Case U64

Members:
Purvis J

Tribunal:
Administrative Appeals tribunal

Decision date: 20 March 1987.

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R.N. Purvis J. (Presidential Member)

Generally

The taxpayers in these appeals are three in number. There is a proprietary limited company (B) Pty. Limited incorporated on 5 March 1981 and of which the other two taxpayers (P) and (F) are the sole shareholders and the directors.

Prior to the incorporation of (B) Pty. Limited, (P) and (F) carried on business as commission agents, as partners, and had been so doing since about 1976. (P) and (F) are, and at all material times have been, husband and wife.

The amended assessments under review relate so far as the company is concerned to the 1981, 1982 and 1983 financial years, so far as (P) is concerned to the 1980 financial year and so far as (F) is concerned to the 1980, 1981, 1982 and 1983 financial years.

Initially not less than 27 individual income or expenditure items relating to the above years were the subject of dispute, objection having been taken to the whole of each of the assessments as amended and issued in respect of the above-mentioned years against the three taxpayers.

At the commencement of the hearing Mr Edmonds of counsel for the taxpayers made various concessions on behalf of his clients. Mr Burns of counsel for the Commissioner accepted that income assessed as that of the company was in fact, and as to part, that of the partnership. The appeals proceeded to a hearing in respect of six only of such items, the general nature of each being as appears below. The appropriate penalties to be imposed were also

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the subject of objection and are to be considered in due course.

Income and expenditure items the subject of the hearing

1. During the year ended 30 June 1980 (P) and (F) carried on their business in partnership as commission agents, promoting and selling copier machines. In the statement of profit and loss accompanying the income tax return of the partnership for this year there was included by way of income - commissions, the amount of $21,190. The respondent Commissioner was not satisfied as to this item truly reflecting the income of the partnership and increased the same. The adjustment to the relevant assessments of (P) and (F) each in the sum of $1,284 carried into effect, after other not here relevant adjustments, this increase.

2. On 5 March 1981 (P) and (F) caused the company (B) Pty. Limited to be incorporated and the assets and liabilities of their partnership to be transferred to it. They had been equal partners as to distribution of income in the partnership; they became equal shareholders as to one share each and directors in and of the company. The business previously carried on by the partnership was taken over by the company and has been maintained by it. In respect of the years ending 30 June 1981, 30 June 1982 and 30 June 1983 the company claimed as an expense wages on account of (F) in the amounts of $4,500, $14,000 and $16,000. The respondent pursuant to sec. 109 of the Income Tax Assessment Act 1936 considered the amounts charged to be not reasonable and reduced the wages allowable to the company by way of a deduction against income to $1,000, $4,000 and $4,000 respectively.

3. In the 1982 financial year the trading profit and loss statement of the company showed wages in the amount of $43,231. The respondent disallowed $9,364. The company did not, at the hearing, dispute $4,364 of such disallowance but as to the $5,000 remaining claimed that the same was properly expended in carrying on the business of the company. The matters for consideration under this item are not dissimilar to those to be considered under para. 1 above. They will subsequently be dealt with together.

4. In the trading profit and loss statement of the company for the year ended 30 June 1983 sales and commissions were recorded in the sum of $64,889. Prior to arriving at this amount there had been deducted from the gross sales and commissions inter alia the sum of $2,300. It was said by the company that this item related to the payment out of the residual amount owing under a lease agreement on a copier machine, such copier after payment out being sold by the company, the sales figure having then, it was claimed, been included in the gross item of sales and commissions.

5. The penalties imposed by the respondent were:

 As to (B) Pty. Limited                     $
      1981                               10,336
      1982                                6,275
      1983                                4,600
As to (P)                                   $
      1980                               383.42
      1981                             3,560.19
      1982                                68.86
      1983                               247.79
As to (F)                                   $
      1980                               383.42
      1981                             3,556.62
      1982                                68.86
      1983                               247.79
      

Joint venture with another commission agent (para. 1 and 3 above)

In about 1980 the partnership of (P) and (F) seemingly joined forces with another commission agent (H). An agreement was entered into between (P), (F) and (H) whereby gross commissions earned during the currency of the agreement and paid to the partnership of (P) and (F) would be shared between them as to fifty per cent (50%) to (P) and (F) and fifty per cent (50%) to (H).

The accountant retained by (P) and (F) and later (B) Pty. Limited gave evidence to the effect that he had arrived at the commission figure as shown in the accounts of the partnership in respect of the year ending 30 June 1980, i.e. 1 July 1979 to 30 June 1980, by totalling the deposits to the credit of the partnership bank account for the whole of the year and then dividing the same by two, attributing one half to the partnership and one half to the commission agent (H). After appropriate contra-adjustments the amount shown in the accounts reflected this division.

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The cheque butts relevant to the bank accounts of the partnership recording payments made to the other commission agent showed that during the said financial year there was paid to such agent $19,490 and not $22,340 as calculated by the accountant. The accountant in evidence said that he obtained his instructions to effect this calculation and as to the existence of the arrangements and its currency, all from (P). He worked out his figures "acting on the assumption that the arrangement had existed for the whole year" - he here meant the whole of the financial year ending 30 June 1980.

The other commission agent (H) retained the same accountant. The accountant agreed that the other agent's records were "less satisfactory" than those of (P) and (F) and that there was no way of "checking from his point of view".

(P) himself said that he did not have a recollection of the amount of commissions shared and "guessed that the records were with the accountant", without "which he was unable to assist". Other than as above mentioned, no such records were in evidence.

The other commission agent (H) was called at the hearing and said that he had known (P) and (F) for about 10 to 12 years and that they had had a business relationship in the early 1980s for about 12 to 18 months and later for a few months. He did not further identify the periods. On both occasions he and (P) and (F) were selling copiers and as agents for the same company. He said that the arrangement was for an equal division of the commission income, each party bearing its own expenses. He did not keep personal accounts other than a diary of sales. All sales came through the partnership of (P) and (F) and he looked solely on the partnership for payment. He was paid by way of "cash cheques", the same being then encashed by him. He did not maintain any records of the amounts so received.

Other than as above, no one of (P), (F) or (H) specified the period of the venture.

The onus is upon the taxpayers to establish on the civil onus that they duly incurred the disbursement claimed and earned no more than as shown in the accounts forming part of the return as lodged and in respect of the relevant financial year.

As to the amount said by the taxpayers to have been paid to (H), I am of the opinion that so far as the 1980 financial year is concerned, the onus has not been discharged. They have not proved that they paid to the agent the amount of $22,340. I accept that the proper amount paid and to be deducted from gross commission received is $19,490.

In the 1982 financial year the company claimed that $5,000 had been paid by it to (H). Instead of being deducted from the gross commissions figure, as had been the case in relation to the partnership, the amount said to have been paid to (H) was included in the wages item as shown in the trading profit and loss statement of the company accompanying its income tax return.

(P) stated in his evidence that "the company wrote cheques to this extent" but conceded that it was unable to substantiate the claim. (H) said that while he did work with the company for a few months "later" than "the early 80s" and for the same supplier as previously, that he did not have a recollection of the amount received by him and did not remember if he had received "cash cheques".

(P) in his evidence did state that the partnership had been agent for a particular company supplying copiers during, inter alia, 1980 and that for a short period the company sold machines for the same supplier in 1982. This evidence undoubtedly goes some way to prove a relationship between the company and (H) subsequent to the 1980 venture.

However, a claim is made for payment to the agent in the amount of $5,000. There was not any evidence as to the basis upon which the amount was calculated or as to particular sales falling within a joint venture. There was not any evidence as to whether in fact the agent's entitlement, if any, had been, as in 1980, deducted from the gross commissions. There was not any evidence as to the quantum of income generated by the venture or as to whether, if any, it was derived in the relevant financial year. (P) said he did not have "any real knowledge as to how much was paid to" the agent. (P) said that payments were made by "cash cheques" but that he "had no records of the amounts paid".

I am not satisfied that the taxpayer company (B) Pty. Limited has as to this claim of $5,000 satisfied the onus resting on it. The claim for wages in this amount was rightly rejected by the Commissioner.

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Wage or salary afforded to (F) (para. 2 above)

(P) has on his own behalf, as a partner with (F), and as an employee of (B), been engaged in selling for about 15 years. It was in about 1976 that (P) and (F) became partners in the business of commission agents. Sales have not always been effected on behalf of the same supplier but more usually (P) and (F) applied themselves in attending to the selling of one brand product at a time. The company, (B) Pty. Limited, has been handling the product of its present supplier for well nigh five years.

(P) said in his evidence that in 1976, he then having been married to (F) for about five years, he began to realise that he needed someone else to assist him in his then business. He was engaged seeking out and then making contact with prospective buyers, ascertaining the needs of users of copiers and then selling a product. He seemingly had from time to time engaged part-time assistants. Sometimes a sale was long in gestation and could take anything up to 12 months to come to fruition. The partnership of (P) and (F) was implemented with the intention that (F) would solicit, canvass, and interest prospective buyers and (P) would "take over and complete the sale".

Whilst the assessments under review in the present connection relate to the post-incorporation period, it is of some moment to have regard to the position pre-5 March 1981, that is the time when (P) and (F) carried on business in partnership. It emerged from the evidence that prior to the incorporation of (B) Pty. Limited:

• (a) the formation of the partnership had been encouraged by the then supplier and continuance of it by later suppliers. (F) herself canvassed for sales and trained girls to do likewise;
• (b) although by 1980 (P) and (F) were parents, (P)'s own mother was available to care for the children - (F) proceeded to her work. (P) and (F) by then had two cars. Paid help was not retained;
• (c) (P) and (F) attended at the office of their particular supplier and had the use of a desk and telephone there provided. (F) attended on an average of two or three times a week, staying all day. Equipment for display purposes was available to them;
• (d) (F) said that there was more "foot canvassing" in the partnership days than of recent years. There were seemingly then few inward telephone enquiries, interest had to be generated by personal or outward telephone contact. (P) said that he had, apart from (F), used up to three or four girls in initial "door knocking";
• (e) (F) played a part in industry exhibitions, promoting and displaying copiers available for purchase;
• (f) profits were shared equally between (P) and (F). The only taxation return of the partnership in evidence is that for the year ended 30 June 1980. In that year the partnership earned a net profit of $12,059, the same being equally divided between them;
• (g) (F) was largely responsible for the writing out of cheques and the banking of moneys. She was not a bookkeeper;
• (h) in February 1981 just prior to the incorporation of the company, a distinction was awarded to both (P) and (F) for their respective contributions to the business of their then supplier.

The incorporation of (B) Pty. Limited was consequent upon a discussion or discussions with their accountant. Whether on account of the benefit of limited liability or whatever, the carrying on of the business of a commission agent by way of a limited liability company was seemingly preferred by suppliers and by other agents. (P) said that most prominent commission agents are companies and that the agents selling for (B) Pty. Limited's present supplier are all companies.

After incorporation there was, according to (P), little significant change in the roles played by he and his wife in relation to their business affairs. The extent of the involvement of both (P) and (F) varied from time to time commensurate with the pressures then existing. (P) said that (F) on average worked 30 hours per week but "sometimes shorter, sometimes longer"; this was confirmed by (F). Apart from attending at the office of the supplier, (F) worked at her home where she made telephone calls and maintained a card index of actual and prospective buyers of copiers. More recently, it was said, the index was kept at the supplier's office, there now being some 2,000 to 3,000

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cards all in the handwriting of (F). The cards record statistical details but also note all conversations with prospective buyers and other points of record.

(F) said that from 1981 she endeavoured to go to the office of the supplier on Wednesdays, Thursdays and Fridays although this might vary. She said that from March 1981 to June 1983 (the relevant years here being considered) she attempted to work no less than two full days a week of eight to nine hours each and also spent time working at home or at the supplier's office on other days.

Of recent time (P) said that the working hours of (F) have extended to 40 or 50 hours a week. No records were ever kept as to the actual hours worked.

The provision of facilities at the office of the supplier was maintained over the whole of the relevant period. The supplier changed. (F), it was said, "cared for clients" and "assessed their needs".

(F) herself described the tasks that she performed. She said the object of her activities was to get (P) in front of as many clients as possible. She "cold canvassed" in an endeavour to approach and get a contact. The ultimate aim was to obtain an appointment in order that a machine might be demonstrated to a prospective client. Other activities in which she engaged were following up enquiries, maintaining service contact after a sale, arranging brochures to be sent to people, attending exhibitions, promoting products at such exhibitions, and recording the contacts so made for follow-up purposes.

(F) sees then her task as ensuring that she is made aware of the needs of potential customers and then able to assess their requirements and the type of equipment considered appropriate to the same. She carried and carries this into effect not only by canvassing as above-mentioned, but also by attending and to some extent assisting in the organisation of the exhibitions and a "Business Efficiency Fair".

Evidence was available to the effect that (F) was well known and highly regarded in the industry. She was effective in the dealings that she carried out and contributed to the success of the business. (B) Pty. Limited was said to be "the most effective [husband and wife team] at the moment". There are in evidence testimonials, the one from the company's present supplier in which it is stated:

"... I would just like to commend you both on the effort you put in during the last month, the results were certainly something to be proud of.

... [(F)'s] tenacity and determination in getting all those customers to the show room has certainly reaped benefits and you must be congratulated [(P)] on your excellent demonstrations.

Let us hope that the rest of this year will be equally as successful for you both..."

A purchaser through (B) Pty. Limited of a copy machine said,

"... When... [(F)] first contacted us we were naturally apprehensive about such a promise [the value of two hour service] so please pass on to her our thanks for her persistence with us over the four months of our investigations..."

The managing director of the supply company of (B) Pty. Limited at the present time in his evidence said that he had known (P) and (F) for some 10 years. He spoke of (F) and of her "cajoling customers to exhibitions", her canvassing, her follow-up work and her acting as a sales person. The said managing director had caused his company to be incorporated in about 1982/1983. He wanted, he said, to have (P) and (F) as his agents. He had worked with them in the past and viewed them as equal contributors. "Finding the customer is the hard part, not selling" he said. He spoke of seeing (F) frequently in the office. He rated her as "invaluable": she is "tenacious", a "very determined lady", and well known by customers. According to the managing director, (B) Pty. Limited is the best agent that his company has at the present time.

I am of the view, on the evidence, that (F) has made, and is making, a significant contribution to the business activities of (B) Pty. Limited and to its profitability.

At no time since the incorporation of the company has a regular amount been paid to either (P) or (F). They did not maintain personal bank accounts but used the bank account of the company for their personal as well as their business expenditure. It was at the end of a financial year and possibly at about the time of the company's final accounts being

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prepared that (F) discussed, (P) said, with the accountant, what was an appropriate amount to charge by way of a wage for (F) and he himself.

(F) said that she did not discuss with any person her level of remuneration or what she should be paid, she did however discuss her worth, how the company operated, and the need "for both", all with the accountant. She said that the partnership had been fifty-fifty and that she and her husband had always worked together. She felt and said that her contribution was equal to that of (P): "what we have is what we earn" she said.

The accountant said in his evidence that he obtained his instructions from (P) as to the quantum and the division of salary applicable to (P) and (F) and at the time of his finalising the accounts. The wages he said were "equated" to the drawings. "All drawings were considered to be wages."

The above-mentioned managing director said that in 1981/1982 he employed a lady to carry out canvassing work and the like for him, the same being only part of the task then, to his observation, being performed by (F). He paid this lady $175 for twelve hours work together with $50 for each sale that was concluded.

(P) said that in his opinion the wage provided by the company to (F) was reasonable having regard to the work that she performed. Without her work, he said, he would be nowhere near as effective a salesman as he now is on behalf of the company. The company, he said, would have to pay a much higher salary to obtain another person to do the same work. He said that the "going rate" for employed canvassers who carried out sales and servicing on foot, door knocking, getting essential information, contacting and presenting equipment, was $10 per hour together with a $50 bonus if a sale was obtained.

In support of the reasonableness of the amount charged by way of a wage, counsel for (F) said that on the basis of her being paid $4,500 for her services to (B) Pty. Limited in the 1981 financial year and for 30 hours per week she was being paid at $17.30 per hour. For the 1982 year and on the basis of her being paid $14,000 she was being remunerated, if she worked 30 hours at the rate of $8.97 per hour and if she worked 20 hours, at the rate of $18.46 per hour. As to the 1983 year and on the basis of her being paid $16,650 (the actual amount was $16,000) for a 30 hour week she would have been paid at the rate of $10.67 per hour and for a 20 hour week at the rate of $16 per hour.

Some significance was placed by the Commissioner on pay as you earn tax having been remitted by the company in respect of (F), as it was also in respect of (P), but on an amount much less than the sum charged in the accounts of (B) Pty. Limited by way of wage. Having in mind the method by which the wage figure was in due course calculated, I do not see anything adverse to the taxpayers in this procedure.

Section 109 of the Income Tax Assessment Act so far as it is relevant provides:

"109 So much of a sum paid or credited by a private company to a person who is or has been a shareholder or director of the company... being, or purporting to be -

• (a) remuneration for services rendered by that person; or
• ...

as exceeds an amount which, in the opinion of the Commissioner, is reasonable, shall not be an allowable deduction and shall, for the purposes of this Act other than the purposes of Division 11A of Part III and Division 4 of Part VI, be deemed to be a dividend paid by the company on the last day of the year of income of the company in which the sum is paid or credited."

Section 43 of the Administrative Appeals Tribunal Act 1975 provides:

"43(1) For the purpose of reviewing a decision, the Tribunal may exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision and shall make a decision in writing -

• (a) affirming the decision under review;
• (b) varying the decision under review; or
• (c) setting aside the decision under review and -
  • (i) making a decision in substitution for the decision so set aside; or
  • (ii) remitting the matter for reconsideration in accordance with

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    any directions or recommendations of the Tribunal."

The question here to be decided and considered on the balance of probabilities is as to whether the taxpayer has established that the amount charged by way of wages was reasonable, be it in excess of the amount allowed by the Commissioner. If it is considered to be not reasonable, then what amount should be allowed in respect of this item? The answer to the question of what is reasonable remuneration depends very largely on the value of the services rendered by the taxpayer to the relevant company.

What then is the meaning rightly to be ascribed to the word "reasonable" where used in sec. 109 of the Income Tax Assessment Act?

In
Opera House Investment Pty. Limited v. Devon Buildings Pty. Limited (1936) 55 C.L.R. 110 at p. 116, Latham C.J. said in the context of that case.

"The word `reasonable' has often been declared to mean `reasonable in all the circumstances of the case'. The real question, in my opinion, is to determine what circumstances are relevant. In determining this question regard must be paid to the nature of the transaction. A circumstance which had no relation to the property which was the subject matter of the transaction, but which depended entirely upon the personal position or personal desires of the owner of the property, would not, in my opinion, be a relevant circumstance in determining what was reasonable. If, to take an extreme example, the lessor had promised to pay to a favourite daughter the rent derived from this property and was anxious to pay her as much as possible, that circumstance should be excluded in determining what was reasonable under the clause in question..."

Thus, in the present case the fact of (F) being the wife of (P) is a circumstance, as such, to be excluded in determining what was a reasonable remuneration for (B) Pty. Limited to pay to her.

In Opera House Investment Pty. Limited (supra), Starke J. at p. 117 in concurring with the opinion of the Chief Justice said that "reasonable" is a relative term and the facts of the case must be considered before what constitutes a reasonable contract can be determined.

In In
re a Solicitor (1945) 1 K.B. 368 at p. 371 Scott L.J. said that "the word `reasonable' has in law the prima facie meaning of reasonable in regard to those existing circumstances of which the actor, called on to act reasonably, knows or ought to know".

Again in
Eales v. Dale (1954) 1 Q.B. 539 at p. 548 Denning L.J. said "the reasonable price within sec. 3 of the Act of 1949 [the Landlord and Tenant (Rent Control) Act] means I think the price which is reasonable between the parties for the articles as they are fitted and situated in the premises without regard to extraneous circumstances such as the desire of the tenant to obtain a tenancy. It is not the price which would be realised if the articles were removed from the premises and sold in an auction room. It is the price which would reasonably be expected to be agreed between the incoming tenant who was ready to take the articles over and an outgoing tenant who was ready to leave them there".

Thus, it may be said that a determination as to what is a reasonable remuneration is one to be made having in mind what the subject employer (B) Pty. Limited would be prepared to pay for the services afforded by (F) and what (F), having in mind all the pressures upon her and the work expected of her to be carried out, would require by way of remuneration.

What is reasonable must and can only be answered by a consideration of all of the relevant circumstances in evidence. It should be said that the majority of the material before me was not, so far as I know, before the Commissioner.

Thus, I am to take into account the extent to which, and the time during which (F) applied herself in working for (B) Pty. Limited, the work that she in fact did, and the worth of her contribution to the affairs and profitability of the company. The admission made on behalf of the Commissioner that (F) performed a distinct role in the company's affairs is noted.

It was put on behalf of the Commissioner that the taxpayers had chosen the commercial environment in which they sought to conduct their business activities and in which the subject situation arose. They were bound by it and the distributions to (P) and (F) might just as

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well have been dividends. This might be so in the case of an investment company, but is it so where there is evidence as here, that both taxpayers applied themselves and contributed to the company's day by day activities? I think not.

I am not compelled by the Income Tax Assessment Act to arrive at a mathematical calculation as to what (F) would have received if she was to be rewarded on a particular hourly rate or as an employee of a particular company. Comparative figures can be and are helpful. I am required to consider, having in mind all of the relevant circumstances in evidence, and in the context of the particular commercial venture in which (B) Pty. Limited was engaged and the principles already enunciated, whether the charge made by (B) Pty. Limited by way of wages was reasonable.

Taking into consideration the matters of which I have already made mention and those that are relevant to a determination as to the reasonableness or otherwise of the remuneration charged, I am of opinion that the amounts claimed were reasonable and that no reduction should take place in relation to them.

Accordingly I would allow the amounts claimed by (B) Pty. Limited by way of wage for (F) in respect of the year ended 30 June 1981, year ended 30 June 1982 and the year ended 30 June 1983.

Claim for alleged payment in respect of residual amount owing under a lease agreement (para. 4)

The trading profit and loss statement of (B) Pty. Limited for the year ending 30 June 1983 accompanying its 1983 income tax return, set forth sales and commissions at an amount of $64,889. It was claimed on behalf of the company that an amount of $2,300 was rightly deducted from the gross commissions figure and before arriving at the above amount, the same having been attributable to a machine previously on lease-hire. The company, it was said, paid out this amount, obtained title to the copier and then sold it for $3,300, the latter sum being included in gross commissions. By deducting the $2,300 from the gross commissions figure the net item, in effect the company's commission or profit on the transaction, would be reflected.

A payment of $2,300 is evidenced by a debit to the company's bank account on 5 August 1982. A deposit to the company's account was made on the same date in the sum of $3,640. It was said in support of the claim by the company that the $3,300 was included therein. No original or duplicate deposit slip was in evidence nor the reverse side of a deposit slip. The cheque was not produced nor was a cheque butt. No lease or copy lease agreement was produced or sought to be tendered in evidence.

The accountant of (B) Pty. Limited said that the source of his information as to the transaction was the bank pass sheets of the company showing the above debit and the inclusion of the whole of the credit of $3,640 in the gross commission income figure. The sighting of the entries on the pass sheets without more would have been of little assistance in the absence of the original cheque, the relevant cheque butt, the deposit slip, or a copy of the deposit slip. The accountant said that he had sighted an invoice for the sale of a machine for $3,300 but he did not give any further details as to the contents of the invoice, its date or the purchaser. He did not say when he had seen the invoice or in any other way relate it to a pay-out of $2,300.

The accountant further said that he obtained his instructions about the sale from (P). He did not pretend to have any personal knowledge of the alleged transaction. (P) himself did not give any evidence at all in relation to the transaction, nor were there tendered in evidence or sought to be tendered any books of account or records of the company other than as above, that might evidence the alleged transaction.

The transaction might have taken place. In my opinion, however, such evidence as is before the Tribunal is not sufficient to prove payment of the nature claimed consistent with the onus. The item was, accordingly, rightly disallowed and gross sales and commissions appropriately increased.

In summary

1. 1980

The amendments to the assessments of (P) and (F) as to their respective shares of income from the partnership carried on by them prior to the incorporation of (B) Pty. Limited as adjusted in accordance with the amended partnership distribution each in the sum of $1,284 are confirmed. The objections are disallowed.

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2. 1981

The claim of (B) Pty. Limited by way of a wage to (F) in the sum of $4,500 is allowed in full.

3. 1982

• (a) The claim of (B) Pty. Limited by way of a wage to (F) in the sum of $14,000 is allowed in full.
• (b) The amendment to the assessment of (B) Pty. Limited with regard to wages adjusted as not incurred is confirmed. The objection is disallowed.

4. 1983

• (a) The claim of (B) Pty. Limited by way of a wage to (F) in the sum of $16,000 is allowed in full.
• (b) The amendment to the assessment of (B) Pty. Limited with respect to gross sales and commissions in the sum of $1,747 is confirmed. The objection is disallowed.

Penalties

There was tendered before me schedules which detailed the manner in which the additional tax imposed on (P), (F) and (B) Pty. Limited (para. 5 above) had been calculated. The same were so calculated on the basis of amount avoided and interest otherwise payable on the amounts of tax unpaid.

The taxpayers sought to have the same remitted having in mind that -

• (i) additional tax, so it was said, was calculated without reference to the facts and circumstances of the matter;
• (ii) the formula used was solely referable to departmental rulings;
• (iii) the adjustments conceded at the commencement of the hearing and hence not in issue should be taken into account.

I have considered the whole of the material before me. As to the adjustments confirmed that do attract additional tax, I consider that the penalties and interest proposed by the Commissioner are appropriate. The same were either conceded at the commencement of the hearing, having been the subject of objection for some years or relate to claims that could not be substantiated and likewise had been outstanding for lengthy periods of time. It will be necessary, of course, for the additional tax previously imposed to be adjusted taking into account the above findings favourable to the taxpayers and the concession made by the Commissioner as to the gross sales and commissions of the partnership and (B) Pty. Limited in the 1981 year.

Direction

I remit the relevant assessments to the Commissioner to be amended in accordance with the terms of my decision as hereinbefore set forth.

I grant liberty to either party to apply in relation to the implementation of this direction.