Re Anthony John Scallan v Commissioner of Taxation [1989] FCA 26 (23 February 1989)

FEDERAL COURT OF AUSTRALIA

Re: ANTHONY JOHN SCALLAN
And: COMMISSIONER OF TAXATION
Nos. NG3045-3048 of 1987
Income Tax

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Wilcox J.(1)

CATCHWORDS

Income Tax - Appeal - Interest bearing deposit held at bank No identification of owner of account - Applicant assessed on basis that money held by him - Alleged profit on sale of motor vehicle - Whether applicant has discharged onus of showing that assessments are erroneous - Whether issue of assessments was a non-justifiable exercise of statutory power.

Income Tax Assessment Act 1936 ss.167,190.

HEARING

SYDNEY
23:2:1989

Counsel for the Applicant: Mr R.A. Conti QC with Mr S. Motbey

Solicitors for the Applicant: P Murphy & Co

Counsel for the Respondent: Mr N.R. Burns

Solicitors for the Respondent: Australian Government Solicitor

ORDER

The appeal be dismissed.

The applicant pay to the respondents his costs of the proceeding.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

If a case were required to illustrate the importance, from the point of view of efficient taxation administration, of proper identification of the owners of bank accounts, it is provided by these proceedings. The central factual issue in the four appeals now before the Court, and which relate to the taxation years ended 30 June in each of the years 1978, 1979, 1980 and 1981, is whether the applicant, Anthony John Scallan, was responsible for the making of an interest bearing deposit of $106,000 with the Commercial Banking Company of Sydney Limited, at its Rose Bay branch, in January 1978. The respondent, the Commissioner of Taxation, so contends and argues that, in the absence of any other explanation of its provenance, this money should be regarded as assessable income of the applicant for the year ended 30 June 1978. The deposit remained with the bank until 1 August 1980, earning interest. Consequently, the Commissioner has also assessed the applicant to tax on this interest in each of the years 1979, 1980 and 1981. There is a subsidiary question, arising out of the assessment of the applicant to tax upon a sum of $11,500 alleged by the Commissioner to have been received by him by way of profit upon the sale of a Jensen motor car during the year ended 30 June 1978.

2. The appeals came before the Court pursuant to Part V of the Income Tax Assessment Act 1936. Section 190, which is included in that Part, relevantly states:

"190. In proceedings under this Part ... on
appeal to a court--
(a)...
(b)the burden of proving that the assessment
is excessive shall lie upon the
taxpayer."

3. This provision is of considerable importance to the determination of the present appeals. The evidence relating to both the factual issues is quite unsatisfactory. In the case of the bank deposit, the applicant denies any involvement with the monies, claiming that the deposit was made by his then mother-in-law, Mrs Florence Rose. Mrs Rose denies this. As will appear, there are difficulties in accepting the evidence of either the applicant or Mrs Rose. The applicant's version of the relevant events contains a number of improbabilities. In the case of the motor car there is nothing inherently improbable about the applicant's evidence, but that evidence is inconsistent with an important contemporaneous document.
The interest bearing deposit

4. There have been admitted into evidence a number of interest bearing deposit ledger sheets of the bank. One of these sheets relates to the presently controversial deposit, being for the sum of $106,000 made on 9 January 1978 for a term of three months. The sheet is signed by both the branch accountant and manager. It is not signed on behalf of the depositor, notwithstanding the provision of space for that purpose. The name of the depositor is shown as "Miss Victoria Sarah Slater". That person's address is given as 37 Dudley Road, Rose Bay. The reverse side of the slip shows that $2,385 became payable by way of interest on 11 April 1978. Of this sum, $2,000 was added to the original principal sum, making a total of $108,000, which was then reinvested with CBC Properties. The balance of the interest, $385, is shown as having been paid to "F. Rose".

5. Victoria Sarah Slater is the daughter, by her first marriage, of Gail Ann Scallan, the former wife of the applicant. Miss Slater was born in 1964. Upon the remarriage of her mother in 1969 she became generally known as Victoria Scallan. In the following year Mr and Mrs Scallan had a son, Eden Charles Scallan. In January 1978 the whole family, that is Mr and Mrs Scallan, Victoria and Eden, lived together at 37 Dudley Street, Rose Bay. Mr and Mrs Scallan separated in about 1980-81 and were divorced shortly afterwards.

6. Mrs Rose, whose maiden name was Hampson, is the mother of Mrs Scallan. In January 1978 Mrs Rose lived in Rose Bay, but not at 37 Dudley Street. Until his death in 1972 her late husband had, for many years, been a partner in an illegal gambling establishment at Kings Cross. He apparently dealt with the Commercial Banking Company of Sydney at its Kings Cross branch and it may be assumed, given his occupation, that he had access to significant cash sums. Although there is no evidence of any such practice, it would not be surprising if Mr Rose held money from time to time on interest bearing deposit, perhaps under someone else's name.

7. It is common ground between Mr Scallan and Mrs Rose that, after the death of Mr Rose, Mr Scallan played a role in the management of Mrs Rose's financial affairs. But there is a divergence between the two witnesses as to the extent of Mrs Rose's delegation of that management to Mr Scallan. In an affidavit read in these proceedings Mrs Rose said that, after the death of her husband, "the applicant took charge of all of my business and personal affairs because I trusted him. I left all business matters to him including any banking matters and he dealt with all matters for me. All of my papers were held by the applicant. I never used to handle any business. He looked after everything". By contrast, Mr Scallan described his work on behalf of Mrs Rose as "general bookkeeping" and keeping records for her, although he also agreed that he "took charge" of some of Mrs Rose's business affairs and that many of the records of Mrs Rose's affairs, including bank documents, were held at his office. Mr Scallan also agreed that, after the death of Mr Rose, he became a director of an investment company, F. Rose Investments Pty Limited, of which Mrs Rose was the sole beneficial proprietor. According to Mrs Rose, it was Mr Scallan who suggested that this company should be formed and he arranged for its incorporation. That company held assets in the form of real estate and loans. Mr Scallan remained a director of the company until 1982. The evidence establishes that the accountants who prepared Mrs Rose's tax returns were accustomed to report to, and to seek instructions from, Mr Scallan as to the content of her taxation returns. It is clear that Mr Scallan, in his evidence, has underplayed his role in the management of Mrs Rose's affairs. There is no question in my mind that, whatever the precise details of his involvement, Mr Scallan's role extended to the point where he must have become aware of the extent of Mrs Roses's assets. It is not unlikely that, if the late Mr Rose did hold money on interest bearing deposit at about the time of his death, Mr Scallan would have become aware of that fact.

8. There is not much evidence before the Court as to the nature or extent of the income received by Mr Scallan during relevant years. At the time of his marriage, Mr Scallan was a television technician. He subsequently went into the business of importing fancy goods, electrical goods and watches. It is not clear to what degree the business prospered. Some company accounts and personal taxation returns were put into evidence but their accuracy was not investigated. No doubt counsel thought this to be unnecessary because there was no evidence on behalf of the applicant to suggest that he lacked the opportunity to generate income equal to the amount of the bank deposit.

9. To my knowledge it has never been suggested by anybody that the $106,000 was deposited by Miss Scallan herself. There is no suggestion in the evidence that she had any money or income of her own. The probability is that the deposit was made either by the applicant or by Mrs Rose. Each of these people was closely connected to Miss Scallan. Each would have had the opportunity to open a deposit account in her natal name. So far as the evidence reveals, each might have had access to a sum as great as $106,000. Each person denies any involvement in the matter and attributes the deposit to the other. There is no direct evidence to implicate either of them. As I have said, there are difficulties about the evidence of both witnesses. I should say why I think so.

10. In relation to a number of matters, the evidence of Mrs Rose was confused. Under cross-examination Mrs Rose frequently gave the answer "I don't know", or "I don't remember", even in response to a question about which one might have expected her to have some knowledge. When she gave these answers Mrs Rose may have been prevaricating but this was not the impression which I gained at the time. My belief was, and is, that Mrs Rose was attempting to answer the questions as fully and accurately as she could but that, at least at the time of giving her evidence, she did not know the answers. Perhaps she never had known the answers. She may never have known much about her financial affairs. It is interesting to note the comment of Mr G B Kirby, who prepared Mrs Rose's tax returns, speaking of the period which is now material, that, if he asked Mrs Rose for information, she would say that she did not know or that she did not remember. During his lifetime Mrs Rose's late husband appears to have played the major role in managing the couple's finances. Given his occupation, he might have thought it better not to disclose details, even to his wife. After the death of Mr Rose, Mrs Rose was, at least, substantially assisted by the applicant and by the accountant in his office. This is not to say that Mrs Rose played no part in financial affairs. She did collect rents from the tenants in the small block of flats where she lived and she engaged in some bank transactions, including from time to time the making of interest bearing deposits. But there is nothing to indicate that Mrs Rose ever initiated action, or made major decisions, in relation to financial matters. Even if Mrs Rose knew a lot about her financial affairs in earlier times, it would not be surprising if she had forgotten much of this information. The events the subject of her evidence occurred a decade, and more, ago. Mrs Rose is now aged 75 years and, until she was asked to swear an affidavit shortly before the hearing of these appeals, she seems to have had no need to recall those events.

11. Because of the above considerations I am not prepared to categorise as false any of Mrs Rose's denials of knowledge or of recollection. I think that she gave her evidence honestly and in an attempt to assist the Court. At the same time, by reason of her infirmities of knowledge and of recollection, little reliance should be placed upon her evidence. I take into account, as an element in the case against the applicant, her denial of any connection with the deposit of $106,000. The size of the deposit makes this a transaction more likely than most to be recalled. But, even here, I am not totally confident of Mrs Rose's memory. It would not be beyond the bounds of possibility for her to have forgotten even so large a transaction. So I place little weight upon Mrs Rose's evidence in denial. If I were otherwise persuaded by the applicant's evidence, I would not reject his case merely because it was inconsistent with Mrs Rose's evidence.

12. The critical matter, then, is the cogency of the applicant's own evidence. That evidence is sworn evidence. The evidence is denied by Mrs Rose, but it is not convincingly denied. Under these circumstances, although it may be unduly favourable to the applicant so to do, I think that it is proper to adopt the approach outlined by Sugerman J, with whom Richardson and Macfarlan JJ agreed, in Holman v Holman (1964) 81 WN (Pt.1) (NSW) 374 at p.378:

"Leaving aside questions of the witnesses'
demeanour or manner, it may be said that in
general uncontradicted evidence in an
uncontested proceeding which is not improbable
or unreasonable should be acted upon."

13. The question is whether it can be said that Mr Scallan's evidence of non-involvement with the deposit may properly be described as improbable or unreasonable. In addressing that question I must take into account not only my impression of him as a person and as a witness, but also the events and documents surrounding the transaction and its investigation by the Australian Tax Office.

14. Mr Scallan is an intelligent person, well conversant with his business and financial affairs. From the limited material available to me, it would seem that he manages those affairs efficiently. At all material times he has had the benefit of the assistance of an internal accountant in his business and the services of a firm of chartered accountants.

15. In the case of Mr Scallan, in contrast to that of Mrs Rose, there is not much room for the belief that his denial of any involvement with the interest bearing deposit is a product of faulty recollection. Not only does Mr Scallan appear to have a good recollection, even now, of his business and financial dealings at the relevant time; he has the advantage that the relevant matters were drawn to his attention in 1980, whilst the deposit was still current. A letter dated 6 June 1980 was sent by the Australian Taxation Office to Ms Slater, at 37 Dudley Street, Rose Bay, seeking the completion and return of a statement relating to the lodgment of income tax returns. The statement not having been returned, the Deputy Commissioner wrote a further letter, dated 24 July 1980, seeking "a statement showing details of all income derived from all sources for the years ended 30 June 1975 to 1979". The evidence does not suggest that a reply was sent to either of the letters from the Taxation Office but they may have had an effect. The deposit was withdrawn only 8 days after the date of the second letter.

16. Mr Scallan apparently became aware of these letters, or at least one of them. I infer this from the fact that, when he was asked about his first knowledge of the deposit, Mr Scallan's initial reply was: "It was around the time of the letter from the Taxation Department". (Later he said that he "would have been aware earlier"). Mr Scallan was living at 37 Dudley Street, Rose Bay at the time. The letters must have struck a chord. At that time Mr Scallan was himself under investigation by the Taxation Office. By a letter dated 14 February 1980 the Deputy Commissioner had requested Mr Scallan to attend an interview on 28 February 1980 with an officer, Mr C Arkins, concerning his income tax affairs. The evidence does not disclose whether or not Mr Scallan attended for interview on that day but he did discuss the matter with his accountants. By letter dated 23 December 1980 he forwarded to Mr Arkins a statement as to his assets and liabilities during the period 1974-1979.

17. Whether or not he attended any earlier appointment, Mr Scallan did attend an interview with Mr Arkins, in company with his accountant, on 24 February 1981. Upon that occasion Mr Arkins gave to Mr Scallan a list of matters in relation to which he sought further information. This list, which is in evidence, sets out numerous interest bearing deposits, including that for the sum of $106,000. It bears the notation, apparently in the handwriting of Mr Scallan's accountant:

"Necessary to supply proof of where money came
from for deposits and from whom and as to
where money went after being withdrawn for
deposit.
- who had authority to withdraw deposits
- who held IBD certificates."

18. However, it seems that Mr Scallan did not, at that time, supply any information in response to this request. The matter was brought up again, at a further interview later in the year 1981 in the office of his accountants. Apparently this interview took place about 10 September 1981. Upon this occasion two taxation officers were present, Mr Arkins and a Mr Verrell. In relation to that interview Mr Scallan gave the following evidence:

Q "You recall at that interview one of the
tax officers asked you a number of
questions about the source of money in
the interest bearing deposits at the
Commercial Bank at Rose Bay?"
A "Yes."
Q "You stated you had nothing to do with
them?"
A "Yes."
Q "You also stated you had no knowledge of
withdrawals from the accounts?"
A "Yes."
Q "Was that true?"
A "At the time probably not, no."
...
Q "Did the tax officers go on to say that
obviously a school girl would hardly
undertake withdrawing cash over $130,000
without some direction from some other
person?"
A "Yes."
Q "Did you say that she was not acting under
your direction?"
A "Yes."
Q "Were you asked whether your step-daughter
was acting under the direction of your
wife and you replied that you did not
know?"
A "Yes."
Q "Did one of the officers then say that a
fair answer to his question would be that
the source and destination of the funds
were unknown to you and did Mr Hodes then
interrupt saying that you should answer
that question in your own words?"
A "Yes."
Q "Did you answer the question by saying I
am unable to tell you whose money it is?"
A "Yes."
...
Q "Thank you. Did you tell the tax officers
that you had sought legal opinion on the
matter of the ownership of the interest
bearing deposits?"
A "Yes."
Q "Yes. Did you tell them that you had
received advice that evidence would be
produced which would substantiate the
property was not yours?"
A "Yes."
Q "Were you then asked if this was so why
you were not going to supply the
information to the tax department?"
A "Yes."
Q "Did you then say that you would produce
the evidence in a court of law?"
A "I do not remember saying that."
Q "Is it possible you said it?"
A "It is possible."
Q "Did you go on to say that if you produce
the evidence in any other place the
heavies would get you?"
A "I do not remember saying that."
Q "Is it possible you said it?"
A "It is possible."
Q "Were you asked or were you told that you
could establish the money was not yours
by furnishing to the tax office the name
of the real owner together with an
affidavit or some other material which
certified the true owner?"
A "Yes."
Q "Did you then say to the officers that if
the department treated you fairly you
would be prepared to accept tax
assessments including part or the whole
of the interest bearing deposit?"
A "Yes."
Q "And that you might prevail on someone
other than yourself or wife to meet part
or whole of the additional tax due?"
A "Yes."
Q "Did you go on to say that if amended tax
imposed a ruinous imposition you would
fight all the way?"
A "Yes."

19. Some two weeks after this interview Mr Scallan's internal accountant received a letter from the Rose Bay branch of the Commercial Banking Company of Sydney Limited enclosing photocopies of seven interest bearing ledger sheets. They included the sheet relating to the deposit of $106,000, already described. They also included a sheet relating to a deposit of $8,420, in the name of Victoria Sarah Slater, made on 19 July 1978 and paid out on 11 May 1979. As Mrs Rose agreed in evidence, the depositor's signature "Florence Rose" upon this sheet is in her handwriting.

20. The interest bearing ledger sheets also included three sheets relating to accounts in the name of Eden Charles Scallan. The earliest in point of date, 29 April 1976, was for $1,400. The name of the depositor shown on the sheet was originally typed as "Anthony Charles Scallan". The word "Anthony" was struck out in pen and replaced by "Eden". There is no depositor's signature. The deposit was repaid on 11 May 1979, the receipt slip being signed by Mr Scallan. The second and third sheets in the name of Eden Charles Scallan were dated 16 August 1978 and 17 August 1978. They related to deposits of $1,330 and $13,158.66 respectively. The sheet for $1,330 was signed by Mrs Rose, the sheet for $13,158.66 is unsigned. Both deposits were paid out on 11 May 1979, receipt slips being signed by the applicant.

21. Finally, there were two sheets relating to deposits in the name of "Gail Ann Scallan", dated respectively 2 September and 9 September 1980. The sheets and receipts are signed by Mrs Scallan. There is nothing to indicate any connection by either Mr Scallan or Mrs Rose with either of these deposits.

22. The applicant agreed under cross-examination that he did not immediately produce to the Taxation Office the letter from the bank or any of the documents enclosed therewith. Only in April 1984, after disallowance of his objections to the subject assessments, were any of the documents produced; but, even then, only four pages of the documents. Mr Scallan did not deny the assertion that he failed to produce to the taxation officers any of the receipts bearing his signature.

23. According to Mr Scallan, at one stage during the investigation into his affairs, he requested information from the manager of the Kings Cross branch of the Commercial Banking Company of Sydney, Mr Harding. Mr Scallan said that he did this because he was "trying to establish something -- where these funds had originated". He requested Mr Harding to "check on whether that particular IBD originated with him or with his branch and when". In response to this request, Mr Scallan said, he received from a bank officer, whom he did not identify either by name or position, a piece of paper. That piece of paper was tendered in these proceedings as exhibit N. As typed, before the addition of some handwriting by Mr Scallan, the document read:

"27/10/75 Account opened in name of
Floernce (sic) Hampson &
Gail Anne Slater No 208 4257
9/1/78 Account closed (?) and
funds placed on IBD in
name of Victoria Slater $106.000
9/4/78 From IBD to C.B.C.
Properties Ltd for $108.000
in name of Scallan
19/54/78 from C.B.C. Properties
Ltd back to IBD in name
of Victoria Slater $108.233"

24. I find the document remarkable, in a number of respects. The paper which was used does not bear the name of the bank. It is not normal commercial stationery. It appears to be a page from a cheap writing pad. The typing is amateurish, not only by reason of the misspelling of "Florence" but also in the uneveness of the lines. The date of the last entry showed, as the month, the figure "4" overtyped by "5". The question mark after the words "account closed" suggests uncertainty by the writer upon a matter about which the bank would be in a position to be certain. As a matter of pride, it is difficult to believe that any bank officer would be prepared to allow such a document to be delivered from his or her branch to a customer. Furthermore, it is difficult to believe that an intelligent person such as Mr Scallan, genuinely wishing to resolve a mystery and to persuade the Taxation Office that he had no connection with the $106,000 deposit, would accept this document as a response to his request. The document does not indicate the amount held in account 208 4257 at 9 January 1978, and thus available for placement in the new interest bearing deposit on that day. This omission defeats the purpose of the document, namely to demonstrate the source of the sum of $106,000. Moreover, even if the document set out all the information needed, it was not in a form likely to lead to the acceptance by the Taxation Office of that information. The Taxation Office would surely have wanted a document on bank stationery, authenticated by a bank officer. There would seem to be no reason why this could not have been obtained, but apparently Mr Scallan did not ask for this.

25. If Mr Scallan obtained this document for the purpose of convincing the taxation officers, one would have thought that he would immediately have passed it on to them. He gave no evidence of having done so. In response to the specific question whether he gave this document to the Taxation Department he replied: "At some later date I think I did". No information was given as to the circumstances or date when the document might have been produced.

26. It is not necessary for me to make an affirmative finding as to the provenance of this sheet of paper. Neither would it be possible to do so on the evidence presently available. I have serious doubts whether the document was prepared in the bank at all but, whatever the position in that regard, I cannot accept that the document was delivered by the bank to Mr Scallan in the circumstances stated by him. I regard the evidence of Mr Scallan regarding that document as false. As this is a matter about which there can be little possibility of honest mistake, I must further conclude that the evidence was deliberately false.

27. There are facts to support the inference that the subject deposit was arranged by Mrs Rose. I am prepared to accept that Mrs Rose may have had access to substantial cash funds, emanating from her husband's gambling business. From one of the ledger cards -- that relating to account number 211-7506 -- it appears that substantial funds had been deposited in her name at the Kings Cross branch of the bank over a substantial period prior to May 1975. (Whether these deposits were made by herself personally or by her late husband and/or the applicant does not appear). Furthermore, it appears that in 1983, after the separation of Mr and Mrs Scallan, Mrs Rose was involved in an interest bearing deposit of $70,000 jointly with Mrs Scallan. And, in January 1984, Mrs Rose opened an account in the name of Victoria Sarah Scallan, the amount of the deposit not appearing. Most significantly of all, Mrs Rose had some association with the earlier accounts in the names of her grandchildren. As indicated, she signed the sheets relating to the deposits in the name of Victoria Slater, for $8,000, of 19 July 1978 and in the name of Eden Scallan, for $1,330, of 16 August 1978. And, so it appears from the interest bearing ledger sheet, she received a small part ($385) of the interest earned upon the subject deposit. 28. I have given careful consideration to all of the above matters. I bear in mind that the applicant has only to establish his case upon the balance of probabilities, the barest preponderance in his favour being sufficient to discharge the onus which is cast upon him by s.190 of the Act. But, although it is entirely possible that Mrs Rose arranged the subject deposit out of her own funds, I am not affirmatively persuaded, even on a mere balance of probabilities, that this was the position.

29. The deposits in 1983 and 1984, after Mr Scallan had ceased to manage Mrs Rose's affairs, are scarcely significant. It is not suggested that Mrs Rose did not know the nature of interest bearing deposits. Mrs Scallan had held deposits in her own name at earlier times.

30. The most significant matter, in support of the theory that the subject deposit was made by Mrs Rose, is her involvement in the deposits for Victoria and Eden which I have referred to above. But even that evidence is ambiguous. She may have been the source of these funds, whether or not she was aware of the fact. She may have signed the sheets at the request of Mr Scallan without being well informed about the accounts. I do not think that this last suggestion is very likely; whatever the motive for establishing the accounts, Mrs Rose probably knew that the moneys were being held in the names of her grandchildren. But it does not follow, from the fact that she wittingly participated in the opening of two accounts in the names of her grandchildren, that she participated in the opening of the others. Indeed, although I put no weight on it since the difference may have been caused by the procedures adopted by different bank officers, the fact that she signed the sheets in the two cases, whereas the sheets were left unsigned in the other cases, tends, if anything, to suggest the existence of a second depositor.

31. Ordinarily, I would regard the statement on the ledger sheet that portion of the interest which accrued on the subject deposit was paid to Mrs Rose as being of major -- perhaps, of decisive -- importance. One would not expect that the bank would have been prepared to credit this money to Mrs Rose unless its officers regarded her as the owner of the deposit. But, in the present case, the matter is complicated by Mr Scallan's involvement in Mrs Rose's affairs. Mr Scallan was obviously known to the bank officers. They allowed him, on 11 May 1979, to receive the proceeds of the three deposits in the name of Eden, notwithstanding that Mrs Rose had signed as depositor for one of them. (The other deposit signed by Mrs Rose, the $8,000 in the name of Victoria, was also paid out on 11 May 1979. The bank documents do not indicate to whom payment was made, but it would be a strange coincidence if either Mrs Rose or Victoria had independently applied for payment on that same day.) The evidence of Mr Kirby shows that Mr Scallan was made aware by letter of the bank's note regarding the payment of the $385, notwithstanding which fact the sum was not disclosed as income in Mrs Rose's income tax return. Understandably, Mr Kirby now has no recollection of what happened. He felt that he would have queried the matter, either with Mrs Rose or Mrs Scallan, but, if so, he did not receive an answer which was informative.

32. In this tangled situation, and without any evidence as to what actually happened to the sum of $385 or as to the person who gave instructions for its disposition, I think that it is necessary to discount the circumstance that the ledger sheet shows the payment as having been made to Mrs Rose.

33. Out of the shadows which constitute the evidence in these appeals one matter stands out with clarity: Mr Scallan's failure to make any effort to put before the Taxation Office material which would demonstrate the source of the $106,000 deposit. In his evidence he said that, at the time, he believed that the money had been deposited by Mrs Rose. He claimed that Mrs Rose had admitted this to him. However, he did not tell the taxation officers of that belief until 1984. In 1981 he took the attitude that "it was not my place to tell the Commissioner whose money it was". He said that "he did not want to bring" Mrs Rose "into it".

34. Mr Scallan's stated loyalty to Mrs Rose might be thought to be commendable but I find it somewhat strange. By September 1981, so it appears, Mr and Mrs Scallan had separated. Mr Scallan was aware that the claim was being pressed by the taxation officers that the deposit represented income received by him. He must have expected that, in the absence of an explanation, he would be assessed to tax on this sum; indeed his reference to producing the evidence in a court of law suggests as much. Moreover, although disclosure of the source of the deposit might expose Mrs Rose to tax upon the interest, a comparatively small amount, it is difficult to see why Mr Scallan would have apprehended anything more. His stated belief was that the principal sum was money inherited by Mrs Rose from her husband. There is no suggestion that Mrs Rose had any substantial income of her own. So the nett tax payable, if the money belonged to Mrs Rose, would be likely to be less than if the Commissioner assessed upon the basis that the $106,000 represented income received by Mr Scallan.

35. Under the circumstances, it seems to me that Mr Scallan's failure to disclose to the taxation officers in 1980-1981 his belief as to the source of the deposit, and to undertake the easy task -- if he was correct -- of verifying that belief, throws serious doubt upon the genuiness of Mr Scallan's stated belief.

36. In assessing Mr Scallan's evidence, I add to the matter just mentioned the deception upon which he embarked in relation to the deposit. I have already set out the evidence by which he admitted having lied to Mr Arkins and Mr Verrell in relation to withdrawals from the interest bearing accounts held in the names of Victoria and Eden. He followed the same course in his evidence in this case. At a fairly early stage of his cross-examination, whilst being asked about transactions at the Rose Bay branch of the Commercial Banking Company of Sydney, he gave this evidence:

Q "Is your evidence that you did not operate
on any account which may have been set up
at that branch on behalf of either your
step-daughter or your son?"
A "I did not, no."

Later, Mr Scallan admitted that he did in fact make the withdrawals from Eden's account which I have already noted. I have already adverted to what I believe to be an attempt to deceive the Court in relation to exhibit N.

37. I referred in passing to the fact that one of the interest bearing deposit ledger sheets in the name of Eden was originally typed with a name commencing "Anthony", that is the applicant's first name. According to the applicant he had no involvement in the opening of this account and he had no account at that branch in his own name. So far as the evidence indicates, this was the earliest account at the Rose Bay branch by any of the persons involved in this case. If Mr Scallan had no role in opening the account, it would seem that he would not have been known at the bank at that time; in which case it would have been a strange co-incidence that the bank officer happened erroneously to type his first name.

38. Considering Mr Scallan's evidence as a whole, and bearing in mind particularly the matters I have just mentioned, I have reached the conclusion that I cannot accept Mr Scallan's denial of involvement in the $106,000 deposit. His evidence must be regarded as improbable and unreasonable.
The motor vehicle profit

39. The evidence in connection with Mr Scallan's motor vehicle dealings is as unsatisfactory as that relating to the interest bearing deposit. The Commissioner has assessed the applicant on the basis that, in the taxation year ended 30 June 1978, he derived a profit of $11,500 upon the sale of a Jensen Interceptor Mark 1 motor car. There is no evidence of such a transaction and Mr Scallan has denied, in his oral evidence, that he did make such a sale.

40. I note that Mr Scallan did not make any such denial in the affidavit originally sworn by him, dated 10 July 1987. That affidavit was framed in terms which seem to assume the receipt of the $11,500. By way of answer to the assessment it was said, firstly, "that no Agreement was entered into during the period of twelve months from the date on which I purchased the vehicle and, accordingly, the profit arising from the sale of the property is not assessable under Section 26AAA of the said Act", secondly, that the "property was not acquired by me for the purpose of profit-making by sale within the first limb of Section 26(a) of the said Act nor to carry on or carry out a profit-making undertaking scheme within the meaning of the second limb of Section 26(a) of the said Act and, accordingly neither the amount of $11,500.00 nor any part thereof is assessable under the said Section 26(a)" and, finally that "Neither the purchase nor the sale of the property was a transaction effected by me in the course of any business carried on by me and neither the proceeds of sale nor the profit from the sale nor any part of such proceeds or profit is assessable under Section 25(1) of the said Act". Amongst these walls of defence one might have expected the more fundamental assertion, if it were the fact, that there was no transaction at all.

41. A supplementary affidavit, dated 20 January 1988, was subsequently filed. This affidavit set out some particiulars about the purchase of a Jensen Mark 2 motor car from Mr Kurt Keller in December 1973 and its re-sale in March 1974. Nothing was said about other transactions or about the year 1978. Once again there was no explicit denial that a profit was made in that financial year.

42. No explanation was given as to the reasons why the affidavits took these forms. The failure of Mr Scallan, without explanation, to deny the assumption underlying the assessment is curious. It naturally induces some scepticism as to the oral evidence. But there may be an explanation for that failure and I prefer to deal with the oral evidence upon its merits.

43. Mr Scallan's motor vehicle transactions were amongst the matters about which he was interrogated by the taxation officers in 1980-1981. In response to those inquiries Mr Scallan arranged for the internal accountant of his business to supply a letter to the Australian Taxation Office. The letter was based on information which Mr Scallan had himself supplied to the accountant. He said, in his evidence, that the letter was correct, subject to some uncertainty as to dates. The letter, which was dated 28 April 1981, read as follows:

"As requested Mr. Scallan has supplied the
following details regarding his motor vehicles
during the period under review.
Jensen Interceptor purchased in 1974
$13,500.00 and sold mid 1976 for $16,000.00.
From June 1976 to November 1979 Mr. Scallan
drove a Company-leased vehicle.
Mr. Scallans' (sic) present vehicle is 1974
B.M.W. 2002 which he purchased for $4,000.00.
Mrs Scallan drove a 1972 Ford Cortina, which
cost $2,400.00 from 1973 until it was sold
damaged in early 1980 for $800.00.
Since February 1980 she has driven a Triumph
Dolomite which cost $2,000.00."

44. Evidence was given by Mr Kurt Keller, a gentleman who in 1974 operated a business with a Jensen distributorship. Mr Keller said that sometime in 1974 he sold a tangerine demonstration model Jensen Mark 3 motor car to Mr Scallan for $20,000. Mr Keller accepted a Jensen car by way of trade-in. Mr Keller was speaking from memory. He had no records and was unable to be precise as to the date of the transaction. He was certain that the car was a Mark 3 model, not a Mark 2 as stated by Mr Scallan. He agreed that the transaction may have taken place in late 1973. 45. It would be reasonable to have assumed that Mr Keller's evidence was tendered to support the accountant's letter in relation to the first transaction mentioned therein. It seems to be consistent with the letter as to dates, but not as to price. There is also material in evidence which, although incomplete, supports the claim that during the period 1976 to 1979 -- the precise months not being established by the material -- Mr and Mrs Scallan leased a 1972 Mercedes Benz 300 car. This is, presumably, the "Company-leased vehicle" of the letter. But, whereas the letter gives the impression that it contains a comprehensive list of all the vehicles owned or leased by either Mr or Mrs Scallan in the period 1974 to 1981, it is clear from Mr Scallan's evidence that this is not so.

46. Mr Scallan said in cross-examination that he imported a Jensen car in 1973. In the absence of other evidence I would have assumed that this was the vehicle traded in to Mr Keller in 1974. However, Mr Scallan said that this was not the case. He said that the vehicle which was imported was sold in 1976 for $16,000. It was not traded to Mr Keller. He said that this was the vehicle first mentioned in the letter. It follows that the vehicle which was puchased from Mr Keller was not included in the letter. Neither, of course, was the vehicle traded in to Mr Keller. According to Mr Scallan, the vehicle purchased from Mr Keller was sold to a Mr Spanton, apparently early in 1974. Mr Scallan said that he then purchased another vehicle, in mid-1974. He said that he subsequently sold this vehicle for $15,000 or $16,000, but he mentioned no date. This vehicle also was omitted from the list. For all the evidence shows, the sale could have occurred in the financial year ended 30 June 1978.

47. Counsel put to Mr Scallan in cross-examination that the letter of 28 April 1981 did not constitute an accurate record of the number of Jensen Interceptor vehicles he had had during "the period under review", to use the expression in the letter. Mr Scallan replied:

"No, I think it is very accurate, in so much as
the Taxation Department made it clear to me
they were not interested in vehicles that were
leased, only vehicles that were in my name."

48. Given the facts that at least one of the unlisted Jensen vehicles was purchased outright, not leased, and that the letter did refer to the lease of the Mercedes, this reply can only be regarded as absurd. The fact is that the letter was deficient, and in the very area known by Mr Scallan to be of interest to the taxation investigators. Writing in 1981, there should have been no difficulty in Mr Scallan supplying a full and accurate list of the vehicles he had owned over the previous seven years. His failure to mention the Jensen motor car acquired in 1974 can only be regarded as suspicious.

49. As with the matter of the interest bearing deposit, the evidence does not establish the facts assumed by the Commissioner's assessment. It may be that the assumption which was incorporated into the assessment is incorrect, that no vehicle was sold at a profit in the year ended June 1978. But the case to the contrary depends entirely upon Mr Scallan's evidence and there are so many problems about Mr Scallan's evidence, upon both aspects of the appeals, that I am unwilling to accept Mr Scallan's uncorroborated evidence upon any matter of importance. Particularly is this so in connection with matters which were drawn to Mr Scallan's attention by the taxation investigators at a time when, if the facts were as now stated, he ought to have been in a position readily to settle the matter.

50. As with the issue of the interest bearing deposit, the onus of proof in relation to the alleged motor vehicle profit is decisive. Being left in the position that I am unable to make a finding one way or the other, even on a mere balance of probabilities, the applicant's challenge to this aspect of the 1978 assessment must also fail.
Alleged collateral purpose

51. At the commencement of the hearing, counsel for the
applicant obtained leave to amend the filed statement of issues so as to add additional issues, namely:

"(a) the same were issued for a collateral
purpose namely to compel the applicant to
impute to some third party the source of
allegedly undisclosed assessable income
comprising the amount standing to the
credit of the subject interest bearing
deposit, and notwithstanding the absence
of any evidence that such source emanated
from the applicant;
(b) the same were not issued upon any
intelligible basis but rather on the
basis of a belief, for which no evidence
was held, that the funds the subject of
the interest bearing deposit were being
held by the applicant on behalf of a
third party."

52. In support of the case sought to be raised by these additional issues, counsel tendered an internal memorandum, dated 24 February 1983, prepared by Mr C S Sherry of the Australian Taxation Office. In relation to the $106,000 deposit this memorandum stated:

"4 It is possible that the amount of $106,000
deposit made in the 1978 year, was not the
taxpayer's. The suspicion is that this amount
was the property of Neville Biber (recently
deceased) and was deposited under the
fictitious name of Victoria S Slater.
5 The taxpayer's daughter's name is Victoria
Sarah Scallan and the address used was 37
Dudley Street, Rose Bay, where he resided. It
has also been established that the deposit and
interest was withdrawn on 1 August 1980, by
cash, $131,948, by his daughter, Victoria
Sarah, who, at that date, was 16 years of age.
6 Neville Biber was an undischarged bankrupt,
who has been investigated twice and it is
obvious that he would not have capital
invested in his own name. He was also
involved with well known criminals.
7 This taxpayer will not admit the ownership
of the original deposit of $106,000. He also
will not state who really owned the money, as
he fears for his life from the criminal
element on giving any such information to the
Department.
8 It is proposed therefore to assess the
amount to the taxpayer, together with the
accrued interest, as he was responsible for
his daughter, who was a minor, at the dates of
the deposit and withdrawal and it is obvious
that she would have no source from which the
amount could have accumulated.
9 The taxpayer may contest the assessment of
the amounts to him, but in doing so, the onus
of proof should be upon him to establish who
was the actual owner of the deposit and
entitled to the principal and interest.
10 There appears to be no doubt that the
$106,000 would have been derived from
undisclosed income, either by himself, or some
other person; to protect the revenue
therefore the omitted income has been taken as
his, as the deposit was made under a
fictitious name derived partly from the name
of his infant daughter."

53. In para.11 Mr Sherry dealt with the matter of the motor vehicle in these terms:

"In the 1978 year the taxpayer imported a car
from England which he claims was given to him
by his parents. He sold this in February 1978
for $15,500, making a profit of $11,500 over
the cost of import. It is considered that
this property is covered by section
26AAA(1)(f) and the resultant profit is
assessable income. No mention was made of
this transaction in his 1978 return."

54. Mr Sherry's memorandum was endorsed on 15 February 1984, by another officer who commented that the cost of the motor vehicle would be the value of the gift less the cost of importation, so that the taxable profit would be less than $11,500. This officer commented:

"However, as t/p has been unco-operative with
this office it is proposed to disallow this
ground of the 1978 obj & if necessary decide
the monetary value at the appeals level."

55. Counsel for the applicant contends that this document demonstrates that the assessments under objection were not the fruit of a genuine attempt by the Commissioner to determine the taxable income of the applicant during the relevant years. Rather, they say, those responsible for the making of the assessments deliberately included as income sums of money which they knew had not been received by the applicant -- or alternatively, about whose receipt they had no genuine belief -- in an attempt to have the applicant disclose the true facts; in relation to the interest bearing deposit, the actual ownership of the moneys and, in connection with the motor vehicle, the true cost. Reference is made to Re Deputy Commissioner of Taxation; Ex parte Briggs (1986) 69 ALR 185 and Dalco v Commissioner of Taxation (1988) 88 ATC 4649.

56. Briggs is authority for the proposition that, notwithstanding s.177 of the Income Tax Assessment Act, the Court may, in an appropriate case, issue orders in the nature of prohibition to quash an assessment which is made without any intention to embark upon the process of ascertaining the taxpayer's taxable income, and in which that process is not undertaken. That is not the present case. As the Full Court pointed out in Briggs, the situation there envisaged is to be contrasted with a "genuine attempt to ascertain the taxable income of a taxpayer, even if carried out cursorily or imperfectly": see p.192. Whatever criticisms may be made of the result, there is no room for the view, in the case of the present assessments, that the Commissioner did not genuinely intend to undertake the process of assessment.

57. The principle adopted by the majority of the Full Court (Sheppard and Gummow JJ) in Dalco is set out at p 4656:

"... for sec. 167 to operate in any given case,
the Commissioner must make a judgment; he
must not merely form a view or have an
opinion. There may be a purported but not
justifiable exercise of the power to form a
judgment as to the amount upon which income
tax ought to be levied if the Commissioner has
merely plucked a figure from the air ...;
likewise, if the making of the judgment in
question cannot be seen as having proceeded
upon an intelligible basis, even as an
approximation ... The making of a purported
judgment for the purposes of sec.166 and 167
may also be impeached if the Commissioner
proceeds upon a 'wrong basis' or upon a 'wrong
principle', for example by treating a taxpayer
on an earnings basis, when the taxpayer should
have been treated on a receipts basis."

58. In my dissenting judgment in Dalco I indicated my difficulties about this approach. The case has now gone to the High Court of Australia; accordingly, I say nothing more about the correctness of the view adopted by the majority. Unless and until the High Court decides that the law is otherwise, I am bound by that view. But, even so, I think that the decision cannot assist the present applicant. The evidence does not show that, in making the subject assessments the Commissioner merely formed a view or opinion. He made a judgment as to the taxable income of the applicant during each of the relevant years. He made this judgment as best he could, on the materials then available to him. There is no doubt that Mr Sherry, at least, recognised that the judgment might be faulty; and it is not unreasonable to attribute Mr Sherry's recognition of that fact to the officers who adopted his approach in making the assessments. But the fact that a person making a judgment as to given facts recognises the possibility, even the strong possibility, of error does not mean that the judgment loses its quality as such. If the judgment represents the best assessment which the decision-maker can make, on the material then available, it remains a judgment, however vulnerable it may be to attack when further facts emerge.

59. In the present case there is no available argument that the assessments lacked an intelligible basis or that they were founded upon a "wrong basis" or "wrong principle".

60. It may be conceded that, underlying Mr Sherry's approach, was the belief that, if Mr Scallan was assessed upon the basis that the deposit of $106,000 constituted part of his assessable income, he might disclose evidence implicating some other person. No doubt Mr Sherry envisaged that, if that event did occur and the Commissioner regarded the evidence as credible, he might assess the other person accordingly. But I do not think that this envisagement undermines the validity of the assessments. Section 190(b) recognises the reality that, in the overwhelming proportion of cases, the taxpayer will be the person best apprised of the relevant facts. In a case where the facts are obscure, but where there is some evidence to suggest that particular monies were received as assessable income by a particular taxpayer, it will often be appropriate for the Commissioner to make an assessment upon the basis of that evidence, he recognising at the time that the taxpayer may succeed in rebutting that suggestion.

61. Each of the matters raised by the applicant by way of additional issues should be rejected.
Conclusion

62. In rejecting each of the grounds advanced by the applicant in support of his appeals, I appreciate that I may be upholding assessments which are in truth excessive in relation to the assessable income received by the applicant in one or more of the relevant taxation years. But that position, if it is occurring, is the result of the paucity of the evidence placed before the Court, combined with the fact that the onus of showing excessiveness is placed by the Act upon the taxpayer. The evidence not permitting a positive finding either way, in respect of either of the issues, the appeals must fail. Each appeal will be dismissed with costs.