ana CATCHWORDS Appeal - Whether decision involved a question of law - Role of appellate court. Income Tax - Assessable income - Whether shares acquired for purpose of profit-making by sale. Income Tax Assessment Act, 1936 - s.26(a), s 190(b), s.196(1). THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v. REGINALD ERNEST NIXON G. 42 of 1979 Coram: Brennan, Deane and Lockhart JJ. Sydney 20 June, 1980. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION No. G42 of 1979 ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES ADMINISTRATIVE LAW DIVISION BETWEEN: THE COMMISSIONER OF AND O R D E R JUDGES MAKING ORDER: Brennan, DATE OF ORDER: 20 June, WHERE MADE: Sydney THE COURT ORDERS THAT: 1. Appeal dismissed with costs. TAXATION OF THE COMMONWEALTH OF AUSTRALIA Appellant REGINALD ERNEST NIXON Respondent Deane and Lockhart JJ IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NO. G42 of 1979 wrewrwvrwv GENERAL DIVISION ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES ADMINISTRATIVE LAW DIVISION BETWEEN: THE COMMISSIONER OF TAXATION OF THF COMMONWEALTH OF AUSTRALIA Appellant [2 Zz is} REGINALD ERNEST NIXON Respondent CORAM: Brennan, Deane and Lockhart JJ. Friday 20 June, 1980. REASONS FOR JUDGMENT On 24 December, 1969, the respondent, Reginald Ernest Nixon ("the taxpayer"), purchased 2,100 shares in Tasminex N.L. The purchase price, including brokerage and stamp duty, was $7,522. This represented a total cost of $3.50 per share in respect of 1,900 shares and $3.55 per share in respect of the balance of 200 shares. On 29 January, 1970 the taxpayer sold 1,000 of the shares for a net amount of $30,329.76. The profit arising from the sale of those shares was $26,747. The taxpayer was not a share trader. The purchase and sale of the shares did not take place in the course of any business which he carried on. The transactions occurred before the date of operation of s.26AAA of the Income Tax Assessment Act, 1936 ("the Act"). It 1s common = ground between the taxpayer and the respondent Commissioner of Taxation ("the Commissioner") that the profit realized on the sale of the 1000 shares did not, for the purposes of the Act, represent assessable income in the hands of the taxpayer unless the shares were acquired by the taxpayer for the purpose of profit-making by sale. If they were acquired for that purpose, the profit would be included in the taxpayer's assessable income of the year ended 30 June, 1970 ("the tax year") pursuant to the provisions of the first limb of s.26(a) of the Act. In his income tax return for the tax year, the taxpayer disclosed the fact of the sale but claimed that the shares had been acquired "for investment purposes only". The notice of assessment in respect of the tax year issued on the basis that the amount of the profit was not assessable income. Approximately two and a half years later, the Commissioner sought and obtained more detailed information as to the share transactions. In September, 1974, the Commissioner issued a notice of amended assessment whereby he included the profit of $26,747 in the taxpayer's assessable income of the tax year. The taxpayer objected to the amended assessment. The Commissioner's decision to disallow the objection was, at the taxpayer's request, referred to a Roard of Review which unanimously upheld the Commissioner's decision and affirmed the amended assessment. The taxpayer appealed from that decision of the Board to the Supreme Court of New South Wales. The Supreme Court (Hunt J.) concluded that the profit had been wrongly included in the taxpayer's assessable income under the amended assessment and upheld the taxpayer's appeal. The Commissioner appeals, by leave, from that decision of the Supreme Court. The Commissioner attacks the decision of Hunt J. both on the ground that the appeal to the Supreme Court was incompetent and on the ground that, in any event, his Honour's decision was wrong. First, it is submitted that the decision of the Board of Review did not involve any question of law and, consequently, no appeal lay to the Supreme Court under s.196(1) of the Act. Second, it is submitted that this Court should itself, on examination of the evidence which was before the Supreme Court, draw the inference that, contrary to his Honour's conclusion, the taxpayer had acquired the relevant shares for a purpose of profit-making by sale. We shall consider these grounds in the order in which we have mentioned them. Section 196(1) of the Act provides that the Commissioner or a taxpayer may appeal to the Supreme Court of a State from any decision of a Board of Review "which involves a guestion of law". The effect of the requirement that, if an appeal is to lie, the decision of the Board of Review must "involve a question of law" has recently been considered by this Court in Lombardo v. Federal Commissioner of Taxation (1979) 79 A.T.C. 4542. That decision establishes that the mere fact that a decision in a s.26(a) case necessarily involves the application of the words used by the Parliament to the circumstances of the particular case does not, in itself, satisfy the requirement that a question of law be involved. The Board's actual decision must involve, "really and not merely colourably" (per Rich J, Federal Commissioner of Taxation v. Miller (1946) 73 C.L.R. 93 at p. 101), an identifiable and relevant question of law. The question will be involved in the decision of the Board if it appears, either expressly from any published reasons of the Board or impliedly, that the question fairly arose for the consideration of the Board in the course of its decision-making process. As Toohey J. said in LIombardo v. Federal Commissioner of Taxation (supra, at p. 4550): "When the question is itself expressly stated, there will be no difficulty in saying that the question was involved in the Board's decision. But the fact that a question is not expressly referred to does not mean that it is not s0 involved. The Concise Oxford Dictionary's definition of "involve" includes "imply" and "entail". If a perusal of a Board's decision shows that some step, although not expressly referred to, must have been taken by the Board in arriving at its conclusion, that matter was involved in the decision. And if the matter, on examination, is shown to be a question of law, then a question of law will have been involved." In the Board of Review, each of two members (Mr. Fairleigh Q.C. and Mr. Harrowell) gave detailed reasons for his decision. The third member of the Board, the Chairman, expressed his "complete agreement with the conclusion reached by each of them". Examination of the reasons of the Board discloses that there was implicit in the decision, which was delivered in the interval between the decision of the High Court in Gauci v. Federal Commissioner of Taxation (1975) 50 A.L.J.R. 358 and the subsequent decision in McCormack v. Federal Commissioner of Taxation (1979) 23 A.L.R. 583, a fundamental question of law, namely, the effect, in a s.26(a) case, of the burden of proving that the assessment is excessive which 8s.190(b) of the Act imposes on a taxpayer upon a reference to a Board of Review. That question was plainly considered by the members of the Board in the process of reaching their decision. It was expressly raised in the Notice of Appeal to the Supreme Court and plainly remained a live issue before that Court. The taxpayer's contention has been that the Board of Review placed an unduly heavy onus upon him. In particular, objection has been taken to statements in the reasons of Mr. Harrowell that "it is the taxpayer's task to convey" that the property was not purchased for a s.26(a) purpose, that "(t)his is no easy task" and that "s.190(b) places the onus" on the taxpayer to "convince others". The taxpayer's submissions to that effect found favour with Hunt J. who expressed, by way of obiter dictum, the view that the Board of Review had, in truth, Placed an unduly heavy burden on the taxpayer. His Honour commented: "Yet the approach of the Board of Review to the discharge of the taxpayer's onus in this case (and presumably that of the Commissioner also) appears to have placed a weight upon the taxpayer similar to that placed upon Atlas, who carried the whole weight of the heavens as well as the globe of the earth upon his shoulders". It is not to the point that consideration of the overall reasons for decision of the members of the Board of Review (including the placing in context of the particular statements of which complaint is made) has failed to persuade us that the members of the Board subjected the taxpayer to a heavier burden than the ordinary civil onus of proof which s.190(b) imposed upon him or that his Honour's criticism of the approach of the Board was justified. The question for us is whether the decision of the Board involved a question of law in the sense explained in Lombardo v. Federal Commissioner of Taxation (supra). It is apparent from what we have said that it did. It matters not whether that question was or was not correctly determined by the Board of Review (Krew v. Federal Commissioner of Taxation (1971) 45 A.L.J.R. 324 at p. 325; XCO Pty. Limited v. Federal Commissioner of Taxation (1971) 124 C.L.R. 343 at p. 348). The fact that the question was, in the relevant' sense, involved in the decision of the Board means that the appeal lay to the Supreme Court pursuant to s.196(1) of the Act and that the Commissioner's argument that the appeal was incompetent must be rejected. It is unnecessary to consider whether, as was argued on behalf of the respondent taxpayer, the decision of the Board of Review also involved a question of law as regards the relevance of other transactions to which the taxpayer had been a party. Once it appears that the decision of the Board involved a question of law, the whole decision of the Board and not merely that question was open to review before the Supreme Court (Ruhamah Property Co. Limited v. Federal Commissioner of Taxation (1928) 41 C-:L.R. 148 at p. 151). The proceedings before the Supreme Court were not "an appeal" in the strict sense since the Board of Review was exercising an administrative function and the proceedings before his Honour were in the original, and not the appellate, jurisdiction of the Supreme Court (see, Watson v. Federal Commissioner of Taxation (1953) 87 C.L.R. 353 at p. 373). Additional evidence to that which was before the Board was led before the Supreme Court. In those circumstances, his Honour was required to assess the evidence for himself and reach his own conclusions on the questions of fact involved. That task was defined by Walsh J. in Krew v. Federal Commissioner of Taxation (supra, at p. 326) as follows: "In FC of T v. Miller (1946) 73 CIR 93 at 98, Latham CJ indicated that the court should give 'due weight' to the Board's decisions on questions of fact. But I am of opinion that I am not restricted in hearing this appeal in the way in which appellate courts are restricted, according to established principles, when hearing appeals (by way of rehearing) from a lower court. I have a duty to reach my own conclusions on the questions of fact which have to be decided and to give effect to those conclusions. I am not limited to asking myself whether the findings of the Board were based on a misapprehension of the evidence or of the questions which had to be decided or were manifestly wrong. I must make my own decisions as to the facts. This view is, I think, in accordance with the observations of Dixon CJ in Rowdell Pty Ltd v FC of T (1963) 111 C.L.R. 106 at 119". The second ground advanced in support of the appeal relates to his Honour's finding on the essential issue of fact between the parties on the hearing before the Supreme Court. That issue was whether the subjective purpose of the taxpayer, in acquiring the relevant shares, had heen profit-making by sale. On that question, the taxpayer - and the taxpayer alone ~ could give direct evidence of what his intention was. The taxpayer gave evidence before the Supreme Court, both by way of affidavit and orally, as to the circumstances in which he purchased the relevant shares. A niece who was interested in geology had, according to the taxpayer's evidence, told him that she had met a geologist who had told her that he had seen a recent report of an assay from Tasminex N.L. and recommended that she buy shares in that company. This, the taxpayer said, led him to believe "that there would be a report released which would show that Tasminex had found minerals". The following morning, he rang his brokers and placed the order for the 2100 Tasminex shares. He swore that he "intended to purchase them with a view to holding them in the same way I had with all other shares which I had purchased. I did not at that stage have any intention to resell them". He had already sworn that none of the other shares had been acquired for the purpose of re-sale. Under cross-examination he was adamant that he bought the shares as an investment ("a fantastic opportunity for future growth") and that "the possibility of sale was a thought that never crossed (his) mind" at the time of purchase. Before the Supreme Court, the taxpayer also called in aid the evidence of his niece and his accountant, neither of whom had given evidence before the Board of Review. The evidence of the taxpayer as to his purpose in acquiring the shares needed to be examined and tested against the context of the objective facts. As the reasons of the members of the Board of Review had demonstrated, there was much in those objective facts which was calculated to excite scepticism as to the reliability of the taxpayer's evidence -10- that he had not purchased the shares for the purpose of profit-making by sale. Plainly, however, if the taxpayer's evidence as to his purpose was both honest and accurate, that was the end of the matter. Hunt J., having had the advantage of hearing and observing the taxpayer and the other two witnesses give their evidence, accepted it as such. The conclusion which he reached was that he was "satisfied by the evidence of the taxpayer and his witnesses, viewed against the background of the evidence as a whole, and taking into account all the matters urged by the Commissioner, that he did not acquire the Tasminex shares for the purpose of profit-making by sale". It was submitted on behalf of the Commissioner that his Honour's finding as to the taxpayer's purpose consisted of an inference from facts which were largely undisputed and that, in these circumstances, this Court, while giving respect and weight to the conclusion of the trial judge, should decide the question for itself in accordance with the principles laid down by the High Court in Warren v. Coombs (1979) 53 A.L.J.R. 293 at pp. 300-301. In our view, this submission is misconceived. The current case is not one which was determined by his Honour by reference only to inferences to be drawn from established facts. The issue before his Honour was the taxpayer's purpose in acquiring the relevant shares. The taxpayer gave direct evidence that he did not acquire the shares for the purpose -ll- of profit-making by sale. His Honour's finding that the taxpayer did not acquire the shares for that purpose was a finding of primary fact based largely on the direct evidence of the only witness who was capable of giving such evidence. There is nothing in the judgments in Warren v. Coombs (supra) which conflicts with the well-established principles governing the circumstances in which an appellate court will be justified in interfering with a conclusion of a trial judge based on his opinion of the reliability of the evidence of a witness or witnesses whom he has seen and heard give their evidence in a case in which it does not appear that that conclusion is affected by identifiable error of principle or mistake or misapprehension of fact. Two principles applicable to such a case were described by Lord Wright in Powell and Wife v. Streatham Manor Nursing Home ([1935] A.c. 243 at pp. 265-6) as being "beyond controversy". These are (ibid): "First it is clear that in an appeal of this character, that is from the decision of a trial judge based on his opinion of the trustworthiness of witnesses whom he has seen, the Court of Appeal "must, in order to reverse, not merely entertain doubts whether the decision below is right, but be convinced that it is wrong": (The Julia (1860) 14 Moo. P.c. 210, 235), per Lord Kingsdown, cited with approval by Lord Sumner ([1927] a.c. 47). And secondly the Court of Appeal has no right to ignore what facts the judge has found on his impression of the credibility of the witnesses and proceed to try the case on paper on its own view of the probabilities as if there had been no oral hearing". -12- (See also, Paterson v. Paterson (1953) 89 C.L.R. 212 at pp. 223-4; Warren v. Coombs, supra, at p. 295). Applying these principles to the present matter, it is apparent that there is no warrant for interfering with Hunt J's conclusion that the relevant shares were not acquired for the purpose of profit-making by sale. It has not been shown that his Honour's conclusion in that regard was affected by any error of principle or mistake or misapprehension of fact. Nor has it been shown that that conclusion, which was founded upon direct evidence which his Honour was entitled to accept, was plainly or manifestly wrong or that there was no adequate basis for it in the evidence before him. In the result, the appeal should be dismissed with costs.