WINDSHUTTLE v DFC of T

Judges:
von Doussa J

Court:
Federal Court of Australia

Judgment date: Judgment handed down 19 November 1993

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von Doussa J

This is an appeal from a decision of the Administrative Appeals Tribunal (``the AAT'') which confirmed two decisions of the delegate of the respondent (``the Commissioner'') which refused applications by the applicant made under s. 188(1) of the Income Tax Assessment Act 1936 (``the ITAA'') requesting the Commissioner to treat objections against an assessment for the year ended 30 June 1986 as having been duly lodged.

It is common ground that the provisions of Part V of the ITAA, which were repealed by the combined operation of s. 113 and Schedule 4 of the Taxation Laws Amendment Act 1991, apply to the events the subject of this appeal as the assessment against which the applicant wishes to object was first notified to her on 16 April

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ATC 4994

1991, well before the commencement of the amendments. Under Part V a taxpayer who was dissatisfied with an assessment might, within 60 days after service of the notice of assessment, lodge with the Commissioner an objection in writing against the assessment. If an objection were not lodged within that time limit, s. 188 relevantly provided:

``188(1) Where the period for the lodgment by a taxpayer of an objection against an assessment has ended, the taxpayer may, notwithstanding that the period has ended, send the objection to the Commissioner together with an application in writing requesting the Commissioner to treat the objection as having been duly lodged.

(2)...

(3) An application under subsection (1) or (2) shall state fully and in detail the circumstances concerning, and the reasons for, the failure by the taxpayer to lodge the objection or request as required by this Act.''

Section 188A provided for the consideration of an application for extension of time for lodging an objection. The section relevantly provided:

``188A(1) The Commissioner shall consider each application made under subsection 188(1) and may grant or refuse the application.

(2) The Commissioner shall give to the taxpayer who made the application notice in writing of the decision on the application.

(3) A taxpayer who is dissatisfied with a decision under subsection (1) in respect of an application made by the taxpayer may apply to the Tribunal for review of the decision.''

Being dissatisfied with the respondent's decision refusing her application for an extension of time, the applicant exercised her right under s. 188A(3) to apply to the AAT. Being dissatisfied with the AAT's decision, this appeal was instituted.

Section 188A(1) of the ITAA conferred a discretion unconfined in its terms upon the Commissioner. Gummow J summarised the effect of a power of this kind in
Bond Corporation Holdings Ltd v Australian Broadcasting Tribunal (1988) 84 ALR 669 at 680:

``Where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of discretion are similarly unconfined, except in so far as there may be found in the subject matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard:
R v Australian Broadcasting Tribunal; Ex parte 2HD Pty Ltd (1979) 144 CLR 45 at 49-50...''

The requirement under s. 188(1) that the objection be sent to the Commissioner at the same time as the application requesting the extension of time is a recognition that one of the important factors which the Commissioner should consider in dealing with an application for extension of time is the likely merits of the objection. The requirement in s. 188(3) that the application state fully and in detail the circumstances concerning the reasons for the failure of the taxpayer to lodge the objection within time also indicates that the reasons and explanation for the delay are important. Apart from those two matters, the discretion which must be exercised by the Commissioner is at large.

In performing its review function the AAT stood in the shoes of the original decision- maker and exercised afresh the discretion under s. 188:
FC of T v Swift & Ors 89 ATC 5101 at 5112. In doing so the Tribunal had regard to the principles set out by Wilcox J in
Hunter Valley Developments Pty Ltd v Minister for Home Affairs and Environment (1984) 58 ALR 305 at 310-312. His Honour was there considering the criteria relevant to the exercise of the discretion to extend time under s. 11 of the Administrative Decisions (Judicial Review) Act 1977. Those principles are, however, of a general nature applicable in other situations where there is a discretionary power to extend a procedural time limit. Those principles have been applied to the exercise of the power of the Commissioner to extend time for lodging objections:
Fardon v FC of T 92 ATC 4339. The parties to this appeal are agreed that the AAT correctly directed itself as to the matters relevant to the exercise of the discretion. In particular, the AAT considered in detail the reasons for the delay in lodging the objection, the possibility of prejudice to the Commissioner, and the prospects of success of the objection if the extension were granted. Implicit in this last

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ATC 4995

consideration was the question of prejudice to the applicant. If the merits of the grounds of objection were good, she would suffer the prejudice of paying a substantial assessment of tax which would not otherwise have been levied.

It is convenient at this point to look briefly at the facts.

The applicant lodged an income tax return for the year ended 30 June 1986 on 11 August 1989. From October 1989 to June 1990 officers of the Australian Tax Office (``ATO'') were engaged in an audit of the applicant's affairs, and that audit extended to a consideration of her husband's affairs. Meetings took place between taxation officers, the applicant, her husband, and a solicitor who had acted in other matters for the applicant (``the solicitor''). Initially the solicitor was not acting in relation to the applicant's taxation affairs but commenced to do so at about the time of the meetings. During those meetings the taxation officers asserted that s. 26AAA of the ITAA applied to three land transactions. The taxation officers contended that the applicant had purchased three adjoining allotments of land at Redland Bay, referred to as Lot 1, Lot 2, and Lot 3, within 12 months of the sale of those properties pursuant to a contract dated 15 July 1985.

At one of the meetings, held on 9 May 1990, certain proposals were made to resolve perceived irregularities in the tax affairs of both the applicant and her husband. However, those proposals were not put into effect by the applicant and her husband, and on 16 April 1991 a notice of assessment for the year ended 30 June 1986 was served on the applicant.

In her return as lodged the applicant disclosed a taxable income of $4,252.00. The notice of assessment increased her taxable income to $304,227.00. A letter from the ATO which accompanied the assessment explained the increase. Undisclosed interest of $1,625.00 and profit on the sale of property assessed under s. 26AAA of $298,350.00 had been added. The latter figure was arrived at as follows:

       Sale price                   $525,000.00
       Purchase price               $188,000.00
                                    -----------
                                    $337,000.00

      Less: legal fees, interest,
      rates and other outgoings     $ 38,650.00
                                    -----------
                                    $298,350.00
                                    ===========
      

Although this explanation did not specify that there were three separate land transactions involved, it has always been common ground that this was the case. The assessment was raised on the footing that Lot 1 had been purchased by the applicant pursuant to a contract dated 24 July 1984 for $73,000.00, Lot 2 pursuant to a contract in September 1984 for $45,000.00, and Lot 3 pursuant to a contract dated 27 March 1985 for $70,000.00, giving the total purchase price of $188,000.00. The assessment assumed that the three properties were sold pursuant to a single contract dated 15 July 1985 for $525,000.00. A valuation report prepared by a taxation officer during the course of the audit assigned the following values to each of the lots at 15 July 1985:

Lot 1$412,000.00

Lot 2$56,000.00

Lot 3$57,000.00.

The applicant disputes that s. 26AAA applies to the purchase and sale of Lot 1 on the grounds which are explained later in this judgment. There has never been any dispute in relation to the assertion that Lots 2 and 3 were sold within 12 months of their acquisition.

The notice of assessment was served by forwarding it to the applicant's tax agents whose address was her address for service of notices. It is not disputed that the notice came to her attention at about that time. The front page of the assessment contained a note stating ``See back for notes and other information'' and note 15 explained the procedure for lodging an objection if the taxpayer were dissatisfied with the assessment. Shortly after the assessment was served the applicant's husband talked to the solicitor who advised that the best avenue for disputing the assessment was to defend recovery proceedings in the courts when those proceedings were taken. The tax agent was, it seems, not involved at any stage in discussions about the assessment or the manner in which it should be disputed.

No objection to the assessment was lodged. As anticipated by the solicitor, a writ was issued out of the Supreme Court of Queensland to recover the outstanding tax on 30 July 1991. The writ was served on 17 August 1991 and an appearance entered on 29 August 1991. On 3 September 1991 the solicitor requested that the time for delivery of a defence be extended, and the solicitors for the Commissioner agreed. The

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ATC 4996

applicant did not file a defence within the extended time, and judgment by default was entered against her on 26 September 1991 for $267,753.10 plus costs.

In evidence before the AAT the solicitor said that a defence was not filed as he needed the assistance of counsel, and he needed to take extensive instructions. He had asked the applicant to contact him about the matter, and to provide security for fees, but nothing occurred.

There was evidence before the AAT that at about this time, in September 1991, a property, unrelated to those the subject to the tax assessment, registered in the name of the applicant, was sold and the sum of approximately $160,000.00 was paid to the solicitor's trust account on completion. The Tribunal noted that on the footing that the applicant's interest in the proceeds may have been only one half, there was a sum in the order of $80,000.00 available at her direction, none of which was applied to resolve her dispute with the Commissioner.

On 9 November 1991 a creditor's petition was issued by the Commissioner against the applicant. The petition was to come on for hearing on 17 December 1991. On 16 December 1991 the solicitor made application in the Supreme Court to set aside the judgment. In the bankruptcy proceedings the solicitor filed an affidavit deposing to the application in the Supreme Court, and explaining why there had been delay. The reason advanced was that the debtor had not been in a position to provide him with security for fees, and he said that his instructions from the debtor as to the reason for her delay was ``entirely related to her impecunious means in pursuing a defence''. The affidavit, without giving any information about the applicant's contentions in relation to the purchase and sale of Lot 1, asserted that the acquisition and sale did not occur within a 12 month period so that she had a complete defence to the action. The creditor's petition was adjourned until 23 December 1991. On that day application was made to the Registrar to further adjourn the petition to enable the applicant to make an application for an amended assessment pursuant to s. 170(6) of the ITAA. On 5 March 1992 the Registrar delivered reasons granting an adjournment which made clear the obligations of the applicant in regard to the avenues open to her under the ITAA to object, and observed ``the taxpayer will have to apply for an extension of time within which to lodge an objection (s. 188-188B)''. These reasons were read by the applicant at the time.

On 14 May 1992 the solicitor wrote to the ATO requesting an amendment of the assessment for the year ended 30 June 1986 under s. 170(6), and purported to make a request under s. 188 for an extension of time in which to lodge the objection. The letter failed to comply with s. 188(3) in that it did not give the circumstances or reasons for the delay in lodging the objection. This omission was pointed out by the ATO who invited a proper application within a further seven days. This time was extended at the solicitor's request, and on 9 June 1992 particulars regarding the delay were supplied. On 19 June 1992 the ATO by letter advised the solicitor that his letter of 14 May 1992 was accepted as an objection but an extension of time under s. 188 was denied, as was the request that an amended assessment be issued. An application for review was made to the AAT on 24 July 1992. On the same day the solicitor on the applicant's behalf made a further application to the Commissioner for an amended assessment pursuant to s. 170(6) and in the alternative an application for an extension of time for lodging the objection pursuant to s. 188. These applications were considered and denied by letter dated 24 August 1992. The applicant made a second application to the AAT to have the denial of the s. 188 application reviewed. The AAT considered both applications together.

On 29 July 1992 a judge of this Court adjourned the creditor's petition until the applicant's objection proceedings (then before the AAT) had been determined.

In the reasons for decision which affirmed the Commissioner's decisions under s. 188, on the question of delay the AAT concluded:

``Overall, I find that the applicant took no real action to do anything herself regarding the Commissioner's assessment until after she received Registrar Allen's reasons. That was approximately 11 months after the assessment was issued. At no time has she,

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ATC 4997

think it is a satisfactory explanation to say that she relied upon her husband and that her husband always gave the instructions. She is the taxpayer and, as such, is given rights and duties under the Act. Others may exercise those rights and carry out those duties on her behalf but I must consider also her own activities in ensuring that an attempt was made to comply with the legislative requirements and to protect her interests even if she does not know precisely what those requirements are. As I have already found, those efforts were very small and very late in the piece at a time when the assessment was a year or so old. This is not a case in which the applicant can be said to be blameless. The fact that the applicant was separated from her husband at some stage during these proceedings does not alter my view for, on the basis of [the solicitor's] evidence, I am satisfied that the applicant continued to defer to her husband in financial matters.''

The AAT said that it was unable to find any prejudice which would be suffered by the Commissioner if time were extended. On the merits of the objection lodged by the applicant the AAT concluded that, overall, the case which the applicant proposed to make out would have doubtful chances of success. The AAT expressed its ultimate conclusion thus:

``Taking into account all of the matters under consideration, I do not consider that it would be fair and equitable to allow an extension of time in which the applicant might lodge an objection. I have already indicated that I do not consider that there has been an acceptable explanation of the delay which has occurred and that the delay is not insubstantial. While the Commissioner is not prejudiced and I do not think that this is a case in which there is likely to be any great unsettling of the public or of settled practices, I think that the lack of a satisfactory explanation for the delay together with doubtful merits of the case lead me to conclude that I should not grant the extension of time as sought by the applicant.

For these reasons, I affirm the decision under review.''

The applicant seeks to identify a number of errors of law in the reasons for decision of the AAT. The principal contention of the applicant concerns the application of s. 26AAA to the circumstances of the transactions concerning the purchase, and then the sale of Lot 1.

The case which the applicant now advances unfortunately at times has not been clearly put either by her or by the solicitor, who was frank enough to admit in evidence before the AAT that during meetings in 1990 with the ATO he had no understanding of the facts of the transactions to which the officers said s. 26AAA applied, and that until he received the advice of counsel late in 1992, he had no understanding of the legal issues involved either. However there are passages in correspondence from the solicitor to the ATO, in affidavits filed in the bankruptcy proceedings by the applicant and her husband which were before the AAT in material filed pursuant to s. 37 of the AAT Act, and in further affidavits by them tendered before the AAT that disclose the basis of the applicant's contention that s. 26AAA does not apply to the transactions relating to Lot 1. In short, the applicant alleges that in early 1984 she and her husband desired to purchase Lot 1 which had potential for development as a quarry. A contract was entered into in her name as purchaser to purchase Lot 1, but as she could not raise finance the contract was rescinded by the vendors who forfeited her deposit. In June 1984 she and her husband decided to again pursue the purchase of Lot 1. She had changed banks and was more hopeful finance could be arranged. As her husband had once been a bankrupt it was planned by them that the contract, when they came to seek finance, was to be in her name, but as the proprietors of the land would not deal with the applicant or her family because of her failure to complete the earlier contract, they decided that the proprietors would be approached with an offer made on their behalf in the fictitious name of ``Larry Wilson'' as purchaser. The address given for Larry Wilson was the address of the applicant and her husband. The proprietors agreed to enter into a contract with ``Larry Wilson and/or Nominee'' as purchaser to sell Lot 1 for $73,000. The contract was signed and dated on 13 June 1984. The applicant's husband signed the contract ``L. Wilson'', and later told taxation officers during the audit that he was ``Larry Wilson''. The applicant and her husband in their affidavits say that before the contract of 13 June 1984 was signed they had agreed that Lot 1

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ATC 4998

would be held beneficially by them as joint tenants. It was intended by them that once the contract was signed by ``Larry Wilson'', the applicant would be nominated as purchaser, and she would then seek to raise the finance needed over and above certain moneys which were available from her bank account. Those moneys, she said, were treated as moneys jointly owned by herself and her husband. The applicant's husband, in one of his affidavits, has deposed that at about this time he told the solicitors whom he had instructed that the contract dated 13 June 1984 was to be put into his wife's name.

After the vendors signed the contract dated 13 June 1984 it was sent to the solicitors who then acted for the applicant and her husband. Those solicitors wrote to the applicant's husband under the name ``L. Wilson'' on 22 June 1984 reporting on aspects of the transaction and saying:

``We note the Contract is in the name of Larry Wilson and/or Nominee. Accordingly, your urgent advices would be appreciated in regards to the actual Purchasers to allow transfer documents to be drawn up.''

What instructions were given and by whom to the solicitors in response to this letter is not disclosed in the affidavits of the applicant and her husband, but it is clear from later correspondence that the solicitors were informed that the purchaser was to be the applicant. On 23 July 1984 the solicitors wrote again to ``L. Wilson'' enclosing transfer and other documents required to complete the sale the subject of the contract dated 13 June 1984. The letter went on to say:

``We also enclose herewith Contract of Sale in duplicate to be signed by both yourself and the Purchaser, Mrs Windshuttel [sic], where indicated thereon. It is necessary that we have a Contract of Sale between yourself and the Purchaser in order that the Memorandum of Transfer may be stamped. An alternative to executing the Contract of Sale, is for you to obtain a written valuation by a Real Estate Agent evidencing the value of the property. This valuation in lieu of the Contract of Sale may be stamped with the Memorandum of Transfer.

We look forward to early receipt of the above documents duly signed.''

The alternate courses of action suggested are to be explained by the fact, not expressly asserted in the affidavits, that no nomination of the applicant as purchaser under the contract of 13 June 1984 had been signed before the contract was entered into. On receipt of this letter the applicant and her husband say they discussed the alternatives, and elected to sign the enclosed contract instead of going to the additional trouble of obtaining a valuation for stamp duty purposes. They did not regard the signing of the contract as making any variation of their earlier agreement that the property be purchased and registered in the applicant's name, and held by her on behalf of both of them jointly as beneficial owners. The second contract was that dated 24 July 1984, purportedly between Larry Wilson as vendor and the applicant as purchaser. Again, the purchase price was stated to be $73,000. Both contracts were then stamped, and, so it seems, completed contemporaneously.

The applicant on this account of events asserts that under the contract dated 13 June 1984 she acquired as beneficial owner an interest as joint tenant in Lot 1, and that she retained her entitlement to that beneficial interest, unchanged by the contract signed on 24 July 1984, until that interest was sold on or after 15 July 1985. The contract of 24 July 1984 had the effect of altering the identity of the party who was to become the registered proprietor on completion, but that person was at all times only to hold the property as trustee for the applicant and her husband jointly.

There are aspects of this history of the transaction that the Commissioner might wish to explore, if, as the applicant contends, on this history s. 26AAA does not apply to the purchase and sale of Lot 1. For example, a question could arise why the applicant raised no apparent opposition to the assertion by the taxation officers in their meetings in the first half of 1990 that s. 26AAA applied if this history were correct. There may be a ready explanation for this omission, but it does not appear in the information placed before the AAT. The Commissioner may also wish to explore many aspects of the asserted history where corroboration could be expected if the history were correct, e.g. from the solicitors whom the applicant's husband says he informed about the proposal to place the first contract in the applicant's name, and from the financial

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ATC 4999

institutions identified by the applicant involved in this and similar transactions by her on behalf of herself and her husband to which she makes reference in her affidavits. However these matters were not explored before the AAT, nor was it necessary that they should be.

The issue which the AAT was required to consider was whether, for the purposes of the exercise of the discretion under s. 188A, the applicant's case had prospects of success, and what those prospects were. It is sufficient for that purpose, if the parties chose to so argue their case, to merely identify the factual assertions which the applicant made in the objection, and then to consider whether the application of the law to those assertions would bring about the result for which the applicant contends. In other words the assertions can, if the parties so choose, be treated as pleadings are treated where an application is made to strike out an action on the ground that the pleadings disclose no cause of action. On an application of that kind the true existence of the facts alleged in the pleadings is not explored by evidence. That is left for the trial if there is an arguable case on the pleadings. It would, of course, have been open before the AAT for the Commissioner to attack the history of the transaction asserted by the applicant. If it could have been demonstrated that an essential part of that history was wrong, that would go directly to the prospects of success to the objection. However the Commissioner chose not to attach the veracity of the facts alleged by the applicant, and this is understandable having regard to judicial pronouncements to the effect that where the issue is whether leave should be given to extend time it is inappropriate for the tribunal concerned to embark on a full scale trial of the merits of the underlying question which will be agitated only if time is extended. See
Barrett v Minister for Immigration, Local Government and Ethnic Affairs (1989) 18 ALD 129 at 130,
Repatriation Commission v Tuite (1992) 37 FCR 571 at 577. It would not be appropriate on an application to extend time to seek to attack the facts alleged on the ground that the credit of the applicant, or that of supporting witnesses, should not be accepted. Arguments of that kind are best left for later consideration if and when an extension of time is granted. Only where there is some obvious and easily demonstrated flaw in the applicant's case would it be appropriate to challenge the factual basis for the asserted claim on an application to extend time.

The assertions of fact regarding the history of the transactions, set out above, were not disputed before the AAT. The Commissioner's case, on the prospects of the objection succeeding, was that it must inevitably fail upon the application of s. 26AAA. Relevantly that section provided:

``26AAA(1) For the purposes of this section-

• (a) a reference to property generally or to a particular kind of property includes a reference to an estate or interest in property or in that kind of property, as the case may be;
• ...
• (g) if land is sold to or purchased by a person in pursuance of a contract, the date on which the contract was made shall be deemed to have been the date on which the land was so sold or purchased;
• ...

26AAA(2) Where-

• (a) a taxpayer has purchased property after 21 August 1973 and before the commencement of this section or purchases property after the commencement of this section; and
• (b) the taxpayer has, whether before or after the commencement of this section, sold the property or an interest in the property before the expiration of the period of 12 months from the date on which he purchased the property,

then, subject to this section, the assessable income of the taxpayer includes any profit arising from the sale of the property or interest.''

The Commissioner's approach to the case, evident both in the reasons for the decisions refusing the applications for extension of time, and in argument before the AAT and this Court, is very simple. It is contended that s. 26AAA(1)(g) concludes the issue against the applicant. The contract pursuant to which she purchased the land was made on the date which it bears, 24 July 1984, and the contract pursuant to which she sold the land was made on the date which it bears, 15 July 1985; and these two dates are less than 12 months apart.

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ATC 5000

This argument disregards any distinction between bare legal ownership on the one hand, and beneficial ownership on the other hand.

The AAT accepted the Commissioner's contentions. The AAT said:

``Mr Laurie submitted that no beneficial interest had passed from the husband to the applicant by virtue of the contract dated 24 July, 1984 as the contract did not pass the beneficial interest. That beneficial interest was held for both of them regardless of the name in which the land was actually held. I do not agree. Even if the husband and wife held property on trust for themselves and their spouse (sic), this does not mean that there is no transfer of interest when the land is sold from one spouse to the other. The legal interest must reasonably be transferred from husband to wife even if that legal interest is then held in trust for both of them. This is not a case, however, where the issue of who held the beneficial interest and at what time is particularly relevant. It is governed by the words of the Act and these are quite strict.''

On general principles income is not derived by a taxpayer unless it is derived beneficially:
Countess of Bective v FC of T (1932) 2 ATD 80 at 85-86; (1932) 47 CLR 417 at 423-424. The distinction between bare legal ownership and beneficial ownership is recognised. Thus s. 96 provides that ``Except as provided in this Act, a trustee shall not be liable as trustee to pay income tax upon the income of the trust estate''. Under s. 95(1) the ``net income'' in relation to a trust estate is to be calculated on the assumption that the trustee is a taxpayer by taking the total assessable income (calculated assuming that the trustee is a resident) and subtracting therefrom all allowable deductions other than those referred to in the subsection. The assessable income would include any profit arising from the sale of property to which s. 26AAA applies. Liability for tax on the trust law income then falls either upon the beneficiary or the trustee according to the provisions of Part III, Division 6 of the ITAA. Who is the relevant taxpayer and upon what share of the net income that taxpayer will be liable to pay tax depends upon whether there is one or more beneficiaries of the trust estate presently entitled to a share of the trust law income of the trust estate. The distinction between a legal owner who holds property as a trustee, and the person beneficially entitled under that trust is clearly recognised. In the present case, if the circumstances of the trust asserted by the applicant are recognised, she acquired the beneficial interest in Lot 1, that was later sold in July 1985, pursuant to the contract dated 13 June 1984.

There is nothing in the provisions of s. 26AAA which would deny the application of the general principles relating to trust law. These principles were applied where it was contended that s. 26AAA operated in
Palmarc Investments Pty Ltd v FC of T 85 ATC 4410. In that case the taxpayer as a shareholder in ``Magnum'' became entitled to an offer of rights to take up shares and options in a new company ``Carbon''. The taxpayer assigned its interest in the offer of rights. The deed of assignment provided that the taxpayer would apply for the shares and options on behalf of the assignee and hold them as trustee. The Commissioner included the amount received as consideration for the assignment in the taxpayer's assessable income. One of the arguments advanced for doing so was that property in the shares and options vested in the taxpayer for an instant of time before the declaration of trust came into effect, and that pursuant to s. 26AAA(1)(d) the allotment of shares and options to the taxpayer was deemed to be the purchase of them by the taxpayer. These arguments were rejected. Relevantly, the Court said, at 4414:

``There was no purchase by the taxpayer in its own right of any interest in the Carbon shares when they were allotted to it; nor was there a sale by the taxpayer to Sewell of the equitable interest in those shares. The shares were allotted to the taxpayer only (and at all times) as trustee for Sewell, and the taxpayer held those shares only (and at all times) as trustee for Sewell. The taxpayer acted in exactly the same way as any nominee company which was a Magnum shareholder - such as, for example, ANZ Nominees Ltd. which held shares in Magnum as trustee for the taxpayer. As between Magnum and that company, ANZ Nominees was the shareholder and was entitled to payment of a dividend and to vote at meetings and it was liable for calls, etc. Similarly, when it no doubt accepted the offer of the directors of Carbon and took up shares and options in Carbon it was, so far as Carbon was

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ATC 5001

concerned, the shareholder but it acquired those shares and held them as trustee for the taxpayer.''

The AAT was referred to Palmarc Investments Pty Ltd v FC of T, but it distinguished the decision on the ground that it concerned shares, not vacant land. That is a point of difference in the facts, but in principle the passage from the judgment just cited is in my opinion, indistinguishable and clearly correct.

Under s. 26AAA(1)(a), for the purposes of the section a reference to a particular kind of property includes a reference to an interest in that kind of property. The kind of property in question here is land. The relevant interest in land, on the applicant's assertion as to the facts, which constitutes the ``property'' purchased by the taxpayer was an interest as beneficial owner held jointly with her husband in Lot 1. That interest was acquired in pursuance of the contract made on 13 June 1984, and by s. 26AAA(1)(g) is deemed to have been purchased on that date. On the asserted facts there was no change in that beneficial interest brought about by the contract dated 24 July 1984. She acquired no beneficial interest by purchase or otherwise under that contract. All that was achieved by the contract of 24 July 1984 was a change in the person entitled to hold the bare legal title to Lot 1, a change of trustee. As the beneficial interest in Lot 1 held by the taxpayer is deemed by s. 26AAA(1)(g) to have been purchased by her on 13 June 1984, it was purchased more than 12 months before the sale of that interest in July 1985, and s. 26AAA has no application. Insofar as the notice of assessment against which the applicant wishes to object includes $298,350 as assessable income pursuant to s. 26AAA, the objection filed by the applicant should succeed - assuming of course that the applicant can satisfy the relevant decision-maker that the facts concerning the transaction are as she asserts them to be. The applicant has made good her contention that the AAT fell into error of law concerning the application of s. 26AAA to the alleged circumstances surrounding the purchase of her interest in Lot 1.

This conclusion disposes of grounds (a) to (c) and (l) of the notice of appeal. The remaining grounds of appeal alleged other errors of law by the AAT. It is necessary to deal briefly with each of them:

Ground (d) argues that s. 26AAA(1)(g) does not exclude the possibility of an oral agreement to purchase land, and that the AAT was in error in rejecting submissions that the applicant purchased the land under an oral agreement made on 13 June 1984 that she was to be the nominee. This submission was put in the alternative to the main case of the applicant based on her purchase of a beneficial interest on 13 June 1984, and assumed that the Commissioner was correct in asserting that s. 26AAA caught the purchase and sale of a bare legal interest. In light of the conclusion reached on grounds (a) to (c), this argument becomes irrelevant.

Ground (e) contends that the AAT erred in rejecting the submission that there was no identity of interest between the interest which was sold, and that which was purchased. This submission involves the proposition that in pursuance of the contract dated 24 July 1984 all that the applicant purchased was a bare legal interest, whereas the interests later sold were different. This submission was rejected by the Tribunal consistent with its view that any distinction between legal and beneficial interests was irrelevant to the application of s. 26AAA. This ground of appeal is closely connected with grounds (a) to (c) and need not be considered separately in light of the decision reached on those grounds.

Grounds (f) and (g) allege that the AAT erred in failing to find, and to take into account, that the applicant suffered a nervous condition and was commercially naive, these being characteristics which the applicant alleged were relevant to explain the delay in lodging an objection to the assessment. These grounds cannot be sustained. In substance they are complaints about findings of fact. There was material before the AAT on these topics. The AAT discussed that material in the reasons for decision. The conclusions reached by the AAT were clearly open on the evidence. No error of law arises.

Ground (h) alleges error in law in that the AAT failed to take into account the fact that at all times after December 1991, the Commissioner knew that the applicant contested the merits of the assessment. This ground of appeal is without foundation. The AAT twice referred to this fact in the reasons for decision in a manner which indicates that it was taken into account. In any event, the point

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ATC 5002

is one that would be relevant to prejudice suffered by the Commissioner, and on that question the AAT found that there was no relevant prejudice suffered by the Commissioner.

Ground (i) alleges error through failure to take into account that the applicant during the period of delay had ``no access to or means of obtaining the necessary documentation, including the contracts of sale to which the assessment related... as they were not in her possession and she did not have financial means to obtain them within that period''. The AAT's reasons for decision make it plain that these topics were considered. The AAT considered the reasons why necessary documents were not obtained, and discussed the financial position and apparent priorities of the applicant on the expenditure of the proceeds of the property sale completed in September 1991. This ground of appeal also fails.

Ground (j) alleges error through failure to take into account that the applicant relied upon her husband completely and that they had recently separated. Again, this ground of appeal must also fail as the reasons for decision indicate these matters were considered and taken into account.

Ground (k) contends that on a proper exercise of the discretion under s. 188 an extension of time should have been granted. This appears to be a catch-all ground that raises no specific error of law. If it is intended to allege that the exercise of the discretion was so unreasonable that no reasonable decision-maker could ever have come to it, in the Wednesbury sense (
Associated Provincial Picture Houses Ltd v Wednesbury Corp. [1948] 1 KB 223), there is no need to consider the point, as error of law materially affecting the exercise of the discretion by the AAT has already been established under grounds (a) to (c) of the notice of appeal.

Finally, in the course of argument reference was made to a submission concerning the date of the sale of Lots 1, 2 and 3, which was rejected by the AAT. This question does not appear to be specifically raised by the grounds of appeal, but as it was referred to in argument I mention it briefly. The contract of sale dated 15 July 1985 was expressed to be subject to three ``Special Conditions'', each a condition subsequent. It seems to have been suggested, faintly, that the sale did not occur until these conditions had been fulfilled. More weight was placed by the applicant on a similar argument to the effect that the contract of sale was not ``made'', or did not become enforceable, by reason of a further oral term, or oral collateral contract, to which no reference is made in the written contract of 15 July 1985. The evidentiary material to support this argument is summarised in an affidavit of the applicant's husband filed in the bankruptcy proceedings on 16 July 1992 where he deposes that:

``I agreed on behalf of myself and my wife that we would not require completion of any contract for the sale of the land until they were satisfied as to the terms of a document to be later prepared by consultation between our respective Solicitors dealing with restraining my and my wife's trade in the quarry and extractive industries which my wife and I would sign.''

(Emphasis added)

A deed whereby the applicant and her husband undertook not to be concerned in quarrying or extractive industry activities for a period of time within a defined geographical area was executed on 30 July 1985. It was argued that the date of sale was not earlier than that date. In my opinion, the AAT correctly rejected that argument. The oral term or agreement alleged, at best would constitute a condition precedent to performance of the contract, not a condition precedent to the formation of the contract:
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 552,
Meehan v Jones (1981-1982) 149 CLR 571 and
Brion & Anor v Commr of Stamps (S.A.) 90 ATC 4696. The contract of 15 July 1984 was binding from that date on the parties. Conditions precedent to the performance of the contract, of the kind alleged, may have relieved the purchaser from completion if they were not fulfilled, but in the events which happened they were fulfilled and completion took place. For the purpose of s. 26AAA(1)(g), clearly the sale took place ``in pursuance of'' the contract of 15 July 1985.

On the appeal, the applicant therefore succeeds on grounds (a) to (c) and (l) concerning the application of s. 26AAA to the circumstances of the purchase of her interest in Lot 1. The error of law led the AAT to the conclusion ``that the case which the applicant proposes to make out would have doubtful chances of success'', and in turn the doubtful merits of success were an important factor in the exercise of the discretion.

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ATC 5003

Before deciding what orders should be made to give effect to this conclusion, it is necessary to refer to the notice of contention filed by the Commissioner. The Commissioner alleges that the AAT erred in finding that the Commissioner had suffered no prejudice by reason of the applicant's delay in filing her objection, and in seeking an extension of time. It is said that this conclusion could not reasonably be drawn from the primary facts found by the AAT, and involved a misunderstanding of the correct test to be applied. The 60-day period following service of the notice ended on about 15 June 1991. The objection was not lodged until 14 May 1992 - 11 months later. The AAT discussed at length in the reasons for decision the many delays which had taken place, and the sad saga of inaction and incompetence of the applicant's solicitor. Against this background the AAT said:

``Turning now to any prejudice which may be caused to the respondent were I to grant the application, I am unable to find any. The area of dispute between the parties is documented and is not particularly dependent upon memories which may fail over time. On the evidence I have, I find that the Commissioner was not aware that the assessment was disputed after judgement was entered in September 1991 until action was taken to have the judgement set aside in December 1991 but I am satisfied that he was not prejudiced in this regard or by subsequent delays.''

It is contended on the Commissioner's behalf that plainly there was prejudice by reason of the following matters:

(a) no tax has been paid on the assessment of 16 April 1991,

(b) a writ has been issued and judgment obtained,

(c) a creditor's petition has been issued,

(d) the Commissioner had no notice of the fact that the applicant sought to dispute the basis for the assessment until December 1991,

(e) notwithstanding that the reasons of the Registrar in Bankruptcy made the obligations of the applicant under s. 188 of the ITAA plain, no objection was lodged until 14 May 1992, and then it was defective,

(f) further delays have occurred since 14 May 1992, and the creditor's petition has been further adjourned by order of this Court until the applicant's objection has been determined.

It is said that prejudice arises because the Commissioner has not been able to pursue the creditor's petition to finality, and because no money has been recovered from the applicant.

The contention that prejudice arises because no money has been recovered on the assessment presupposes that the assessment is one that in law should have been raised on the true facts. This is the very issue in dispute. This is not prejudice of the kind to which the authorities refer. If it were, there would be prejudice in every case where an extension of some procedural time limit is sought, as the extension, if granted, would remove the bar to action in favour of the opposing party which would otherwise exist. The fact that the statute has provided a power to extend time is a recognition that the loss of the procedural bar that would otherwise apply is not to be a ground disqualifying someone from seeking an extension. The kind of prejudice which is relevant is prejudice that could arise to the opposing party in properly and fairly dealing with the subject matter of the dispute that will require determination if the extension of time is granted. Relevant matters will be whether witnesses have disappeared or their recollections have faded (provided of course that the evidence of the witnesses would have been material:
Ulowski v Miller [1968] SASR 277 at 283-284 and cannot be refreshed
Wedesweiller v Cole (1983) 47 ALR 528 at 534); whether avenues of useful enquiry have dried up or become difficult to pursue; and whether material documents have been destroyed. In a case like the present it may be open to the party potentially entitled to recover money to establish that by reason of the delay, the financial resources of the applicant have so altered for the worse that the chance of recovery of whatever sum is ultimately found to be due has seriously diminished. But as Bray CJ observed in Ulowski v Miller, at 284 and also in
Victa Limited v Johnson (1975) 10 SASR 496 at 504, a court (or tribunal) should be slow to infer something to the existence of which the party asserting it is unwilling to depose. So, if a party against whom an extension of time is sought, intends to oppose that extension on the ground

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ATC 5004

of prejudice, that party should adduce evidence which shows the nature and extent of that prejudice. In the present case no cause for prejudice beyond those matters listed above was asserted or deposed to.

The mere fact that money payable under the notice of assessment, the subject of the proposed challenge, has not been recovered is not, in my view, a relevant consideration. Insofar as recovery of whatever sum is eventually determined to be due is delayed, that delay will be compensated for by the payment of interest (there is no evidence that the applicant will be unable to pay that interest). Insofar as the Commissioner has been inconvenienced and put to expense by the conduct of the Supreme Court proceedings and the bankruptcy proceedings, those are matters which can adequately be dealt with by orders for costs. In any event, once the objection was filed on 14 May 1992, and the Federal Court adjourned the bankruptcy proceedings to await the determination of the proceedings in the AAT challenging the Commissioner's refusal to extend time, any delay thereafter is not relevantly of the applicant's making, and should not be considered in the exercise of the discretion.

In my opinion the AAT did not act unreasonably in holding there was no prejudice to the Commissioner by reason of the delay prior to 14 May 1992, and the AAT did not misunderstand the relevant principles of law to be applied. Furthermore, as the AAT found that there was no satisfactory explanation for that delay, and brought that lack of explanation into the balance as a factor against the applicant in the exercise of the discretion, there would have been a serious risk of ``double counting'' the dilatory behaviour of the applicant if prejudice to the Commissioner had been inferred simply from the fact of the delay, and from the failure to bring to the Commissioner's attention the fact that the applicant disputed the basis for the assessment prior to December 1991.

The final question is the orders which should now be made. The appeal to this Court is only on questions of law. The powers of this Court under sub-ss. 44(4), (5) and (6) of the AAT Act do not authorise the Court to make the same wide orders as the AAT would be empowered to make:
Secretary, Department of Social Security v Hodgson (1992) ASSC ¶92-126 at 84,161; (1992) 15 AAR 563 at 575. This is especially so where the exercise of the power of the AAT involves the fresh exercise of a discretionary power. In my opinion, upon the decision of the AAT being set aside, as it must be, the matter must be referred back to the AAT to exercise the discretion under s. 188A according to law.

The hearing which took place before the AAT required the analysis of a substantial volume of written material, and oral evidence was received from the solicitor. The parties conducted their respective cases along certain lines. If the matter were sent back for a complete rehearing much expense would be involved, and it is not improbable that the parties would seek to broaden the issues before the AAT considerably. Much further time would elapse as this took place. It is undesirable that this should happen. The only error established on the part of the AAT is a discrete error of law, and there is no reason to think that the AAT would encounter any difficulty in exercising its discretion afresh in light of the decision now made on the operation and application of s. 26AAA to the facts asserted by the applicant. I consider the appropriate orders are that the decision of the AAT to affirm both the decisions under review be set aside, and that the matters be remitted to the AAT to be heard and decided again without the hearing of further evidence. In the interests of expedience it would seem desirable that the Tribunal be constituted by the same person as before.

The Court orders that:

1. The decisions of the Administrative Appeals Tribunal to affirm the decisions under review in matters QT92/61-86 and QT92/92-86 be set aside.

2. Each of the said matters be remitted to the Administrative Appeals Tribunal to be heard and decided again without the hearing of further evidence.

3. The respondent pay to the applicant her costs to be taxed.