The latter proposition is, in my opinion, plainly wrong. I think that the appellant can derive no assistance at all from sec.98B of the Evidence Act 1958-1970 (Vict.). It provides -

``Subject to the provisions of this Division the books of account of a business shall in all legal proceedings be prima facie evidence of the matters transactions and accounts therein recorded.''

That has no relevance to the issues in the present case.

I referred earlier to two questions which the Board of Review regarded as questions of law. One of them is reflected in the extract from the notice of appeal to this Court which I have quoted. For reasons I have given I think this must be answered adversely to the appellant. The other question of law related to sec.170(2) of the Act and to the Commissioner's opinion to which para. (a) of that subsection refers. According to what was said in the Board's reasons, it may appear that it acted on the view that, in the absence of any evidence to the contrary, the Commissioner must be taken to have formed the requisite opinion, and there was no need for it to consider the question for itself. I think it is likely that the Board expressed itself in that way because it was directing its attention to the submissions that had been made to it on behalf of the appellant. The point stressed in those submissions was that to which the Board's reasons referred, namely, that the absence of evidence

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ATC 4218

concerning the Commissioner's opinion meant that the appeal must succeed. If however, the appellant had sought to have the Board reconsider for itself whether any avoidance of tax found to have occurred was due to fraud or evasion, I think that the Board should have formed its own opinion on that question. But the appellant has not shown that the Board refused to consider the matter for itself, although requested by the appellant to do so. It is shown by the transcript of the proceedings before the Board of Review that counsel for the appellant submitted to the Board that there was no material before it as to the formation by the Commissioner of such an opinion and he went on to contend that the Board could not substitute its own opinion, the argument being that it was not open to the Board to form de novo an opinion in relation to a matter as to which the Commissioner had not himself formed an opinion. A great deal of time was devoted at the hearing before me to the resolution of questions which arose out of the contentions that the respondent had to prove that the Commissioner had formed the requisite opinion and that I must decide whether the opinion that had been formed by the Commissioner was properly formed. It has been submitted for the respondent that, in fact, the Board did form its own opinion on this question, although it did not expressly say so and I think that this may be taken to be implicit in its decision. It seems to me that the case was not one in which there was really any room for a view that there had been an avoidance of tax but that this had not been due to fraud or evasion. If the appellant failed upon the question whether his income had been understated with a consequent avoidance of tax, it is hard to see how he could succeed on the question whether this was due to evasion or was innocent because it was, for example, due to a mistake.

It was submitted to me for the appellant that it is the Commissioner's opinion which remains a condition precedent to the validity of the amended assessments. If that be correct, it does not help the appellant. There is evidence before me that a Second Commissioner did form the requisite opinion. I have no reason to doubt that he did so. Nor do I think that there is any ground upon which his opinion can be successfully challenged in this appeal, having regard to the principles stated in
Australasian Jam Company Pty. Ltd. v. F.C. of T. (1953) 88 C.L.R. 23 at p.37 and the cases there cited. If it be supposed, as the respondent contends, that an opinion of the Board has been substituted for an opinion of the Commissioner, no reason has been shown for any interference by me with its opinion. I conclude that if the appellant is to succeed this cannot be upon any ground relating to the absence, or to the invalidity, of the opinion to which sec.170(2) refers. In order to succeed he must obtain from this Court findings of fact in his favour concerning the disputed amounts or some of them.

The appellant's story of the hoard of money in a safe and of the way in which he used that money has been a major feature of the case before the Board of Review and, again, before me. It is an important part of the material that has to be considered. But there is a danger of being diverted by it from the questions which in the end have to be decided. If the evidence of the appellant had been considered to be completely truthful and reliable it would have been sufficient, I think, to look generally at the whole period covered by the assessments and to reach a general conclusion without examining closely any particular year and without troubling about the absence of specific evidence to explain in respect of each year the discrepancy shown in the betterment statement. But unless his evidence be accepted completely (including his general statements that his gambling was always successful and his estimates as to the amounts of his winnings in various fields of gambling, which estimates were rightly regarded by the Board as no better than wild guesses) it is necessary to look at each year and at whatever evidence throws light upon the financial position of the appellant at the beginning and at the end of that year. In my opinion, the decision of the ultimate questions of fact in the case does not necessarily depend upon a finding, or upon an inability to make a finding, as to what money the appellant had in his safe at the beginning of the period or at any particular time. Counsel tended to treat the case as one in which the appellant must either have complete success or complete failure. I do not agree that this is so. Although in form there is but one appeal to this Court it is an appeal which challenges the Board's decisions in relation to sixteen different assessments. As will appear later, I think that in relation to some of the years covered by those assessments there is acceptable evidence to indicate that some money which found its way into the appellant's bank account did probably come from his betting activities and that in the circumstances some money of that description ought to have been left out of account in the betterment statement. In relation to other years I think that there is no such evidence as would warrant such a conclusion.

In the course of the hearing there was some discussion of the question whether the material before me would enable me to deal finally with the assessments or whether it might become necessary to remit them to the respondent to give effect to any decision made by me that they, or some of them, were wrong. It was suggested that if I took certain views concerning the case, I could proceed

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ATC 4219

to decide ``the broader issues'' and could then allow the parties to consider what further investigations needed to be made of the details of the matter. I indicated that I saw difficulties in that course and that if I thought it could not be followed the parties would be informed. I do not think that I told the parties afterwards in express terms that I had reached a conclusion as to whether that course should be taken. But I do not think that my failure to do so could have had any adverse effect upon either party in relation to the conduct of the appeal or in relation to its result. I think that the case is not one in which I can usefully or properly make decisions on ``broad issues'', which could form the basis of further detailed investigation. Having considered the final addresses of counsel and the whole courses of the proceedings I think that neither party will have been prejudiced by reason of the tentative proposal I have mentioned, or by my failure to advert specifically to it later in the hearing.

There is a great mass of evidence before me and I cannot attempt to give an account of it all. I shall refer to some general considerations and then to some matters affecting, more particularly, the individual assessments for each year.

At the outset I am bound to say that I cannot accept the appellant himself as a reliable witness. I shall not try to set out all my reasons for that conclusion but I indicate some of them. As the members of the Board of Review recognised, his account of the manner in which he used the money in the safe for betting, particularly in 1949 when he had several big wins at the races, is inconsistent with facts which appear clearly enough, although he would not admit this, from entries in his bank account. Again, it was proved beyond question in this Court that evidence which the appellant gave before the Board of Review concerning an inheritance in 1950 was not true. Having mentioned an inheritance of some £4,500 whilst he was being cross-examined before the Board, he adhered to this on the following day. That evidence caused the Board to decide that an adjustment in favour of the appellant in respect of that sum of £4,500 should be made. In this Court his evidence about this matter was entirely unsatisfactory. It is difficult to suppose that this could be attributed to faulty recollection. If it could, then all evidence which depends on his recollection must be regarded as worthless. But my view of his testimony does not depend solely on any such specific matters as those which I have mentioned but also upon my general impressions of his evidence in this Court and upon my perusal of the evidence which he gave before the Board of Review. That view of his testimony is very damaging to the appellant's case. But it would be wrong to treat it as leading necessarily to the conclusion that his appeal must fail. A witness upon whose word one cannot rely may yet give evidence which is true in part. There are some features of the evidence which assist the appellant in his assertion that the funds in dispute came from gambling. The evidence does not exclude the possibility that the appellant made money from dealings of the same kind as those with which his regular business was concerned but which were not recorded as transactions of that business. Further, the evidence does not exclude the possibility that the appellant made profits from some enterprise other than his regular business, which does not seem to have occupied his time fully. But the evidence does show that it is improbable that unrecorded transactions were occurring regularly in his ordinary business of such magnitude that they would explain all the accruals to the appellant's wealth. But they may have accounted for some of them. The circumstance that the respondent has been unable to produce any positive evidence as to the sources of additional income is, I have indicated, a matter of significance in considering this case. It may be acknowledged that, generally speaking, it is not easy to conceal a secret source of substantial income derived from personal exertion. These are factors which were mentioned by the Court in
Hines v. F.C. of T. (1951) 9 A.T.D. 413 at p.420. That case, however, was a decision on its own facts and what was said in it is not to be transformed into a rule of law.

Adverse to the case for the appellant, there are some weighty considerations which must be balanced against those which he can call in aid. The story of substantial and unbroken successes in many kinds of gambling over a very long period is highly improbable. It is to be remembered that the period of successes claimed by the appellant is longer than that which is covered by the assessments. A large sum of about £50,000 had already been accumulated, according to his story, by 1949. It is not clear whether the claim is that that amount was in hand at 1 July 1949 or was in hand at the end of 1949. The successes in 1949 of the appellant's horse, Gay Venture, occurred partly before 1 July 1949 and partly in the latter part of that year. But it does not seem to matter much whether his claim is that the peak amount of about £50,000 was accumulated by the end of 1949 or somewhat earlier. It is shown that a large part of the winning bets on the three races which Gay Venture won went into the bank and not into the safe. Most of the accumulated funds must, therefore, have come from other gambling apart from bets on those three races. Details have not been given of specific large successes earlier than 1949 which would make probable the

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ATC 4220

accumulation of such a large sum of money.

The appellant has claimed, not only that he had that large amount in cash in 1949, but also that, at least for some years thereafter, he retained in the safe an amount which was estimated to be not less than £40,000. When he acquired, early in 1951, a property at a cost of about £14,000, he financed this in part by an overdraft on the trading account, although, of course, his cash funds in the safe were earning no interest. The account remained in debit for a substantial period afterwards. The explanations offered by the appellant for this are neither consistent nor convincing. Neither his statement that he wanted to keep his gambling activities and their proceeds separate from the business nor his statement that his purpose was to build up his credit by maintaining an overdraft is, in my opinion, borne out by the documentary evidence contained in the bank statements and in the books.

I think it is important that, although the appellant gave evidence to the effect that money from the safe was used, without going through the bank, for gambling and for general private expenditure, as well as for the business, he stated, also, in his evidence before the Board, that in so far as the surplus proceeds of betting were ultimately used in his business and for the acquisition of assets, this was all done through the bank accounts. I find no reason for not taking him at his word on this point. It is to be noticed that when his case was being opened to the Board, it was stated that money was used for speculative buying of stock which had no immediate market value and that these purchases were not brought into account in the books of the business. The appellant himself, however, in his evidence before the Board, said that cash from the safe was paid into the bank so that there would be funds to meet the cheques given for goods purchased. If it is to be taken that the betting money which went into the business did so by way of the bank accounts, it is to be expected that the bank accounts should provide a valuable source of information relating to the appellant's claims. Later in these reasons I shall refer to some of the details of the transactions disclosed by the bank records. Here it may be stated in general terms that I have not found a regular pattern extending throughout the period under review. I think that the bank records are of great assistance. But this is true to a greater extent in relation to the first few years of the period to be reviewed, than in relation to the subsequent period. I do not think it is a mere coincidence that in relation to the early period there is a more substantial body of oral evidence than there is in relation to the later period, to support the appellant's account of constant large scale gambling with outstanding successes. This seems to me to be consistent with what can be gleaned from the books. The appellant ceased after the earlier period to be an active and successful race-horse owner. Mrs. Cohen and Mr. Abraham Kleiman gave up their roles of race-course companions or agents of the appellant. The large scale operations on the private account of the appellant were a striking feature of the activities of a man whose way of life was moderate and these operations occurred in 1949 and up to and including part of 1951 and then dropped away; with an important exception to which I refer later, they were not resumed on a large scale.

Early in the year 1951 the property costing about £14,500 was purchased. Thereafter for two or three years, but especially in the later part of 1951, large desposits of cash were made in the trading account and subsequently transactions of the same kind occurred, but they were comparatively rare, and the total amount of them was much smaller than that of the earlier period. Specific explanations are not forthcoming for the transactions that did occur in the later period and no general pattern can be discerned. It is true that there was evidence that in the later period Charles Kleiman placed system bets for the appellant. But this evidence does not indicate to me that he was betting throughout that period on the large scale which is indicated by the evidence relating to the early period. For what such an estimate is worth, Charles Kleiman thought that over a ten-year period the appellant was ahead in his betting by some £3,000, which in relation to the amounts involved in this case is a modest sum.

I have stated some conclusions of a general nature concerning the evidence upon which I have to decide whether or not the appellant has satisfied me, either that the whole of the additional income attributed to him was wrongly included in the estimates, or that some ascertainable parts of it were wrongly included. I find that I am not satisfied as to the first of those alternatives. I think that my reasons have already been sufficiently indicated. As to the second of the alternatives, it is necessary for me to refer to the transactions of particular years. But before that is done, some other matters should be mentioned.

Mrs. Cohen worked for the appellant and kept the books of the business. She appeared to me to give her evidence honestly. I do not think she made statements which she knew to be untrue. Her evidence was of assistance but I could not regard it as establishing the facts upon which the appellant's general claims depend. Some of her evidence was of opinions rather than of facts. It is clear that her knowledge of what the appellant did when he was not at the business premises must have been

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ATC 4221

limited. Her evidence does indicate that most transactions carried out at and from the business premises were properly recorded. It indicates also that there was a safe in which money was kept and that at times the appellant provided money in cash for payment into the bank account, when he thought this was necessary or desirable for the purposes of the business. I do not doubt that that was so. Mrs. Cohen said also that the appellant used to take money out of the business for gambling purposes. In this respect her evidence does not fit well with his evidence that most of the money used for betting on horses was taken, not from the bank, but from the safe and that whilst he sometimes drew cheques in the course of his gambling, he did not cash cheques specifically for that purpose.

The appellant called as a witness an accountant, Mr. McKenzie, who offered some criticism of the manner in which the item ``other private expenditure'' had been computed for the purposes of the betterment statement. In the year which ended 30 June 1950 the figure taken (£5,613) was the difference between the credit in the private account of the appellant at the beginning of the year and the credit at the end of the year. The same method was used for the year ending 30 June 1954, but it happened that an arithmetical mistake produced a figure which was about £800 less than it should have been. That mistake favoured the appellant. In other years the investigator took from cheque butts and other available material such items of expenditure as appeared to be of a private character and totalled those items. In doing this he left out of account withdrawals of large round sums. As to the first method, Mr. McKenzie's comment was that some of the net reduction in the bank account may have been caused by withdrawals which were not for private expenditure. I think it is not disputed that this method is not entirely satisfactory. But it was used in the first year, according to the evidence of Mr. Radic, because materials by which he could identify individual items of private expenditure were not available and because, so far as was known, the money withdrawn had not gone to the purchase of any assets and had not been transferred into the business account. In 1954 it was found that identifiable withdrawals for ordinary private purposes were small and it was considered that the adverse movement in the private account (not being attributable to the purchase of assets or to transfers to the business account) should be included in other private expenditure.

In the other years any round sum cash withdrawals were left out from the figures used to compute that item. Mr. Radic said in evidence that he had no idea what those withdrawals were for and they could have been for anything at all. Mr. McKenzie assumed that these were excluded on the footing that they were withdrawals for gambling. He said that the effect of compiling the statement in this way was to treat the appellant as having won nothing at gambling. If he had won money, the method used would have the result that his net winnings were treated wrongly as taxable income. I agree that this must be so, if there were net winnings and they went into the bank account or were used for business purposes so as to be reflected, for example, in an increase in the stock of the business. If the appellant be entitled to complain of what was done, it is not of the leaving of the round sum withdrawals out of the account that he would complain, for that would be in his favour. His real complaint would be that deposits which were deposits of gambling winnings were not deducted from the assets. It is with those considerations in mind that I have examined the documents in evidence to see whether they provide, in conjunction with other evidence, a basis for findings that the substantial deposits of cash which were made, were deposits of money derived from gambling. I have stated already that I have found in the earlier years but not in most of the later years, material upon which, in my opinion, findings of that kind may be properly made. I proceed now to refer to particular years.

In the year 1949-1950 the private bank account declined by £5,613. No debit appears in that account corresponding to the deposit of £4,000, made at about the beginning of that year, in the trading account. That deposit is noted in the cash book (Exhibit J) as a transfer from L. Krew. That would perhaps suggest a transfer from another account. But in the deposit slips (Exhibit S) the annotation is simply ``Leon Krew £4,000. 0. 0''. The oral evidence does not explain it. It seems probable that it was a deposit of cash and not of a cheque drawn on another account. But there are some unanswered questions about it. In Exhibit S it appears as a deposit on 30 June 1949. It appears from Exhibit J that at the beginning of this tax year the opening balance in the bank account was simply £4,000, neither more nor less. The betterment statement shows as the opening figure in the trading account the sum of £3,975. In a schedule (presented on behalf of the appellant) of payments into the bank which are alleged to have come from gambling and to require adjustments to be made in favour of the appellant in the betterment statement, the sum of £4,000 is included. But it seems probable that it is already included in the assets shown in the betterment statement.

This was a year in which the evidence indicates

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ATC 4222

that the appellant was betting on a large scale. I think it is more likely than not that many of the round sum withdrawals of cash made in that year were for betting and that many of the cash deposits were of the proceeds of betting. I think this is so in spite of the appellant's own evidence that most of the betting moneys were going at that time in and out of the safe and not through the bank. I think that it is unlikely that the appellant spent so large a sum as £5,000 in that year as ordinary living expenses apart from gambling. In this period no cash from the appellant, apart from the £4,000 already discussed, went into the trading account. But a lot of cash was going into and out of the private account. Leaving out the items less the £100, the cash withdrawals came to nearly £18,000. In each of the months of September, October and November they exceeded £3,000. The payments into the account of cash were less frequent. In some months there were none. But in September nearly £7,000 went in and, in all, these deposits came to about £14,500. These figures of disbursements and deposits are extraordinary in themselves and they appear even more curious in the light of the appellant's evidence about his use, at this period, of the huge amount in the safe. I cannot find in the figures any basis for holding that the betterment statement was wrong, in relation to that year, by reason of the failure to take account of winnings from gambling. The bank account indicates, in the absence of any evidence to explain otherwise the huge withdrawals, that it was a losing and not a winning year. The discrepancy for this year was shown as £5,257. By the decision of the Board of Review this has been reduced by £4,500. That was done because the Board accepted evidence that the appellant had inherited £4,500. That evidence is now known to have been false. But that decision of the Board is not one with which I should interfere in this appeal. There is no cross-appeal. It was suggested to me by counsel for the respondent that the Commissioner may have power to make a new assessment in relation to that £4,500 and that I should refrain from doing anything to impede his doing so. I do not thing that there is any such power, but I do not decide that question, which is not before me for decision. The appellant retains the benefit, so far as the present proceedings are concerned, of that favourable decision of the Board. But in considering the facts which I have to decide, I am not bound to treat the appellant as having received in fact, in the year in question, an accretion to his assets by way of inheritance. In considering the appeal in relation to that year, I find no reason for holding that the appellant is entitled to succeed as to the remaining amount of income (about £750) which is still in dispute.

In the following tax year no cash was paid by the appellant into the trading account. But in February 1951, £3,000 was transferred to that account from the private account. It was at this time that the purchase of the property for £14,500 took place and no doubt that transfer was related to the purchase. In this tax year, cash withdrawals from the private account (again ignoring amounts less than £100) exceeded £12,000, in addition to the £3,000 transferred to the other account. But the desposits exceeded £19,000. It is unlikely, I think, that much of that money came from unrecorded dealings in the metal business. When the details of these deposits are considered (as set out in Exhibit G) and when regard is had to the pattern of substantial cash withdrawals in the same year and to the oral evidence of the gambling activities of the appellant of that time, I think it is more likely than not that these deposits, or a substantial part of them, came from the proceeds of gambling, either directly or by way of the safe. It may, perhaps, be urged against that view that if the excess of the deposits over the cash withdrawals is to be regarded as a surplus from gambling, that excess would explain a much larger discrepancy than is shown by the betterment statement for that year. But whilst I think it is not possible on the evidence to arrive at a complete knowledge of all the appellant's transactions, so that no problems are left unresolved, I do not regard that as a sufficient reason for refusing to accept it as probable that there was in that year a substantial accretion to the appellant's assets which was derived from gambling. I think he should succeed in relation to that year.

It does not follow, in my opinion, that he is entitled to carry forward into the following year so much of that surplus as exceeds what is needed to explain the discrepancy in the 1950-1951 year. The surplus to which my finding refers is one which has already been absorbed in the net assets of the appellant, upon which the betterment figures for the following years are based. It is a surplus which is reflected in the bank account. If in given year the appellant had a surplus from gambling which did not go in that year into the bank, this could have an effect upon the figures for a later year in which the money did go into the bank. But that circumstance is, I think, not important with respect to the earlier period with which I am now dealing.

In the year 1951-1952 (and in subsequent years) the pattern of the private bank accounts is quite different from its earlier pattern. The withdrawals of cash and the deposits of cash are relatively small and the balance in the account is very low. However in 1951-1952 the cash deposits exceeded the cash withdrawals by something like £1,700. In this year the trading account begins and ends in

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ATC 4223

debit. But the debit at the end of the year (if it had been permitted to grow to that extent) would have been huge but for the payments of cash made into the account which totalled over £14,500. In the month of December 1951 no less than £5,500 was paid in by means of three deposits. In the same month and on days close to those when the deposits were made, cheques were drawn for business purposes for amounts larger than was usual. Similarly in March 1951 there were two large deposits of £1,000 and £1,800 which were close in point of time to the drawing of cheques for large amounts. During the hearing I indicated that I found it odd that money which (according to the appellant) was being paid into the business account to meet the needs of the business should have been paid in by several deposits fairly close in time rather that in one sum. This was a circumstance which I thought cast doubt on the appellant's story that this money came from the safe. An answer was given that large business liabilities could arise at short notice. Although this is not wholly convincing, when the details of the payments are examined I think it may provided a reasonable explanation for the timing and the amounts of some of the deposits. If these came from gambling, it does not matter whether the money had been stored in the safe before going into the bank or went into the bank directly and immediately after large gambling successes. For reasons similar to those I have stated in relation to the preceding year, I think it is likely that in this year a large amount derived from gambling did go into the business and that this was sufficient to account for the discrepancy of £7,389 shown in the betterment statement. As to this year the appellant should succeed.

In the year 1952-1953 amounts totalling £3,700 were paid into the trading account. They included one payment of £1,500. There were payments into the private account of three sums totalling £2,100. There were no significant withdrawals of cash and therefore there was little scope for the operation of the investigator's method of excluding round sum withdrawals when computing the private expenditure. The evidence indicates that the appellant's betting transactions continued to be extensive at this time. The discrepancy for this year in the betterment statement is £6,346, which is more than the total of the cash paid into the bank accounts. I have not found it easy to reach a decision concerning this year. But I have decided that I should find that the discrepancy between income returned and the betterment income is explained substantially by the flow into the bank accounts of of cash which was, more likely than not, the proceeds of betting. I do not think I should try to reach such a precise result as would be obtained by treating the additional income attributed by the respondent to the appellant as being rightly included in his taxable income as to the relatively small amount of about £500, but wrongly included as to the balance. I think that the appellant should succeed wholly in relation to this year.

In the year 1953-1954 the cash payments out of the private account exceeded cash payments into it by some £2,000. The only payment into the trading account of cash was a payment of £1,100 in September 1953. No payment into any account can be found which can be identified as being related to the large win of £7,500 which the appellant is said to have had when Wodalla won the Melbourne Cup in 1953 (not in 1954 as Mr. Speak thought when he gave evidence before the Board). A withdrawal from the private account on 2 November 1953, which was a Monday, could have been taken to have provided the money wagered on Wodalla, except that according to Mr. Speak the appellant gave him the cash for the wager on Derby Day, that is to say, earlier than 2 November 1953. The Board does not appear to have been impressed by the evidence of Mr. Speak. I have not seen him. But it may be that the appellant did win £7,500 on Wodalla. If he did so, it was not put into the bank accounts unless this happened long afterwards and I do not know that that did happen. There is nothing to show that the money was not lost again in subsequent betting.

In relation to the year 1953-1954 there is no sufficient acceptable evidence to prove that there was a net gain from the appellant's betting activities. Nor do I think there is anything to show that the investigator's use in that year of the reduction in the balance in the private account as the measure of the private expenditure, produced a wrong result. I think that the appellant has failed to discharge the onus of proving that the amended assessment for that year was erroneous.

I have stated earlier my view that there is a marked difference in the evidence concerning the earlier period and that concerning the later period. I can deal with the later period more briefly than I have dealt with the earlier period.

The discrepancy shown in the betterment statement fluctuated considerably from year to year. But I do not think that fact is of much assistance. I regard it as neutral. By far the largest discrepancy is that for the year ending 30 June 1960. The appellant has not explained why the proceeds of his gambling were so much greater in that year than in other years and, in particular, he has not explained why they were greater than were his winnings in the earlier years when his race-horse activities were more extensive and when the store of money in the safe was at a maximum. But some facts shown by the books to have occurred in

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ATC 4224

or near that tax year require special consideration. The schedule presented by the appellant setting out payments of cash into the trading account shows an amount of £5,000 for that year. In the capital account of the appellant set out in Exhibit P that sum is credited to him as at 31 March 1960 and a reference is given to an entry in one of the cash books (Exhibit B) where that sum is shown as capital of L. Krew. The credit of £5,000 in the trading account of the business appears, however, some months earlier on 18 September 1959. It is necessary to refer also to some transactions at this period in the private account. As I have said the pattern of that account had changed and the operations on it had been relatively small. But at this period it was active again. In May and June 1959 there were cash deposits totalling £5,500. In July 1959 another sum of £1,350 was paid in and there was a payment out of over £3,000 to Simmie & Co. Pty. Ltd., to which in the preceding month a payment of over £4,000 had been made. There is evidence (in one of the cash books (Exhibit B)) to indicate that these and other payments at about this time were related to building operations at Chapel Street South Yarra. In September 1959 a further sum of £2,000 went into the private account. The sum of £1,750 was transferred into it from the trading account on the same day as that on which the payment of £5,000 was made into the trading account as mentioned above. In April and May 1960 there were further cash payments into the private account totalling £5,600. In July 1960, £5,735 was paid from this account to Mr. A. Sachs who was a solicitor who acted for the appellant in conveyancing matters. Thus, it appears that in the tax year 1959-1960 there were large cash payments into the private account totalling nearly £9,000, in addition to the £5,500 paid into it shortly before that tax year began; and £5,000 was paid into the trading account. In this year the discrepancy shown in the betterment statement is higher than in any other year. It is over £13,000. It can be seen that, from the large amounts which went into the bank accounts, a substantial part was paid out to meet needs related to the acquisition by the appellant of assets. I think it is unlikely that all this money came from unrecorded transactions of the ordinary business of the appellant. I think also that it is unlikely that all this money came from some secret enterprise of the appellant of a kind which could return large profits rapidly. Perhaps there was still a residue of money in the safe which was used at this time and accounted for some of these payments. The appellant said in evidence that about the year 1958 he still had £8,000 to £10,000 in cash. I am troubled by the lack of satisfactory evidence of a specific kind to account for these large payments on the basis that they came from current gambling activities. I have hesitated as to the conclusion to which I should come in relation to these payments. I am not satisfied that they came wholly from gambling but I think it is probable that a large part of the money was derived from gambling. The difficulty is to quantify that part. I have decided that I should find in favour of the appellant in relation to the additional income attributed to him by the respondent in the 1959-1960 year but should find against the appellant in relation to the 1958-1959 year. I acknowledge that that is a somewhat arbitrary decision. But it means that of the money which went at about this time into the banking accounts and was used in part to augment the capital assets of the appellant, I am treating about £13,000 as not having been derived from taxable income. That sum is related fairly closely to the identifiable amounts which can be seen to have been used at about this same time in acquiring assets and which are therefore known not to have been expended in subsequent gambling losses.

The total of the discrepancies for the eleven years from 1955-1965 was about double the total for the five years 1950-1954. In the earlier period cash was going in constantly. In the later period it was not. In several tax years there is no large cash payment into the trading account. In the year 1957-1958 there is a payment of £2,000 and in the year 1959-1960 there is a payment of £5,000, which has already been discussed. There are other items, shown in the schedule of cash payments submitted on behalf of the appellant, amounting to £800 in the tax year 1961-1962 and £1,100 in the tax year 1964-1965. For the most part, I know nothing about those specific amounts except that they went into the account and were credited to the appellant, as appears from Exhibit B and from Exhibit P. I know still less about the item of £8,223, shown in the same schedule as being paid in the 1963-1964 year. I have found myself unable to identify any of it in the cash books (Exhibit B) in which the other payments of this later period appear or in Exhibit P. It was not included in the amounts to which Mr. Sternfield, the appellant's accountant, referred in his evidence before the Board of Review.

I am of opinion that the appeal fails, except in relation to those years as to which I have already stated that the appellant is entitled to succeed.

I think that this Court should make an order, by which effect will be given to my findings that the amended assessments, which included in the taxable income additional amounts derived from the betterment statement, should not have been made with respect to the years ending 30 June 1951, 30 June 1952, 30 June 1953 and 30 June 1960. Except as aforesaid, I think that the appeal from the decision of the Board of Review should be dismissed.

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ATC 4225

After preparing the foregoing reasons I invited counsel for the parties to make submissions as to the form in which the orders of this Court should be made and as to the order for costs which would be appropriate in the circumstances. One question which was considered was whether it should be ordered that the original assessments should be restored, with respect to those years for which, in my opinion, the amended assessments should not have been made. I think that that is an appropriate form of order and I think that the effect of it will be that the original assessments will be effective as from the respective dates when they were issued.

The result of this appeal from the Board of Review is such that the appellant was certainly justified in bringing it. But he has been successful only in part. I have come to the conclusion that, instead of making an award of costs to each party in relation to issues in which that party was successful and allowing the entitlement of one party to be set off against that of the other, or, alternatively, ordering one party to pay a specified proportion of the costs of the order, it is proper in the circumstances to allow each party to bear his own costs of this appeal.

ORDERS:

The following orders will be made -

(1) The amended assessments which were made with respect to the years which ended on 30 June 1951, 30 June 1952, 30 June 1953 and 30 June 1960 are set aside.

(2) The original assessments made with respect to the said years are restored.

(3) Except as aforesaid the appeal from the decision of the Board of Review is dismissed.

(4) Each party is to bear his own costs of this appeal.

(5) The exhibits may be handed out to the persons who produced them or to a solicitor authorised by any such person to receive any exhibit or to the solicitor for the party who, then having possession and custody of any exhibit, tendered it, upon said solicitor giving a proper acknowledgement of such receipt.