Giris Pty Ltd v Federal Commissioner of Taxation [1969] HCA 5; (1969) 119 CLR 365 (5 March 1969)

HIGH COURT OF AUSTRALIA

GIRIS PTY. LTD. v. FEDERAL COMMISSIONER OF TAXATION [1969] HCA 5; (1969) 119 CLR 365

Constitutional Law (Cth) - Income Tax (Cth)

High Court of Australia
Barwick C.J.(1), McTiernan(2), Kitto(3), Menzies(4), Windeyer(5) and Owen(6) JJ.

CATCHWORDS

Constitutional Law (Cth) - Taxation power - Parliament - Whether delegation of powers - Whether law relating to taxation - Validity of grant of discretion to Commissioner of Taxation - Whether discriminatory law - Incontestable or irreviewable tax - The Constitution (63 & 64 Vict. c. 12), s. 51 (ii.)*.

Income Tax (Cth) - Trusts - No beneficiary presently entitled to trust income - Whether unreasonable that s. 99A apply - Discretion vested in Commissioner of Taxation - Income Tax Assessment Act 1936-1965 (Cth), ss. 99, 99A.*

HEARING

Melbourne, 1968, October 9, 10; 1969, March 5. 5:3:1969
DETERMINATION of a question of law pursuant to s. 18 of the Judiciary Act 1903-1966 (Cth).

DECISION

1969, March 6.
The following written judgments were delivered:-
BARWICK C.J. The appellant was assessed to tax in respect of the income of appropriate to an assessment under s. 99A of the Income Tax Assessment Act 1936-1965 (Cth) (the Act). In an appeal against this assessment which came before my brother Menzies the appellant challenged the validity of ss. 99 and 99A of the Act and requested that that question of law be referred to a Full Court. The respondent agreed to this course and his Honour made an order that the question of the validity of the two sections be argued before a Full Court and adjourned the further hearing of the appeal which was before him. The sole question therefore before us now is the constitutional validity of the sections. I think it is advisable to set out the whole of the two sections:

"99. (1) This section applies in relation to a trust estate in
relation to a year of income only if the next succeeding section
does not apply in relation to that trust estate in relation to
that year of income.
(2) Where -
(a) there is no part of the net income of a trust estate
that is included in the assessable income of a
beneficiary in pursuance of section ninety-seven of
this Act or in respect of which the trustee is assessed
and liable to pay tax in pursuance of the last
preceding
section; or
(b) there is a part of the net income of a trust estate that
is not included in the assessable income of a beneficiary
in pursuance of section ninety-seven of this Act and
in respect of which the trustee is not assessed and is
not liable to pay tax in pursuance of the last preceding section,
the trustee shall be assessed and is liable to pay tax on that
net income or on that part of that net income, as the case
may be, as if it were the income of an individual and were not
subject to any deduction.
99A. (1) This section does not apply in relation to a trust
estate in relation to any year of income if the trust resulted
from -
(a) a will, a codicil or an order of a court that varied or
modified the provisions of a will or codicil; or
(b) an intestacy or an order of a court that varied or
modified the application, in relation to the estate of
a deceased person, of the provisions of the law relating
to the distribution of the estates of persons who die
intestate.
(2) This section does not apply in relation to a trust
estate (other than a trust estate referred to in the last preceding
sub-section) in relation to a year of income if the Commissioner
is of the opinion that it would be unreasonable that this section
should apply in relation to that trust estate in relation to
that year of income.
(3) In forming an opinion for the purposes of the last
preceding sub-section -
(a) the Commissioner shall have regard to the
circumstances
in which and the conditions, if any, upon
which, at any time, property (including money) was
acquired by or lent to the trust estate, income was
derived by the trust estate, benefits were conferred
on the trust estate or special rights or privileges
were conferred on or attached to property of the
trust estate, whether or not the rights or privileges
have been exercised;
(b) if a person who has, at any time, directly or
indirectly -
(i) transferred or lent any property (including
money) to, or conferred any benefits on, the
trust estate; or
(ii) conferred or attached any special right or
privilege, or done any act or thing, either alone
or together with another person or persons, that
has resulted in the conferring or attaching of any
special right or privilege, on or to property of
the trust estate, whether or not the right or
privilege has been exercised,
has not, at any time, directly or indirectly -
(iii) transferred or lent any property (including
money) to, or conferred any benefits on, another
trust estate, not being a trust estate referred to
in sub-section (1) of this section; or
(iv) conferred or attached any special right or
privilege, or done any act or thing, either alone
or together with another person or persons, that
has resulted in the conferring or attaching of any
special right or privilege, on or to property of
another trust estate, not being a trust estate
referred to in sub-section (1) of this section,
whether or not the right or privilege has been
exercised,
the Commissioner shall have regard to that fact; and
(c) the Commissioner shall have regard to such other
matters, if any, as he thinks fit.
(4) Subject to the next succeeding sub-section, where -
(a) there is no part of the net income of a trust estate
that is included in the assessable income of a
beneficiary in pursuance of section ninety-seven of
this Act or in respect of which the trustee is assessed
and liable to pay tax in pursuance of section
ninety-eight
of this Act: or
(b) there is a part of the net income of a trust estate that
is not included in the assessable income of a beneficiary
in pursuance of section ninety-seven of this Act and
in respect of which the trustee is not assessed and is
not liable to pay tax in pursuance of section
ninety-eight
of this Act,
the trustee shall be assessed and is liable to pay tax on that
net income or on that part of that net income, as the case
may be, at the rate declared by the Parliament for the purposes
of this section.
(5) Where a body, association or fund referred to in
paragraph (d), (e), (ea), (eb), (f), (g), (h), (i), or (j) of section
twenty-three of this Act, or an organization that is prescribed
for the purposes of paragraph (x) of that section, has a vested
interest, being an indefeasible interest, in the income or in
part of the income of a trust estate, the net income or the
part of the net income of the trust estate upon which the
trustee is liable to be assessed and to pay tax as provided by
the last preceding sub-section does not include so much of
that net income or of that part of that net income as, in the
opinion of the Commissioner, relates to the income or the part
of the income of the trust estate in which that body, association,
fund or organization has such a vested interest." (at p370)

2. That the appellant has been assessed in accordance with s. 99A and the appropriate taxing provisions involves the conclusion that the Commissioner has not thought it unreasonable to apply the provisions of s. 99A to the income of the property of which the appellant is trustee in respect of the said year of income. (at p371)

3. It will be observed as a matter of verbiage that s. 99A purports to bring to tax the trust income which falls within its prescriptions and to do so of its own force. Verbally the Commissioner is given by s. 99A an authority or discretion in the nature of a dispensing power if he thinks it unreasonable to apply the section to the particular taxpayer in respect to the particular year of income. If he does not think it unreasonable so to do, s. 99 does not apply to the income of the particular trust estate in respect of the particular year of tax because, in default of the Commissioner's opinion in the appropriate sense, s. 99A applies. It is possible to treat s. 99A in isolation and, regarding it literally, not place the Commissioner under any duty to decide pro or con as to the reasonableness of applying that section to the particular taxpayer in the particular year of tax. In the Commissioner's silence, the section would apply. If that literal view were taken then, of course, the invalidity of giving the Commissioner an authority or discretion to treat the section as not applying to a taxpayer in a particular year of tax would not in any wise assist the present appellant. It would be left liable because of the literal terms of s. 99A to tax at the rate appropriate to a taxpayer to whom s. 99A applies. (at p372)

4. However, I am not prepared to treat the section in isolation from s. 99 and to give literal effect to what after all is not much more than a draftsman's device in allowing the section to apply where the Commissioner has not thought it was unreasonable for it so to do. In my opinion, the two sections must be read together and so read they do exhibit a cohesive scheme on the part of the legislature. In my opinion, the operation of each of the sections depends on the view of the Commissioner as to the unreasonableness of applying the one rather than the other to the particular taxpayer in respect of the year of income in question. So read, in my opinion, a duty is imposed on the Commissioner to decide in each case and in respect of each year of income whether it is unreasonable to apply s. 99A rather than s. 99. (at p372)

5. It would also follow from my interpretation of the section that the Commissioner is in substance able to choose whether the trust income will be taxed at one rate rather than another, or perhaps, put more accurately, assessed under one section rather than another. He is able to make the choice in exercise of what, for want of a more precise expression, I shall call a legislative discretion: he can apply one section rather than the other if he thinks it unreasonable to apply the latter of them. I have been unable to find any content for the word "unreasonable" in the context of the two sections except considerations of a kind upon which a legislature acts in deciding whether an enactment or its particular terms are or are not unreasonable having regard to the interests of the public generally, of the citizen to be affected, of the revenue and of the requirements of those policies, political, economic and fiscal which the Parliament is prepared to sanction. Some facts are specified for the Commissioner's attention in arriving at his opinion as to unreasonableness but he is given no hint of what bearing any or all of them ought to have or may have on his judgment. In addition, he is required to have regard to any facts which he thinks appropriate to be considered in relation to the formation of his opinion. This view of the discretion gives to the Commissioner a wide charter which it might have been thought he was ill-equipped to exercise. What he is required to decide, in my opinion, is in truth a function of the legislature, rarely delegated to an official. Its repose in the Commissioner means that the citizen cannot know when disposing of his affairs what the impact upon him or them the law regarding the taxation of income will make: and unless the Commissioner is required to disclose the factual basis of his opinion as to unreasonableness, the taxpayer will not know after he is assessed upon what factual basis he was required to pay the tax imposed. But the wisdom of creating this somewhat unusual situation and the dangers inherent therein are of no concern to the Court, though they might well be to the Parliament, if the features to which I have called attention do not lead to invalidity. (at p373)

6. However, in my opinion, the Commissioner is under a duty in each case to form an opinion and the taxpayer is entitled to be informed of it, and upon the taxpayer's request, the Commissioner should inform the taxpayer of the facts he has taken into account in reaching his conclusion. (at p373)

7. The appellant first makes a two pronged attack upon the sections. Because of the features to which I have called attention, it says that the sections do not amount to a law with respect to taxation within the meaning of s. 51 (ii.) of the Constitution because they prescribe no rule at all - they simply create what is virtually an authority in the Commissioner to create a rule. Further, it says that the sections involve an inadmissible delegation of legislative power and a delegation which is so complete as to amount to an abdication of such power pro tanto. (at p373)

8. As to the first of these objections, I have come to the conclusion that the sections do amount to a law with respect to taxation. Together they prescribe the rule to be applied in assessing the particular class of taxpayer in the year of income, though dependent upon the fact of the Commissioner's opinion upon a matter which itself is no more than a matter of opinion. None the less the subject matter of the law is taxation and it does make a rule with respect to that matter. In my opinion, this objection fails. (at p373)

9. As to the second of these objections, there is in the Australian Constitution no such separation of powers as would deny the Parliament the power to give an officer of the executive government such a legislative discretion as I have described. I have called it such to distinguish it from other discretions of the kind often given to officials, for example, such as enable an official to make his view of the facts of a matter a prima facie source of liability to tax. In the case of such discretions the legislature itself determines the grounds of liability leaving it only to the official to resolve the relevant facts nominated by the legislature as requisite to attract the stated liability. No doubt whilst the Parliament may delegate legislative power it may not abdicate it. Here, even though once the Commissioner's discretion is exercised in respect of a particular taxpayer and a particular year of income the consequences of that exercise are beyond recall except by means of retroactive legislation, it cannot, in my opinion, properly be said that the legislature has done more than delegate a legislative function (cf. Cobb & Co. Ltd. v. Kropp (1967) 1 AC 141 ). (at p374)

10. It was then submitted that the effect of the sections was to create an unchallengeable tax, the imposition of which the taxpayer could not challenge and the validity of which the Court could not examine. I have already indicated the width of the Commissioner's discretion and the lack of discernible criteria by reference to which the propriety of its exercise could be tested. However, as I interpret the sections, the taxpayer is not without the means of obtaining the factual basis upon which the Commissioner has formed his opinion. The legislature, upon any construction of the sections, has made the existence of an opinion of the stated kind the condition of the operation of one of the sections rather than the other. Thus the Commissioner must hold the opinion. The Court can decide whether or not he did hold it. In my opinion, the Court can require him to form it. It can determine whether the opinion is held bona fide and, although as I have said, the discretion is wide and though being really legislative in nature, what is relevant to its formation may range over an extremely wide spectrum of fact and consideration, the Court can determine whether or not the opinion was formed arbitrarily or fancifully, or upon facts or considerations which could not be regarded as relevant even to such a question as the unreasonableness of applying a taxing provision to a particular taxpayer in respect of the income of a particular year. In my opinion, it cannot properly be said that there is here an unchallengeable tax as that expression is used in reasons for decisions given in this Court. (at p374)

11. I need only mention one other argument which was submitted by the appellant. It was said that the concept of unreasonableness in relation to the application of a taxing provision did not itself contain any criteria nor any limitation as to what could be considered relevant; the Commissioner could decide that it was unreasonable to apply s. 99A to taxpayers in one State whilst applying it to taxpayers in another State. Whilst it was not submitted that the statute authorized such discrimination, it was said that it permitted it and that such discrimination could be practised without detection. In my opinion, even if the appellant had been right in saying that such a practice could not be detected, the sections would not be invalid for neither of them purports to authorize any such discrimination. The fact that the taxpayer could not evidence a malpractice on the part of the Commissioner neither makes the law invalid nor, to hark back to an earlier submission, does it make the assessment unchallengeable in the relevant sense. However, I have indicated my opinion that under the sections the Commissioner is bound to form an opinion and to disclose the factual basis upon which it has been formed. For these reasons, I would reject this submission. (at p375)

12. In my opinion, s. 99 and s. 99A are constitutionally valid. (at p375)

McTIERNAN J. The question for decision is whether ss. 99 and 99A of the Income Tax Assessment Act 1936-1965 (Cth) are valid laws. These sections occur in Div. 6 of Pt III of the Act. The sections relate to the liability of trustees to taxation under the Act in respect of income of trust estates in cases in which there are no beneficiaries presently entitled to such income. A trustee is only assessable and liable to tax under s. 99 if the Commissioner forms the opinion in accordance with s. 99A that it would be unreasonable to tax him under this section. We were informed in the course of argument that the rate of tax under s. 99A is higher than under s. 99. The constitutional validity of s. 99A principally was attacked. It was said that the two sections constitute an entire scheme of taxation so that if s. 99A falls, s. 99 should fall also. The contentions on which the attack is based derive from the words "if the Commissioner is of the opinion that it would be unreasonable that this section should apply", occurring in sub-s. (2) and from par. (c) of sub-s. (3), which provides that in addition to the matters set forth in pars. (a) and (b) - "the Commissioner shall have regard to such other matters, if any, as he thinks fit". (at p375)

2. Sections 99 and 99A depend, of course, for validity on s. 51 (ii.) of the Constitution. This power is of a plenary nature. The legislative discretion of Parliament exercisable by it under this power extends to authorizing the Commissioner to form the opinion mentioned in s. 99A (2) on a consideration of the matters set forth in sub-s. (3), which include any matter properly comprised in par. (c), and making such opinion the criterion of the liability of the trustee concerned to pay tax as provided in s. 99. The criterion is attacked on the ground that it is not authorized by s. 51 (ii.) of the Constitution, and is otherwise unconstitutional, because there is no certainty as to what relevance an opinion, that it would be "unreasonable" to tax the trustee under s. 99A, would have to assessing him under s. 99 and levying tax accordingly. In my view, to uphold an attack of this kind against s. 99A, it would be necessary to add to s. 51 (ii.) a condition, that laws or provisions of statutes, made under this placitum must be certain. There is no decision or rule of interpretation which would support imposing a condition or limitation on s. 51 (ii.) making certainty indispensable to the exercise of this power. The provisions of each of the sections now in question constitute, in my opinion, a law with respect to taxation. Neither section manifests an intention to authorize the Commissioner to discriminate in his treatment of trustees, contrary to the words of s. 51 (ii.). All the provisions of both sections should be read as intending to operate only within the limits of this placitum. (at p376)

3. A trustee, assessed under s. 99, may not know what idea conceived by the mind of the Commissioner led to the opinion that it would be unreasonable to apply s. 99A. But neither section attempts to prevent any taxpayer from having recourse to the judicial power with a view to proving that he is not taxable or not taxable in the sum assessed. A trustee within the operation of either section has the same right of appeal under Div. 2 of Pt V of the Act as any other taxpayer assessed in respect of a liability to tax made dependent by a provision of the Act on the opinion of the Commissioner. In an appeal under the division, the Court, as the Act now stands, would not inquire into the correctness of an opinion formed by the Commissioner under s. 99A or any other provision by reason of which an assessment is made. But an assessment under s. 99A is open to such judicial review, as any assessment based on the opinion of the Commissioner, on the ground that the opinion is invalid. There is no need to state here the grounds, established by judicial decisions, on which the Court may in such a case set aside the Commissioner's opinion. It is not a ground on which to hold s. 99A invalid that the sort of opinion it authorizes the Commissioner to form results in the imposition by s. 99 of an incontestable tax. In my judgment it does not for the reasons I have stated. In my judgment s. 99A is a valid exercise of the power granted by s. 51 (ii.) of the Constitution. Section 99 is also a valid exercise of this power. The order of reference pursuant to which this matter was argued before us states that the question for argument is the validity of ss. 99 and 99A of the Income Tax Assessment Act 1936-1965 and I have dealt with the matter on that basis. (at p376)

KITTO J. By s. 97 of the Income Tax Assessment Act 1936-1965 (Cth) the assessable income of a beneficiary in a trust estate includes his share of the net income of the estate if he is presently entitled to it and is not under any legal disability; but upon so much of the net income of the estate as is not included in the assessable income of a beneficiary in pursuance of this provision (other than income in which any of certain bodies, associations, funds or organizations has a vested interest) the trustee is made liable to tax by s. 99A or, if that section does not apply in relation to the particular trust estate in relation to the relevant year of income, then by s. 99. (at p377)

2. The importance of the question whether s. 99A or s. 99 applies is to be found in the fact that the rate of tax under the one is not necessarily the same as the rate of tax under the other. The rate where the assessment is under s. 99A is that which the Parliament declares for the purposes of that section, whereas the rate where the assesment is under s. 99 is that which would apply if the relevant income were the income of an individual and were not subject to any deduction. (at p377)

3. Section 99A is expressed not to apply if the trust resulted from a will or codicil, or from an intestacy, or from an order of a court modifying a will or codicil or the application of the law as to the distribution of intestate estates: sub-s. (1); but even if the trust arose inter vivos the section, according to its terms, does not apply if the Commissioner is of the opinion that it would be unreasonable that the section should apply in relation to the trust estate in relation to the year of income: sub-s. (2). In forming his opinion the Commissioner is to have regard to certain specified matters and "such other matters, if any, as he thinks fit": sub-s. (3). The intended operation of these provisions is clear enough. Where income of a trust estate of a kind other than those described in sub-s. (1) is not included by s. 97 in the assessable income of a beneficiary (other than one of the bodies, associations, funds or organizations above referred to), s. 99A imposes upon the trustee a liability to be assessed to tax at the special rate declared by the Parliament for the purposes of the section; but sub-s. (2) purports to make that liability defeasible upon the formation by the Commissioner of an opinion that the application of the section in relation to the estate's relevant income of the particular year is unreasonable. The intention plainly is that in each case in which a trustee is liable to be assessed under s. 99A in relation to a year of income the Commissioner shall apply his mind to the question whether it is unreasonable that in relation to that year the trustee should be so assessed rather than under s. 99. But no duty is cast upon him to form an opinion as to whether it is unreasonable or not. He may be unable to form any opinion one way or the other; and if, after final consideration of the case, he finds himself with no positive opinion that the application of s. 99A is unreasonable, the liability of the trustee under that section is to remain. (at p378)

4. Under an order of a Justice, we have heard argument upon the questions whether s. 99 and s. 99A are valid. The authority for the order, and therefore our jurisdiction to decide the questions, is to be found, if at all, in s. 18 of the Judiciary Act 1903-1966 (Cth). That section empowers a Justice sitting alone to direct any question to be argued before a Full Court, and provides that a Full Court shall thereupon have power to hear and determine the question. The expression "any question" means, necessarily, any question arising in the matter which the Justice is engaged in hearing: the section cannot intend to enable questions to be referred and decided which are foreign to that matter, for if it did it would be in excess of any legislative power of the Parliament. The only question of validity which arose or could arise in the matter which was before the learned Justice in this case was the question of the validity of s. 99A, for it is an agreed fact that the proceeding in which his Honour was sitting was an appeal against an assessment of income tax which had been made pursuant to that section, that is to say, which had been made on the footing that the Commissioner had not formed the opinion that it would be unreasonable that that section should apply to the case. In my opinion, therefore, we have no jurisdiction to give a decision as to the validity of s. 99. (at p378)

5. Subject to one question, I see no reason for the slightest doubt as to the validity of s. 99A. Plainly it is a law with respect to taxation within the meaning of s. 51 (ii.) of the Constitution. The contention that the concept of unreasonableness is so uncertain that s. 99A (2) allows the Commissioner opportunity for discrimination between States or parts of States, and so exceeds the power given by s. 51 (ii.) of the Constitution, is intelligible only if it means that the sub-section purports to authorize the forbidden kind of discrimination; and both upon ordinary principles of statutory interpretation and by virtue of the provisions of s. 15A of the Acts Interpretation Act 1901-1966 (Cth) it is impossible to construe it as purporting so to do. (at p378)

6. The appellant's further contention that sub-s. (2) provides for an "incontestable" tax, in the sense in which the expression was used in Deputy Commissioner of Taxation v. Hankin [1959] HCA 2; (1959) 100 CLR 566, at p 576 (see also Deputy Commissioner of Taxation v. Brown [1958] HCA 2; (1958) 100 CLR 32, at p 40 ), may be put aside because it is based on a misunderstanding of what is meant by an "incontestable" tax. The expression refers to a tax provided for by a law which, while making the taxpayer's liability depend upon specified criteria, purports to deny him all right to resist an assessment by proving in the courts that the criteria of liability were not satisfied in his case. Whatever may be said as to the validity or invalidity of an "incontestable" tax in this sense has no relevance to a tax which is described as incontestable merely because (as is the case where the formation of an opinion by the Commissioner under sub-s. (2) makes s. 99 applicable instead of s. 99A) the liability of the taxpayer depends upon an opinion of the Commissioner the grounds of which are not necessarily ascertainable and for that reason alone are, in a purely practical sense, not always susceptible of challenge. (at p379)

7. The only question which seems to me worth even brief consideration is whether sub-s. (2) is invalid as an attempt by the Parliament to transfer a part of its legislative power to the Commissioner. There is no need to cite authority for the general proposition that the operation of a law with respect to taxation may validly be made to depend upon the formation of an administrative opinion or satisfaction upon a question, e.g., as to the existence of a fact or circumstance, or as to the quality (e.g., the reasonableness) of a person's conduct, or even as to the likelihood of a consequence of the operation of the law in an individual case, as in s. 265 where the question is whether the exaction of an amount of tax will entail hardship. But it may conceivably be that the position is different where a provision purports to authorize an administrative officer to exclude from the application of a law any case in which he disapproves of its application. If sub-s. (2) had the effect of setting the Commissioner free, in choosing between s. 99A and s. 99, to do what he thought fit within the limits of the powers of the Parliament, possibly it should be held invalid as an attempt to invest an officer of the executive government with part of the legislative power of the Commonwealth. If so, the question would next arise whether the rest of the section is severable from it; for since in the present case the Commissioner has not acted on the footing of an opinion that the application of s. 99A would be unreasonable we would not be concerned to hold sub-s. (2) invalid unless the consequence would be the invalidity of the whole section. But sub-s. (2) does not make the application of s. 99A depend upon the will of the Commissioner instead of the will of the Parliament. It is true, I think, that notwithstanding the specification in sub-s. (3) of s. 99A of some of the matters to which the Commissioner may have regard, the authority that is given him to have regard to such other matters, if any, as he thinks fit makes it extremely difficult for him or anyone else to know with any degree of certainty what really is the judgment that he is to form in a given case. "Unreasonable" is a word which seems peculiarly out of place in this context, and if I were the Commissioner I am not sure that I should ever be able to form an opinion that I thought would operate under sub-s. (2) to make s. 99A inapplicable. But even if the Commissioner has the same difficulty the only result will be that sub-s. (2) will never have any work to do; and to say that is very different from saying that the sub-section is invalid. It affords no ground for doubting the validity of the rest of the section. (at p380)

8. In my opinion there should be a declaration that s. 99A is valid. (at p380)

MENZIES J. Two separate submissions, which, in the course of the argument for the appellant, seemed to me to overlap, were made to impeach the validity of s. 99A of the Income Tax and Social Services Contribution Assessment Act 1936-1966 (Cth), by reference to s. 51 (ii.) of the Constitution. One was that the section is not a law with respect to taxation; the other was that, if the section be a law with respect to taxation, it authorizes discrimination between States. In either event, so the argument ran, the section is not authorized by the Constitution, s. 51 (ii.). Furthermore, it was submitted that s. 99A imposes what was described as an "incontestable tax" and so invalidly attempted to oust the jurisdiction of the courts to decide whether tax assessed by reference thereto is payable according to law. (at p380)

2. It seems to me that there is no substance in the second submission based upon s. 51 (ii.) of the Constitution. The Constitution, in effect, puts taxation discrimination between States outside constitutional legislative power. Although s. 99A does not in terms forbid the Commissioner from exercising his function in such a way as to effect what would be discrimination outside the power of Parliament, there is no reason whatever for construing the section as permitting the kind of discrimination that Parliament has no power to authorize. (at p380)

3. The submission that s. 99A is not a law with respect to taxation has occasioned me greater difficulty. (at p380)

4. The section does confer an extraordinary responsibility upon the Commissioner of Taxation. It requires him, in every case where there is income of a trust estate in a particular year of income, to consider whether it is unreasonable "that this section should apply in relation to that trust estate in relation to that year of income". Unless he forms such an opinion the section applies. The section directs the Commissioner in forming his opinion to have regard to certain facts and circumstances but gives no guidance upon what significance should be given to the presence or absence of the facts or circumstances as specified. Moreover, there appears to be no common principle underlying the various matters specified so as to give the Commissioner a lead to other matters to which he might have regard. Accordingly, whether or not the section is to apply to a particular trust estate has been made to depend upon an opinion which the Commissioner may form, after the close of the year of income, and with no legislative guidance other than that he is to have regard to a medley of facts and circumstances. (at p381)

5. The enactment of such a provision can only be regarded as an acknowledgment by the legislature of its inability to make laws laying down prospectively what will give rise to a particular taxation liability. It leaves, as a problem for the Commissioner to decide, retrospectively and in the light of what has happened, whether the particular provision should not apply to a particular trust estate in respect of a year that has passed. Notwithstanding this I find myself unable to deny to the section the description of the law with respect to taxation. However objectionable it would be, it seems to me that a law fixing two rates of taxation and imposing liability upon taxpayers to pay tax at, one or other rate, in accordance with the decision of the Commissioner, in the particular case, would not fall outside the description of a law with respect to taxation. Section 99A is less drastic than such a law would be. At least it applies in the absence of a positive opinion by the Commissioner that its application would be "unreasonable", and matters to which the Commissioner must have regard in considering his problem are specified. It is true that at some point in a process of parliamentary abnegation, such as the Act reveals in s. 99A and other sections, the shifting of responsibility from Parliament to the Commissioner would require consideration of the constitutionality of the delegation but I cannot deny validity to s. 99A on the ground that it is unconstitutional for Parliament to give to the Commissioner the power to determine that, in a particular case, it would be unreasonable to apply the section. I have therefore reached the conclusion that the submission that s. 99A is not a law with respect to taxation fails. (at p381)

6. Finally, although upon appeal against an assessment made under s. 99A the taxpayer may find difficulty in challenging the absence of opinion by the Commissioner that the application of the section would be unreasonable; and upon appeal against an assessment under s. 99 the taxpayer might find difficulty in challenging the opinion of the Commissioner that the application of s. 99A would be unreasonable; these difficulties do not amount to any unconstitutional denial of resort to judicial process. As to this I agree entirely with what has been written by Owen J. This appeal affirms that the way to the Court remains open to a taxpayer aggrieved by the assessment made by the Commissioner. (at p382)

7. Accordingly, I have come to the conclusion that the attack upon the validity of s. 99A fails on all points. If s. 99A is valid, as I hold it to be, then no question can arise about the validity of s. 99. (at p382)

8. This Court should, therefore, declare that s. 99A of the Income Tax and Social Services Contribution Assessment Act is valid. (at p382)

WINDEYER J. In 1964 the Australian Parliament amended the Income Tax Assessment Act and enacted ss. 99 and 99A. This was more than two hundred years since the Wealth of Nations was published. Yet anyone remembering the record of Adam Smith's four "canons" of taxation must be beset by misgivings and regrets that Parliament forgot it:

"The tax which each individual is bound to pay ought to
be certain, and not arbitrary. The time of payment, the
manner of payment, the quantity to be paid ought all to be
clear and plain to the contributor, and to every other person.
Where it is otherwise, every person subject to the tax is put
more or less in the power of the taxgatherer. . . . "

Yet Parliament has in effect left it to the discretion of the Commissioner in certain circumstances to say whether a taxpayer should be required to pay tax in respect of certain transactions at a higher or at a lower rate. The criterion of differentiation is whether "the Commissioner is of the opinion that it would be unreasonable that s. 99A should apply". And there are no absolute, precise or objectively determinable tests of what is here reasonable or unreasonable. (at p382)

2. However, Adam Smith's canon is a political principle, not a rule of law. It states a characteristic which it is generally considered that a tax should have, not a characteristic which is of the essence of a tax. Parliament may seem to have acted in defiance of a recognized principle of taxation, but that does not of itself mean that the law which it has made is not a law with respect to taxation. It is not necessary to go through the various definitions of a tax to be found in writings by economists, and in judgments of this Court ever since R. v. Barger [1908] HCA 43; (1908) 6 CLR 41, at p 68 . That in Matthews v. Chicory Marketing Board (Vict.) [1938] HCA 38; (1938) 60 CLR 263, at p 276 , adopted in Browns Transport Pty. Ltd. v. Kropp [1958] HCA 49; (1958) 100 CLR 117, at p 129 , will suffice: "a compulsory exaction of money by a public authority for public purposes, enforceable at law, and . . . not a payment for services rendered." An exaction pursuant to s. 99A answers this description. I do not think it can be said that it is not a tax. That however does not dispose of the proposition that s. 99A and s. 99 read together are not in a constitutional sense a law with respect to taxation. (at p383)

3. The argument for the taxpayer, as I understood it, was, stated briefly, that these provisions involved a delegation by Parliament of its legislative power which was invalid as going too far and amounting to an abandonment by Parliament of its function and duty. The power to make laws with respect to taxation does not, it was said, authorize an incontestable tax or an impost which was not objectively certain. These arguments are not without considerable weight bearing in mind what has been said by this Court on the general propositions involved: see among other cases, Victorian Stevedoring and General Contracting Co. Pty. Ltd. and Meakes v. Dignan [1931] HCA 34; (1931) 46 CLR 73 ; King Gee Clothing Co. Pty. Ltd. v. The Commonwealth [1945] HCA 23; (1945) 71 CLR 184 ; Cann's Pty. Ltd. v. The Commonwealth [1946] HCA 5; (1946) 71 CLR 210 ; Deputy Federal Commissioner of Taxation v. Brown [1958] HCA 2; (1958) 100 CLR 32 ; Deputy Commissioner of Taxation v. Hankin (1959) 100 CLR 566 . In Brown's Case, Dixon C.J. said (1958) 100 CLR, at pp 40, 41 :

"Although there is no judicial decision to that effect, it
has, I think, been generally assumed that under the
Constitution liability for tax cannot be imposed upon the subject
without leaving open to him some judicial process by which
he may show that in truth he was not taxable or not taxable
in the sum assessed, that is to say that an administrative
assessment could not be made absolutely conclusive upon him
if no recourse to the judicial power were allowed. This is not
the occasion to go into the basis of this view. All that is
necessary is to note that it exists and that hitherto the
legislature has respected it."

That is pertinent if the Commissioner's decision to assess a taxpayer under s. 99A is never examinable by the Court. But is this so? (at p383)

4. The Commissioner is to ask himself whether it would be unreasonable that s. 99A should apply to any particular trust estate. But the idea of reasonableness seems to be here amorphous. It is, of course, true that, as a measure in fact of time, space, quantity and conduct, reasonableness is a concept deeply rooted in the common law: and so, in such cases, is the power of a court to say whether a particular decision of that fact is or is not within the bounds of reason. But, in cases of that kind, the circumstances in which the question arises provide criteria for its solution. Here the Commissioner's discretion is apparently at large. It does not clearly emerge from the Act in respect of what matter - or whose interest, that of the taxpayer or of the revenue - he is to consider whether it would be reasonable or unreasonable to apply s. 99A in the case of any particular trust estate. He is to have regard to certain stated matters; but what weight or influence each is to have is not made clear. Moreover, the Act requires that he "shall have regard to such other matters, if any, as he thinks fit". However I assume that he is to be guided and controlled by the policy and purpose of the enactment, so far as that is manifest in it. That would exclude from his consideration any matter which it would be unlawful for him to take as a criterion, such as the State of residence of a trustee or of the beneficiaries of a trust. It would also, I think, exclude all merely fanciful and prejudiced tests which were hypothetically suggested in argument, such as vocation, religion, colour of skin or hair. Nevertheless the statute seems to allow great latitude to the Commissioner in forming his opinion. That he has formulated certain considerations by which he is guided, and made them publicly known, may be important as shewing that in the exercise of his statutory discretion he acts honestly, consistently, and, as he thinks, in accordance with the legislative purpose. That purpose I take it is to enable the Commissioner to keep s. 99A as an instrument to prevent avoidance of taxation by the medium of trusts, but not to use it when to do so would seem to him not in accordance with that purpose. But that the purpose of an enactment is understandable, would not cure its invalidity if it were invalid. (at p384)

5. I have found the question in this case difficult. But I have come to agree with the Chief Justice in thinking that the Commissioner's decision is not removed entirely from examination by the Court, because I think that he could be asked by a taxpayer to state the grounds of his opinion; and if asked, that he should do so. The case would then be one in which, within limits, it would be appropriate to remember Coke's statement - "and so it is of reasonable fines, customs and services. . . for reasonableness in these cases belongeth to the knowledge of the law and therefore to be decided by the justices": Co. Litt. 56b. That does not mean that we are to hear appeals from decisions of the Commissioner to apply s. 99A: but it does mean that we could, in a given case, say whether there were any facts which could support his decision that it was not unreasonable to apply the section. (at p385)

6. On the whole I do not think that s. 99A is beyond the bounds of constitutional validity. I think however that it is very close to the boundary, and that it would be questionable as a precedent for legislation of a similar character. I see no reason for questioning the validity of s. 99 separately considered. (at p385)

OWEN J. In this matter we have to consider the validity of s. 99A of the Income Tax Assessment Act which, along with s. 99, was introduced into the Act in 1964. (at p385)

2. The sections - and particularly s. 99A - take a most unusual form. (at p385)

3. Section 99 is in these terms:

"(1) This section applies in relation to a trust estate in
relation to a year of income only if the next succeeding section
does not apply in relation to that trust estate in relation to
that year of income.
(2) Where -
(a) there is no part of the net income of a trust estate
that is included in the assessable income of a
beneficiary in pursuance of section ninety-seven of
this Act or in respect of which the trustee is assessed
and liable to pay tax in pursuance of the last preceding
section; or
(b) there is a part of the net income of a trust estate that
is not included in the assessable income of a beneficiary
in pursuance of section ninety-seven of this Act and
in respect of which the trustee is not assessed and is
not liable to pay tax in pursuance of the last
preceding section,
the trustee shall be assessed and is liable to pay tax on that
net income or on that part of that net income, as the case
may be, as if it were the income of an individual and were not
subject to any deduction."

Section 99A (1) which, for the purposes of this case, is not material, excludes from the operation of s. 99A trusts resulting from certain sources and s. 99A (2), (3) and (4) provide that:

"(2) This section does not apply in relation to a trust
estate (other than a trust estate referred to in the last preceding
sub-section) in relation to a year of income if the Commissioner
is of the opinion that it would be unreasonable that this section
should apply in relation to that trust estate in relation to that
year of income.
(3) In forming an opinion for the purposes of the last
preceding sub-section -
(a) the Commissioner shall have regard to the
circumstances
in which and the conditions, if any, upon
which, at any time, property (including money) was
acquired by or lent to the trust estate, income was
derived by the trust estate, benefits were conferred
on the trust estate or special rights or privileges
were conferred on or attached to property of the
trust estate, whether or not the rights or privileges
have been exercised;
(b) if a person who has, at any time, directly or
indirectly-
(i) transferred or lent any property (including
money) to, or conferred any benefits on, the trust
estate; or
(ii) conferred or attached any special right or
privilege, or done any act or thing, either alone
or together with another person or persons,
that has resulted in the conferring or attaching
of any special right or privilege, on or to property
of the trust estate, whether or not the right or
privilege has been exercised,
has not, at any time, directly or indirectly -
(iii) transferred or lent any property (including
money) to, or conferred any benefits on, another
trust estate, not being a trust estate referred to
in sub-section (1) of this section; or
(iv) conferred or attached any special right or
privilege, or done any act or thing, either alone
or together with another person or persons,
that has resulted in the conferring or attaching
of any special right or privilege, on or to property
of another trust estate, not being a trust estate
referred to in sub-section (1) of this section,
whether or not the right or privilege has been
exercised,
the Commissioner shall have regard to that fact;
and
(c) the Commissioner shall have regard to such other
matters, if any, as he thinks fit.
(4) Subject to the next succeeding sub-section, where -
(a) there is no part of the net income of a trust estate
that is included in the assessable income of a
beneficiary in pursuance of section ninety-seven of this
Act or in respect of which the trustee is assessed and
liable to pay tax in pursuance of section ninety-eight
of this Act; or
(b) there is a part of the net income of a trust estate
that is not included in the assessable income of a
beneficiary in pursuance of section ninety-seven of
this Act and in respect of which the trustee is not
assessed and is not liable to pay tax in pursuance of
section ninety-eight of this Act,
the trustee shall be assssed and is liable to pay tax on that
net income or on that part of that net income, as the case may
be, at the rate declared by the Parliament for the purposes
of this section."

Sub-section (5) need not be set out since it has no application in the present case. (at p387)

4. In fact the rate of tax declared by the Parliament for the purposes of s. 99A differs from that which is applicable to a case to which s. 99 applies and the taxpayer here was assessed at the rate declared for the purposes of s. 99A. It would seem to follow therefore that the Commissioner did not form the opinion that it would be unreasonable to apply that section. (at p387)

5. An examination of the two provisions shows that s. 99 is to be applied to the income of a trust estate of the kind with which the section deals only if s. 99A does not apply to it and s. 99A is not to be applied if the Commissioner is of opinion that it would be unreasonable to apply it having regard to the matters set out in s. 99A (3) (a), (b) and (c). But although the Commissioner in forming his opinion is directed to have regard to the matters mentioned in these three lettered paragraphs, he is given no legislative indication of the effect that the existence or non-existence of some or all of those matters is to have upon his mind when he is considering whether he should form the opinion that it would be unreasonable to apply s. 99A to the case with which he is dealing nor is there anything that I can find in either of the sections to show what were the mischiefs which the Parliament presumably intended to remedy. That, however, is only to say that s. 99A requires the Commissioner to perform a most difficult, indeed an almost impossible, task and does not, to my mind, throw light upon the question of the constitutional validity of the section. (at p387)

6. The attack upon its validity was put in two ways. First it was said that it is not a law with respect to taxation within s. 51 (ii.) of the Constitution because under it the Commissioner might discriminate between States or parts of States. He might, it was said, under s. 99A (3) (c) think fit to have regard to the fact that some taxpayers live in New South Wales and others in Victoria and form the opinion, after having had regard also to the matters set out in s. 99A (3) (a) and (b), that it would be unreasonable to apply the section to those living in New South Wales and not to those living in Victoria. But that argument cannot, in my opinion, be sustained. The section does not and, consistently with the Constitution, could not authorize the Commissioner to discriminate in such a way and there can be no doubt that if, in any particular case, it was shown that he had purported to do so, his assessment would be invalid because he had no power to make it. (at p388)

7. The second ground upon which the validity of s. 99A is called in question is that the effect of the section is, so it was submitted, to impose what has been described as an "incontestable" tax: see Deputy Commissioner of Taxation v. Hankin [1959] HCA 2; (1959) 100 CLR 566, at pp 576, 577 , and it was rightly conceded by counsel for the Commissioner that a law which sought to prevent a taxpayer from having recourse to the courts in order to test the legality or the correctness of an assessment to tax would be beyond the power of the Parliament: see Dawson v. The Commonwealth [1946] HCA 41; (1946) 73 CLR 157, at p 182 ; Deputy Federal Commissioner of Taxation v. Brown [1958] HCA 2; (1958) 100 CLR 32 , per Dixon C.J. (1958) 100 CLR, at p 40 and per Williams J. (1958) 100 CLR, at p 52 ; Hughes and Vale Pty. Ltd. v. New South Wales (No. 2), per Dixon C.J., McTiernan and Webb JJ. [1955] HCA 28; (1955) 93 CLR 127, at p 165 . In support of the argument for the taxpayer, however, emphasis was placed upon the facts that under s. 99A (3) (c) the Commissioner, in considering whether he should form the opinion to which the section refers, is to have regard to such matters additional to those stated in s. 99A (3) (a) and (b) as he thinks fit and that he is under no obligation to inform the taxpayer to what "other matters", if any, he has had regard under par. (c). If he does not do so then, so the argument ran, a taxpayer assessed at the rate declared by the Parliament for the purposes of that section might find it impossible on an appeal to the courts against the assessment to show, for example, that the Commissioner had had regard to extraneous and inadmissible matters outside the scope and purposes of the Act and having no relevance to the subject of income tax. In such case, it was said, the right of appeal might be of little or no avail to the taxpayer. The argument seems to me, however, to fail sufficiently to notice the distinction between a provision which purports to prevent a taxpayer from invoking the aid of the courts to determine whether or not his liability to tax has been lawfully and correctly assessed and one which may, in some circumstances, make it difficult or impossible to exercise the right of appeal successfully because the facts necessary to success cannot be established. There is, I think, a line to be drawn between purporting to prevent appeal to the judicial power, on the one hand, and, on the other, making the application to a particular case of one taxing provision rather than another dependent upon the existence of a fact - in the present case the opinion of the Commissioner - which the taxpayer may be unable, for lack of evidence, to show was formed after taking into consideration inadmissible matters. A tax does not become an "incontestable" tax merely because the person assessed may be unable to produce the evidence necessary to support his appeal. A passage in the judgment of Dixon J. in Dawson v. The Commonwealth [1946] HCA 41; (1946) 73 CLR 157 is, I think, in point. In that case the Court was dealing with a war-time regulation made under the National Security Act which forbad the purchase of land without the consent of the Treasurer and empowered him "in his absolute discretion" to grant or refuse to grant his consent. His Honour, after saying (1946) 73 CLR, at pp 181, 182 that:

"no discretion could be conferred wider than the purposes
of the National Security Act or of the defence power and any
attempt to make a purported exercise of discretion judicially
unexaminable must to that extent fail",

went on

"It is complained that ordinary judicial remedies might
be defeated if the Treasurer or his delegate were to adopt
measures to conceal the grounds upon which his consent is
withheld. The answer is that that is a complaint against the
inadequacy of judicial process to uphold the law. It does not
go to the intrinsic validity of the supposed acts of the Treasurer
or his delegate". (at p389)

8. In my opinion s. 99A is a valid exercise by the Parliament of the power to make laws with respect to taxation. The taxpayer was assessed under that section and the question of the validity of s. 99 does not therefore arise. (at p389)

ORDER

Declare that s. 99A of the Income Tax and Social Services Contribution Assessment Act is a valid law of the Commonwealth. Appellant to pay to respondent the costs of the argument in the Full Court.