tg DG@MENT No.9 Of 8-2 CATCHWORDS Income Tax ~ claim to deduct amounts "set apart" or "paid" for the purpose of making provision for superannuation benefits for employees - Income Tax Assessment Act 1936, s.82AAC - hook entries - whether "paid" or "set apart" - whether alleged underlying agreement was valid - whether in breach of trust. Income Tax - additional tax Income Tax Assessment Act 1936, s.226 - deduction claimed under s.82AAC as contribution to superannuation fund - claim disallowed because no expenditure incurred ~ additional tax imposed. THE COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA v. P. IORI & SONS PTY. LIMITED No. G73 of 1987 No. G74 of 1987 No. G75 of 1987 No. G76 of 1987 Fox, Lockhart and Beaumont JJ. Sydney 4 September 1987 AN RECEIVE FEDERAL COURT OF AUSTRALIA PRINCI ARGISTRE Ny x ee ee IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G73 of 1987 ) No. G74 of 1987 GENERAL DIVISION ) No. G75 of 1987 No. G76 of 1987 ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES BETWEEN: THE COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA Appellant AND: P. IORI & SONS PTY. LIMITED Respondent™ MINUTES OF ORDER Court 3 Fox, Lockhart and Beaumont JJ. Date order made: 4 September 1987 Where made 3 Sydney THE COURT ORDERS: l. Appeals allowed with costs. 2. Set aside orders made by the Supreme Court; in lieu thereof, order that the appeals to that Court be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. mas t. 1. peeve ee yet pores wo prey Brae eee om Ona men ren IN_THE FEDERAL COURT OF AUSTRALIA No. G73 of 1987 No. G74 of 1987 No. G75 of 1987 No. G76 of 1987 NEW SOUTH WALES DISTRICT REGISTRY weer GENERAL DIVISION ON APPEAL from a single judge of the Supreme Court of New South Wales BETWEEN : THE DEPUTY COMMISSTONER OF TAXATION Appellant AND: P. IORI AND SONS PTY. LIMITED Respondent CORAM: FOX, LOCKHART AND BEAUMONT JJ. DATE: 4 SEPTEMBER 1987 REASONS FOR JUDGMENT FOX J. These are four appeals from a decision of a judge of the Supreme Court of New South Wales (Yeldham J.) allowing objections by the respondent ("the taxpayer") against assessments made by the Deputy Commissioner of Taxation for the years 1976, 1977, 1978 and 1979. The matter in dispute, common to all these assessments, concerns deductions claimed for each of the years in question for what were said to be amounts paid or set aside as orto a superannuation fund in accordance with s.82AAC of the Income Tax Assessment Act 1936. Deductions were originally allowed in the amounts claimed for the years 1976, 1977 and 1978, but on 27 May ' rors 74, Cortes otter re wet ee 1982 the Deputy Commissioner issued amended assessments for those vears and an original assessment for the vear 1979 disallowing the deductions. Penalties were also imposed on the taxpayer under s.226 of the Act. as it then stood. At all relevant times there were three principals of the taxpayer: Pellegrino fori and his two sons, Edo and John. The three were the directors of the taxpayer, and its shareholders were their family companies. By deed executed on 9 Mav 1975, the taxpayer established a fund which provided for contributions bv it and other "invited" emplovees and was for the benefit of "certain of its employees". The deed is loosely framed, but no challenge has been made to it as an effective deed. The trustees were the two sons, John Iori and Edo Iori. All three principals. as directors, were, under s.82AAA(2)(a), employees of the taxpayer for the purposes of the Act (see also s.23F(11)). There is no similar provision in the deed. but this circumstance has not been the subject of comment or argument. The term "member" is used in the deed and is defined, but does not include anvone other than an "employee". Clause 2(a) of the deed deals with investment and is as follows: "All moneys comprising the Fund shall be vested in the Trustees and shall be invested in their names and in any of the following investments and not anv others but the Trustees may from time to time varv and transpose investments:- (i) Investments which a Trustee is permitted to make under any law of the Commonwealth or an Australian State or of a Territory of the Commonwealth without special authorisation: wer poe of a. = (ii) Shares stock debentures notes bonds or other securities or obligations of a company including rights to subscribe for or take up = such shares stock or debentures; (iii) Units or other investments of a fixed or flexible Unit Trust; (iv) Interest Bearing Deposits with or loans to a Bank in Australia an authorised dealer in the Australian short term money market or a company mentioned in paragraph (ii) or with or to the Company so long as the Company shall execute a charge acceptable to the Trustees over an asset or assets real or personal acceptable to the Trustees; (v) Policies of Assurance on the life of a Member as shall be effected by transferred to or deposited with the Trustees such Policies to be of such nature or type and with such Life Assurance Company as the Trustees may from time to time determine. So far as is practicable Fund investments shall at all times be readily realisable so that the benefits may be paid promptly to a Member or the dependants of a Member in accordance with the terms of this Deed as they become due." Clause 2(b) is as follows: "The Company shall contribute to the Fund at' such rate and Csic; scil. ""as"] the company shall determine and notify to the Member Csicid and the Trustees shall be required to ensure the stability of the Fund and to secure the rights of the Members and the benefits and beneficiaries PROVIDED THAT the contribution of the Company shall include the total cost of providing any Life Assurance Cover held by or effected by the Trustees pursuant to Clause 5A hereof. The contribution of a Member shall be such sum as the Trustees shall notify to such Member on his admission to Membership of the Fund PROVIDED THAT: (i) The Trustees may vary such contribution in their absolute discretion so long as such contribution shail not at any time exceed the proportion of such Member's salary or wage which such Member's contribution bore to such Member's salary or wage at the date of his admission to membership of the Fund. (ii) The contribution of a Member shall cease on his Normal Retirement Date. PROVIDED ALWAYS THAT the Trustees shall not be authorised (notwithstanding anything contained in this Deed) to accept nor shall they accept contributions except from the classes of persons specified in Section 23F(2){c) of the Income Tax Assessment Act. 1965 (as amended)." Par . > he sone ene: <canellienen ar Gime aacueaaae ar ~ No payment, in cash or kind, was made to or for the fund in any of the years in question. What are relied upon are entries made in the books of the taxpayer, and in the annual balance sheets of the trust. albeit the latter may have been prepared some years after the dates to which they relate. The business of the taxpayer was not a large one (its net profit for 1977 is shown as $3,774.05), and allowance can be made for the fact that its books were not kept in as complete or as elaborate a formas would be expected of a company with a business of greater size. Financial dealings were entered by hand in a journal. There is an entry dated 30 June 1976 in the journal of the taxpayer which reads as follows: "Superannuation $8,000.00 Loan P. Tori Superannuation Fund $8,000.00 Being superannuation paid on the lives of Pelegrino $4000 Edo $2000 John $2000" On its face the entry records a debit to "Superannuation", in association with a loan back to the taxpayer of the same amount. The distribution of the amount as between the beneficiaries is stated in the entry, and is the only place, except for the trust balance sheets, in which it appears. There are similar entries for the other years now in question. One way of looking at these entries is to say that the Superannuation amounts came out of the "loan" funds, but obviously they are counterbalancing. The debits were all simply to "Superannuation". Put shortly, they do not show, or indicate, credits to the fund now in question. There was no debit to cash, or other funds. None of the "loans" were secured. It is also of significance that the amounts of lw se ry eet fe ape re eee ieee ware superannuation were not debited to an appropriation account, but directly to the combined Trading and Profit and Loss accounts. The minutes of a meeting of directors of the taxpayer held on 30 December 1976, attended by the three principals, records: "The Balance Sheet as at 30th June, 1976 together with Supporting Accounts, Directors Statement and Report and Statement by the Person Responsible for Preparation of the Accounts were received and after discussion of results achieved for the year it was resolved that they be adopted." Similar entries appear in the minutes in relation to the following years. No reference is made to interest on the "loans" from the fund to the taxpayer until a journal entry for 30 June 1979: "Interest paid $6,020.34 Loan P. Tori & Sons Super Fund $6,020.34 Being interest paid at 6% p.a. on outstanding balance" There is not in evidence any minute to support this entry; nothing is known as to how it came to be made. It does not constitute a debit for interest at 6% p.a. onthe "loans" throughout the whole of the respective periods since 30 June of each year. It seems that the exact amounts to be debited to the superannuation fund were left on each occasion to be determined by an accountant, he taking into account what the Commissioner would allow and the taxpayer's profits for the year. There is no minute of the directors in evidence specifically authorising the payments of the particular amounts shown in the journal, and, wee QuInTee me cree ren . ar' - re sare te ea ' > y . Po pt ee ee eee ne as aa , despite the dates shown, it seems that the amounts were arrived at some time after the close of the financial year and later inserted as one of a number of closing entries for the year. There was no minute, or note, of an arrangement concerning the loans, as to duration, interest, or otherwise. The trustees were of course two of the three directors of the taxpayer. They did not, as trustees, keep any accounts, or minutes, except that in respect of each year an income and expenditure account and a balance sheet of the trust was at some time drawn up. The evidence suggests that no balance sheets were prepared during the first years, and that possibly none were prepared until about 1980. The balance sheet stated to be as at 30 June 1976 was as follows: mee meee ee pe we ween ' { a ue a "P. Tor i & Sons Pty. Limited Superannuation Fund Balance Sheet as at 30th June, 1976 1976 1975 Accumulated Funds Opening Contribution Share of Closing Balance for the Net Balance 1975 year Profit 1976 Pelegrino Iori 28,500 4,000 53 32,553 28,500 John fori 3,718 2,000 7 5,725 3,718 Edo Iori 4,636 2,000 93 6,745 4,636 36,854 8,000 69 44,923 36,854 Investments $12,000 Commonwealth Bonds ( ) 9,635 6,821 Current Assets P.Iori & Sons Pty. Limited 35,339 30,033 Less: Current L 44,974 36,854 iabilities Provision for taxation 51 = $44,923 $36,854" The opening balances carried forward from 1975, the government bonds the balance she the 1975 financi proceedings. The bal and the provision for taxation referred to in et all relate to assets acquired by the fund in al year, which is not in question in the present ance sheet for 30 June 1978 is more revealing as to what was happening to the amounts shown as credited to the fund: Tor "PB. Tori & Sons Pty. Limited Superannuation Fund Balance Sheet as at 30th June, 1978 Accumulated Funds Opening Contribution Share of Closing Balance for the Net Balance 1977 Year Profit 1978 Peligrino Iori 57,919 20,000 364 78,283 57,919 John Tori 10,800 5,000 68 15,868 10,800 Edo Iori 11,709 5,000 74 16,783 11,709 80,428 30,000 506 110,934 80,428 This is represented by: investments Commonwealth Gov.Bonds 9,635 9,635 Current Assets Unsecured Loans-at call 102,160 71,224 111,795 80,859 Less Current Liabilites Provision for Income Tax 861 431 $110,934 $80,428" It is apparent that the "fund" was largely being administered from within the taxpayer, by its directors and accountant. The amounts shown as credited to 1t were retained by the taxpayer, albeit they were shown in the annual balance sheets of the fund. As property they never left the taxpayer, and were not, notionally or otherwise, received by the trustees. No identifiable property of the taxpayer passed to the trustees. No record, except for the journal entries, was made of a loan back by the fund, nor, of course, of its terms. Sore are a vaso, WO Section 82AAC of the Act was at relevant times as follows: "Where a taxpayer, for the purpose of making provision for superannuation benefits for. or for dependants of, an eligible employee, sets apart or pays in the year of income an amount or amounts as or toa fund or funds from which the benefits are to be provided. and the right of the employee or dependants to receive the benefits is fully secured, the amount or the sum of the amounts, as the case may be, so set apart or paid is, subject to the succeeding provisions of this Subdivision, an allowable deduction." Tt was submitted that bv reason of the book entries and their acceptance the amounts were paid or set aside as or to the fund, and were secured for the beneficiaries by the deed. His Honour accepted these submissions, placing reliance on "payment" and not as a result having to deal with the alternative of "setting aside". Counsel for the taxpayer relied on authorities which go to show, as he submitted, that payment does not necessarily require a transfer of moneys or other property (see In re Harmony and Montague Tin and Copper Mining Co. (Spargo's Case) (1873) 8 Ch. App. 407; Whim Creek Consolidated N.L. v. Federal Commissioner of Taxation (1977) 31 F.L.R. 146, at 150. In Federal Commissioner of Taxation v. Steeves Aaqnew & Co. (Vict.) Pty. Ltd. (1951) 82 C.L.R. 408, Dixon J, after referring to Spardo's case and to Commissioner of Stamp Duties (N.S.W.) v. Perpetual Trustee Co. Ltd. (1929) 43 C.L.R. 247 and Joseph v. Campbell (1933) 50 C.L.R. 317, said at p.421: "But for the application of these principles there must be cross~liabilities and agreement, express, tacit or implied, and the cross-liabilities must be equal. If they are not equal payment of the residue must be effected by other means. A continuing account balanced at yearly intervals is not the Cad belie wpe ee ie - ow ayn oo mete see oe ann 10. same thing." Counsel accepted that there had to be an agreement between the parties, but he submitted that such an agreement was plainly to be implied in this case. Although the two sons were directors, they were also the trustees, and it was submitted that they could be taken to have concurred in the making of the relevant entries as trustees, besides having in due course their own balance sheets, as trustees, relating to the fund. Tt was added that the three principals were the only members of the fund. They were not however the only possible beneficiaries. There are several difficulties about the approach mentioned. In the first place, a deemed payment requires an underlying liability, or a mutuality of liabilities, which the book entries are treated by the parties as settling (or, possibly, partly settling): Federal Commissioner of Taxation v. Steeves Agnew and Company (Victoria) Pty. Ltd., supra. The "agreement" relates to settlement. In some cases it may be implied. The broad purpose of Spargo's case is to avoid circuity. Here, there was no underlying liability, or mutuality of liabilities. The taxpayer was under no liability to contribute anything. The acceptance of its decision to do so in any year was not an agreement in the relevant sense. The entries could concievably have had some effect, in law or equity, but even 1f they had done so, they did not constitute payment, or, for that matter, a "setting aside". It is not necessary to decide the matter, but on the present material it would be at 11. least doubtful if they had any such effect. The alleged "payments" remained as part of the assets of the taxpayer, albeit they were, after their making, described as loans. The trustees, although acting in breach of trust and in breach of their duties to the taxpayer, with a conflict between duty and interest, and two duties, in effect claimed their dual capacities as virtues. Being, as it were, on both sides of the transactions, they say that what they did as directors, was necessarily with their agreement as trustees, and vice versa. Whether in relation to the particular entries, they could be regarded as acting as trustees is doubtful, but it is not necessary to pursue this question, Apart from questions arising in this way, there can be no escape from the fact that the taxpayer was not under any prior obligation, and the trust fund took in each case as a volunteer. Perhaps it is sufficient to say, simply, that 1t was not intended that there be any payment. All that was intended by the directors, but in their own interests, was to make book entries, doubtless in the hope that in due course they could give effect to them, and certainly in the hope that taxation deductions could be obtained in the meantime. Clause 2(b) of the deed has alreadv been set out. It could be argued (but has not) that once a decision was made as to the amount of a member's benefit included within a contribution, that clause operated to bring the amount of the benefits within the trusts of the deed. In this way it could be said that (at some point of time) a liability was created. One difficulty about this approach is that already adverted to, namely that the trusts of the deed were ignored, and plainly the company had to . wy 3 a ee ge - 12. treat the moneys as lent back to it immediately, on its own terms. Although there has not been evidence precisely in point, it seems to me that the effect of what was done was to create a provision for superannuation. On this view the amount of the fund, 1t might be argued, would be the loan, but there would be no consideration to support it, and so far as concerns the application of s.82AAC there would remain a question whether the "payment" was fully secured. Tt is not possible sensibly fo consider this last-mentioned question separately from the question as to payment or setting aside. I shall simply refer again to clause 2(a) of the deed, which was ignored. Under it "all wmonevs comprising the fund shall be vested in the trustees", and provision is made for their investment. Plainly, under the deed, property of some description was to become vested in the trustees. The book entries did not bring about any such situation. The trustees did not exercise any power of investment; they simply let the taxpayer retain the property, unidentified and unappropriated, to which the entries could be regarded as relating. That the entries could in due course possibly have created rights in equity, or for that matter, at law. is not directly relevant. Such security as the deed offered was neqlected (cf. Driclad Pty. Limited v. Federal Commissioner of Taxation (1966-68) 121 C.L.R. 45 at 59). What happened seems to me to be a situation aqainst iene eee Se see oe Pre ome ear ane po pene 13. Which the section seeks to quard. that igs one of a taxpayer obtaining a deduction for payments to a superannuation fund, in respect of property with which it never parts and over which it retains complete control for use in its business. Parting with the amount claimed as a deduction by the taxpaver, in say, 1978, if the balance sheet is taken as correct, would have compelled a realisation of some of its assets. I would therefore allow the appeal, so far as it concerns the amount of the assessments to tax on incomes. This leaves additional tax. which I will now come to consider. The imposition of the amounts of additional tax, and whether they should to some extent have been remitted were also the subject of the notices of objection. The additional tax was imposed in each case "for incorrect return". The amounts were $1877 for the year ending 30 Jume 1976 (tax $4301), and $7110 ($18494.76), $4945 ($14559.92), $3565 ($19444.20) for the following years. For the 1979 year an amount of $1150 was added as additional tax for late return. This last-mentioned item was also objected to, but no argument has been addressed in relation to it. The learned judge at first instance did not have to deal with the matter of additional tax. He remitted the case to the Commissioner for reassessment, the order of the Court providing that the remission was to enable him to give consideration to the application of s.82AAF of the Act, which deals with maximum amounts allowable to a taxpayer for amounts paid or set aside for superannuation benefits for an employee. ee ns wer armen ta ee epee aes cas a ie ¢ ' tr —— podcae Se ry mnt . 14, At relevant times. ss.226(1)(2) and (3) were as follows: "226.(1) Notwithstanding anything contained in the last three preceding sections, any taxpayer who fails to duly furnish as and when required by this Act or the regulations, or by the Commissioner, any return or information in relation to any matter affecting either his liability to tax or the amount of the tax, shall be liable to pay as additional tax an amount equal to the tax assessable to him or the amount of Two dollars whichever is the greater. (2) Any taxpayer who omits from his return any assessable income. includes in his return as a deduction for. or as a rebate in respect of expenditure incurred by him an amount in excess of the expenditure actually incurred by him or, in relation toa claim to be entitled to a rebate under section 23AB. 79A, 79B, 1597, 159K or 159L, includes in his return information that is false in any particular, shall be liable to pay as additional tax an amount equal to double the difference between the tax properly payable by him and the tax that would be payable if it were assessed upon the basis of the return furnished by him, or the amount of Two dollars, whichever is the greater. (3) The Commissioner may in any case, for reasons which he thinks sufficient, and either before or after making any assessment, remit the additional tax or any part thereof." The exercise of the Commissioner's discretion under s.226(3) is not reviewed in this Court except in so far as there has been an error of law. As already mentioned. the superannuation debit was shown in the Profit and Loss account for each year. It was there simply stated as "Superannuation", but in the balance sheet the loan was shown, at progressively increasing figures under the title ""P. Iori & Sons Pty. Limited Superannuation Fund". The documents mentioned were schedules to the various returns. tA ee eee ae sce eee ee ~ tok . eros eT wt wot nee qe ee nn green gy - os " ares eon ae 15. An ordinary reading of this material would disclose that there had been payments in each year constitutina "superannuation" in favour of some person or persons, and a borrowing of the same amounts from a particular superannuation fund. No particulars were given which would show deductibility under s.82AAC, or, for that matter, would exclude deductibililty. In relation to the 1976 and 1977 years, the only disclosure at all was in the Trading and Profit and Loss Account, the places in the returns respecting contributions to superannuation etc. funds being in each case left blank. The net profits shown in those accounts were transferred, as such, to the returns proper. For the following year (1978) there was an entry on the return, in the appropriate place, "Tori & Sons Pty. Limited Superannuation Fund", "Total amount claimed as a deduction...$31,300." This was the amount shown as a debit in the Trading and Profit and Loss Account, and the making of the entry mentioned did not invite or lead to a further deduction. A similar procedure, with the same amount, was followed in 1979. The fact, in relation to the first two years, that there was the unexplained and unelaborated entry of "superannuation" would suggest that this was simply an expense of the business for the year. The journal entry to which I have referred would support this view; it was desired to maintain an account simply styled "superannuation" to which credits could be made as against debits to the loan account. The amounts for the superannuation account were written off annually. In income tax terms the "superannuation" was shown at least in the first two years as an Set iad Siandleatendaeiecr etna cae Ae tee pe ee SOT TNT Sf tenn re: . tee ° : sae een 16. outgoing, such as could be deducted under s.51, and not as an amount deductible under s.82AAC. When ultimately, after the lapse of a number of years, the deductions were challenged, their deductibility was supported only by reference to that section. The returns, one might assume, were lodged after the final entries, already referred to, were made. but they were prepared on a cash, and not an accruals, basis. The question is whether the taxpayer included in its returns "as a deduction...for expenditure incurred by Cit] an amount in excess of expenditure actually incurred by Citi" (s.226(2)). We have heard very little argument on this matter. We were referred tao Nilsen Development Laboratories Pty. Limited v. Federal Commissioner of Taxation (1981) 144 C.L.R. 616; Federal Commissioner of Taxation v. Rabinov (1983) 71F.L.R. 451 and North Coast Grazing Pty. Limited v. The Commissioner of Taxation (1987) 87 A.T.C. 4553. The meaning of "incurred" was dealt with by the High Court in Nilsen Development Laboratories Pty. Limited v. Federal Commissioner of Taxation (1981) 144 C.L.R. 616. Barwick C.J. said (at p.623): "Granted that exhaustive definition of what may be denoted by the word "incurred" in s.51(1) may not be possible, there can be no warrant for treating a liability which has not "come home" inthe year of income, in the sense of a pecuniary obligation which has become due as having been incurred in that year." Gibbs J. (as Gibbs C.J. then was) said (p.627) that there must be Luge, ~ "es pe os ie a Wergromne eer az MS res Re 17, a presently existing liability. Mason J. (as Mason C.J. then was) pointed out that provisions for leave and long service leave were not to be regarded as "incurred". There seems no reason for drawing a distinction between the meaning of the word in s.51 and that in s.226. The amounts in question were claimed as expenses in the eperation of the taxpayer. Yet, no payment was made and no liability to make a payment of superannuation was incurred. What was left at the end of the vear was ostensibly a "loan liability". This could not be said to have been "expenditure incurred", On any view, the amounts of the loans were not regarded as then due; the incidents of the "loans", so far as appears. were not determined. They were not repayable on demand, their term was not agreed, nor (until 1979) was there any stated interest rate. If the position was otherwise, it rested on the taxpayer to establish 1t. It is therefore reasonably plain that what were claimed as deductions were in excess of expenditure actually incurred, and it was open to the Commissioner to impose additional tax. In my view, therefore, the appeals should be allowed, the order of Yeldham J. set aside and in lieu thereof the appeals to the Supreme Court dismissed, with costs. I certify that this and the sixteen (16) preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Fox. Associate: rb Dated: 4 septembe =~ ree IN THE FEDERAL COURT OF AUSTRALIA No. G73 of 1987 NEW SOUTH WALES DISTRICT REGISTRY No. G74 of 1987 GENERAL DIVISION Mo. G75 of 1987 No. G76 of 1987 ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES BETWEEN : THE COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA Appellant AND: P. IORI & SONS PTY. LIMITED Respondent CORAM: Fox, Lockhart and Beaumont JJ. DATED: 4 September 1987 REASONS FOR JUDGMENT LOCKHART J. I agree with the reasons for judgment of Fox J. and Beaumont J. and with the orders proposed by Fox J.. I certify that this page is a true copy of the reasons for judgment herein of his Honour Mr. Justice Lockhart. Associate Liv Dated: 4 September 1987 tre i pos wos wr ee ten arene ~yoreas eeaeee oe neo — IN THE FEDERAL COURT OF AUSTRALIA ) } NEW SOUTH WALES DISTRICT REGISTRY ) No. G73 of 1987 ) No. G74 of 1987 GENERAL DIVISION ! No. G75 of 1987 No. G76 of 1987 ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES BETWEEN : THE COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA Appellant AND: BP. TORI & SONS PTY. LIMITED Respondent' CORAM: Fox, Lockhart and Beaumont, JJ. DATED: 4 September 1987 REASONS FOR JUDGMENT BEAUMONT J. The question in these appeals 15 whether che respondent, P. Iorl & Sons Pty. Limited, may in the years of income ended 30 June 1976 to 1979 deduct certain amounts pursuant to the provisions of s.82AAC of the Income Tax Assessment Act 1936 as follows: "@2AAC. Where a taxpayer, for the purpose of making provision for superannuation benefits for...an eligible employee sets apart or pays in the year of income an amount or amounts as or to a_fund...from which the benefits are to be provided, and the right of the employee...to receive the benefits 15 fully - secured, the amount or the sum of the amounts 15...an allowable deduction." (Emphasis added). The primary facts are not in dispute. In the years of income, the respondent was a family company carrying on Che buBiness of poultry farming. By deed dated 9 May 1975 made ere west get wowerece = 2 a we Rp we ees 2. between it and two of its directors, Mr. John Iori and Mr.Edo ITorz as trustees, it established a superannuation fund for the purpose of providing benefits for certain of its employees. To become a member of the fund, an employee had first to be invited by the respondent (cl.1). The moneys comprising the fund were to be invested, inter alia, "with or to the Crespondent] so long as the Crespondent] shall execute a charge acceptable to the trustees over an asset or assets real or personal acceptable to the trustees" (cl.2(a)). It is common ground that no such charge was ever executed. The trustees were also authorised to invest the fund in policies of assurance on the life of a member (cl.2(a)). The respondent was to contribute to the fund "at such rate and Esc. as] the Crespondenti shall determine" and notify to the member (cl.2(b)). The trustees were required - "to ensure the stability of the fund and to secure the rights of the members and the benefits and beneficiaries PROVIDED THAT the contribution of the company shall include the total cost of providing any life assurance cover held by or effected by the trustees pursuant to clause 5A hereof." (C1,.2(b)). The contribution of a member shall be such sum as_ the trustees shall notify to such member on his admission subject to the proviso that the trustees may vary such contribution in their absolute discretion so long as such contribution shall not at any time exceed the proportion of such member's salary or wage which such member's contribution bore to his salary or wage at the date of his admission (cl.4(a)). The amount of a member's benefit shall be paid to him in the events of retirement or ceasing to be in employment or death in the circumstances specified in the deed (cl.5). If while in the service of the respondent a member Se ce preven os oe ee owt ho t + Rog tee ee te ee re ee eee meer ee, : ah ott : Stk Ne yee te eect eee dies or leaves its service because of "permanent total disablement", the trustees are empowered, for the purpose of securing the benefits then payable to accept or effect any policy or policies of assurance (cl.5A). If the member 1s dismissed for misconduct, the trustees shall refund to the member his contributions and the balance standing to the credit of his account shall be forfeited (cl.6). The trustees may from time to time determine the value of the fund. In making that determination, the trustees shall not take into account the value of any policies of assurance held on the lives of members (cl.8(i)). For the purpose of making a payment under cl.6 the sum payable as the amount of the benefit of a member shall be that portion of the value of the fund as last determined by the trustees which the benefit of that member bears to the aggregate of the benefits of all members together with the benefit of any policy of assurance on the member's life (c1.8(ii)). The other provisions of the deed are not material for our purposes. The only members of the fund are Mr. Pelegrino Iori. Mr. Edo Iori and Mr. John Tori. The respondent claims that in respect of the income years ended 30th June 1976 to 1979, it contributed to the fund the sums of $10,100.00, $38,300.00, $31,300.00 and $31,300.00 respectively. In the main, the contributions were made by, but at the same time lent back to, the respondent by the following journal entries: (1) Folio 70 of the journal bears the date 30 June 1976. The following item appears: ie wees eee lee mer as sayoom TNT Te 1 oN + s: a nw ee ae . : "Superannuation 8600.00 Loan P. Iori Superannuation Fund 8000.00 Being superannuation paid on the lives of Pellegrino Iori $4000 Edo $2000 John $2000" (2) Folio 73 of the journal bears the date 30 June 1977. The following item appears: "Superannuation 35060.00 Loan P. Iori Superannuation Fund 35000.00 Being superannuation paid on the lives of Pellegrino §25000 Edo $5060 Jack $5000" (3) Folio 78 of the journal bears the date 30 June 1978. The following item appears: "Superannuation 30000.00 Loan P. Tori & Sons Superannuation Fund 30000.00 Being superannuation paid on the lives of P. Iori $20,000 E. Iori $5000 and J. Iori $5000" (4) Polio 82 of the journal bears the date 30 June 1979. The following item appears: "Superannuation 30000.00 Loan P. Iori & Sons Superannuation Fund 30000.00 Being superannuation paid on the lives of P. fori §$20000 E. Iori $5000 and J. Tori $5000" It is common ground that no interest was charged in respect of these loans until 1979. Folio 82 of the journal which, as has been noted, bears the dace 30 June 1979, records the following 1tem: "Interest Paid 6020.34 Loan P. Tori & Sons Super Fund 6020.34 Being interest paid at 6% p.a. on outstanding balance." yee ee nae rm tate ,TaRT It appears that, in addiction to the amounts claimed to have been the subject of the entries in its journal, respondent paid an insurance company the sum of $1,299.96 in each of the years ended 30 June 1378 and 1979. The Commissioner the has allowed a deduction for these amounts. In issue are the amounts of $8,000.00, $35,000.00, $30,000.00 and $30,000.00 respectively. Mr. transactions "3, John Tori explained the origins of in his affidavit: In or about 1975 I had a conversation with a Mr. P.T.C. Wenham who is a chartered accountant carrying on practice in the firm name of Nelson Wheeler and Co. I am unable to recall the precise words spoken during this conversation. The substance and effect of the conversation was that I instructed Mr. Wenham to establish a superannuation fund (to which I shail refer to as the Fund) to provide retirement benefits for my brother Edo and myself. I left the detailed work of establishing and administering the superannuation fund in the hands of Mr. Wenham. Exhibited hereto and marked with the letters "JI1" is a true copy of the Deed of Trust establishing the superannuation fund. On or about the 9th May, 1975 T gave instructions to Mr. Wenham in my capacity as a trustee of the fund to. carry out the necessary accounting work for the fund and to prepare and lodge the relevant annual returns of income with the Deputy Commissioner of Taxation. I recall that in or about April of 1976, 1977, 1978 and 1979 a directors' meeting of the company was held at which a dividend Was deciared. This meeting was held at the offices of Mr. R.W. Franks, who is a partner ina firm of chartered accountants who act for the company. I am unable to recall the precise words which I said to Mr. Franks but' the substance of what I said was that "the company was to contribute to the superannuation fund as much as it was allowed to do so by the Commissioner of Taxation and that it could afford". I recall that the amount of the contributions in respect of my father Pellegrino Iori, my brother Edo Tori and myself were also discussed with Mr. Franks at this meeting. these my are en wee Me mee =, SO ere ry I am also unable to recall the precise words said by Mr. Franks on each of these occasions in April 1976, 1977, 1978 and 1979. However, the substance of what he said to me was that he told me of the profit the company was likely to earn in the current year. He said to me, that the company should make the same or about the same contribution to the superannuation fund as it had made for the previous year. I accepted his advice both as a director of the company and as trustee of the superannuation fund. I say that I did not open a bank account for the superannuation fund until about June, 1981 when I caused an account to be opened at the Commonwealth Trading Bank, Parramatta on Mr. Wenham's instructions. Up to and for some time after this date, all cash receipts and cash payments relating to the affairs of the superannuation fund were made on behalf of the trustees by the company or associated companies of which I was a director. I say that this was simply done as a matter of convenience." Mr. Franks, an accountant with the firm H.W. Rowan, Miller & Co., was also retained by the respondent. His evidence was as follows: "Q. Your firm did not, as TI understand the situation, undertake any accountancy work in connection with the superannuation fund? A. No, that was undertaken by a firm by the name of Nelson Wheeler. Q. Did you from time to time, in the period from 1975 to 1980, at least, have any conversations with any person at Nelson Wheeler & Co.in relation to the superannuation fund, and, if so, can you name that person? A. With a Mr. Bill Scott of that firm. Q. Can I take you back to the time when you made the first, if I can call it, superannuation entry in respect of the 30 June 1975 year. I take you to the entry which bears date 30 June 1975 on folio 65 - (ex.H) which refers to transfer of superannuation fund and so on. I think there are two entries, one on 64 and one on 65. Before you made those entries in respect of the year ended 30 June 1975, do you recali having a conversation with Mr. Scott? A. Before we made the entries? Q. Yes? A. Before the actual entries went into the book conversations were always held with Mr. Scott. t oo mop ree- spores ee Le i a oro Q. Take for instance that particular year, 30 June 1975. Can you recall approximately when it was that you had the conversation with Mr. Scott? A. Usually they were in the period sort of October to November after the 75 - the actual conversations with Mr. Scott were had - Q. Can you remember what you said to him at all, recapturing as best you can the conversation in narrative form? (objected to: allowed subject to objection) Can you remember, just recapturing as best you can - and obviously enough as best you can - in dialogue form what questions you asked of him or he asked of you and what answer you gave to him or he gave to you without mentioning specific figures, just use the word X dollars or Y dollars? A. This is with Mr. Scott? Q. That 1s so? A. I used to go to the firm in Sydney Q. That is Nelson - A. That is Nelson Wheeler, where Mr. Scott was I think an employee and later a partner, and going down there, knowing the figure we were looking to for Superannuation - (objected to). HIS HONOUR: You are just asked the conversation? A. We would sit and just discuss the superannuation fund books. Q. Please, I know 1t was a long while ago, but just try and give as best you can "he said and I said"? A. If you want me to shorten it down, we would come down to the actual figures and ensure that the figures - (objected to: rejected). MR. CONTI: Q. It must be, unfortunately, "I said to Mr. Scott 'Bill, it 1s X dollars or ¥ dollars' and he said such and such, "can you try and put it in that sort of narrative form? A. Well, I would say to Mr. Scott "The figure for superannuation is X, you will have to take up the journal entry within the superannuation fund to agree with what we have made the contribution from the company" and then he would take his notes and - Q. Did he say anything, "Yes"? A. "That's fine", or "Yes, we will have to" and he would take his notes on what the figure was...." There was no evidence to suggest that at any meeting of directors of the respondent it was resolved that the respondent contribute to, or set aside moneys for, the fund. No cheques were drawn to effect the transactions. Apart from the book wpe core , f a - 4 fe ee en aa -o ae ~ entries already mentioned, the only documents evidencing these dealings were the respondent's annual accounts. The profit and loss account for the year ended 39 June 1976 recorded $10,699.96 as "superannuation". The balance sheet disclosed a liability to the fund ona loan account of $35,339.00. The accounts were approved by directors and shareholders on 9 December 1976 and 30 December 1976 respectively. The profit and loss account for the year ended 30 June 1977 showed "Superannuation" in the sum of $38,299.96. The balance sheet disclosed a loan account for the fund of $70,339.00. The accounts were approved by directors and shareholders on 9 December 1977 and 30 December 1977 respectively. The profit and loss account for the year ended 30 June 1978 recorded "Superannuation" in the sum of $31,299.96. The balance sheet showed the fund's loan account at $100,339.00. The accounts were approved by directors and shareholders on 14 November and 5 December 1978 respectively. The profit and loss account for the year ended 30 June 1979 showed "Superannuation" of $31,299.96. The balance sheet stated the fund's loan account at $136,359.34. The accounts were approved by directors and shareholders on 8 December and 28 December 1979 respectively. In the Supreme Court, the Commissioner argued that the respondent had failed to meet the requirements of s.82AAC in two respects: (1) No moneys had been set apart or paid in the year of income; (2) the rights of employees were not fully secured. It is convenient to consider these objections in turn. In the Supreme Court, it was submitted on behalf of the apote ores 4 yohe ep ne rene -sa-r ween em ee aoe Tsao, 9. respondent that the relevant provisions of s.82AAC had been complied with for a number of reasons: (a) there was contemporaneously a set-off for identical sums representing the loan back Eransactions; (b) there was a setting aside, either because of the matters in (a) or because the respondent's signed balance sheets acknowledged the debt owed to the fund; (c) the parties, by their conventional conduct, treated these transactions as having full legal effect and the Commissioner, albeit a third party, is bound by the parties' conventional conduct. It was argued for the Commissioner that the mere making of journal entries did not constitute elther a payment or a setting apart for present purposes. The learned Judge held that the relevant provisions of s.82AAC were complied with. In his opinion - ",..it is proper to treat the company as having paid the superannuation contributions, and also with having received a loan from the trustees of the superannuation fund; and that,....the relevant journal entries (against the background of agreement upon the amount of contributions to be made by the plaintiff in respect of superannuation between Mr. Iori senior and his two sons, the agreement between the two accountants, the fact that Mr. John Lori was both a director of the taxpayer and a trustee of the superannuation fund, and the steps taken in relation to the financial accounts thereafter), constituted the making of agreements in respect of each relevant year, partly expressed and partly implied, and the instantaneous performance or effectuation of those agreements. The case 15 not one of the mere "making by the company of a journal entry in the books of account without reference to, or without the agreement of the person said to be the recipient of the money"... The only directors of the taxpayer were Mr. Iori and his two sons. They were the only beneficiaries under the superannuation scheme." woe ye 10. In this Court, the Commissioner challenged the conclusion arrived at by the learned Judge that the journal entries "constituted the making of aqreements in...each...year, partly expressed and partly amplied and the instantaneous performance... of those agreements." The Commissioner contended that there was no evidence or other material to support such a finding. As has been said, there 1s no dispute about the primary facts. The matter of contention lies in the proper inferences to be drawn from those facts. It will be remembered that the events in question assumed an established pattern which may be summarised thus. (1) In April of each year when consideration was given to the amount of the annual dividend, the respondent's superannuation contribution was discussed in general terms. (2) This matter was largely left in the hands of the accountants. (3) Approximately six months after the end of each financial year, the journal entries now relied on by the respondent were made by the accountants. (4) These entries were reflected in the annual accounts which were approved at that time. (5) By then at least, the directors and members were made aware of, and agreed with, the total contribution proposed by the accountants to be made to the fund in respect of the previous financial year. (6) It is reasonable to assume that at this time, the directors and members also became aware of, and agreed with, the apportionment between the three of them of the total sum mentioned in the accounts. errs oe it a fae a a oe . a ee oy il. It Follows, 1m my view, that in respect of each year of income, the respondent, by its directors and corporators, committed itself to the amount to be contributed by the respondent in respect of each fund member. Two questions arise in this connection: (1) Is such a commitment, taken in conjunction with the journal entries and the annual accounts, a "setting apart" or a "payment" of an amount for each of the employees? (2) If so, was the amount set apart or paid in the year of income? As has been said, in April of each of the years of income, the matter of superannuation contribution was largely put into the hands of the accountants. But this was not to say that they were given carte blanche. The dealings between the parties proceeded on the footing that, although the accountants were to have the carriage of the matter, the three members of the family retained the ultimate say, as directors and corporators of the respondent, on the questions whether, in respect of any particular plan of income, the respondent would make a contribution to the fund in respect of a member and, if so, the amount of any such contribution. The evidence discloses the existence of at least two considerations which influenced these decisions. To begin with, the amount to be contributed was governed to some extent by the size of the respondent's profits. Secondly, there was reference to the limitation of the ceiling imposed by the Commissioner on the amount of such contributions for tax purposes. However, it appears that neither of these considerations was explored in deta21l. In short, whilst by 39 June in each year, the respondent had committed itself in po ee ere 1 ys cco} ST Sore ced st 'Ms 12. principle to make an appropriate contribution to the fund, it made no commitment in respect of any particular amount for any fund member until approximately six months later. The respondent's argument, both in the Supreme Court and before us, proceéded on the assumption that the making of an agreement to the material effect, and its implementation, was the relevant criterion for present purposes. The language of the statute and the terms of the deed contemplate something more than a mere agreement to contribute. The Act requires that an amount be set apart or paid in the year of income. The deed speaks of a contribution, at any time, at such rate as the respondent shall determine and notify to the member and the trustees (cl1.2(b)). "Contribute" 15, no doubt, used there with its ordinary meaning of "to give in common with others"; (Macquarie Dictionary). Money is not expressly mentioned incl.2(b) but is clearly implicit in the obligation to give or contribute. As I understood the argument, the respondent accepts all of this but says that, by virtue of the agreement by the trustees to lend the amount of the respondent's contributions back to it immediately, there is a notional payment which satisfies both the Act and the deed. What constitutes a "setting apart" for our purposes was considered by Owen J. in Winchcombe Carson Ltd. v. Commissioner of Taxation (N.S.W.) (1938) S A.T.D. 69. The scheme of the taxpayer's superannuation deed was carried out by opening an account in the company s books in the name of each emplovee. To each account was credited the employee's contribution which was ws ee 13. retained out of his salary. From time to time the taxpayer credited each account with an amount equal to that contributed by the employee and added thereto interest on the total amount credited. The amounts credited to each account by the taxpayer as its contribution and for interest were then by a series of book entries written off to the taxpayer's profit and loss account. Under the deed, on the happening of the stipulated events. the employee became entitled to receive the amount standing to his credit in the account in his name. Owen J. said (at pp.73-4): "As to the sum of Cpounds1i10,066/0/1, the company's claim is that this sum was 'set apart or paid as or to a' pensions fund on September 30, 1935. The contentions of the Commissioner are:- (a) That the setting apart or payment of the amount in question did not take place in the year of income but occurred in prior years when the company made the appropriate entries zn its books crediting the employee and writing off to its profit and loss account the amounts so credited... Dealing first with the sum of CpoundsJ10,066 Os. 1d. I have come to the conclusion that the Commissioner 1s correct in his contention that the 'setting apart or payment' took place prior to the income year here in question. Mr. Hardie for the company has argued that a company cannot set apart or pay money merely by making book entries such as were made here. He says that to constitute a 'setting apart' of money there must be either a payment to a particular person as a trustee or some specified portion of the company's assets must be allocated for the purpose of creating a benefit fund. In connection with this latter point, it must be remembered that the section speaks of the setting apart of a 'sum' and not of 'assets'. I do not agree with Mr. Hardie's contention. The section does not require the creation of a trust, although the fact that a scheme does not make such a provision 1S no doubt material in considering whether the benefits under it have been fully sow po 14. secured. If his argument is sound it 12s not altogether easy to imagine circumstances in which a 'setting apart' of a sum of money, as opposed to a payment of it, would not create a trust, yet payment is not the only means of contribution contemplated by the section and, 1f the Legislature had thought 1t necessary to require that sums set aside should be vested in a trustee, it would have been very easy to say so. I think that in ordinary business parlance it is not only usual but proper to describs what was done by the company year by year as the setting apart of money as or to a benefit fund." A similar question arose in Federal Commissioner of Taxation v. The Northern Timber and Hardware Company Proprietary Limited (1960) 103 C.L.R. 650. The taxpayer claimed a deduction pursuant to s.66(1) of the Act, as it then stood. The taxpayer made a provision in its books of account to meet its prospective liabilities pursuant to long service leave legislation. The provision, which was to meet future liabilities and not an actual liability, was charged against the taxpayer's profits but there was no agreement or instrument which gave to any employee in respect of long service leave any right against or in respect of any asset oc fund. Fullagar, Kitto and Menzies JJ. said (at p.657): ",..to make a book entry and no more does not come within the words 'sets apart...a sumas or to a fund' from which pay for long service leave is to be provided. What the taxpayer did here had no legal effect whatever. The employer gave nothing and the employees gained nothing. There may in some cases be a question whether what an employer has done amounts to setting aside a sum as and toa fund, but such a question will only arise when the employer has done something that is binding and confers some benefit upon employees." In my opinion, the amounts now in question were not "paid" to a fund within the meaning of s.82AAC. It is accepted wee <ye-- ~gvro™e 15. py the respondent, correctly I think, that a payment could be established only if the journal entries relied upon were underpinned by a valid agreement to the effect that payment of its contributions be accepted by the trustees in a form other than by actual cash or by cheque (see Whim Creek Consolidated (NL) v. Federal Commissioner of Taxation (1977) 17 A.L.R. 421 at p.425). But, in my view, there was no valid agreement made in the present case. It is hardly necessary to add that it is not enough for the respondent to demonstrate its intention to make contributions to the fund. The respondent must go further and establish an actual agreement to the relevant effect: ina revenue context and otherwise, "the intention of a man cannot be considered as determining what it is that his acts amount' to" {per Lord Buckmaster inJ. & R. O'Kane v. The Commissioners of Inland Revenue (1922) 12 T.C. 303 at p.347).- It may be possible to infer the making of an agreement between the trustees and the respondent that, in lieu of payment by cash or cheque, the amount of the respondent's contribution would be treated as if paid and as if lent back to the respondent by the trustees. Yet such an agreement would be in breach of trust. It will be remembered that the trust deed provided that the moneys comprising the fund were to be invested, inter alia, "with or to the [Crespondent1 so long as the Crespondentd shall execute a charge acceptable to the trustees" (Cl.2(a)). No charge was ever given nor, so far as the evidence goes, was 1 ever contemplated. No doubt the provision of security was drafted with a view to the requirement of s.82AAC that the rights of members be "fully secured" (see Driclad Pty. Limited v. 16. Commissioner of Taxation of the Commonwealth of Australia (1969-1970) 121 C.L.R. 45 per Taylor J. at pp.48-60). Whatever the rationale of cl.2(a), its provisions were ignored here. As parties to the trust deed, the trustees and the respondent must be taken to be aware of its requirements. Nor does it assist the respondent to point to the circumstances that, as it happened, there was a community of interest between the corporators and directors of the respondent on the one hand and the trustees and beneficiaries on the other. Even if, under the rule in Saunders v. Vautier, the beneficiaries could have combined to extinguish the trust, they had no power to modify the terms of the trust (see Jacobs' Law of Trusts in Australia, 5th ed. (R.P. Meagher and W.M. Gummow) at p.648. It follows that, to the assumed, if not actual, knowledge of the trustees and the respondent, there was a breach of trust (see Fouche v. The Superannuation Fund Board (1952) 88 C.L.R. 609 at p.637; Frank J. Finn and Peter A. Ziegler Prudence and Fiduciary Obligations in the Investment of Trust Funds (1987) 61 A.L.J. 329 at p.333). It appears that no argument was addressed to the Supreme Court that the subject transaction constituted a breach of trust. Yet the respondent bears the general onus and, in any event, the point is purely a legal one arising on accepted facts (see Suttor v. Gundowda Proprietary Limited (1950) 81 C.L.R. 418; Bromley v. Muswellbrook Coal Company Pty. Limited (1973) 129 C.L.R. 342). Since the journal entries now relied on by the respondent were not supported by the substantiation of a valid sspears remy ty i t i a 7% a 17. agreement, 1t must also follow that, for the purposes of s.82AAC, there was no relevant payment. There remains the possibility that, even 1f there was not payment, there was a "setting apart" of the amount of the contributions in guestion. This was the ground relied on by Owen Jd. in Winchcombe Carson, supra. However, as I understood the respondent's argument, this limb of s.82AAC was not strongly pressed before us. In my view, this requirement of s.82AAC was not satisfied here. In Winchcombe Carson, the employer bound itself to its employee' by crediting an amount to his account in accordance with the provisions of the trust deed. But the transactions here relied on were carried out in breach of trust. As was pointed out in the Northern Timber Case, supra, a "setting apart" will occur only when the employer has done something that is "binding and confers some benefit upon employees". Not only were the transactions in breach of trust and thus not binding, but it is also at least doubtful whether, taken as a whole, they conferred a benefit upon employees. The loans were unsecured and, until 1979, did not carry interest. In the circumstances, I need not deal with the Commissioner's alternative submission that the payment, if any, took place after the year of income (see Waddington v. O'Callaghan (1931) 16 T.C. 187 at p.197; cf£., in the different context of limitation of actions, The Stage Club Limited v. Millers Hotels Proprietary Limited (1981) 150 C.L.R. 535). Nor need I deal with the Commissioner's contention that the rights of members were not "fully secured". a woe 18. On the question of additional tax, the Commissioner contends that, for the purposes of s.226 of the Act, no expenditure was incurred here. The respondent sought to rely upon Federal Commissioner of Taxation v. Rabinov (1983) 50 A.L.R. 54land North Coast Grazing Pty. Limited v. fhe Commissioner of Taxation of the Commonwealth of Australia (1987) 18 A.T.R. 971, but, in my view, both cases can be distinguished. In Rabinov, there was no doubt that expenditure had been incurred; the only question was whether a deduction should, as a matter of law, be allowed. North Coast Grazing raised the question, different from that arising here, whether s.226 applied in respect of the disclosure of an amount as capital which should have been disclosed as income. In my view, it was open to the Commissioner to impose additional tax. I would allow the appeals. I certify that this and the preceding seyerteen (/7) pages are a true copy of the Reasons for Judgment herein of his Honour Mr. ake ¢ 4A rf? Fri Aare Associate Dated: 4 September 1987 Ne ae 19. Counsel and Solicitors for Appellant: Counsel and Solicitors for Respondent: Date of Hearing: Judgment delivered: J.M.N. Rolfe Q.C. with R.B. Wilson instructed by Australian Government Solicitor. R.A. Conti Q.C. with B.R. Pape instructed by J.W. Walker and D.K.L. Raphael. 12 June 1987 4 September 1987.