GILDER v FC of T

Judges:
Davies J

Court:
Federal Court

Judgment date: Judgment handed down 19 December 1991

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Davies J

These are appeals by a taxpayer, Mr Jeremy M. Gilder, against assessments of income tax issued by the Commissioner of Taxation for the years ended 30 June 1977, 1978, 1979 and 1980.

In those years of income, Mr Gilder was employed in an organisation to which I shall refer as the Nugan Hand organisation, an organisation which subsequently achieved a certain notoriety. Mr Gilder was, in the years of income, a resident of Australia as defined in s. 6(1) of the Income Tax Assessment Act 1936 (Cth) (``the Act''), being a person whose domicile and permanent place of abode were in Australia.

Section 25(1) of the Act provides, inter alia: -

``25(1) The assessable income of a taxpayer shall include -

• (a) where the taxpayer is a resident -
  • the gross income derived directly or indirectly from all sources whether in or out of Australia;
• ...

which is not exempt income,...''

Mr Gilder had a scheme which sought to reduce the tax in Australia by reliance upon the then s. 23(q) of the Act which on 31 December 1979 provided: -

``The following income shall be exempt from income tax:

• ...
• (q) income (other than an amount of income attributable to a dividend, being a dividend paid on or after 19th October 1967) derived by a resident from sources out of Australia and Papua New Guinea, where that income is not exempt from income tax in the country where it is derived, or where the taxpayer is liable to pay royalty or export duty in any country outside Australia and Papua New Guinea in respect of goods from the sale of which the income is derived. For the purposes of this paragraph, a taxpayer shall be deemed to be liable to pay royalty or export duty in any country outside Australia and Papua New Guinea if he satisfies the Commissioner that he sold the goods in that country to another person for export from that country, and that the price for which the goods were sold was less, by the amount of the royalty or the export duty, as the case may be, than the price which the

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  ATC 5064

  taxpayer could have obtained from the sale of the goods outside that country:
• Provided that this paragraph does not apply to exempt any income unless -
  • (i) where there is a liability for payment of income tax in the country where that income is derived - the Commissioner is satisfied that the tax has been or will be paid; or
  • (ii) where the outgoings incurred in producing that income exceed that income - the Commissioner is satisfied that the tax would have been paid in the country where it is derived if the income had exceeded the outgoings;''

This provision was repealed by Act No. 51 of 1986.

In respect of the Hong Kong years of income commencing 1 April 1978 and 1979, Mr Gilder lodged in 1980 income tax returns in Hong Kong purporting to disclose income of his that had a source in Hong Kong. The Hong Kong taxation authorities, not surprisingly, assessed the appropriate amount of Hong Kong tax and that amount was subsequently paid. Such returns were not lodged in respect of the remaining period, it being alleged by counsel for Mr Gilder that the allowable deductions exceeded the income in those years.

An immediate difficulty for Mr Gilder's case arises from the fact that, in the whole period with which we are concerned, Mr Gilder was not present in Hong Kong for more than nine days. The Inland Revenue Ordinance (Hong Kong) (``the Hong Kong Ordinance'') is concerned primarily with ``Hong Kong source profits and income''. See Grundy's Tax Havens p. 58. Mr Gilder's income arose from his employment in the Nugan Hand organisation. The Hong Kong Ordinance provided by s. 8 for Salaries tax on income derived from ``(a) any office or employment of profit'' and that: -

``(1A) For the purposes of this Part, income arising in or derived from the Colony from any employment -

• ...
• (b) excludes income derived from services rendered by a person who -
• (ii) renders outside the Colony all the services in connexion with his employment.

(1B) In determining whether or not all services are rendered outside the Colony for the purposes of subsection (1A) no account shall be taken of services rendered in the Colony during visits not exceeding a total of 60 days in the basis period for a year of assessment.''

As Mr Gilder worked in Hong Kong for only a few days, his income was not subject to tax in Hong Kong. His reliance upon s. 23(q) was therefore bound to fail.

In brief, we are concerned with a tax avoidance scheme which went astray, primarily because the proposed source of the income, Hong Kong, was not the real source of the income and because Mr Gilder was at all times a resident of Australia.

I have spoken of the Nugan Hand organisation. There were two principal sections of the organisation. Nugan Hand Limited was incorporated in Australia and was principally the concern of Mr Frank Nugan. The Nugan Hand Bank was principally the concern of Mr Michael Hand. Nugan Hand (Hong Kong) Ltd, a company registered in Hong Kong and registered under the provisions of the Deposit-Taking Companies Ordinance of Hong Kong, was an important instrument in the Nugan Hand Bank. The distinctions between the various parts of the Nugan Hand organisation do not, however, seem to have been well defined. Both Mr Nugan and Mr Hand operated to a certain extent on their own, Mr Nugan being based in Australia and Mr Hand being based overseas, principally in Singapore. But both were concerned from time to time with the whole organisation.

In October 1986, Mr Gilder had a conversation with Mr Nugan and Mr Hand. He was asked to join the organisation, particularly to recruit quality men in Australia, to train them in the work of the organisation, to establish them overseas and to supervise their work. Mr Gilder, who had operated a consultancy business through his private company, J.M.S. White Pty Ltd, asked that that company be retained as a consultant to Nugan Hand Limited and that he, Mr Gilder, be retained as a consultant on a personal basis to the Nugan Hand Bank. Mr Nugan and Mr

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ATC 5065

Hand agreed that Nugan Hand Limited would pay J.M.S. White Pty Ltd a fee of $2,500 per month and that the Nugan Hand Bank would pay Mr Gilder $2,000 per month plus commissions. The remuneration from the Nugan Hand Bank was to be paid overseas.

On 19 November 1976, Mr Gilder sent a letter to Mr Nugan on the letterhead of J.M.S. White Pty Ltd which read: -

``Dear Frank,

Would you please confirm that on the 11th October, 1976, Nugan Hand Limited commenced to retain as a consultant J.M.S. White Pty. Limited for a fee of A$2,500.00 a month and that such arrangement is to continue until either party gives to the other three months notice in writing of intention to terminate.''

This letter was subsequently signed by Mr Nugan as confirmed.

On the same day, there was a letter from Mr Gilder to Mr Nugan and Mr Mike Hand of the Nugan Hand Bank and Trust Co. which read as follows: -

``Further to our discussions of 5th October, 1976, would you please now confirm: -

1. That on the 11th October, 1976, you commenced to retain me as a consultant for a fee of $2466 [United States dollars] a month; that this arrangement, and all other arrangements below are to continue until either party gives to the other three months notice in writing of intention to terminate.

2. That for the period 11th October, 1976, to 11th October, 1977 I am to be paid by you an amount of one percent of all monies received by your Group of Companies as a result of my efforts, such amounts to be calculated and paid monthly.

3. That additional to the above you will pay me an amount of twenty-five percent of all commissions paid to representatives or companies recruited by me or my recruits and working other than in Australia, such amounts to be calculated and paid monthly.

All amounts in 1, 2, 3 above to be paid to my bank account in Hong Kong in HK dollars or otherwise as I direct.''

The commission arrangement there specified should be noted, for Mr Gilder became entitled to substantial sums from that arrangement. This letter concerned the income now under consideration.

The letter showed Mr Gilder's address as Johnson, Stokes & Masters, Solicitors, of Hong Kong. Clearly, it was intended to appear to be executed in Hong Kong. Mr Gilder has given evidence that, though he executed the letter in Australia, he expected Mr Hand, the principal director of the Nugan Hand Bank, to sign the document in Hong Kong. The document was, however, signed by Mr Nugan in Australia, and it appears that it was also signed by Mr Hand in Australia on 12 December 1976 when Mr Hand visited Sydney.

Notwithstanding the use in both documents of the term ``consultant'' and the engagement by Nugan Hand Limited of the company, J.M.S. White Pty Ltd, as a consultant, I am satisfied that, from the commencement of his employment, Mr Gilder worked full-time in the organisation as an employee of the organisation, subject to the directions of his superiors, Mr Nugan and Mr Hand. Mr Gilder became a senior executive of the organisation and was given the title ``Director'' or ``Personnel Director''. The services he performed were not services as an outside consultant but as a senior executive working in the organisation subject to direction.

Mr Gilder asserted in his evidence that, whilst he was in Australia, he worked for and in the interests of Nugan Hand Limited but, while overseas, he worked for and in the interests of the Nugan Hand Bank. The evidence shows, however, that this was not so. Mr Gilder's first task was to recruit in Australia persons who would join the Nugan Hand organisation overseas. Many of the persons so recruited became employed by the Nugan Hand Bank. In respect of them, Mr Gilder's base at all times remained Australia, his office and secretary being situated in the Macquarie Street, Sydney premises of Nugan Hand Ltd. Although Mr Gilder made many and frequent trips overseas to supervise what was there occurring, much of his work in Australia was work done in respect of the supervision and support of the overseas employees of the Nugan Hand Bank and in relation to clients of the Nugan Hand Bank. Moreover, during his longest trip overseas, from 20 September 1977 to February 1978, a period when Mr Gilder

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ATC 5066

spent several months in London at the request of Mr Nugan, Mr Gilder worked principally in the interests of Nugan Hand Limited, and only to a minor degree in the interests of the Nugan Hand Bank. It follows that there is no factual basis for attributing Mr Gilder's work overseas to his employment with the Nugan Hand Bank and his work in Sydney to his employment with Nugan Hand Limited. At all times, he had a concern with the organisation as a whole.

In the light of this circumstance, including the fact that his agreement was made and confirmed in writing in Australia, and that he was in Hong Kong for only one day on 13 January 1978, for four days from 26 November 1978 and for four days from 26 November 1979, a period of time which attracted no liability to tax under the Hong Kong Ordinance, I am satisfied that Mr Gilder's remuneration did not have a source in Hong Kong. Although Mr Gilder lodged income tax returns in Hong Kong for two years, he did so without disclosing the true facts and the assessments issued in the absence of knowledge of the true facts. There was no relevant liability for tax in Hong Kong, the country in which tax was paid. It follows that s. 23(q) did not apply.

Counsel for Mr Gilder submitted that the overseas income had a source in Hong Kong for the success of the Nugan Hand Bank was founded on the licence which Nugan Hand (Hong Kong) Ltd, had in Hong Kong to receive deposits. I gather from the evidence, though the matter was not dealt with in any detail, that deposits received by the Nugan Hand Bank elsewhere in the world were transmitted to Hong Kong, where an employee or employees recorded moneys coming in and going out.

However, the source of income has been said to be ``a practical, hard matter of fact'', per Isaacs J., Gavan Duffy and Rich JJ. in
Nathan v. F.C. of T. (1918) 25 C.L.R. 183 at 190. In the ordinary case, the source of income is the property or the agreement from which it is derived, or, in the case of an employee, where the work is done. As Latham C.J. said in
F.C. of T. v. United Aircraft Corporation (1943) 7 A.T.D. 318 at 322; (1943) 68 C.L.R. 525 at 536: -

``Property is one possible source of income. The work of persons or acts done by persons are other possible sources of income.''

Accordingly, the place where property is situated or where an agreement is made or services are rendered tends to establish the geographical location of the source of the income. In
Esquire Nominees Ltd v. F.C. of T. 73 ATC 4114; (1971-1973) 129 C.L.R. 177, it was held that the source of dividends was ordinarily the place where the company paying the dividend derived its profits and not the ultimate or real source where the wealth being distributed was derived. As to the income derived from services, it is sufficient to refer to
Watson v. Commissioner of Taxation for Western Australia (1930) 1 A.T.D. 61; (1930) 44 C.L.R. 94;
F.C. of T. v. French (1957) 11 A.T.D. 288; (1957) 98 C.L.R. 398;
Robertson v. F.C. of T. (1937) 4 A.T.D. 355; (1937) 57 C.L.R. 147 and
F.C. of T. v. Mitchum (1965) 13 A.T.D. 497; (1965) 113 C.L.R. 401.

None of these authorities supports the view that Mr Gilder's income had its source in Hong Kong merely because the licence to take deposits was issued in Hong Kong to one of the companies in the Nugan Hand organisation. In any event, s. 8 of the Hong Kong Ordinance deals specifically with the matter. For the purposes of that Ordinance, Mr Gilder's remuneration not have a source in Hong Kong.

The next issue is whether Mr Gilder should be allowed further deductions from his income. Mr Gilder gave evidence that, whilst he was overseas, he frequently entertained persons at lunch or dinner and that he did so for the purpose of increasing the income derived from the overseas establishments and therefore his own income through the commission arrangement I have mentioned.

Only the objection to the assessment for the year ended 30 June 1977 raised the issue and it did so in these terms: -

``Should it be determined that the income is not exempt income of the taxpayer, which is not admitted, then substantial losses and outgoings to the extent to which they were incurred by the taxpayer in gaining or producing the assessable income are allowable under sec. 51(1) and must be taken into account before determining the amount of taxable income of the taxpayer.''

As can be seen, no particulars were given. Counsel for the Commissioner has been content to treat all four objections dated 17 February

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ATC 5067

1989 as raising this issue. But on the factual question, whether unrecouped expenditure was incurred as is now alleged, it is relevant to take account of the fact that the matter was raised in only one objection and even then no particulars were given.

A letter dated 1 June 1990 from the Deputy Commissioner of Taxation to Mr Gilder stated: -

``Expenditure incurred by you, not reimbursed by any other person, in earning this income is of course allowable as a deduction.''

The Deputy Commissioner went on to say, however, that as Mr Gilder had not provided specific details of actual expenditure incurred and not reimbursed, ``an estimate has been made by the Office''.

Accordingly, Mr Gilder's claims were allowed to the extent that the Commissioner was satisfied that Mr Gilder had incurred relevant expenditure out of his own funds not reimbursed to him.

The first amended assessments made some allowance in respect of such items. In addition, claims had been made and allowed in respect of the income returned in the name of J.M.S. White Limited. After the lodgment of the objections by Mr Gilder, the matter was reconsidered by officers of the Taxation Department and additional sums were allowed, but not to the extent claimed by Mr Gilder.

Mr Gilder now claims deductions in the year ended 30 June 1977 of $15,650, in the year ended 30 June 1978 of $32,250, in the year ended 30 June 1979 of $27,375 and in the year ended 30 June 1980 of $28,850. These sums were said to be made up of entertainment of $150 per day being the cost of entertaining five persons at an average of $30 per person, plus $25 per day for taxis, breakfast meetings etc., a total of $175 per day. There was a further sum of $2,500 claimed for each of the last three years for the purchase of Times Diaries which Mr Gilder said he supplied to the persons whom he had recruited and whom he supervised. There was a further claim in respect of sums which Mr Gilder called ``retainers''. Mr Gilder gave evidence that, in order to obtain business throughout Asia, it was necessary for him to pay sums to persons for introductions and assistance. Mr Gilder gave evidence that the payment of these sums assisted the flow of business. Mr Gilder further claimed $1,300 per month whilst he stayed in London, which he said was 50% of the cost of his accommodation.

The existence of the commission arrangement provides an explanation as to why Mr Gilder may have incurred such expenditure. But the difficulty lies in the lack of acceptable proof and in the general improbability of the claims in the light of known facts.

Mr Gilder deposed in his affidavit: -

``33. Full written particulars of overseas income earned by me and expenses paid by me during the period October 1976 to January 1980 were provided by me to my accountant for the period, Mr. John McGoldrick.

...

36. The hand written schedules provided by me to Mr. McGoldrick contained full particulars of all expenditure including cheque numbers, date drawn, amount, currency, reason for payment and persons to whom payment was made. Mr McGoldrick has informed me and I believe it to be true that his staff typed up 3 foolscap pages from these schedules for record purposes.

...

41. I contacted Mr. Phillip Wass, accountant around December 1988 in an endeavour to locate the schedules which would support my claims as to expenditure incurred overseas (Mr. Wass had acquired Mr. McGoldrick's accountancy practice from him some years earlier). Mr. Wass was unable to locate the documents I required.

42. I contacted Mr. John McGoldrick around December 1988 to ask whether he had any documents to support my expenditure claims. Mr. McGoldrick advised that he had passed all his files over to Mr. Wass.

...

44. It is impossible for me now, after up to 15 years, to reconstruct expense claims and payments to other persons relating to my activities overseas as a consultant to Nugan Hand Bank for the period October 1976 to January 1980.''

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ATC 5068

Mr Gilder went on to say:

``45. My best recollection of expenses incurred is that in South East Asia in the late Seventies entertainment cost about $30 per person for lunch or dinner.

46. (a) My best recollection of my entertainment schedule is that it was a 7 days a week activity with lunches virtually every day and dinners most nights. Occasionally there were breakfast meetings. (b) The number of persons entertained was usually one or two being a Nugan Hand Bank Representative or a Representative and his client/prospective client, and from time to time involved large groups. (c) The places of entertainment were usually superior restaurants or Hotels in the centre of S.E. Asian cities.

47. My best recollection relating to payments to other persons is that it was common practice in S.E. Asia during the period to pay expenses, fees or retainers to persons who could assist in introducing business to the Nugan Hand Bank in varying amounts upwards of $500 and I made such payments.

48. I expended monies on entertainment per 45 and 46 above and made payments to other persons per 47 above in amounts which in total correlated with the deductions claimed against income earned in my Hong Kong tax returns for the 1978-79 and 1979-80 tax years.''

This evidence was supported by Mr Gilder in his oral evidence.

Handwritten particulars of the claims, handed up during the course of the hearing, read: -

        ``Expenses of J.M. Gilder

      Period to end June 1977
         (1) $3150
         (2) Nil
         (3) $12,500                                         $15,650

      Period to end June 1978
         (1) J.M.S. White 50%
             Bal. $12,250
         (2) $2,500
         (3) $10,000
         (4) $7,500                                          $32,250

      Period to end June 1979
         (1) $14,875
         (2) $2,500
         (3) $10,000                                         $27,375

      Period to end June 1980
         (1) $3,850
         (2) $2,500
         (3) US 20,000 (A $17,400)
             + $5000                                         $28,850
        

Basis - (Aff. p. 20 (32) p. 22 (45, 46, 47))

• (1) Entertain. Average entertainment cost per person per day overseas = A$30. Av. number persons entertained (a) lunch = 2 (b) dinner = 3. Total persons/day = 5 = $150/day. Add $25/day taxis, breakfast meetings, large groups. Total entertain per day A$175
• (2) Times Diaries
• (3) Retainers. One very large payment. Most others A$500-2000. Average say $750
• (4) London. Rental at 50% cost accommodation viz approx A$1500/month''

Mr Gilder's credit has been largely destroyed, for much of the evidence he gave in his affidavit and orally was incorrect. Moreover, the problems arose out of Mr

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ATC 5069

Gilder's scheme not to pay tax on the income which he received personally. He received the income outside Australia, first in Hong Kong, then in the United Kingdom and then in Singapore, and he did not refer to it in the personal returns which he lodged in Australia. Though paid overseas, the remuneration or part of it was brought into Australia by means that are now difficult to trace. Thus, there is a letter from Mr Gilder to Mr Hand saying that, ``Frank has very kindly offered to assist me to get some bread into Australia by having a company lend me some money here following receipt by you in Sing. (Singapore dollars) of the loan amount''. The letter went on to ask Mr Hand to ``telex me `Paint recvd' when my cash cheque reaches you?'' Needless to say, with this background, it is difficult to place much reliance upon Mr Gilder's testimony.

Mr Gilder has not supported his claim by the production of written records. His evidence was that, at the time the Hong Kong returns were prepared, he gave full records to his accountant, Mr J.F. McGoldrick and that those details were checked. Mr McGoldrick himself said that he was given ``a cash record in his (Mr Gilder's) own handwriting'' and some bank details, bank records, and that he gave these to a member of his staff who worked from them. However, I do not accept that Mr Gilder gave to Mr McGoldrick anything in the nature of written accounts such as Mr Gilder kept in relation to J.M.S. White Pty Ltd. It seems to me to be probable that if Mr Gilder had kept such a record in respect of his own affairs, that record would still be in Mr Gilder's possession.

Mr McGoldrick said that profit and loss accounts would have been attached to the Hong Kong returns. However, no copy thereof can now be located and the assessments themselves simply specify net profit. There are in evidence copies of bank statements with respect to Mr Gilder's account with the Banque Nationale de Paris in Singapore into which much of the subject income was paid. However, counsel for Mr Gilder has not sought to relate the moneys alleged to have been expended in any meaningful way to the transactions there recorded. Furthermore, Mr Gilder's claims have not been related to any records which he may have kept in Australia. If he maintained a bank account in Australia, those records have not been produced. No cheque butts have been produced. No records of a credit card company have been produced. Mr Gilder said in his evidence that, although some of his expenditure may have been placed on his American Express card, he doubted that he used a credit card for much of the expenditure. Mr Gilder said that most of the expenditure would have been expenditure of cash. But, as I have said, counsel for Mr Gilder did not attempt to relate the alleged cash expenditure to particular withdrawals from Mr Gilder's account with the Banque Nationale de Paris in Singapore.

Had Mr Gilder expended substantial sums from his own monies, one would have expected to find that he frequently used credit cards, that he acquired travellers cheques through his own bank and that he maintained a record of his expenditure similar to the journal kept for J.M.S. White Pty Ltd.

Contrary to Mr Gilder's evidence that J.M.S. White Pty Ltd was involved merely in relation to affairs in Australia, the journal of that company, written up by Mr Gilder, records some sums drawn in anticipation of expenses overseas and some sums received from Mr Nugan, either by way of reimbursement or as an advance in respect of expenses. Many of the overseas trips to which entries relate were trips which Mr Gilder now claims were the subject of unrecouped, deductible expenditure. An example is the journal entry of 12 April 1978: -

``Travel - Additional Expenditure - Entertainment During BKK-KL-Sing Trip - 29/3/78 to 7/4/78 incl. $500''

There is also some detailed recording of expenditure, much but not all relating to expenditure in Australia. Thus, the journal records on the January 1978 page: -

      ``Travel: -                   $200
      Overseas expenditure       $2870''
        

The journal records at the foot of the page for April 1978: -

``Entertainment

10/4 Mike Hand $10, Mike Hand 11/4 ($15),

Walsh $25 (12/4), Hewitt 14/4 ($25),

Dixon 17/4 ($15), Coombes 18/4 $30,

Spry 19/4 $20, Dews 24/4 $10,

Coombes & Ed 25/4 ($40), Rowe 26/4 ($10)

Lind $45 (29/4) (245).''

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ATC 5070

These are but examples. I have not attempted to, nor did counsel for Mr Gilder attempt to, reconcile all the entries with the deductions claimed by and allowed in the assessments of J.M.S. White Pty Ltd. However, substantial deductions were claimed by and allowed to the company. For example, for the year ended 30 June 1978, in which income of $30,093 was returned, deductions of $28,563 were claimed which included: -

      Motor Vehicle Expenses                     $2458
      Postage Stationery & Telephone             $1264
      Recruiting Travelling
      & Marketing Expenses                       $3779
      Administrative                             $3200
      Research                                   $3120
      Overseas Travel                            $3236
      Commissions                                 $900
      

Generally similar claims were made in each year with the result that only a negligible profit was disclosed. I assume that the deductions claimed included expenditure of the general type with which we are now concerned.

There is evidence from Mr G.R. Steer, who had the management of the Singapore office under Mr Gilder's supervision, that Mr Gilder visited Singapore, that he entertained some clients and that some payments may well have been made to persons who assisted the Nugan Hand organisation. However, in respect of similar expenses incurred by Mr Steer, who also received a monthly allowance and commission, Mr Gilder had the task of approving the expenditure and authorising reimbursement. This evidence shows that the Nugan Hand organisation had in place a system for the recording of and reimbursement of expenditure incurred by the employees of the Nugan Hand organisation in the interests of the organisation.

Thus, Mr Steer's evidence was: -

``You had to justify your own expenditure to Mr Gilder on exactly that matter. I think that was in connection with entertainment costs, is that right? - Travel, accommodation and entertainment because I did move around quite a lot in the area in my position - later position as regional manager, yes.

And when you say you had to justify your expenditure that was because it was being reimbursed by the bank or the organisation? - Correct, by the bank, yes.

Do you know which particular organisation was reimbursing you? - No, from my knowledge all my appropriate reimbursement came through the Hong Kong office.

Yes, and you had to deal with Mr Gilder for the purposes of justifying that expenditure? - That is correct.

And so far as you were concerned he was in control of funds for the purpose of reimbursement of such expenditure? - I wouldn't say control, he would -

He supervised or agreed or disagreed with...? - He'd sign the appropriate chit.

The authorisation chit? - Yes.''

Two such forms showing advancement or reimbursement of expenses to Mr Gilder are in evidence. For example, a Nugan Hand office memo from a Mr Swan to Mr Hand, dated 15 February 1980, Exhibit 4, which states inter alia: -

``Subject J Gilder

      Expenses etc. from 1.2.77 to 1.2.80             Aust $
      Consulting fee ($2,500 per
      month)                                          87,500
      Travellers cheques                           24,393.28
      Air Fares                                    24,426.64
      Accommodation/Entertainment                   1,103.18.''
        

Mr Gilder has sought to draw a distinction between expenses of a corporate nature and his own expenditure. Thus, he deposed: -

``31. In relation to expenses payments to me by Nugan Hand Bank the general position was that Nugan Hand paid for all my air travel and allocated travellers cheques to me in Sydney prior to my departure overseas for the payment overseas of hotel accounts and entertaining expenses of a corporate nature. The amount of such cheques was determined by Mr Nugan and any surplus was handed to him by me upon my return to Sydney.

32. Expenses paid by me included:

• (a) entertainment of Nugan Hand Bank Representatives;
• (b) entertainment of prospective Representatives of Nugan Hand Bank;

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  ATC 5071

• (c) entertainment of potential clients of Nugan Hand Bank;
• (d) entertainment of existing clients of Nugan Hand Bank;
• (e) expenditure on items for use by Representatives of Nugan Hand Bank e.g. `Times' Diaries;
• (f) expense payments or payment of retainers to individuals or Groups who I considered would bring considerable revenue to Nugan Hand Bank (and in turn to me) in the form of commissions from the sale of commodities;
• (g) minor costs such as taxi fares, airport taxes and incidentals.

None of these expenses were reimbursed to me.''

However, if there was any distinction between ``entertaining expenses of a corporate nature'' and the expenses now claimed, that difference has not been made clear by the evidence. Mr Gilder agreed that he had received travellers cheques from Mr Nugan, but the amounts thereof and what expenditure they were provided to cover have not been proved.

Drawings from Mr Gilder's account with the Banque Nationale de Paris in Singapore were not made frequently, as one would expect if his claims were correct. They were made infrequently and usually when he was in Australia or just before he returned to Australia. There was no pattern of drawings consistent with the acquisition of cash or travellers cheques required for an expensive overseas trip.

On the whole, it seems probable to me to be that Mr Gilder received expenses from the Nugan Hand organisation to cover the type of expenditure which he now claims. Mr Nugan had the authority to approve his expenses and provided him with travellers cheques. The use of such travellers cheques received from the Nugan Hand organisation or other access to Nugan Hand funds whilst Mr Gilder was overseas would explain why there were no regular withdrawals from his own Singapore account as would seem to have been required if Mr Gilder was funding the alleged expenditure from his own moneys. It would also explain why Mr Gilder does not have any personal record similar to the ledger of J.M.S. White Pty Ltd. His expenditure would have been from funds obtained from the Nugan Hand organisation.

In his final address, counsel for Mr Gilder himself referred to ``the murky field of expenses'' and conceded that an assessment of the quantum ``probably can't be made on the evidence'' being ``at best a matter of speculation''.

Counsel particularly pressed two items. The first was the claim for $2500 in each of three years for the purchase of Times Diaries. Mr Steer's evidence gave support to this claim. However, if the cost of the diaries was paid by Mr Gilder otherwise than out of funds provided by the Nugan Hand organisation, one would have expected the expenditure to have been evidenced in Australia, to have been recorded in the journal of J.M.S. White Pty Ltd and to have been paid out of some identifiable bank account. No such identification has been attempted.

Counsel also pressed Mr Gilder's evidence that $US20,000 was paid to certain individuals to assist to obtain an oil deal. This evidence was given in cross-examination and was not identified in Mr Gilder's affidavit or in his evidence in chief. Mr Gilder, on looking at his bank statements, identified a cash withdrawal of S$47,600 on 6 December 1979 as being the relevant cash withdrawal. However, this withdrawal fits the pattern of cash withdrawals made by Mr Gilder just before returning home from Singapore. Mr Gilder identified alternatively a cash withdrawal of S$36,570 in March 1979. The date for the withdrawal in March is indistinct in the copy bank statement, but Mr Gilder was in Singapore on 16 March 1979 on his way home from Malaysia. So again this withdrawal fits the pattern. I do not have sufficient confidence in Mr Gilder's evidence to accept that either cash withdrawal was made by Mr Gilder to enable him to assist the Nugan Hand Bank by paying $US20,000 as expenses to ``A group of people from the Middle East... who claimed that they had the capacity to deliver an oil contract of 100,000 barrels a day''. The amount involved was so large that, if it was paid by Mr Gilder out of his own funds, one would have expected it to be connected with a transaction in which he had a special interest rather than one subject only to his general entitlement to commission. No

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ATC 5072

evidence was given as to any such special involvement.

I assume that Mr Gilder did expend some moneys in gaining or producing his income from the Nugan Hand Bank. But substantial deductions have already been allowed. If any further sum should be allowed, I am not able to perceive a basis for quantifying it or identify probable evidence on which a variation of the assessments should be based. I must therefore apply the principle enunciated by Brennan J., with whom Mason C.J., Deane, Dawson, Gaudron and McHugh JJ. agreed, in
F.C. of T. v. Dalco 90 ATC 4088 at 4091; (1989-1990) 168 C.L.R. 614 at 621: -

``It would be inappropriate for a court determining an appeal to make an order altering the tax liability assessed (sec. 199) unless the court were satisfied that the amount to which it proposed to alter the assessment represented the true tax liability of the taxpayer.''

Moreover, it has not been shown that there was an error in the Commissioner's approach to the assessment so that the matter should be remitted for consideration.

Counsel for Mr Gilder also sought leave to amend the grounds of objection relied upon to introduce the ground first that the Deputy Commissioner had no basis to conclude that fraud and evasion was involved and, secondly, the ground that there was no proper assessment of the additional penalties imposed.

During the hearing, I indicated that I thought there was power to consider these grounds but that, in the circumstances of the case, it was inappropriate to do so. However, I reserved the issue for further consideration.

Since then, in
Lighthouse Philatelics Pty Limited v. F.C. of T. 91 ATC 4942, Lockhart, Burchett and Hill JJ. have held that the discretion to amend is at large. Their Honours disapproved decisions of the Administrative Appeals Tribunal to the contrary.

The discretion is unfettered. But that is not to say that regard should not be had to the time limits imposed by the Act. The Act gives effect to a policy that taxation affairs should be dealt with efficiently and promptly. There are time limits for the lodgment of returns (s. 161), for the lodgment of objections (s. 185), for the lodgment of requests for reference (s. 187), and upon the Commissioner for the amendment of assessments (s. 170). This policy should be taken into account. And so also should the policy of this Court that proceedings in the Court be handled efficiently. These present proceedings, like other proceedings in the Court, have been the subject of directions hearings in which a Judge has given directions to ensure that the parties were aware of the legal and evidentiary issues which would arise at the hearing. In such circumstances, the Court will rarely permit additional and different issues to be raised at the hearing, certainly not unless good reason for doing so has been shown, which in the present case has not been done.

I take into account not only the fact that the proposed grounds raise matters entirely different from those presently before the Court but also the fact that they do not stand out as matters which, in the interests of justice, must be considered by the Court. The material before the Court does not disclose a prima facie case of invalidity of the assessments. As to the additional tax, if that issue had been raised in the original objections, this matter would presumably have been referred to the Administrative Appeals Tribunal rather than this Court.

For these reasons, the application for leave to raise additional grounds of objection will be refused.

The order will be that the appeal to the Court is dismissed and the assessments are confirmed. Mr Gilder should pay the respondent's costs of the proceedings.