Re Phillip Hing Ma v Commissioner of Taxation of the Commonwealth of Australia [1992] FCA 359; (1992) 23 Atr 485 / (1992) 92 Atc 4373 (1992) 37 FCR 225 (1992) 27 ALD 601 (30 July 1992)

FEDERAL COURT OF AUSTRALIA

Re: PHILLIP HING MA
And: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
No. N G219 of 1991
FED No. 530
Income Tax - Administrative Law
[1992] FCA 359; (1992) 23 ATR 485 / (1992) 92 ATC 4373
(1992) 37 FCR 225
(1992) 27 ALD 601

COURT

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

CATCHWORDS

Income Tax - betterment assessments based on deposits to taxpayer's claim that moneys were withdrawn from the account from time to time for gambling and the sum resulting from wins and losses was then rebanked, so that the assessments involved double-counting - effect in the circumstances of the decision in Federal Commissioner of Taxation v. Dalco [1990] HCA 3; (1990) 168 CLR 614 - whether taxpayer was required to show in an appeal to the Administrative Appeals Tribunal not only that the assessments were too high, but also the precise details of his liability to tax.

Administrative Law - Administrative Appeals Tribunal gave oral reasons, but after learning of applicant's intention to appeal, over a month later, delivered changed reasons in writing - effect of new reasons - whether Tribunal was functus officio - whether s. 43 of the Administrative Appeals Tribunal Act applied - whether matter should be referred back to the Tribunal differently constituted - effect of Tribunal not having dealt with the case as it was actually presented on behalf of the applicant.

Administrative Appeals Tribunal Act 1975, s.43

Income Tax Assessment Act 1936 (Cth), s. 190(b)

The Commissioner of Taxation for the Commonwealth of Australia v. Dalco [1990] HCA 3; (1990) 168 CLR 614

Krew v. Federal Commissioner of Taxation (1971) ATC 4213

Mifsud v. Campbell (1991) 21 NSWLR 725

Northern NSW FM Pty Limited v. Australian Broadcasting Tribunal (1990) 26 FCR 39

HEARING

SYDNEY
30:7:1992

Counsel for the Applicant: Mr R.J. Bainton QC with Mr

C.L. Lonergan

Solicitors for the Applicant: Messrs Jeffreys and Associates

Counsel for the Respondent: Mr S.W. Gibb with
Mr D.M. Mendelssohn

Solicitor for the Respondent: Australian Government Solicitor

ORDER

THE COURT ORDERS THAT:
1. The decision of the Administrative Appeals Tribunal in respect of each of the assessments in question in the appeal be set aside.

2. Each of the applications of the applicant to the Tribunal be remitted for rehearing according to law before the Tribunal, differently constituted.

3. The respondent pay the costs of the appeal.

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

DECISION

From about the year 1977 until about the financial year 1982/1983, the applicant Mr Ma conducted successively two Chinese restaurants at Port Macquarie in the state of New South Wales. Then he sold out of his restaurant business, retaining as a rental investment the title to the land on which the second restaurant was built, and came to Sydney. In Sydney, he worked for a few weeks, perhaps as manager, in a bookshop which was owned, he said, by his wife. Although he was remarkably vague about it himself, the unchallenged evidence of a number of witnesses, including a bookmaker's clerk and a former bank manager who was a member of the Port Macquarie Race Club Committee, pictures him as a very regular and relatively large-scale punter throughout the period from 1977 onwards, being also at one stage a part owner of several race horses.

2. An analysis of Mr Ma's bank accounts for the years ended 30 June 1982, 1983, 1984 and 1985 suggested to the respondent Commissioner that much more money had been paid in during those years than could be accounted for by the income returned and by Mr Ma's known receipts of capital. There were also some accounts in other names, suspected to belong to Mr Ma, moneys in which were taken into consideration. As a result, amended assessments issued for these years on 27 February 1987. Mr Ma objected very promptly (on 18 March 1987), on the ground that the allegedly excessive total of deposits to his bank account was simply the product of double-counting (or, perhaps, multiple counting) of sums withdrawn at earlier dates and redeposited. His accountant (who lodged the objection) referred to borrowings and repayments; later, Mr Ma relied rather on his betting activities, the proposition being that he would withdraw money to place cash bets at the race-course (or at trotting or greyhound meetings), and subsequently redeposit the sum resulting from his gains and losses. On this basis, whether or not he had won overall, a simple addition of the deposits to his bank account would have involved, in effect, repeated counting of the same money (or, more accurately, of so much of each original withdrawal as had not been lost, together with any sums that had been won); to the extent that he had won on occasions, it would have involved also including in the final figure amounts which would not have been income in the first place, because they were gambling wins.

3. The matter came before the Administrative Appeals Tribunal, where it was heard by Dr Gerber, Deputy President. Unfortunately, he appears to have mistaken the point completely. He intervened, before there was any cross-examination of Mr Ma, to indicate his understanding that the case made involved the claim "when this man went to the races, he won." Despite a clear correction, he repeated: "He wouldn't put anything in the bank if he lost, would he?" - a proposition which would only be justified in the extreme case where Mr Ma bet and lost virtually all of the money he had withdrawn, or, as it is sometimes said, lost his shirt. Again, though the transcript reveals counsel was somewhat taken aback, the Tribunal's misapprehension was corrected, but there is no indication that the point of the correction was appreciated. Notwithstanding that the supporting witnesses, who, it afterwards turned out, were not challenged, had not been heard, the Tribunal plainly urged counsel for the Commissioner to refrain from cross-examination, as a wholly unnecessary exercise. (That urging was, at first, resisted, but ultimately the cross-examination was left unconcluded and no opportunity to re-examine seems ever to have been offered, on the basis that the Tribunal considered the case could be decided on a point of law to which further cross-examination, or re-examination on matters already raised in cross-examination, would be equally irrelevant.)

4. The Tribunal's persistence in its misconception of the applicant's whole case, and the nature of the point of law it perceived, both appear clearly from the oral reasons given on 1 March 1991, which include the following statements (I have corrected one or two obvious errors in the transcript, and all emphases are mine):

"The case ultimately falls, as I see it, within a very narrow
compass. It is alleged by the applicant that the increment is
attributable to consistent wins year by year from his betting
activities at various forms of horseracing and dogs.
In that kind of situation it is in my view incumbent on an
applicant in cases where it is alleged that the unexplained
difference in the amended assessment was the product of
gambling - he can only discharge the burden of proof cast
upon him by section 190(b) of the Income Tax Assessment Act
if he can prove in relation to each tax year under review
precisely what moneys were earned from gambling and, indeed,
what moneys were lost and what the precise end result was.
Alternatively, to prove the precise amount of the taxable
income of the taxpayer from all sources which would give
rise to taxable income. If that is a correct statement of
the law then the taxpayer must inevitably fail."

The Tribunal went on to refer to Federal Commissioner of Taxation v. Dalco (1990) 2 ATC 4088 (now reported [1990] HCA 3; (1990) 168 CLR 614), commenting "the thrust of which is that a mere error by the Commissioner in forming a judgment as to the amount on which tax ought to be levied does not warrant the setting aside of the amount assessed." The Tribunal also stated:

"It is in my view insufficient to merely establish that
there was a consistent pattern of attending race meetings
and, indeed, a pattern of betting at those courses if it
cannot be demonstrated that the end result year by year
resulted in a net gain. No witness called on behalf of the
applicant was prepared to go that far. ...
. . .
In these circumstances it is not necessary for me to form
any view as to credit; giving the taxpayer the benefit of
every doubt he is still a long way from satisfying the
requirements of taxpayers who assert that unexplained
accretions to their bank accounts are indeed the proceeds of
successful gambling. In these circumstances I have no
alternative but to affirm the decision under review."

5. The Tribunal then heard some further argument concerning the amount of penalties included in the amended assessments, which it varied. Its decision issued in writing, bearing the same date, 1 March 1991. The body of that decision, following the date and the formal parts, commences: "For reasons orally given at the hearing ...". However, after the handing down of the decision, Dr Gerber became aware that the applicant intended to appeal against it. Without any application from either party for him to do so, and without providing any opportunity for submissions as to whether he should do so, Dr Gerber forwarded to the Australian Government Solicitor a letter enclosing a slightly amended version of his original oral reasons, together with what Dr Gerber called an "addendum" consisting of many pages of additional reasons, all under the date 8 April 1991, which was also the date of the letter.

6. The addendum raises a number of questions. There is first the difficulty of its status - both as a matter of law, and also as a matter of the Tribunal's intention. In whatever way Dr Gerber thought s. 43 of the Administrative Appeals Tribunal Act, 1975 should be interpreted, he cannot have been unaware of it; what is more, he cannot have failed to realize that its terms raise a question whether it would be right to add reasons in writing, especially very different reasons, more than a month after a decision made for reasons given orally at the time, in the absence of any request for reasons in writing. In those circumstances, and bearing in mind that he did not call for submissions on the question whether he was functus officio (cf. Secretary Department of Social Security v. Hodgson, unreported, Hill J., 17 July 1992, at 23) or whether he was entitled to add to his reasons, it may be the better view that he intended nothing other than to assist the Court in deciding whether to refer the matter back to him, if he should be found to have erred. That, indeed, is what the opening words of the addendum suggest:

"Since handing down my decision, I have been advised that
the applicant intends to appeal. I therefore propose to
expand my findings of fact and reasons in law to save the
parties the trouble and expense involved in coming back to
this Tribunal should the Federal Court conclude that my oral
reasons are wrong and/or my findings inadequate to support
my decision."

This passage assumes, it seems to me, that the question for the Court will not be whether there is error in the addendum; it will be whether there is error in the "oral reasons". But the addendum may "save ... trouble and expense". It is perhaps not surprising, in such a document, that he immediately slips off the path he has set himself:

"I would like to say at the outset that I was considerably
more polite to the taxpayer in my oral decision than was
really justified by the manner the whole hearing was
conducted. The case reminds me of Wagner's Parsifal - the
plot is just as implausible and, like Parsifal, it went on
and on. Just when I thought: "this MUST be the end", there
was yet another oompahpah, followed by three more ACTS.
Unlike Parsifal, which only takes two days, Mr Lonergan
managed to conduct this libretto over three. At the
conclusion of the case, he had proved that Mr (Ma) would, on
occasion, attend race meetings, not just by the ordinary
civil standard of proof, but beyond all reasonable doubt.
Unfortunately, he never got round to proving whether Mr (Ma)
ever won any money in the years now under review (1982-1985).
It seems that those advising Mr (Ma) took the view
that it was sufficient to prove that the Commissioner, in
calculating the taxpayer's assessable income, had ignored
certain monies said to have been `re-deposited' in the
taxpayer's account, after having been previously withdrawn."

But the addendum also contains a number of statements leaving no doubt of the view Dr Gerber would take if the matter were referred back to him. At the end, the purpose of the document is reiterated:

"I have added this addendum purely for the benefit of the
Federal Court. I am satisfied that, in the words of
Macbeth: `... it is a tale full of sound and fury, told by
an idiot, signifying nothing.'"(Sic.)

7. However, even judged thus on its own terms, the addendum is not helpful. It has been held that, in general, when a case has been referred back for rehearing, justice may more readily be seen to be done if the fresh hearing is by another member of the Tribunal: Northern NSW FM Pty Limited v. Australian Broadcasting Tribunal (1990) 26 FCR 39. Without attempting to be exhaustive, and merely as an illustration of a point which has been made several times, I refer also to Lighthouse Philatelics Pty Ltd v. Federal Commissioner of Taxation (1991) 103 ALR 156 at 166 and to Statham v. Federal Commissioner of Taxation (1989) 2 ATC 4070 at 4075. In the present case, there appears to have been some confusion about the conduct of the matter. There were interruptions from the Tribunal at the end of the evidence in chief of Mr Ma, and again in mid-course of his cross-examination. Ultimately, his evidence may never have been formally concluded. At the least, if it was concluded, that happened under pressure from the Tribunal and on the footing that the real question was the correctness of the view of the law which appealed to Dr Gerber. If this view was not correct, it cannot be right to deny Mr Ma the opportunity to complete his evidence, or indeed to deny the Commissioner the opportunity to cross-examine further. In the present state of the evidence, it would be open to the Tribunal to conclude that everything depends on the proper inference to be drawn from the state of the bank accounts, given the unchallenged evidence of frequent large-scale cash betting activities, and the evidence of withdrawals and re-bankings associated with those activities.

8. Of course, at a further hearing, renewed cross-examination might show significant other activities, such as drug dealing, which might provide a reason to reject the applicant's case, the onus being, as is well known, on him. No reason of that kind has been put forward here as yet. Very prejudicially, it has been shown the applicant was charged in October 1984, but acquitted, upon an allegation of conspiracy to import heroin. The Commissioner appears to have accepted that the acquittal precluded him going into any question of receipt of earnings from dealings in drugs, a proposition I find surprising (cf. Saffron v. Federal Commissioner of Taxation [1991] FCA 363; (1991) 102 ALR 19; Ziems v. Prothonotary of the Supreme Court of New South Wales [1957] HCA 46; (1957) 97 CLR 279; and see especially Regina v. Maidstone Crown Court, Ex parte Olson (1992) The Times, 21 May 1992 - whether particular conduct was proved at the criminal trial, beyond reasonable doubt, to constitute the crime specified in the indictment is hardly the same question as whether the same or related conduct resulted in the earning of assessable income); but if there was to be no allegation of earnings from drugs, the irrelevant and emotive fact of the nature of the unsustained charge should not have been adduced. The circumstance that it was, and that Dr Gerber was then prepared to apply to the applicant, by way of a Shakespearian cliche, the term "idiot", and elsewhere in the addendum to say that "the oral evidence of Mr (Ma) isn't worth the paper it is written on", and to describe him as "an unmitigated liar whose evidence I cannot accept", should sufficiently indicate why I do not think this case could, in any event, be referred back to the Tribunal except upon the footing stated in Northern NSW FM Pty Limited v. Australian Broadcasting Tribunal (supra).

9. Whether, ultimately, Mr Ma should be believed is not, of course, a matter for me. Nor, if it were, could it be decided upon the written record alone. The decision must take account of the onus under s. 190(b). But if a taxpayer denies any undisclosed source of income, provides acceptable evidence of how he spends his time, and demonstrates a reasonable explanation for any appearance of the possession of assets, he will generally discharge his burden of proof unless some positive reason is shown why he is to be disbelieved. Any other view would introduce a degree of arbitrariness into liability for tax. In the present case, the very lack of a clear refutation of the applicant's case at present (I emphasize the words "at present", because on a rehearing the picture may change colour altogether) reinforces my impression that the Tribunal saw the matter entirely or substantially through the spectacles of its view of the law.

10. If the Tribunal, on the other hand, should be taken to have found in the strong language of the addendum (as it expressly said it was not finding in its oral reasons) against Mr Ma's case on the general ground of his credit, it should certainly have explained why it did not believe him, and how it could reconcile its view with the unchallenged independent evidence of Mr Ma's frequent and regular betting activities. I was referred to the decision of the Court of Appeal division of the Supreme Court of New South Wales in Mifsud v. Campbell (1991) 21 NSWLR 725, and I think the remarks of Samuels J.A. (at 728), which I respectfully adopt, are apposite. If the Tribunal had dealt with this issue, it should also, in common fairness to Mr Ma, have adverted to the curious fact, which requires some explanation in this case, that his evidence, on the issue of the frequency and size of his bets, betrays no sign of exaggeration when compared with the unchallenged independent evidence. On the contrary, he appears to have understated his position to his own disadvantage. It is a case where one might think the possibility of distortion of his evidence (much but not all of it interpreted from Cantonese into English, and doubtless accurately interpreted) by linguistic or cultural factors should not be ignored.

11. I return to the central issue upon which it must be decided whether this appeal is concerned with the reasons delivered by the Tribunal at the conclusion of the hearing, or the later document, or possibly, with both. That issue arises upon the language of s. 43 of the Administrative Appeals Tribunal Act, which should, of course, be construed in the context of the Act as a whole, and bearing in mind its aim to establish a system of administrative review subject to judicial control through a right of appeal on a question of law. Sub-section 1 elaborates the nature of the decision the Tribunal may make, requiring it to be "a decision in writing". Sub-section 2 then provides: "the Tribunal shall give reasons either orally or in writing for its decision." That lays down a clear alternative - although the decision is in writing, the reasons may be given either orally or in writing. Once one of those alternatives has been adopted, the decision in writing has been clothed with reasons and is complete. If the matter be sufficiently urgent, an appeal may proceed immediately. There is no suggestion in this that the Tribunal can later strip the decision of its original reasons to replace them with new ones. It may, of course, reduce its oral reasons to writing (Federal Commissioner of Taxation v. Osborne (1990) 90 ATC 4889, a decision, as counsel on both sides agreed, which does not solve the present problem), but that is another matter. Upon the respondent's argument, it would presumably follow that the Tribunal could discard written reasons, upon an appeal, in favour of alternative written reasons. One may ask, for how long could this process continue?

12. In 1982, the section was amended (inter alia) by the insertion of sub-s. 2A, by which it is provided:

"Where the Tribunal does not give reasons in writing for its
decision, a party to the proceeding may, within 28 days after the
day on which a copy of the decision of the Tribunal is served on
that party, request the Tribunal to furnish to that party a
statement in writing of the reasons of the Tribunal for its
decision, and the Tribunal shall, within 28 days after receiving
the request, furnish to that party such a statement."

This sub-section refers only to a precisely identified situation. It does not apply to the present case.

13. In my opinion, it was not open to Dr Gerber to add entirely fresh reasons, more than a month later, to the reasons he had given orally, if that is really what he contemplated. Of course, he was entitled, had he chosen to do so, to edit the transcript of his oral reasons so that it might reflect more accurately the intention of the Tribunal at the time they were delivered, just as a judge commonly makes appropriate corrections to the record of oral reasons for judgment. It would be unfortunate if any misunderstanding of this matter were to deprive courts, upon appeals, of the benefits of proper and helpful editing.

14. That brings me back to the reasons given orally. It seems to me that the failure of the Tribunal to consider at all the way in which the applicant's case was put, which had been explained several times, in favour of what can only be regarded as a misleading caricature of his case, amounts to an error of law. It was the Tribunal's task, imposed on it as a matter of legal duty, to consider the case presented to it. Its failure to do so was, adapting the language of Samuels J.A. in Mifsud (at 728), a failure to do what the nature of the office of a member of the Tribunal required. This was an error of law. The point is not that the Tribunal's insistence - upon regarding the case as one where overall winning by a punter during a period of years was asserted - made its rejection of the applicant's credit almost inevitable (although that consideration would have been significant if I had held the addendum must be treated as part of the Tribunal's reasons, and had therefore been required to evaluate the effect of the disbelief of the applicant expressed in the addendum); it is that this was never the case the Tribunal was called upon to decide.

15. The applicant contended that the Tribunal also erred in law in the propositions which it considered were to be derived from Dalco (supra). I think that ground too is made good. Dalco insists that a taxpayer in the position of the applicant must show, according to the civil onus, that the assessment is excessive. But it does not hobble him in the ways that the Tribunal's propositions suggest. If, by any means, he can show the assessment is excessive, he is entitled to seek relief.

16. In Dalco (at 621) Brennan J. (with whom and with Toohey J. the other judges agreed, Deane J. qualifying his agreement as "general") declared:

"(T)he ultimate question for the court hearing the appeal is
not whether the grounds have been made out but whether the
amount assessed as taxable income is wrong. The burden
which rests on a taxpayer is to prove that the assessment is
excessive and that burden is not necessarily discharged by
showing an error by the Commissioner in forming a judgment
as to the amount of the assessment."(Emphasis added.)

Toohey J. (at 631) said that the taxpayer may discharge the onus under s. 190(b) "by pointing to some error of computation", and added:

"A taxpayer does not necessarily discharge the onus of
showing that an assessment is excessive, merely by showing
that moneys treated by the Commissioner as income are in
truth not the income of the taxpayer, though that may be a
step in demonstrating his or her taxable income to be less
than the assessment." (Emphasis added.)

These carefully qualified statements cannot be read as enunciating the absolute rule favoured by the Tribunal. Indeed, as Toohey J. (at 629) made clear, Dalco was a very special appeal:

"(I)t was not the taxpayer's case that he had demonstrated
to Yeldham J. that his taxable income for the years in
question was less than the assessments concerned."

So Mr Dalco was contending for an extremely narrow and technical rule, the rejection of which does not imply that the High Court embraced an equally narrow and technical rule in an opposite sense; rather it adhered to broad and familiar principle. Brennan J. (at 624) said: "The manner in which a taxpayer can discharge (the) burden (of proof) varies with the circumstances." This was also the point Deane J. emphasized in his brief comment, beginning (at 626) with the words: "In the circumstances of the present case ...". It should not be overlooked that the error alleged in Dalco did not deny that the very sums erroneously characterized as income might in fact have been received in another character as income; here, by contrast, the error alleged, if made out, denies the receipt of the sums in question, being (at worst for the applicant) simple rebankings, in any character but that of capital.

17. As was pointed out in argument, the position before the Tribunal, when the taxpayer has proved, in the words of Brennan J., that "the amount assessed as taxable income is wrong", is neither exactly as it is before a court (the situation in Dalco itself), nor exactly as it was before the Boards of Review. The Tribunal, under s. 43 of its Act, is expressly empowered to set aside the assessment and remit the matter to the Commissioner for reconsideration. If the taxpayer has shown by evidence that the only receipts which could possibly be income were the amounts paid into the bank account, and that many of those amounts represented the same capital reinvested after previous withdrawals, he has shown that an assessment based upon the counting as income of all the payments (save certain, which the argument set on one side) must be excessive. The question, then, is whether he has proved sufficient to entitle him to the setting aside of the amended assessments and their replacement by assessments in the amounts of the original assessments, assuming assessments had earlier issued upon his returns, or to entitle him only to the setting aside of the amended assessments and a referral back to the Commissioner, or to some other decision.

18. Furthermore, the making of estimates upon inexact evidence, which is so much a feature of both judicial and administrative decision- making, cannot be uniquely excluded from appeals against betterment assessments. To refuse to consider the credit, not only of the applicant, but also of his independent and unchallenged witnesses, simply because the effect of the evidence was to support his accountant's generalizations about double-counting rather than to hit upon a precise figure, was to fall into an error of law. If authority be needed for this proposition, it may be found in the decision of Walsh J. in Krew v. Federal Commissioner of Taxation (1971) ATC 4213, to which Mr Gibb, with his usual frankness, referred me. That was a betterment case, bearing some similarity to the present, in which Walsh J., in various parts of his judgment, acted on evidence that "substantial" portions of sums of money represented the proceeds of gambling; expressly eschewed (at 4223) any attempt to reach a "precise result"; and acknowledged (at 4224) that his decision as to certain "large payments" lacked "satisfactory evidence of a specific kind", concluding nevertheless that it was "probable that a large part of the money was derived from gambling", with the result that "a somewhat arbitrary decision" was required, to some extent in favour of the taxpayer.

19. For these reasons, the decision of the Administrative Appeals Tribunal of 1 March 1991 in respect of each of the assessments in question must be set aside, and each of the applications to the Tribunal must be remitted for rehearing according to law before the Tribunal, differently constituted. The respondent must pay the costs of the appeal.