Re Brian Hilton v Commissioner of Taxation [1992] FCA 459; (1992) 92 Atc 4534 (1992) 24 Atr 91 (1992) 110 ALR 167 (1992) 38 FCR 170 (17 September 1992)

FEDERAL COURT OF AUSTRALIA

Re: BRIAN HILTON
And: COMMISSIONER OF TAXATION
No. N G545 of 1991
FED No. 682
Income Tax - Statutes
[1992] FCA 459; (1992) 92 ATC 4534
(1992) 24 ATR 91
(1992) 110 ALR 167
(1992) 38 FCR 170

COURT

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

CATCHWORDS

Income Tax - superannuation fund - benefit paid in excess of entitlement - whether "benefit" in s.26AFA(1)(b)(i) refers to whole benefit - whether s.26AFA(2) can apply if s.26AFA(1)(b)(i) applies.

Statutes - Interpretation - Income Tax Assessment Act 1936 (Cth) s.26AFA(1)(b)(i) - literal construction advanced by Commissioner contrary to object and purpose of Act and manifestly unreasonable - whether Court bound to accept literal construction.

Income TAx - s.223 penalty - factors relevant to s.227 remission discussed.

Income Tax Assessment Act 1936 (Cth): ss.26AFA, 223, 227 Acts Interpretation Act 1901 (Cth): s.15AA

Cooper Brookes (Wollongong) Pty Ltd v. Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297 at 304-5, 319-323, applied.

Luke v. Inland Revenue Commissioners (1963) AC 557 at 577, applied.

Saraswati v. The Queen [1991] HCA 21; (1991) 172 CLR 1 at 21-23, applied.

HEARING

SYDNEY
17:9:1992

Counsel and Solicitors A. Robertson instructed by
for Applicant: Orchiston Ranzetti

Counsel and Solicitors A.H. Slater and B. Glennon

for Respondent: instructed by the Australian Government

Solicitor

ORDER

THE COURT ORDERS THAT:
1. The decision of the Administrative Appeals Tribunal of 23 August 1991 be set aside.

2. The matter be remitted to the Administrative Appeals Tribunal, differently constituted, for rehearing with or without the admission of further evidence at the discretion of the Tribunal and determination in accordance with law.

3. The respondent pay the applicant's costs of the application.

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

DECISION

The applicant, Mr Hilton, purported to resign from the service of his employer, Houma Holdings Pty Ltd, on 17 June 1986. He was, at the time of that resignation, a member of the Brian Hilton Group Staff Superannuation Fund ("the Fund"), a superannuation fund governed by a Trust Deed and Rules ("the Rules") bearing the date 2 March 1978. He was paid by the Trustees of the Fund a resignation benefit of $202,642, less tax instalment deductions, on 23 June 1986. The amount of the benefit was calculated by the AMP Society which managed the Fund. At the date of the resignation he had served with his employer 18 years, but he had not reached the normal retiring age of 65 nominated in the Fund deed and would not do so until the year 2000.

2. Mr Hilton's tax return disclosed the payment by giving, as the standard form requires, details of The Group Certificate indicating that the AMP Society had deducted tax instalments of $10,104.75. The return included a form "Statement of Termination Payment" showing, in respect of the payment to him from the Fund, the paying institution, Mr Hilton's service period, the type of eligible Termination Payment ("superannuation fund") and the composition of that payment. It may be noted, incidentally, that that statement was made by a Mr Schwab who was authorised so to do by the AMP Society. Being part of the return it also bears the signature of Mr Hilton.

3. The Commissioner took the view that the payment to Mr Hilton was not an "eligible termination payment" as defined in s.27A(1) of the Income Tax Assessment Act 1936 ("the Act") and that the whole of the amount was to be included in his assessable income. The notice of assessment showed that additional tax had been imposed of $91,830.76 (the amount of tax adjusted was $83,540.61). Mr Hilton duly objected, and the objection having been disallowed, the matter was referred to the Administrative Appeals Tribunal for review.

4. The Tribunal, constituted by a Deputy President (Mr McMahon), affirmed the objection decision. As the Tribunal saw it, erroneously, it must be said, the first question to be determined was whether there had been a termination of the applicant's employment. After a consideration of the facts the Tribunal stated as a principle of law what had been said in Case C103 (1953) 3 TBRD 602 at 605-6, namely:

"(I)n order to establish, for the purposes of
s26(d) that there has been retirement of a
taxpayer from an office or employment it is
necessary to prove: (a) that the taxpayer has in
fact relinquished his office or employment, and
(b) that at the time he relinquished it, he had
no intention of ever resuming it."

5. Applying this suggested principle of law, the Tribunal found that there had not been a termination of employment. The Tribunal also found that the payment to Mr Hilton was not made in "consequence of" any termination because the termination had to precede the payment. In the result the Tribunal decided that the payment to Mr Hilton was not an "eligible termination payment" within the meaning of s.27A(1) which relevantly defines such a payment as being:

"(a) any payment made in respect of the taxpayer in consequence
of the termination of any employment of the taxpayer,
other than...".

6. Each of these propositions of law was, in my view, wrong. The second is in complete conflict with what was said by the full court of this Court in McIntosh v Federal Commissioner of Taxation (1979) 79 ATC 4325 at 4328 per Brennan J; 4330-1 per Toohey J; 4336-7 per Lockhart J; a case nevertheless referred to by Mr McMahon. The first suggests that the concept of termination of employment has some special meaning in the income tax legislation. There is no particular reason to suspect that it does. No doubt, the taxpayer's intention might have relevance, in some cases, to the factual question to be decided, but to suggest that there could be no termination of employment if the taxpayer had an intention of resuming the employment at some time in the future is clearly incorrect. A taxpayer could resign from his employment to enter politics intending, when his political career was over, to return to that employment. In such a case he would clearly have terminated his employment.

7. The finding that there had been no termination of employment appears to have been thought by Mr McMahon to have concluded the matter. However, he then proceeded to deal with other arguments advanced by the parties, in case he should be found wrong. It was suggested before me that these other matters were, in fact, the only matters argued before Mr McMahon. If this is so, it might assist in explaining the conclusions which he reached on the question of whether para.(a) of the definition of "eligible termination payment" in s.27A applied.

8. The real issue between the parties, and the only matter in dispute before me, was the application of ss.26AFA(1)(b)(i) and (ii), as then in force, to the facts of the case. That this was so can be simply demonstrated. The definition of "eligible termination payment" in s.27A(1) includes, inter alia, in para.(a), payments made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer, but only if the payment does not fall within para.(b). The latter paragraph includes as an "eligible termination payment":

"(b) any payment made from a superannuation fund in respect of
the taxpayer by reason that the taxpayer is or was a
member of the fund, not being a payment...
(iii) that is a benefit to which sub-section ...
26AFA(1)... applies."

9. Accordingly, the initial task of the Tribunal was to determine whether the payment to Mr Hilton was an eligible termination payment within para.(b) of the definition.

10. Section 26AFA(1) of the Act provides:

"Where-
(a) in a year of income and on or after 7 December 1983, a
taxpayer receives or obtains a benefit of any kind out of,
or attributable to assets of, a section 23F fund;
(b) the benefit -
(i) is not a benefit that the taxpayer has
a right to receive from the fund; or
(ii) is an excessive benefit; and
(c) the Commissioner is satisfied that the taxpayer received
or obtained the benefit -
(i) by reason that the taxpayer was, or had been, a member
of the fund;
...
the assessable income of the taxpayer of the year of income
shall include the amount or value of that benefit."

11. Relevant also to the argument between the parties are the terms of s.26AFA(2) which provides:

"Where-
(a) sub-section (1) would, but for this sub-section, apply to
the amount or value of an excessive benefit received or
obtained by a taxpayer out of, or attributable to assets
of, a section 23F fund; and
(b) the Commissioner, having regard to-
(i) the nature of the fund;
(ii) the circumstances by reason of which the benefit is
an excessive benefit; and
(iii) such other matters...
is satisfied that it would be unreasonable for sub-section
(1) to apply to the whole or part of the benefit,
that sub-section does not apply to the benefit, or to that part
of the benefit, as the case may be."

12. The Tribunal considered cl.4 of the Fund Deed, r.(13) and the definition of "Member's Credit" in the Rules and concluded that Mr Hilton was, as a result of the calculation of the benefit to him being incorrect, not entitled to receive the amount which he was paid. In so doing the Tribunal was of the view that various Income Tax Rulings were to be construed as having been incorporated into the Fund Deed by reference. Sub-section (2) of s.26AFA was regarded as irrelevant, because once it was established that the taxpayer had received an amount to which he was not entitled, the discretion contained in sub-sec.(2) could no longer be exercised.

13. Finally, the Tribunal addressed the question of penalty. The Tribunal said:

"An incorrect return penalty of $91,830-76 was
imposed by the respondent. This was calculated
on an interest component of 14.026 per cent for
the period from the due date of the original
assessment to the date of completion of the
audit and a culpability component of 50 per
cent. I see no reason why this imposition of
additional taxation should be disturbed. The
wrongful payment was not the result of
carelessness. It arose as a result of
negotiations with the fund manager to maximise
the applicant's benefit (which was immediately
loaned back to Company One). The calculation
was made with no reference to the respondent
before hand. It was made to arrive at what the
manager mistakenly perceived to be the maximum
allowable withdrawal benefit on a basis that
could not subsequently be justified."

14. The question of the construction of the Fund Deed and the Rules is one that needs no detailed consideration. The deed provided in cl 4 that the Trustee was to limit both benefits and contributions so as to ensure that the benefits provided under the superannuation plan were not "in the opinion of the Trustee" greater than benefits which were approved from time to time for the purposes of s.23F. Subject thereto, the employer of a member was obliged to pay, by way of contributions, an amount which was to be calculated by the AMP Society as being the amount necessary to fund the benefits to be provided under the plan, after taking into account contributions made by members. Rule 13 provided for the Fund to pay to members benefits upon their ceasing to be in the service of the employer, the benefits to be of an amount equal to the "Member's Credit" at the date the member ceased to be in the employer's service. The definition of "Member's Credit" in the Rules was in the following terms:

"'Member's Credit' at any date in relation to a
Member means the amount to which the transfer
value (if any) in respect of the Member together
with the contributions in respect of the Member
have accumulated after making such allowance as
the Trustee shall decide from time to time
(after considering the advice of the AMP) for
interest to that date and for the Member's share
of the charge for expenses made in accordance
with the Policy ... PROVIDED THAT for the
purpose of determining a Member's Credit the
contributions in respect of the Member shall be
such amount as is required in order to fund a
benefit at the Member's normal retirement date
equal to seven times the Member's final average
salary or such lesser amount as is approved from
time to time for each Member for the purposes of
Section 23F of the Act."

15. It was agreed that there had been no specific amount approved in respect of Mr Hilton for the purposes of s.23F of the Act, so that the last part of the proviso to the definition had no application. It was also agreed before me that I should proceed on the basis that the employer had in each year contributed the amounts which had been recommended to it by AMP. The amount actually standing to the credit of the account was, it was agreed, $113,140.37. From these matters it followed inexorably that the amount paid to Mr Hilton was in excess of the amount to which he was entitled under the Deed and Rules. No question arose as to whether the Commissioner's Rulings were incorporated by reference into the Deed and it was conceded that the Tribunal had erred in approaching the question in the way that it did.

16. Accordingly, there are raised for decision two questions of law. These are:

1. Whether when a benefit is paid from a fund to a
taxpayer in an amount greater than the amount of
that taxpayer's entitlement in the Fund the
"benefit" of which s.26AFA(1)(b) speaks is the
whole amount paid, or only that part of the
amount to which the taxpayer was not entitled.
2. Whether s.26AFA(2) might in such a case have any
application where the amount paid was an
"excessive benefit" within the meaning of that
expression in s.26AFA(4).

17. The first of these questions raises a short but difficult question. A literal interpretation of s.26AFA(1)(b) supports the view contended for by the Commissioner. Section 26AFA(1)(a) identifies the benefit which it to be considered for the purposes of the application of s.26AFA(1). That benefit is, at least in the case of a cash payment out of the assets of a s.23F Fund, the amount which the taxpayer receives. Section 26AFA(1)(b) requires the question then to be asked whether "the benefit", that is to say in a case such as the present, the cash payment received, is "a benefit" which the taxpayer had a right to receive. The answer is said in the present case to be that while the taxpayer was entitled to receive on the termination of his services with the employer $113,140.37, he was not entitled to receive $202,642. Accordingly, submits the Commissioner, the provisions of s.26AFA(1)(b)(i) are satisfied.

18. The Commissioner's submission produces a consequence which may be said to be capricious and unintended. That consequence, while evident in the present case, can best be illustrated by an extreme example. Let it be assumed that the amount a taxpayer was entitled to receive on retirement from a superannuation fund was $100,000. By virtue of a mathematical mistake, the taxpayer receives $100,001. The consequence, if the Commissioner's submissions be accepted, is that the whole benefit is to be included in assessable income, without any part obtaining the concessionary treatment otherwise available to "eligible termination payments". The payment of that one dollar could result, depending upon the member's maximum rate of tax and the components of the benefit, in that benefit attracting additional taxation of thirty cents or more in the dollar.

19. According to the submissions of counsel for the applicant this "absurd" result should be avoided by so reading s.26AFA(1)(b)(i) so that it applied only to so much of a benefit from a fund as the taxpayer was not entitled to receive.

20. Section 26AFA was introduced into Parliament as part of the Income Tax Assessment Amendment Bill (No 5) 1983 and was to have effect in the year of income commencing 1 July 1977 and subsequent years, notwithstanding the then provisions of s.26(d) which included in assessable income only five per cent of lump sum amounts paid as a consequence of retirement from or termination of any office or employment. Following amendments in the Senate to the Bill, a new Bill incorporating the proposed s.26AFA was introduced, incorporating the proposed s.26AFA but making it effective from December 1973. The new Bill ultimately was enacted as the Income Tax Assessment Amendment Act (No 5) 1984, Act No 115 of 1984. The present provisions of the legislation relating to "eligible termination payments" were introduced by the Income Tax Assessment Amendment Act (No 3) 1984 which became law prior to the enactment of Act No 115 of 1984. Subsequent amendments were made, such as the omission of the words "notwithstanding para 26(d)", but these amendments do not affect the present problem.

21. In his Second Reading Speech to the No 5 Bill of 1983 the then Treasurer said (House of Representatives, 7 December 1983, Hansard Vol.134 at 3402):

"The amendments contained in the Bill are designed to neutralise
taxation benefits received from the use of this device in the
past and ensure that it will not be practised in the future. It
does this by providing that benefits received from a section 23F
fund in breach of the rules of the fund or which are excessive
in amount having regard to criteria specified in the existing
law are to be wholly subject to income tax in the hands of the
recipient."

22. The device of which the Treasurer spoke involved the establishment of a fund which appeared to comply with s.23F, and where contributions were made apparently for the benefit of employees, but where arrangements were made to ensure that arm's length employees received no benefits. Ultimately the employment of these employees would be terminated before they became entitled to benefits and the proceeds distributed to the persons effectively owning the business. Presumably it was thought that the decision of the High Court in Constable v Commissioner of Taxation [1952] HCA 64; (1952) 86 CLR 402 (albeit concerned with benefits paid under the terms of a trust deed to persons who continued on as employees) would ensure that benefits received in breach of trust and not in consequence of retirement would not be included in assessable income.

23. The Explanatory Memorandum to the Income Tax Assessment Amendment Bill (No 5) 1983 explained that the Bill had been introduced, inter alia, to:

"counter tax avoidance practices in connection
with employer sponsored employee superannuation
funds, with effect from 1 July 1977, by -
- including in full in assessable income of the recipient
benefits received or obtained on or after that date in
breach of the fund rules or which are excessive in amount
having regard to criteria specified in the law...".

24. The Memorandum, in discussing the provisions, then states:

"The purpose of this proposed new section is to include in full
in the assessable income of a taxpayer, instead of at 5%, an
amount, or the value of a benefit, received or obtained from a
section 23F fund (as defined) in circumstances where the benefit
is excessive or is a benefit which the taxpayer has no right
under fund rules to receive."

25. The Memorandum suggests that the new section would operate:

"where benefits were received or obtained in circumstances where
the taxpayer had no right under the fund rules to receive the
benefits or where the benefits paid were excessive for the
purposes of paragraph 23F(2)(h)."

26. It seems clear enough that the legislative purpose was, as the Explanatory Memorandum itself suggests, to apply s.26AFA(1)(b)(i) only to those cases where the benefit was one to which there was "no" entitlement, rather than to the whole of the benefit in a case where the benefit was one to which there was in part an entitlement. The task of the court is to give effect to the legislative purpose as enshrined in the words which Parliament has chosen and it is clear that, when two constructions are open, the one which would give effect to the legislative purpose and the other which would not, the court is directed to prefer the construction which would promote the purpose or object underlying the Act: s.15AA(1) of the Acts Interpretation Act 1901.

27. The relevant principles of construction are to be found in the decision of the High Court in Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297 at 304-5 per Gibbs C.J., and at 319-323 per Mason and Wilson JJ.. As the judgments in that case make clear, it is necessary to interpret a provision in a statute in its context. Ordinarily, the task of construction is to give to the words used by the legislature their ordinary meaning. There will be occasions, hopefully rare, when to do so will result in a construction which would be irrational or capricious, and in such a case the court will endeavour to come to a realistic solution. However, mere inconvenience of result will be no ground for departing from the literal words used. On the other hand, departure from the literal meaning used may be justified in cases not restricted to those where absurdity or inconsistency would result. As propounded in the judgment of Mason and Wilson JJ., such cases extend to:

"any situation in which for good reason the operation of the
statute on a literal reading does not conform to the legislative
intent as ascertained from the provisions of the statute,
including the policy which may be discerned from those
provisions."

28. More recently in MacAlister v The Queen (1990) 169 CLR 324 at 330, the full High Court expressed its agreement with the words of Lord Reid in Luke v Inland Revenue Commissioners (1963) AC 557 at 577, viz:

"The general principle is well settled. It is only where the
words are absolutely incapable of a construction which will
accord with the apparent intention of the provision and will
avoid a wholly unreasonable result, that the words of the
enactment must prevail."

29. Finally, in Saraswati v The Queen [1991] HCA 21; (1991) 172 CLR 1 at 21-3 McHugh J, with whose judgment Toohey J agreed, considered the tensions between the need to give effect to the purpose and object underlying legislation and the so called determination of the ordinary meaning of a provision. His Honour expressed the view that if the literal or grammatical meaning of a provision does not give effect to that purpose, that meaning can not be regarded as the "ordinary meaning" and must give way to a meaning which will promote the underlying purpose or object. His Honour continued (at 22):

"Moreover, once a court concludes that the
literal or grammatical meaning of a provision
does not conform to the legislative purpose as
ascertained from the statute as a whole
including the policy which may be discerned from
its provisions, it is entitled to give effect to
that purpose by addition to, omission from, or
clarification of, the particular provision...".

30. Immediately after the passage cited, however, his Honour warns that in a case where the text is grammatically capable of only one meaning and neither the context nor any purpose of the Act throws any real doubt on that meaning, the grammatical meaning is to be adopted as the "ordinary meaning". His Honour continued:

"A court cannot depart from 'the ordinary meaning' of a
legislative provision simply because that meaning produces
anomalies... But ... the Interpretation Act assumes that it may
do so if the ordinary meaning conveyed by the text of the
provision 'taking into account its context in the Act ... and
the purpose or object underlying the Act' leads to a result that
is 'manifestly absurd' or 'unreasonable'."

31. In my view, the present is a case where the result contended for by the Commissioner is manifestly unreasonable. Counsel for the Commissioner did not contend, nor could he, that Parliament intended to produce the result that where a person was entitled to a benefit under a fund deed, but was paid by mistake a greater amount, the whole of the benefit was to be included in assessable income and that that part to which the taxpayer was entitled and which would otherwise have attracted the concessional treatment afforded by the Act, would lose that treatment. In effect, all that counsel for the Commissioner could say was that if the result was unjust, then so be it, for that was what Parliament had enacted. He referred, by way of analogy (an imperfect analogy if I may say so) to what was said by Gibbs C.J. in Tourapark Pty Ltd v Federal Commissioner of Taxation [1982] HCA 18; (1982) 149 CLR 176 at 183. In that case, the result contended for was neither absurd nor unjust and the context did not require any departure from the ordinary meaning used by the legislature. By contrast, the result contended for by the Commissioner in the present case is both absurd and unjust and not one which is suggested by the context of the section or the mischief it was introduced to overcome.

32. I am, therefore, of the opinion that s.26AFA(1)(b)(i) should be interpreted as if the word "benefit" included a part of a benefit, in a case where the remaining part of a benefit was such that the taxpayer had the right to receive it from the Fund. So construed, the benefit of $202,642 paid to Mr Hilton on the facts of the present case is, to the extent of $113,140.37 not necessarily caught by s.26AFA(1)(b)(i) and may fall to be considered as an "eligible termination payment" under para.(b) of the definition of that expression in s.27A(1). The remaining part of the benefit, that is to say the difference between $113,140.37 and $202,642.00, then would fall within s.26AFA(1)(b) and would be included in Mr Hilton's assessable income.

33. Whether in fact the amount of $113,140.37 will be properly an "eligible termination payment" and excluded from s.26AFA(1)(b)(i) will depend upon whether, for the purposes of the provisions of r.13 of the Rules, Mr Hilton had ceased to be in the service of his employer. This was a matter not dealt with at all by the Tribunal and it can not be assumed necessarily that the findings made by the Tribunal, for the purposes of para.(a) of the definition in s.27A(1), were findings which could be automatically applied to the issue raised under r.13 of the Rules. In these circumstances, the matter must be remitted to the Tribunal for the necessary findings of fact to be made.

34. The second question, as to whether s.26AFA(2) might apply, does not arise on the interpretation of s.26AFA(1)(b) which I have accepted. If, however, s.26AFA(1)(b) does not admit of any apportionment, as the Tribunal thought, there is, I think, a good argument in favour of the application of s.26AFA(2) in an appropriate case, notwithstanding that s.26AFA(1) has come into operation because of the operation of s.26AFA(1)(b)(i) and not because of the operation of s.26AFA(1)(b)(ii). The Tribunal, it will be recalled, expressed the view that once an amount was shown to fall within s.26AFA(1)(b)(i), the provisions of s.26AFA(2) could have no application to that amount. That is not a self-evident proposition. While the provisions of s.26AFA(2) are primarily directed to the case where the benefit has fallen within s.26AFA(1)(b)(ii) because the benefit was an excessive benefit, literally s.26AFA(2) will apply in all cases where s.26AFA(1) would apply to an excessive benefit, that is to say a benefit as defined in s.26AFA(4), namely:

"a benefit of any kind that is excessive in amount or value
having regard to the matters mentioned in sub-paragraphs
23F(2)(h)(i), (ii), (iii) and (iv);".

35. Thus, literally at least, where a taxpayer was paid a benefit which was excessive in amount or value as set out in s.26AFA(4) but the benefit paid was not one to which the taxpayer was entitled, the Commissioner could determine, having regard to the matters set out in s.26AFA(2)(b), that s.26AFA(1) not apply to the benefit or part of the benefit as the case may be. This literal interpretation is not inconsistent with the policy of the legislation, nor does it in any way offend the context in which the legislation appears. It is perhaps supported by the Explanatory Memorandum which states:

"Sub-section (2) is an ameliorating provision
which provides for the situation where, although
the conditions of paragraphs (a), (b) and (c) in
sub-section (1) are satisfied and the case is
one where the benefit is excessive (paragraph
(a)), the Commissioner is satisfied that it
would be unreasonable for the whole or part of
the amount of the benefit to be included in full
in assessable income;".

36. In a case where a fund, once exempt from tax under s.23F, was assessable on all its income at the maximum rate of tax and there had been no interference with the rights to benefits receivable by arm's lengths employees, it could well be unreasonable for the Commissioner to add yet another penalty by including the amount received in the assessable income of a taxpayer, even where that taxpayer was not entitled to receive the amount. However, on the interpretation which I have adopted the question does not arise in the present case.

37. There remains the question of penalty. To the extent of the penalty applicable to tax on $113,140.37, the penalty can not, consistent with my reasons, stand. However, I am of the view that in exercising its discretion to remit the tax, the Tribunal also erred in law. It was never explained by counsel for the Commissioner before me in what respect s.223(1) applied, nor indeed did the Tribunal assay that task. All that was said was that there had been an "incorrect return". That is certainly an inadequate paraphrase of the language of s.223(1) or, for that matter, its application in the present case. For a penalty to be exigible under s.223(1)(a)(i) there must be a statement made by the taxpayer to a taxation officer. Although a document furnished as part of a return can be a statement (see s.223(9)) the statement nevertheless must be a statement of the taxpayer. The document prepared by the AMP was not a statement of the taxpayer; nor was the group certificate appended to the return. Perhaps it was thought that there was an omission of income within the meaning of s.223(7). There would be considerable difficulty in making that out, having regard to the principles established by the Full Court of this Court in North Coast Grazing Pty Ltd v Commissioner of Taxation (1987) 15 FCR 104, which principles seem equally applicable to s.223. Alternatively, there must be an omission from the statement which has the consequence that the statement becomes false or misleading, that is to say either wrong or likely to lead the Commissioner into error. Perhaps what was relied upon in the present case was an omission, we do not know.

38. But assuming that there was an omission which attracted the operation of s.223(1), the power to remit the penalty under s.227(3) must not be vitiated by error. Here the Tribunal clearly approached the task having in mind that the issue before it was whether there had been a termination of employment within the language of para.(a) of the definition of "eligible termination agreement". It formed the view that there was not. That consideration of an irrelevant issue may well have coloured its view. But the exercise of discretion is in any event vitiated by the taking into account of at least one and perhaps more irrelevant factors. In my view, the fact that the taxpayer made no reference to the Commissioner before paying the amount is an irrelevancy. There is no obligation upon a taxpayer to seek the approval of the Commissioner before making a payment out of a superannuation fund, no matter how prudent such a course may be in avoiding an ultimate dispute. Nor could it be relevant to an adverse exercise of discretion that the wrongful payment was the result of carelessness (of the AMP one must assume, rather than the taxpayer). Nor would it seem relevant that there were negotiations with the AMP to maximise Mr Hilton's benefit. There is no odium to be heaped upon a taxpayer who seeks to maximise his entitlement to superannuation consistent with the legislation. The very quantum of the penalty and the acceptance of a culpability component of 50 per cent, in a case where overpayment arose from the mistake of a Fund Manager, demonstrates that an error of law had interfered with the valid exercise of discretion.

39. I would accordingly set aside the decision of the Tribunal and remit the matter for rehearing to a Tribunal differently constituted with or without the hearing of new evidence as the Tribunal shall determine. The respondent must pay the applicant's costs of the application to this Court.