FC of T v THE SWAN BREWERY COMPANY LIMITED (FORMERLY BOND BREWING WESTERN AUSTRALIA LIMITED)

Judges:
Neaves J
Lee and J
Olney J

Court:
Full Federal Court

Judgment date: Judgment handed down 9 August 1991

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Neaves, Lee and Olney JJ

This is an appeal from a decision of the Administrative Appeals Tribunal (``the Tribunal'') setting aside a decision of the Commissioner of Taxation (``the Commissioner'') disallowing the objection of The Swan Brewery Company Limited (``the taxpayer'') to an amended assessment of the taxpayer's liability to income tax notice of which was issued on 13 May 1988.

Before dealing with the issues raised in the appeal it is necessary to set out the relevant facts.

In or about August 1981 one, Alan Bond, (``Bond'') gave notice of an intention to make an offer to purchase the whole of the remainder of the issued share capital in the taxpayer not already held by Bond or interests with which he was associated. Bond lodged a ``Part A Statement'' with the Australian Stock Exchange Limited on or about 2 November 1981.

As a result of the takeover offer the taxpayer incurred certain expenditure on fees and disbursements for the work described below.

First, between September and December 1981 the board of directors of the taxpayer engaged Martin Corporation Limited to provide an independent report on the takeover offer for the information of shareholders as required by s. 23 of the Companies (Acquisition of Shares) (Victoria) Code. Secondly, the board instructed the taxpayer's solicitors to provide advice in relation to the takeover offer and in relation to the preparation of the ``Part B Statement'' required by s. 22 of the Companies (Acquisition of Shares) (Victoria) Code. Thirdly, printing costs were incurred in respect of the printing of the ``Part B Statement''.

The total sum expended was $195,932.

In its taxation return for the year of income ending 31 March 1982 the taxpayer sought to reduce its taxable income by deducting from its assessable income the sum of $195,932 as ``Takeover Defence Costs''. A notation in the return explained the claim for deduction as follows:

``Takeover defence costs - $195,932 have (sic) been claimed as a s. 51 deduction by analogy with the U.K. House of Lords' decision in
Morgan v. Tate & Lyle Ltd. (36 TC 367) in which the taxpayer (Tate & Lyle Ltd.) were (sic) allowed a tax deduction for the cost of a propaganda campaign to combat the threat of nationalisation.''

No other information was provided in respect of the claim.

Although an assessing officer in the Commissioner's office doubted that the amount was properly claimed and recommended that it be disallowed, an instruction was issued by a senior officer that the taxable income of the taxpayer be assessed as returned and a further instruction was issued that the affairs of the taxpayer be audited.

On 18 June 1986 the Commissioner issued a notice of an assessment which treated the sum claimed as ``Takeover Defence Costs'' as an item properly deducted from the assessable income of the taxpayer.

As a result of subsequent enquiries directed by the Commissioner to the taxpayer seeking further information in respect of the deduction, the Commissioner was informed by letter dated 4 August 1987 forwarded by accountants for the taxpayer, that ``[t]he amount claimed for takeover expenses represents solely the cost of preparing the Part B Statement''.

On 14 January 1988 the Commissioner issued a notice of an amended assessment which reflected an accord reached between the Commissioner and the taxpayer in respect of a reduced claim by the taxpayer for an investment allowance and consequential reduction of the carried forward losses to which

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the taxpayer was entitled in respect of the year ending 31 March 1982.

The amended assessment did not deal with the deduction for ``Takeover Defence Costs'' allowed in the original assessment.

On 13 May 1988 the Commissioner issued another notice of amended assessment in which the ``Takeover Defence Costs'' were wholly disallowed and the taxable income and taxation liability of the taxpayer adjusted accordingly.

In its objection to the amended assessment the taxpayer claimed that the sum of $195,932 had been wrongly disallowed as a deduction from assessable income under s. 51 of the Income Tax Assessment Act 1936 (``the Act''). The objection stated that:

``The sum of $195,932 described in the adjustment sheet as `takeover defence expenses' were (sic) in fact costs associated with the preparation of a Part B statement pursuant to the Companies (Western Australia) Code (sic) and not takeover defence expenses.''

The principal grounds of objection were that the amended assessment was not authorized by the provisions of s. 170 of the Act in that a full and true disclosure of all material facts had been made by the taxpayer to allow the Commissioner to properly assess the taxpayer's liability for income tax for the year in question and the ``original'' assessment for that year of income had been made by the Commissioner after such disclosure and the amendment to that assessment was not made to correct an error in calculation or a mistake of fact and, therefore, the Commissioner was not entitled to amend the assessment pursuant to s. 170 or, alternatively, that if full and true disclosure of all material facts necessary for the making of the assessment had not been made to the Commissioner there had been no avoidance of tax in respect of the year of income.

When the Commissioner's decision to disallow the objection was reviewed by the Tribunal the taxpayer's grounds of objection were augmented by reliance upon the further ground that at the time of the issue of the ``first amended'' assessment the taxpayer had made full and true disclosure of all material facts necessary for the Commissioner to make an assessment and the Commissioner had all the information necessary for him to properly assess the taxpayer's claim in respect of the ``takeover defence expenses'' and, therefore, the respondent was not authorized to make the ``second amended'' assessment pursuant to s. 170 of the Act as that amendment was not made to correct an error in calculation or a mistake of fact.

The issues that arise upon this appeal are to be determined by reference to the text of s. 170 as it stood prior to the amendments effected by the Taxation Laws Amendment Act 1986. The relevant parts of that section read as follows:

``170(1) The Commissioner may, subject to this section, at any time amend any assessment by making such alterations therein or additions thereto as he thinks necessary, notwithstanding that tax may have been paid in respect of the assessment.

(2) Where a taxpayer has not made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and there has been an avoidance of tax, the Commissioner may -

• (a) where he is of opinion that the avoidance of tax is due to fraud or evasion - at any time; and
• (b) in any other case - within 6 years from the date upon which the tax became due and payable under the assessment,

amend the assessment by making such alterations therein or additions thereto as he thinks necessary to correct an error in calculation or a mistake of fact or to prevent avoidance of tax as the case may be.

(3) Where a taxpayer has made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and an assessment is made after that disclosure, no amendment of the assessment increasing the liability of the taxpayer in any particular shall be made except to correct an error in calculation or a mistake of fact; and no such amendment shall be made after the expiration of 3 years from the date upon which the tax became due and payable under that assessment.''

The Tribunal determined that, in the circumstances of this case, the relevant assessment for the purposes of the application of the provisions of s. 170 of the Act was the ``original'' assessment embodied in the notice

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dated 18 June 1986 and not the amended assessment the subject of the notice dated 14 January 1988.

The Tribunal also determined that the taxpayer had not made to the Commissioner a full and true disclosure of all the material facts necessary for that assessment. However, the Tribunal found that it had not been demonstrated that the absence of such full and true disclosure had resulted in an avoidance of tax as required by sub-s. 170(2) and, therefore, the Commissioner was not authorized by that sub-section to amend the assessment.

The Commissioner contends that the Tribunal erred in law in requiring that, before the power conferred by s. 170(2) might be exercised, the Commissioner must demonstrate a causal connection between the failure by the taxpayer to make a full and true disclosure and the avoidance of tax. It was submitted that no such connection was necessary but that, in any event, it was for the taxpayer to discharge the onus of showing that no such connection existed.

The taxpayer, by cross-contention, argues that the Tribunal erred in law in failing to find that the relevant assessment for the purposes of s. 170 was the amended assessment notice of which was issued on 18 January 1988, in finding that the taxpayer had failed to make full and true disclosure of material facts prior to the original assessment and in failing to find that the sum of $195,932 was deductible from assessable income under s. 51 of the Act.

It is appropriate to deal with the taxpayer's cross-contention first.

The taxpayer submitted that s. 173 of the Act compelled the conclusion that the amended assessment notified on 18 January 1988 was ``the assessment'' to which sub-s. 170(2) referred.

Section 173 provided as follows:

``Except as otherwise provided every amended assessment shall be an assessment for all the purposes of this Act.''

Part IV of the Act, under the heading ``Returns and Assessments'' (ss. 161-177), established a scheme for the lodging of returns and for the making of assessments of taxable income and of the tax payable thereon.

In addition to the provisions of Pt. IV regard should be given to s. 185 of the Act which until 1 July 1986 provided as follows:

``185. A taxpayer dissatisfied with any assessment under this Act may, within 60 days after service of the notice of assessment, post to or lodge with the Commissioner an objection in writing against the assessment stating fully and in detail the grounds on which he relies:

Provided that, where the assessment is an amended assessment, the taxpayer shall have no further right of objection than he would have had if the amendment had not been made, except to the extent to which by reason of the amendment a fresh liability in respect of any particular is imposed on him or an existing liability in respect of any particular is increased.''

After 1 July 1986, s. 185 read as follows in respect of amended assessments, notice of which had not been served prior to 1 July 1986:

``185(1) A taxpayer dissatisfied with any assessment under this Act may, within 60 days after service of the notice of assessment, lodge with the Commissioner an objection in writing against the assessment stating fully and in detail the grounds on which he relies.

(2) Where an assessment has been amended in any particular, the right of a taxpayer to object against the amended assessment is limited to a right to object against alterations or additions in respect of, or matters relating to, that particular.

...''

Under s. 166 of the Act the Commissioner is under a statutory duty to undertake a process of assessment of the amount of taxable income and the tax payable thereon. Any partial assessment made ``tentatively'' or ``subject to revision'' or said to be ``provisional'' is not an assessment for the purposes of s. 166, and ergo s. 170, and perhaps may amount to no more than an informative communication. (See
FC of T v. S. Hoffnung & Company Limited (1928) 1 A.T.D. 310; (1928) 42 C.L.R. 39 per Isaacs J. at A.T.D. pp. 318-319; C.L.R. pp. 55-56 and Starke J. at A.T.D. pp. 325-326; C.L.R. pp. 64-65.) By s. 170 the Commissioner is, subject to the provisions of that section, given a discretion to make such alterations or additions

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to a particular or component of an assessment as he thinks necessary. Accordingly, s. 185 limits the right of objection in respect of an amended assessment to a right to object against alterations or additions in respect of, or matters relating to, that particular of the assessment.

Once it is accepted that the framework of provisions set out in Pt. IV of the Act relies upon a definition of ``assessment'' which involves a process of ascertainment of taxable income and the creation of a liability to pay a specified amount of money by way of tax thereon, it is not difficult to conclude that s. 173 of the Act is intended to have a limited consequence.

As Kitto J. stated in
Batagol v. FC of T (1963) 13 A.T.D. 202 at p. 204; (1963) 109 C.L.R. 243 at p. 252:

``When the group of sections which includes s. 170 is examined, it becomes, I think, quite clear that this is the concept which `assessment' in s. 170 is intended to express. The making of assessments by the Commissioner is the subject of provisions in ss. 166, 167, 168 and 169, and from these it is clear that assessment is a process which by force of the Act is definitive of the amount of the taxpayer's liability, though subject of course to review and appeal. Another section, s. 171, oddly enough by its very infelicity of expression shows that a notice of assessment is essential to the existence of an assessment. It speaks of `any assessment issued'. Then the next section, s. 172, by describing an amendment in the taxpayer's favour as one by which his liability is reduced, emphasises the essential character of an assessment as the creation of a tax liability of specific amount. See also the proviso to s. 185.''

In
Trautwein v. FC of T (1936) 56 C.L.R. 63 the provisions of s. 37 of the Income Tax Assessment Act 1922 relating to the amendment of assessments were considered and the following remarks by Dixon and Evatt JJ. at pp. 107-108 in respect of the purpose and effect of amended assessments is equally apt in respect of the provisions of s. 170 of the Act. Although s. 37 of the Income Tax Assessment Act 1922 was in a substantially different form from s. 170 of the Act, in principle the same scheme of returns, assessments, amended assessments and objections was reflected in that Act.

``The appeals before the court are from decisions disallowing objections to amended assessments. We are bound by authority to regard a notice of an amended assessment as no more than a notification of an alteration or addition made in an assessment under sub-sec. (1) of sec. 37 giving the taxpayer a new right of objection under the first proviso to that sub-section and not otherwise (
R. v. Deputy Federal Commissioner of Taxation (S.A.); Ex parte Hooper (1926) 37 C.L.R. 368;
Williams, Kent & Co. v. Federal Commissioner of Taxation (1926) 38 C.L.R. 256). The proviso enacts that every alteration or addition which has the effect of imposing any fresh liability or increasing any existing liability shall be notified to the taxpayer affected and, unless made with his consent, shall be subject to objection. The sub-section assumes the existence of an assessment fixing the taxpayer's liability and authorizes alterations and additions which will affect that liability for or against the taxpayer. The assessment is a computation into which components enter that may be altered or added to. When the proviso speaks of imposing a fresh liability or increasing an existing liability, the word `liability' cannot refer to the indebtedness for tax which an assessment expresses in its final figure. For the original assessment must state an amount of tax as the sum for which the taxpayer is a debtor of the Crown. If this were the liability meant, it might be increased by an alteration or addition, but no alteration or addition could impose it as `a fresh liability'. The word `liability' thus must refer to the constituent elements in the assessment of taxable income, treating them as separate sources of liability. If the addition or alteration results in the introduction into the assessment of a new source of liability, or in the increase of the liability flowing from a source already included, it is to be open to objection and appeal. Other adjustments may qualify the extent to which the fresh liability or the increased liability is reflected in the final figure of the tax payable. Suppose a taxpayer who has been assessed claims a further deduction, as, for example, the amount of a gift made out of the assessable

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income to a public charitable institution, and, by an amendment, the commissioner allows the claim. In dealing with the supposed taxpayer's assessment, it may occur to the commissioner that some separate item of revenue has been erroneously omitted from the assessable income. If, by amendment, he brings into the assessment the omitted item of revenue, it would, in our opinion, certainly be open to objection. It would be an addition or alteration having the effect of imposing a fresh liability. The fact that, at the same time, the commissioner allowed the perfectly independent claim to the deduction might very much lessen or entirely nullify the consequential increase in the final amount of tax assessed. But we think that it would still remain true that an alteration or addition had been made having the effect of imposing a fresh liability. That addition or alteration, therefore, would be subject to objection notwithstanding that as the net result of the entire revision of the assessment there had been no increase of tax. It is to be noticed that on the terms of the proviso it is not the fresh liability, or the increase in liability, that is to be subject to objection, but the alteration or objection [sic] producing it.''

The proviso to s. 37 referred to in the above passage became part of s. 185 of the Act now amended as set out above. The combination of ss. 185 and 170 indicates that the Act envisages that an amendment to an assessment will involve alterations or additions to components or elements of a pre-existing assessment. In consequence the taxpayer does not obtain a general right of objection in respect of the amended assessment and may object only to the extent to which the amendment imposes a fresh liability, or increases an existing liability, in respect of any particular.

The natural correlative to that consequence is that computation of the time within which an assessment may be amended pursuant to s. 170 of the Act does not begin afresh from the date of an amended assessment.

The taxpayer's submission requires a greater meaning to be attributed to s. 173 than the context of the Act permits. It is a clarifying provision inserted to remove any doubt that the facultative provisions relating to assessments will apply equally to amended assessments which are otherwise distinguished from assessments by the Act.

By s. 170, as it stood at the relevant time, the Commissioner was granted a general authority to amend an assessment conditioned as to time of exercise by a taxpayer's failure to make a full and true disclosure of all material facts necessary for the assessment resulting in an avoidance of tax or, otherwise, by an error in calculation or mistake of fact on the part of the Commissioner.

The Commissioner could not rely upon s. 170 to reassess or re-form an assessment made pursuant to s. 166 of the Act by making some fresh election or formation of opinion for reasons unconnected with a taxpayer's failure to make a full and true disclosure of material facts or with an error in calculation or mistake of fact on the part of the Commissioner. In other words the process of assessment stood in respect of all particulars and components of the assessment not subject to amendment under s. 170. For that reason, the provisions of s. 185 limited the right of objection to an amended assessment accordingly.

An assessment cannot be a combination of several determinations notified in separate notices dealing with discrete aspects of the process of assessment relating to the calculation of taxable income and of the tax payable thereon. However, the amendment of an assessment is expressly restricted to the alteration of, or addition to, the assessed taxation liability by amendment or alteration of a distinct particular or component of the assessment. It follows that more than one amendment may be made to the assessment notified by separate notices.

The Tribunal applied the correct principles of law and did not err in determining that the relevant assessment to which s. 170 of the Act applied was the assessment issued on 18 June 1986.

With regard to the taxpayer's cross-contention that the Tribunal erred in holding that the taxpayer had failed to make full and true disclosure of all material facts necessary for the taxpayer's assessment, it is hard to see how this issue raises anything other than a question of fact. The taxpayer submitted that the Tribunal erred in law in misconstruing

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the requirements of sub-s. 170(3) of the Act in failing:

``correctly to apply the `hypothetical independent adviser test' described by Menzies J. in
Austin Distributors Pty. Limited v. FCT (1964) 13 ATD 429 at 433.''

The Tribunal did not misunderstand the true construction of s. 170 in this regard. It referred to the so-called ``hypothetical independent adviser test'' and found that as a matter of fact the facts disclosed by the taxpayer were inadequate to meet that test.

According to the Commissioner's answers to the taxpayer's requests for particulars of the information which was in the Commissioner's possession on or before 18 June 1986 relevant to the assessment of the taxpayer's liability to income tax, the only documents the Commissioner had were the taxpayer's return and possibly some copies of auditors' working papers, a letter from the auditors dated 23 March 1982 and a copy of a set of minutes dated 27 January 1982 presumably relating to a meeting of the board of directors of the taxpayer.

The taxpayer submitted that its disclosure in its return that the taxpayer was then a wholly owned subsidiary of Bond Corporation Holdings Limited, which had occurred after the board of directors of the taxpayer agreed on 29 October 1981 to recommend to shareholders of the taxpayer that they accept Bond's takeover offer, provided sufficient disclosure of material facts for the purposes of assessment of the taxpayer.

That submission cannot be sustained. It could hardly be more plain that such facts as were disclosed by the taxpayer to the Commissioner were entirely inadequate to allow the Commissioner to make a proper decision as to the deductibility of the sum of $195,932 claimed by the taxpayer to be deductible as ``Takeover Defence Costs''. The taxpayer failed to provide the pertinent facts which would illustrate or describe the true character of the outgoing.

The Tribunal correctly held that it was not until August 1987 that the taxpayer disclosed to the Commissioner the essential facts relevant to that expenditure.

The taxpayer submitted that the Tribunal failed to have regard to the fact that the Commissioner's assessment officer had recommended the disallowance of the sum claimed as if that were an indication of the sufficiency of the facts disclosed by the taxpayer. Of course, the recommendation is irrelevant to the question whether the taxpayer had made full and true disclosure of all material facts necessary for the taxpayer's assessment.

The Tribunal did not err in finding that the taxpayer had failed to make a full and true disclosure of the material facts for the purposes of s. 170 of the Act.

With regard to the deductibility under s. 51 of the Act of the sum of $195,932, the Commissioner submitted that no question of law was raised by this ground of contention put forward by the applicant.

Being satisfied that the Tribunal's finding on the issue has not been demonstrated to be predicated upon an error, it is unnecessary to isolate the question of law on which the cross-contention rests. As pointed out by Gummow J. in
TNT Skypak International (Aust.) Pty. Ltd. v. FC of T 88 ATC 4279 at p. 4284; (1988) 82 A.L.R. 175 at pp. 182-183, it will rarely be the case that consideration of the application of provisions such as those in s. 25 of the Act relating to the meaning of income will fail to be directed to a question of law. A similar observation may be offered in respect of the application of the provisions of s. 51 relating to the allowability of deductions.

The arguments of the Commissioner and the taxpayer were each directed to the deductibility of the expenditure as a whole and no argument was addressed to the deductibility of any part of the expenditure incurred.

To be an outgoing incurred in gaining or producing assessable income, often described as ``the first positive limb of sub-s. 51(1)'', it is necessary that it be shown that the outgoing is relevant and incidental to the gaining or producing of assessable income. (See
Ronpibon Tin N.L. v. FC of T (1949) 8 A.T.D. 431 at p. 435; (1949) 78 C.L.R. 47 at p. 56.)

The costs incurred by the taxpayer were related to the discharge of duties by the taxpayer and its board of directors imposed by legislation relating to corporations. It could not be said that the expenditure was relevant or

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incidental to the gaining or producing of assessable income on the facts of this case. It was directed to duly informing the shareholders of the corporation of the true worth of their shares and the adequacy of the offer to acquire their capital interest in the corporation.

With regard to ``the second positive limb of sub-s. 51(1)'' that the outgoings have been necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, the Tribunal rightly concluded that the necessary nexus between the expenditure and the carrying on of the business of the taxpayer was absent.

To qualify as an outlay to which the second limb of s. 51 applies, it must be shown that the expenditure is characterized by the business ends to which it is directed, those ends forming part of or being truly incidental to the business. (See
FC of T v. Snowden & Willson Pty. Ltd. (1958) 11 A.T.D. 463; (1958) 99 C.L.R. 431 per Dixon C.J. at A.T.D. p. 464; C.L.R. p. 437.)

The expenditure upon aids to the consideration of the adequacy of the valuation of the capital interest of the shareholders contained in the takeover offer and of the nature of the response to that offer to be recommended to shareholders owed nothing to the conduct of the business of the taxpayer.

The nature and profitability of the taxpayer's business and the assets of the corporation acquired by that business may well have dictated the worth and value of the interests of shareholders in the share capital of the taxpayer, but it did not mean that expenditure related to those interests was necessarily incurred in the carrying on of that business for the purpose of gaining or producing assessable income and, as the Tribunal found, it clearly was not.

That is not to say that such expenditure could never be so characterized. It may be that the directors of a trading corporation may perceive a takeover offer to carry an inherent threat to the continuation of the corporation's business and impairment of its income-earning activities. In a particular case it may be obvious to a board that the takeover offer can only lead to a reduction of circulating capital applied in the business and curtailment of the ability of the business of the corporation to gain or produce assessable income. In such a case it may be argued that expenditure incurred by directors on behalf of the corporation in order to better inform shareholders of the worth of their capital interest and to urge their resistance to the takeover offer was directed to the maintenance of the business activities of the corporation in the best interests of the shareholders and of the company rather than to the discharge of a separate duty to shareholders to assess the adequacy of a bid to acquire proprietorship of the share capital of the corporation. (See Morgan (Inspector of Taxes) v. Tate & Lyle Ltd. [1955] A.C. 21.)

We now turn to the Commissioner's principal ground of appeal that the Tribunal erred in determining that, notwithstanding that the taxpayer had failed to make a full and true disclosure of all material facts necessary for its assessment, there had not been an avoidance of tax within the meaning of sub-s. 170(2) of the Act.

The Tribunal concluded that it had not been demonstrated that there was a ``causal nexus between less tax being paid as a result of the failure to disclose'' all material facts.

The onus was on the taxpayer to show that it had made a full and true disclosure of all material facts and that there had not been an avoidance of tax. (See
McAndrew v. FC of T (1956) 11 A.T.D. 131; (1956) 98 C.L.R. 263 per Dixon C.J., McTiernan and Webb JJ. at A.T.D. p. 132; C.L.R. p. 269.)

The taxpayer will be unable to discharge the latter onus if the absence of full disclosure results in an assessment by the Commissioner of the taxpayer's liability to pay tax that is less than the liability that ought to have been assessed. (See
Australasian Jam Company Pty Ltd v. FC of T (1953) 10 A.T.D. 217; (1953) 88 C.L.R. 23 per Fullagar J. at A.T.D. p. 222; C.L.R. p. 34.)

In the light of our conclusion expressed below, it is unnecessary for us to decide whether s. 170 requires a causal connection between non-disclosure of material facts and the avoidance of tax. (See
FC of T v. Maurice Estate; FC of T v. Union Fidelity Trustee Co. of Australia Ltd. & Anor 77 ATC 4462; (1977) 137 C.L.R. 275 per Aickin J. at ATC pp. 4470-4471; C.L.R. p. 290;
W. Thomas & Co. Pty. Ltd. v. FC of T (1965) 14 A.T.D. 78; (1965) 115 C.L.R. 58 per Windeyer J. at A.T.D. p. 89; C.L.R. p. 76;
Watson v. FC of T 83 ATC 4336

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per Kennedy J. at p. 4351; cf.
FC of T v. Pincus 84 ATC 4730 at p. 4736; (1984) 3 F.C.R. 512 at p. 519;
McEvoy & Ors v. FC of T (1950) 9 A.T.D. 206 per Williams J. at p. 211.)

The Tribunal set out its reason for its decision as follows:

``It is here that the law, albeit undeservedly, comes to this taxpayer's rescue, in that this causal nexus between less tax being paid as a result of the failure to disclose has not been demonstrated. On the contrary, the Commissioner's decision to disallow the so-called `takeover defence costs' was not altered when issuing the amended assessment of 14 January 1988, notwithstanding that, by that time, the true nature of the claim had been fully disclosed by the taxpayer's accountants. In these circumstances, the Act provides - put colloquially - for only one bite of the cherry.''

Although the Tribunal appears to have placed the onus on the Commissioner to show that there was a connection between the avoidance of tax and the failure to disclose material facts, it may be assumed that the Tribunal was satisfied that, on the material before it, the Commissioner's assessment of the taxpayer's liability to pay less tax than ought to have been assessed owed nothing to the taxpayer's failure to make a full and true disclosure of all material facts.

It would seem that the Tribunal purported to apply reasoning that had been appropriate for cases such as
FC of T v. Levy (1961) 12 A.T.D. 360; (1960-1961) 106 C.L.R. 448 per Owen J. at A.T.D. p. 365; C.L.R. p. 470 and
Lee v. FC of T (1962) 12 A.T.D. 458; (1962) 107 C.L.R. 329 per Dixon C.J., Taylor and Menzies JJ. at A.T.D. p. 460; C.L.R. p. 335 but inappropriate for the facts of this case.

In Levy and Lee, where in each case it had been held that the taxpayer had made a full and true disclosure of material facts, it was decided that the Commissioner had elected to deal with matters as returned in the taxpayer's return and to ignore or fail to examine other facts material to the assessment of the taxpayer's liability to pay taxation, being matters of which the Commissioner was already, or should have been, aware. In the present case it was quite plain that the amount of tax the taxpayer was assessed as liable to pay, notified in the notice of assessment dated 18 June 1986, resulted from the acceptance of the matters set out by the taxpayer in its return. The Commissioner had no other material before him to allow him to make a proper determination of the true nature of the sum claimed by the taxpayer as a deduction.

The Tribunal appears to have taken the view that the instruction issued to the assessor by a senior employee of the Commissioner to assess the taxpayer as shown in the taxpayer's return and to disregard the assessor's recommendation that the claimed deduction be disallowed was an election by the Commissioner which disentitled the Commissioner to amend the assessment when a full and true disclosure of facts was eventually made some time after the assessment.

The Tribunal appears to have relied upon the Commissioner's failure to include the disallowance of the claimed deduction in the amended assessment notified on 14 January 1988 for confirmation of the Tribunal's conclusion that the Commissioner's decision to assess the taxpayer in the manner notified in the notice of assessment dated 18 June 1986 was entirely unrelated to the taxpayer's failure to make a full and true disclosure of all material facts. The amendment of the assessment effected on 14 January 1988 was a neutral event which shed little light on how the Commissioner may have acted on 18 June 1986 had he then possessed the information disclosed later in August 1987. According to the Tribunal's reasoning, if, on 18 June 1986, the Commissioner had been apprised of all material facts, that knowledge would not have altered the Commissioner's treatment of the taxpayer's claim for a deduction and assessment of the taxpayer's liability to pay income tax. Put quite simply, on the facts of this case that proposition is plainly insupportable.

The Tribunal should have held that the taxpayer had not discharged the onus of showing that there had not been an avoidance of tax consequent upon the taxpayer's failure to make a full and true disclosure of all material facts and should have upheld the Commissioner's decision upon the taxpayer's objection.

Having reached the conclusion that the Tribunal erred in failing to proceed to find that

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there had been an avoidance of tax after finding that the taxpayer had not made a full and true disclosure of all material facts necessary for its assessment, it is unnecessary to consider the Commissioner's further submission that the Tribunal erred in failing to make any determination upon the Commissioner's argument that if a full and true disclosure of material facts had been made by the taxpayer the Commissioner was entitled to amend the assessment pursuant to sub-s. 170(3) of the Act to correct a mistake of fact.

The question now arises as to what order should be made by this Court. (See
Ogilvy and Mather Pty. Ltd. v. FC of T 90 ATC 4836 per Hill J. at pp. 4855-4856;
Putnin v. FC of T 91 ATC 4097 at p. 4102;
FC of T v. Emmakell Pty. Ltd. (as trustee of the W.K. Stevenson Family Trust) 90 ATC 4319.) The findings of fact made by the Tribunal were not disturbed by this appeal but it has been found that the Tribunal misapprehended the law in its application of sub-s. 170(2) of the Act to those facts in arriving at its ultimate decision. There is no utility in returning this matter to the Tribunal for reconsideration according to law and the ``appropriate'' order under sub-s. 44(4) of the Administrative Appeals Tribunal Act 1975 is to allow the appeal with costs and set aside the decision of the Tribunal, thereby restoring the Commissioner's decision on the taxpayer's objection.

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The decision of the Administrative Appeals Tribunal be set aside and in lieu thereof the decision of the applicant disallowing the objection affirmed.