Federal Commissioner of Taxation v. Cripps & Jones Holdings Pty. Limited.

Judges:
Bowen CJ
Fox J
Burchett J

Court:
Full Federal Court

Judgment date: Judgment handed down 27 November 1987.

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Bowen C.J., Fox and Burchett JJ.

The Taxation (Unpaid Company Tax) Assessment Act 1982 ("the Act") provides for derivative taxes, known as recoupment taxes. The Act is designed to recoup the severe losses suffered by the revenue, during the period from 1 January 1972 to 4 December 1980, through the widespread use of what have been called "bottom of the harbour" schemes, by which company tax and undistributed profits tax were evaded. After 4 December 1980, it was apparently thought that the provisions of the Act would not be needed because of the deterrent effect of the Crimes (Taxation Offences) Act 1980, which has been in operation since that date.

Complex provisions are made by the Act for the imposition of recoupment taxes upon former shareholders, promoters of the schemes in question, and various other persons more or less remotely associated with them. In broad outline, the legislation will be found described

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in the joint majority judgment in
MacCormick v. F.C. of T. 84 ATC 4230; (1984) 158 C.L.R. 622. As was said in that case (at ATC p. 4235; C.L.R. p. 637): "Recoupment tax is in each instance a tax upon a transaction which resulted in a company being stripped of its assets so as to be unable to pay company tax." An essential feature of a tax on that basis is the making of provision for the establishment of the amount of unpaid company tax, by reference to which the recoupment tax is to be imposed. As the company tax assessments in question might have been issued, or might issue, long after the former shareholders at risk of assessment to recoupment tax ceased to have any connection with the company, fairness also was seen to require the making of special provisions for service of copies of assessments on former shareholders or their representatives, and the provision of special rights of appeal. Only after those rights had been exhausted could a recoupment tax assessment issue.

A further problem, of central relevance to this appeal, is that many of the companies stripped of their assets, under schemes to which the act applies, were then dissolved. Special provision is made for the issue of what is called a notional assessment in respect of a company which has ceased to exist. In such a case, sec. 15(4) provides as follows:

"Where -

• (a) the company ceased to exist before an assessment was made of the ordinary company tax or undistributed profits tax payable by the company in relation to a year of income (in this section also referred to as the `relevant year of income'), being the year of income in which the last sale time or last purchase time in relation to the scheme occurred or a preceding year of income; and
• (b) the Commissioner is of the opinion that, if the company had not ceased to exist and an assessment had been made of the ordinary company tax or undistributed profits tax, as the case may be, payable by the company in relation to the relevant year of income -
  • (i) ordinary company tax or undistributed profits tax, as the case may be, would have become due and payable by the company in relation to the relevant year of income; and
  • (ii) if that ordinary company tax or undistributed profits tax, as the case may be, had remained unpaid, recoupment tax would have become payable by a person or persons in relation to the ordinary company tax or undistributed profits tax, as the case may be, payable by the company in relation to the relevant year of income,

the Commissioner may make an assessment (in this section also referred to as the `notional assessment') of the ordinary company tax (in this section also referred to as the `notional ordinary company tax') or undistributed profits tax (in this section also referred to as the `notional undistributed profits tax'), as the case may be, that would be payable by the company in relation to the relevant year of income if the company had not ceased to exist."

By subsec. (7), provision is then made for service of the notional assessment on the person by whom recoupment tax would have become payable, if only one, or on one of such persons, if more than one, in which case copies are to be served on persons comprising a representative class constituted by subsec. (10). By subsec. (9), provision is made for the person served, where there is only one, or a nominated person, where copies of the notional assessment are served on additional persons, to have -

"the same rights under Division 2 of Part V of the Assessment Act (i.e. the Income Tax Assessment Act 1936) in respect of the notional assessment as the company would have had if it had continued to exist and the notional assessment were an assessment of ordinary company tax or undistributed profits tax, as the case may be, payable by the company in relation to the relevant year of income and, for the purpose of the exercise of those rights by the person, the provisions of that Division apply in relation to notional assessment in like manner as those provisions apply in relation to an assessment under the Assessment Act."

Subsection (12) provides:

"For the purpose of ascertaining the notional company tax that is applicable, at a particular time, in relation to the company in relation to the relevant year of income by virtue of the notional assessment, the

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provisions of the Assessment Act apply in relation to the notional assessment and the notional ordinary company tax or notional undistributed profits tax, as the case may be, to which the notional assessment relates as if -

• (a) the notional assessment were an assessment of the ordinary company tax or undistributed profits tax, as the case may be, payable by the company in relation to the relevant year of income; and
• (b) the notional ordinary company tax or notional undistributed profits tax, as the case may be, were ordinary company tax or undistributed profits tax, as the case may be."

Provisions are made by sec. 18 for cases which do not involve a company that has ceased to exist. In such a case, of course, the Commissioner may issue an assessment under the provisions of the Income Tax Assessment Act 1936, and effect service in accordance with sec. 174 of that Act. But if "vendors recoupment tax is payable, or the Commissioner is of the opinion that vendors recoupment tax is likely to become payable", sec. 18(1) of the Act provides for service of the notice of assessment on the company by serving it on the person, if only one, by whom "the vendors recoupment tax is payable, or in the opinion of the Commissioner, is likely to become payable" or, where there is more than one such person, on any of them, and in that case there is a provision similar to that contained in sec. 15 for service of copies upon members of a representative class which is constituted by sec. 18(10). By sec. 18(3), the person served, or a nominated person -

"has the same rights under Division 2 of Part V of the Assessment Act in relation to that liability (i.e. the liability notified by the notice of assessment) as the company has and, for the purpose of the exercise of those rights by the person, the provisions of that Division apply in like manner as those provisions would apply in relation to the exercise of those rights by the company."

Although any assessment of recoupment tax, which might follow upon finalisation of any objection to a company tax assessment, would not be increased by reference to any additional tax payable by the company under sec. 226 of the Income Tax Assessment Act, sec. 18(11) expressly provides for the inclusion in an assessment served under that section of additional tax under sec. 226.

This appeal concerns assessments of company tax and undistributed profits tax, which were served on the respondent as the sole beneficial owner of the shares in each of two companies at the time those shares were sold under what, it is asserted by the appellant Commissioner of Taxation, was a scheme within the meaning of sec. 5(1)(a) of the Act. There are four assessments, each dated 29 July 1983 and relating to the income year ended 30 June 1974. In relation to Mainbar Pty. Ltd., there is a notice of assessment in the normal form under the Income Tax Assessment Act purportedly addressed to a company of that name at an address in Southport, Queensland. The assessment is headed: "Australian Taxation Office Notice of Assessment made pursuant to the Income Tax Assessment Act 1936 as amended." It includes "Additional tax for late return" under sec. 226. There is also an assessment under Div. 7. In relation to Shiprock Pty. Ltd., there are two precisely similar assessments showing an address for it at Beverly Hills.

The respondent received these notices of assessment with a letter dated 29 July 1983, referring to Mainbar Pty. Ltd., and a similar letter referring to Shiprock Pty. Ltd. The letter in respect of Mainbar Pty. Ltd. was in part as follows:

"Dear Sir,

Taxation (Unpaid Company Tax) Assessment Act 1982

ISSUE OF COMPANY AND UNDISTRIBUTED PROFITS TAX NOTICES OF ASSESSMENT IN RESPECT OF MAINBAR PTY. LTD.

According to records held in this office Cripps & Jones Holdings Pty. Ltd. was the beneficial owner of shares in Mainbar Pty. Ltd. prior to the sale of those shares in May 1974. On that basis and in accordance with the provisions of the above Act enclosed are -

• (a) the company's income tax notice of assessment for the year ended 30 June 1974; and

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• (b) a notice of assessment in respect of undistributed profits tax for the same year.

2. These notices are served on Cripps & Jones Holdings Pty. Ltd. as a preliminary step towards the raising of a recoupment tax assessment.

OBJECTION RIGHTS

3. The above Act provides that Cripps & Jones Holdings Pty. Ltd. as the sole former beneficial owner of the company is entitled to exercise the same rights of objection and appeal against the company's assessment(s) as are available to the company itself. Accordingly if there is any dissatisfaction with a company assessment, Cripps & Jones Holdings Pty. Ltd. may within 60 days after service of the company notice of assessment, post to or lodge with the Commissioner an objection in writing against the assessment stating fully and in detail the grounds relied upon.

...

5. Should the amount of $9,465.50 remain unpaid beyond the due date for payment additional tax for late payment, that will form part of any later recoupment tax assessment that may be raised, will begin to accrue.

...

Yours faithfully,

B. SHIRLAW

Deputy Commissioner of Taxation"

The respondent acted on the intimation that it was entitled to object to the assessments, and did so. Upon its objections being disallowed, it had them referred to a Taxation Board of Review. A decision in the matter was ultimately given by the Administrative Appeals Tribunal, Taxation Appeals Division [86 ATC 1012], and an appeal was taken from that decision to this Court, being heard by Beaumont J. [87 ATC 4352]. It should be noted that Beaumont J. heard the matter pursuant to the transitional provision made by sec. 224 of the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986, by virtue of which the appeal to the Federal Court of Australia was of the same nature as the appeals that formerly lay to Supreme Courts from decisions of Boards of Review. Accordingly, a point of law having been raised, Beaumont J. reheard the matter on both fact and law.

It was common ground that the name of Shiprock Pty. Ltd. was struck off the register and the company was dissolved pursuant to sec. 308(4) of the Companies Act 1961 (N.S.W.) on 18 June 1976, and that similarly the name of Mainbar Pty. Ltd. was struck off the register and the company dissolved on 27 March 1981. Accordingly, when the notices of assessment issued on 29 July 1983, it was not competent for the Commissioner of Taxation to assess either company under the provisions of the Income Tax Assessment Act 1936, or to serve notices of assessment pursuant to sec. 18 of the Act. The notices actually issued could only be justified, if at all, as notices of notional assessment (though not so described) issued pursuant to sec. 15 of the Act. The respondent contended before Beaumont J. that the Commissioner had not applied his mind to the question raised by sec. 15(4)(b), that accordingly he had not formed the opinion which it was accepted that provision requires as the precondition for the making of a notional assessment, and that therefore the assessments should be set aside.

After a detailed examination of the evidence, Beaumont J. (at p. 4358) expressed the following conclusion:

"In the circumstances, I must find that, for the purposes of this proceeding, when making the subject assessments the Commissioner did not address the question whether, if the target companies had not ceased to exist and an assessment had been made of the taxes firstly mentioned in sec. 15(4)(b), one or other of those taxes would have been payable by those companies as provided by sec. 15(4)(b)(i) and if one or other of those taxes had remained unpaid, recoupment tax would have become payable as provided by sec. 15(4)(b)(ii). In short, I find as a fact that the opinion mentioned in sec. 15(4)(b) was not formed in the present cases."

It is, of course, open to this Court to reconsider such a finding. Senior counsel for the appellant asked us to hold the Commissioner did form the appropriate opinion, even if he did so with a view to the requirements of sec. 18 and not sec. 15. But

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there is a great deal of evidence pointing inexorably to the conclusion drawn by his Honour. The Commissioner, who contented himself with the tender of copies of the notices of assessment for the purposes of sec. 177 of the Income Tax Assessment Act, called no evidence from the assessor or anyone else to show that the relevant opinion was in fact formed.

What subsec. (4)(b) requires, in the case where a company has ceased to exist before the making of an assessment, is that the Commissioner, on the hypothesis that the company had not ceased to exist and that an assessment had been made, should form the opinion that ordinary company tax or undistributed profits tax "would have become due and payable by the company in relation to the relevant year of income", and that "if that ordinary company tax or undistributed profits tax... had remained unpaid, recoupment tax would have become payable by a person or persons" in relation to it. However, according to the contention of senior counsel for the appellant, even if the Commissioner overlooked the fact of the companies having ceased to exist, the letter of 29 July 1983 evidenced an opinion that, if company tax remained unpaid, recoupment tax would become payable. He relied on the statement in the letter: "These notices are served on Cripps & Jones Holdings Pty. Ltd. as a preliminary step towards the raising of a recoupment tax assessment." But the taking of preliminary steps towards an objective does not necessarily imply that an opinion has been formed, either that the objective is attainable, or that it will be achieved. If the statement stood alone, it would provide somewhat exiguous support for the argument. In any case, it does not stand alone. The letter goes on to refer to "any later recoupment tax assessment that may be raised" (emphasis added), a statement consistent with the view that there was some likelihood a recoupment tax liability would arise, rather than a firm opinion that it would.

So far as concerns the learned trial Judge's view that the Commissioner did not address the question arising under sec. 15(4)(b), which founded his finding that the opinion was not formed, other parts of the letter are illuminating. In the first place, it will be observed that the heading of the letter refers to notices of assessment, and that there is no reference to notices of notional assessment, the expression used throughout sec. 15. Furthermore, the letter refers to the company as if it were still existing, and it advises that the respondent "is entitled to exercise the same rights of objection and appeal against the company's assessment(s) as are available to the company itself'". This is not the language of sec. 15, which in subsec. (9) refers to "the same rights... as the company would have had if it had continued to exist and the notional assessment were an assessment of ordinary company tax or undistributed profits tax", but it is language precisely appropriate to a case under sec. 18(3), where the relevant former shareholder "has the same rights... as the company has".

Turning to the notices of assessment themselves, several features of them make it clear that they were not issued pursuant to sec. 15 of the Taxation (Unpaid Company Tax) Assessment Act, but pursuant to the provisions of the Income Tax Assessment Act. In the first place, the notices in respect of company tax expressly describe themselves as "made pursuant to the Income Tax Assessment Act 1936 as amended". They also include "additional tax for late return" pursuant to sec. 226, which could not properly be included in the case of an assessment under sec. 15, but is, as has been mentioned, expressly provided for by sec. 18(11). (By virtue of the definition of "ordinary company tax" in sec. 3(1), a notional assessment of ordinary company tax under sec. 15 cannot include additional tax pursuant to sec. 226 of the Income Tax Assessment Act.) It is hardly necessary to add that an assessment under sec. 15 cannot properly be addressed to the company to which it relates, since sec. 15 only applies after the company has ceased to exist; a notional assessment refers to the no longer existing company which is its subject, but it would be quite inappropriate for a notional assessment to be directed to that company at the address which would once have found it but obviously could no longer do so.

There were put into evidence assessors' checklists completed in respect of each of Mainbar Pty. Ltd. and Shiprock Pty. Ltd. Those checklists referred to the issue of "notices pursuant to sec. 18 of T(UCT) Act". They also referred to the sec. 226 penalty.

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ATC 4983

If attention were confined to the documents brought into existence at the relevant time, it is clear they would provide much support for his Honour's finding. But there is more. The matter was raised in correspondence between the solicitors for the respondent and the Australian Government Solicitor, in interrogatories, and in interlocutory proceedings in the court. What was written and said on behalf of the Commissioner compels the conclusion that no attention was given to the requirements of sec. 15, the non-existence of the companies (though recorded in the Commissioner's files) having been overlooked. The Commissioner proceeded to issue notices of assessment in reliance upon the provisions of the Income Tax Assessment Act, and effected service pursuant to sec. 18 of the Taxation (Unpaid Company Tax) Assessment Act.

Senior counsel for the appellant urged upon the court the similarity between the opinion required of the Commissioner to found a notional assessment under sec. 15 and the opinion required to justify service of an assessment under sec. 18. But although there is a close similarity, the legislature seems deliberately to have made a distinction between the two. The sections after all are concerned with different problems. In a sec. 18 case, there is no difficulty about the making of an assessment, as the company still exists to be assessed. Service of the notice of assessment can be effected, in accordance with sec. 174 of the Income Tax Assessment Act, pursuant to reg. 59, the operation of which was discussed by Lee J. in
D.F.C. of T. v. Taylor 83 ATC 4539. The difficulty with which sec. 18 deals is not a difficulty of assessing the company. As was stated in the explanatory memorandum circulated by authority of the Treasurer when the Bill which became the Act was before the Parliament:

"The basic purpose [of sec. 18] is to ensure that the former owners of a stripped company will have an opportunity, if they have not already had it, to contest an assessment of company tax in cases where the tax remains unpaid and they may become liable to effect recoupment of it."

Accordingly, if there is any prospect that recoupment tax will become payable, it is in accordance with the policy of sec. 18 that provision should be made for notification to be given to former shareholders. The Commissioner may be assessing a still existing company with some hope of receiving payment from it, but if he is "of the opinion that vendors recoupment tax is likely to become payable", he must effect service of the notice of assessment in the manner required by sec. 18, whether or not he has already effected service of a notice of assessment on the company in accordance with sec. 174 of the Income Tax Assessment Act and under reg. 59 (see sec. 18(1) and (5)).

It is unnecessary for the purposes of this case to endeavour to assign a precise meaning to the word "likely", which is capable of various shades of meaning. As it is used in sec. 18, it would fit the purpose which that section seems designed to achieve, and which was asserted in the explanatory memorandum, of ensuring the former owners an opportunity to contest the assessment, if the word were given a meaning such as that which Deane J. assigned to it in
Tillmanns Butcheries Pty. Ltd. v. Australasian Meat Industry Employees' Union (1979) 27 A.L.R. 367 at p. 382 ("that there is a real chance or possibility") or the meaning which the New Zealand Court of Appeal asserted in
R. v. Gush (1980) 2 N.Z.L.R. 92 at p. 96 that the word could bear ("such as might well happen"). That is significantly different from the language of sec. 15(4), which is not simply aimed at ensuring that people at some risk receive notice, but is concerned with setting a criterion for the issue of an entirely new kind of assessment, to issue, and only to issue, if the Commissioner is of the opinion that on the stated hypothesis tax would have become due and payable and if it had remained unpaid recoupment tax would have become payable by a person or persons. The distinction is a fine one, but it cannot be dismissed as unreal. And in this case, the fact is the Commissioner only ever asked himself the question posed by sec. 18.

There is a further difficulty. The Commissioner is authorised to form the opinion specified in sec. 15 only upon the basis of the hypothesis stated in the section (cf.
W.J. & F. Barnes Proprietary Limited v. F.C. of T. (1957) 96 C.L.R. 294 at p. 311, per Fullagar J.). The Commissioner is then authorised to issue a notional assessment pursuant to sec. 15. But in this case, the Commissioner neither acted upon the statutory hypothesis nor purported to issue a

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notional assessment. He thought he was issuing an assessment under the Income Tax Assessment Act, to be served pursuant to sec. 18. In
Australian Broadcasting Tribunal v. Saatchi & Saatchi Compton (Vic.) Pty. Ltd. (1985) 10 F.C.R. 1 at p. 9, Bowen C.J. said:

"Where a statutory authority has purported to exercise one of its powers but has in fact acted outside that power, it would only be in exceptional circumstances that the act could be upheld as a valid exercise of another head of power."

See also per Fox J. at p. 17. Though Wilcox J. dissented, at p. 23 he referred to the case where "the alternative power depends upon the fulfilment of some condition precedent, such as the formation by the statutory authority of a particular opinion, and that event has not yet occurred". In such a case, he would have taken the same view as the majority.

The majority placed some reliance upon United States authority stemming from a decision of the Supreme Court of the United States in
Securities and Exchange Commission v. Chenery Corporation (1943) 318 U.S. 80. That decision is grounded on broad general principle. If the integrity of the doctrine that the discretion belongs to the administrator, and not to the court, is to be preserved, the court must not only refrain from interfering, upon discretionary grounds, with a lawful decision, but it must also refrain from justifying an unlawful decision, by reference to a discretion which lawfully belongs to the administrator under a different head of power. That is no mere technicality. However probable it may seem to the court that the same result would have been reached had the administrator adverted to the right head of power, the exercise of that power does not belong to the court. As it was put in the opinion of the court in the Chenery Corporation case at p. 95:

"We are not sticking in the bark of words. We merely hold that an administrative order cannot be upheld unless the grounds upon which the agency acted in exercising its powers were those upon which its action can be sustained."

In
Danmark Pty. Ltd. v. F.C. of T. (1944) 7 A.T.D. 333 at pp. 344 and 352, Latham C.J. and Starke J. thought it was not open to the Commissioner, who had assessed under one section, to support his assessment under another. Kitto J. commented upon the Danmark Pty. Ltd. case in
F.C. of T. v. Wade (1951) 84 C.L.R. 105 at p. 116. He said:

"I do not understand those observations to mean more than this, that where there are two provisions of an assessment Act, each giving the Commissioner a power to make an assessment, and each creating a liability to tax in the event of the power it confers being exercised, an assessment made in exercise only of the power given by one of those sections cannot be supported as effective under the other."

An application of the principle, as stated by Kitto J., to this case, where the Commissioner has exercised a power to make an assessment under the Income Tax Assessment Act, would suggest that he cannot support it by reference to the power contained in sec. 15 of the Taxation (Unpaid Company Tax) Assessment Act. Yet that is what the argument that the Commissioner had formed a sufficient opinion for the purposes of sec. 15 necessarily involves.

The next argument put on behalf of the Commissioner took as its starting point the proposition that the rights of the respondent to contest the assessments were, by sec. 15(9),

"the same rights under Division 2 of Part V of the Assessment Act in respect of the notional assessment as the company would have had if it had continued to exist and the notional assessment were an assessment of ordinary company tax...."

It was pointed out that the Income Tax Assessment Act, which is not concerned with notional assessments under sec. 15, provides no right to contest an assessment on the ground that a pre-condition imposed by sec. 15 was not fulfilled. There may be put to one side the question whether the appeal rights being asserted are not, having regard to the form of the assessments and the matters already discussed, rights arising under sec. 18(3) rather than sec. 15(9), since sec. 18(3) employs a similar form of language. The true answer to the contention is that legislation of this kind, by reference to rights created in another Act for other purposes, cannot be construed in a blindly literal spirit. In cases arising under Div. 2 of Pt V of the Income Tax Assessment Act, a taxpayer has the right "to challenge the existence of the conditions giving rise to the exercise of a power

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which imposes on him a new substantive liability to tax" (
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280 at p. 4287; (1981) 147 C.L.R. 360 at p. 374, per Mason and Wilson JJ.). Sections 15 and 18 of the Act should both be construed as conferring a corresponding right to challenge the existence of the conditions giving rise to the exercise of the power, under which an assessment issued, that is served pursuant to the provisions of sec. 15 or 18 of the Act. The rights asserted are "the same rights", but the issues which arise, when they are asserted in respect of assessments under sec. 15, are necessarily different from the issues which arise when they are asserted in respect of assessments issued under the Income Tax Assessment Act. In any case, if there is any ambiguity in the provisions of sec. 15(9) and 18(3), a construction which would remove an ingredient of liability from the possibility of challenge should be rejected, both upon general principles of statutory construction, and also in accordance with the approach to the constitutional invalidity of an incontestable tax taken in MacCormick v. F.C. of T. (supra).

Senior counsel for the Commissioner then argued that, by virtue of sec. 175 and 177 of the Income Tax Assessment Act, the respondent should not have been permitted to rely on the Commissioner's failure to form the opinion required by the terms of sec. 15 of the Act. It was not disputed by the respondent that sec. 175 and 177 did have application to a notional assessment, whether by virtue of sec. 4(1), 15(11) or 15(12) of the Act. There are no subsections of sec. 18 comparable to subsec. (11) and (12) of sec. 15, for the reason that sec. 18 does not empower the Commissioner to issue any kind of assessment. It is concerned only to provide for notification to persons likely to be assessed to recoupment tax, and for the exercise by them of rights of appeal. It may be doubted whether sec. 4(1) has the effect that sec. 175 and 177 of the Income Tax Assessment Act are imported into sec. 15 for the purposes of a challenge to a notional assessment of company tax or undistributed profits tax. For sec. 4(1), according to its own terms, applies those and other provisions of the Income Tax Assessment Act "for the purposes of the assessment and collection of recoupment tax". The notional taxes assessed under sec. 15 are not recoupment taxes. But subsec. (11) and (12) of sec. 15 do appear apt to apply, to a notional assessment, the provisions of sec. 175 and 177 of the Income Tax Assessment Act. Sections 175 and 177(1) provide:

"175 The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.

177(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct."

In
McAndrew v. F.C. of T. (1956) 98 C.L.R. 263 at p. 270 Dixon C.J. and McTiernan and Webb JJ. said:

"It is the manifest policy, one may now almost say the historical policy, of the legislation on the one hand to give to the taxpayer full opportunity on objecting to his assessment of contesting his liability in every respect before a court or before a board of review but on the other hand to require that in proceedings for the recovery of the tax the taxpayer will be concluded by the assessment and will not be entitled to go behind it for any purpose."

Their Honours were dealing with an amended assessment which, as they pointed out at p. 269, was "in the same position for the purpose of sec. 177 as notice of an original assessment". At p. 271 they said:

"If the existence of the conditions on which the power to amend arises is not part of the due making [they were referring to the use of these words in sec. 177], it certainly is a matter on which the amount of the assessment must depend. It would not be difficult to regard it as part of the due making of the assessment but the consequence of that would be to deprive the taxpayer of any remedy to enforce the protection which s. 170(2) seems designed to give him. In
George v. Federal Commissioner of Taxation [(1952) 86 C.L.R. 183] the Court said: `The clear policy of s. 177 is to distinguish between the procedure or mechanism by which the

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taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. The former involves the due making of the assessment'.

...

(F)ulfilment of the conditions which bring a case within s. 170(2) is part of the matter governed by the words of exception in s. 177(1), viz. `except in proceedings on appeal against the assessment'."

Taylor J. at p. 281 said:

"In my view, however, `the due making of the assessment' does not involve the ascertainment of the existence of a state of facts prescribed as a condition precedent to the making of an amended assessment. The process of ascertaining the existence of such a state of facts is not in any real sense part of the process of making the assessment and this is the function to which the first limb of the subsection is precisely addressed. Those who contend for the contrary view would attach importance to the word `due' and will insist that an assessment is not duly made unless it is made in circumstances which render the power to amend exercisable. But in the absence of more compelling language this construction, which would have such far-reaching results, should not be adopted and, in my view, effect should be given to what seems to me to be the natural meaning of the words used."

It would follow that if the formation of the opinion required by sec. 15(4)(b) is something "prescribed as a condition precedent to the making" of a notional assessment, it is, in proceedings pursuant to an objection, outside the protection of sec. 177. It is a circumstance which renders exercisable the power to assess notionally. There are dicta of Kitto J. at p. 274 which appear to run counter to this proposition, but it was the view of Taylor J. which received the approval of the majority of the High Court in the later decision F.J. Bloemen Pty. Ltd. v. F.C. of T. (supra) at ATC p. 4288; C.L.R. p. 375. There Mason and Wilson JJ., with whose reasons Aickin J. expressed agreement, said:

"An explicit and, in our view, correct statement of the effect of sec. 177(1) was made by Taylor J. in McAndrew at pp. 281-282. For the reasons there expressed his Honour concluded that `sec. 177(1) was intended to make it impossible for a taxpayer, in proceedings other than appeal against it, to challenge an assessment on any ground'....

This interpretation gives expression to the policy which underlies, and is manifest in, the statutory provisions. The effect of this policy is that, once the Commissioner takes advantage of sec. 177(1) by producing an appropriate document, the taxpayer is precluded from contesting that the Commissioner has made an assessment or that in making the assessment he has complied with the statutory formalities. The taxpayer is entitled to dispute his substantive liability to tax in proceedings under Pt V."

At ATC p. 4287; C.L.R. p. 374 their Honours referred to other statements in the authorities and commented:

"They acknowledge that the existence of the antecedent conditions is not part of the `due making' of an amended assessment, but they do not say that the ascertainment of the taxable income also stands outside that concept. Furthermore, as the power to amend, unlike the Commissioner's power to make his initial assessment, is conditioned in this way, it is natural that sec. 177(1) should be so interpreted as to permit the taxpayer to challenge the existence of the conditions giving rise to the exercise of a power which imposes on him a new substantive liability to tax."

So completely have these authorities confined the scope of the "due making" of an assessment within the meaning of sec. 177 that the majority of the High Court in MacCormick's case (supra, at ATC p. 4238; C.L.R. p. 642) were able to say of sec. 177(1):

"That section does not, of course, apply in proceedings on appeal against the assessment of the company tax."

The formation of the opinion required by sec. 15(4)(b) is a pre-condition of the making of a notional assessment. It is of course no part of the making of that assessment. It is concerned with a forecast of the consequences of an assessment, if made, and with the application to it of the provisions of the Act concerning recoupment taxes. The opinion determines whether the Commissioner is

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ATC 4987

authorised to issue a notional assessment. Counsel for the respondent pointed out that, analogously, in
Giris Pty. Ltd. v. F.C. of T. (1969) 119 C.L.R. 365, the opinion of the Commissioner determined whether an assessment issued under sec. 99 or 99A of the Income Tax Assessment Act. Reference was made in argument at p. 368 to sec. 177. At p. 374 Barwick C.J. said:

"Thus the Commissioner must hold the opinion. The Court can decide whether or not he did hold it.... It can determine whether the opinion is held bona fide.... In my opinion, it cannot properly be said that there is here an unchallengeable tax as that expression is used in reasons for decisions given in this Court."

In
Duggan and Ryall v. F.C. of T. 72 ATC 4239, Stephen J. set aside assessments under sec. 99A on the ground that the Commissioner's opinion was vitiated by error, so that the position was "as if he [had] failed to reach any opinion" (p. 4243). There was no suggestion that sec. 175 and 177, or either of them, prevented the court setting aside the assessments.

In any case, sec. 177 can only operate in respect of the particular notices of assessment in question. It is those notices of assessment which are conclusively presumed to have been duly made. Even if that includes conditions precedent to the exercise of the Commissioner's power to make them, the conditions precedent conclusively presumed would be those required for the validity of assessments of the kind they purport to be - in this case, assessments of a company (that is, an existing company) under the Income Tax Assessment Act. Such an assessment cannot, giving sec. 177 the widest reach, conclusively presume the fulfilment of conditions precedent to a different kind of assessment, authorised by a different Act - a notional assessment, not in respect of any actual company, but referring to the hypothetical liability which would have existed had a once existing company continued to exist and been assessed.

It is unnecessary to consider, and the question was not argued, whether an assessment under the Income Tax Assessment Act, which does not purport to be a notional assessment under the Taxation (Unpaid Company Tax) Assessment Act, addressed to a company which did not exist at the time of the assessment, could have any effect for the purposes of a later assessment of recoupment tax against persons who had been shareholders at an earlier time when the company did exist.

The final submission made on behalf of the Commissioner was that Beaumont J. was in error in simply setting aside the assessments. It was said that he should have remitted them to the Administrative Appeals Tribunal. But on the basis that the assessments were not authorised by the statute at the time they were made, the appropriate order was to set them aside, as Stephen J. did in Duggan and Ryall v. F.C. of T. (supra). The case is quite unlike a case such as
Australian Machinery and Investment Company Limited v. D.F.C. of T. (1946) 8 A.T.D. 81, where the appellant succeeded only partially, and the majority of the High Court thought it appropriate to set aside the Commissioner's decision on the objections, remitting them for reconsideration, rather than to set aside the assessment. That course was followed, as appears from the judgments of Latham C.J. at p. 93 and Dixon J. at pp. 99-100, in order that additional tax in the nature of interest on unpaid tax would be able to be recovered in respect of so much of the original assessment as stood. Here the decision of Beaumont J., which should be affirmed, finds the assessments wholly unauthorised.

For these reasons the appeal should be dismissed with costs.