High Court of Australia Dixon, McTiernan, Williams and Webb JJ. Denver Chemical Manufacturing Co v Commissioner of Taxation [1949] HCA 25 ORDER Appeal dismissed. Cur. adv. vult. The following judgments were delivered:— July 29 Dixon J. This proceeding is an appeal by a taxpayer from a decision of the Board of Appeal established under the Income Tax (Management) Act of New South Wales. The decision confirmed amended assessments for years of income ended on 30th June 1923 and 30th June of each succeeding year to 1934. The amendments were made on 2nd July 1941, that is, before the Income Tax Management Act 1941 came into operation. Having regard to the date of the notices of objection and of the decisions of the commissioner thereon, the Act of 1941 operates in respect of procedure in the proceedings both before the Board of Appeal and in the courts. But the liability of the taxpayer to tax and the measurement of its income is governed by the earlier Acts. As to the years from 30th June 1923 to 30th June 1928, the substantive liability of the taxpayer is governed by the Act of 1912. As to the years 30th June 1928 to 30th June 1934, it is governed by the Act of 1928. The taxpayer is incorporated in New York and is registered in New South Wales as a foreign company and at all material times it carried on business here under the direction of a branch manager. During the years under consideration the business consisted of the manufacture and sale of a preparation which is called "Antiphlogistine" and is used in the course of medical treatment. Ingredients for the manufacture of the commodity, or some of them, were imported from the United States of America by this foreign company. Presumably the company was controlled and administered from New York and, at all events, the circumstances are such that its residence for fiscal purposes would no doubt be considered to be abroad. The manufacturing operations were conducted in Sydney. Canvassers were sent to other States of the Commonwealth, but, according to the evidence, with negligible exceptions, no sales were actually made in the other States of the Commonwealth. Not only were nearly all sales made in New South Wales, but deliveries were made either to purchasers in New South Wales or else, I presume, to carriers to whom the goods were entrusted on behalf of the purchasers. The result of that would be, speaking in general terms, that all the income of the company arising from its Australian business was derived in or from New South Wales. The Commissioner of Taxation, from a date anterior to 1923, adopted a basis of the assessment of the company's income which did not consist of an attempt to arrive at the general or assessable income or the general income of the company and then to deduct from the assessable income the outgoings incurred in the production of that income. He adopted what may be considered an arbitrary basis of assessment. He took a percentage of the revenue which the company obtained from the sales in Australia of its product. In the years 1923-1928 he took a percentage of five per cent; in the years 1929 to 1931 he took a percentage of seven and one-half per cent; and in the years 1932 to 1934 he reverted to a percentage of five per cent. Up to the year 1923 returns had been made by the company on the footing that all its sales were New South Wales sales and were subject to New South Wales income tax. That meant that on the basis I have described all sales were returned as liable to inclusion in the gross receipts of the company on which the respective percentages were calculated. Apparently an arrangement had been made in 1917 with the commissioner to make returns of sales and not of income based on profit and loss. The manager of the branch, a gentleman named Mr. Woodward, unfortunately had a friend named Mr. Wrigley, who was an amateur expert in taxation. The latter made the suggestion that many of the sales of antiphlogistine made to people dwelling in other States might well be excluded from the returns. As a result of this suggestion Mr. Woodward, in his returns for 1923, did not include sales to persons who resided in other States, but confined his returns to sales to persons who resided in New South Wales or who were sufficiently connected with New South Wales to fall outside Mr. Wrigley's opinion of what could be excluded. However, Mr. Woodward who, besides being the manager of the company, was its public officer, did not see fit to communicate this change in the character of his returns to the commissioner and did not divulge to him the alteration in the basis upon which the returns were constructed. For the years 1923 and onwards till 1927, that seems to have been done without any communication on the subject from the commissioner or to the commissioner. In December 1928, however, the commissioner, though he did not raise any question, asked that the profit and loss accounts and aggregate balance sheets of the company for the two last years should be furnished to him. The branch manager replied to him questioning whether balance sheets and detailed profit and loss accounts were really necessary. After some delay, the commissioner in March 1929 made a rather formal and peremptory reply saying he needed them and they had to be given. The accounts on which the information could be properly compiled were kept in New York. A communication was made by Mr. Woodward to the New York head office and with a little delay and somewhat grudgingly they supplied him with the information. However, Mr. Woodward decided that, having got the information, it would be better to withhold it from the commissioner which he accordingly did. That was in May 1929. Returns continued to go in on the basis which had been adopted in 1923 in consequence of Mr. Wrigley's assistance. It was not until 1941, or perhaps a little earlier, that as a result of what the commissioner learnt, he decided upon an investigation of the matter. The result was that the assessments of the company were ripped up and on 2nd July 1941 amended assessments were issued covering the years I have mentioned, that is, the years ended 30th June 1923 to 1934, together with certain other years with which we are not concerned. In these amended assessments the commissioner deserted his percentage of sales basis and adopted the ordinary principles for ascertaining taxable income. That is to say he assessed the income liable to tax by taking what may be called the assessable income of the company, although that phrase did not come into use in the tax laws of New South Wales until 1928, and by deducting therefrom the appropriate outgoings or expenditure. That resulted in a very much larger income being assessed to tax for all relevant years than had been yielded by a percentage of sales. The taxable income ascertained on ordinary principles was not only much greater than an income calculated on a percentage of sales as returned in these years. It was a much larger one than would have resulted had returns been rendered of sales to residents in all the States of the Commonwealth. Appeals from the amended assessments were taken to the Board of Appeal by the ordinary method of objection. The Board of Appeal considered the matter and dealt with the questions, first whether any amendment ought to have been made, and second, whether, amendments having been made, the particular amendments made should stand. The decision of the Board of Appeal confirmed the amended assessments. Appeals were brought to the Supreme Court of New South Wales, which confirmed the Board's decision. From the decision of the Supreme Court of New South Wales the present appeal was brought to this Court. The appeal to the Supreme Court of New South Wales is given by s. 255 of the Income Tax Management Act 1941, which says that a commissioner or taxpayer may, upon taking appropriate proceedings, appeal to the Supreme Court from any decision of the Board which involves questions of law or questions of fact, if in the latter case the Board certifies that the amount of tax in dispute between the taxpayer and the commissioner exceeds the sum of £300. The appeals are to be heard by a Full Court of the Supreme Court. In the present case, the amendments were made under s. 210 of the Act of 1936. Having regard to the period of time that had elapsed, it was necessary that the case should be brought under sub-s. (2) (a) of s. 210, which provides that an amendment may be made at any time "where the Commissioner is of opinion that there has been an avoidance of tax and that the avoidance is due to fraud or evasion." The first question for the Board of Appeal was whether the circumstances as I describe them, coupled with some additional detailed evidence which they had before them, warranted the conclusion that the avoidance of tax was due to evasion, and to that question they duly addressed themselves. They concluded that there had been an avoidance of tax due to evasion. For the appellant company it is maintained that the decision of the Board of Appeal on that question is subject to appeal to the Supreme Court. The attack upon the decision is supported on two grounds. The first is that if a discretion lay with the Board of Appeal and it was a discretion which could only be examined to see whether it had been correctly exercised and not to see whether the Board's conclusion itself was right in substance, nevertheless the Board had gone astray and incorrectly applied their minds to the problem. The second ground is that it is not true that under the section the discretion lay with them so that the substantive question could not be re-examined; and the Supreme Court, therefore, had jurisdiction to say for itself whether there had been an avoidance of tax due to evasion and the Supreme Court having that jurisdiction this Court should in the present appeal find that the avoidance of tax was not in fact due to evasion. In my opinion s. 210 intends to repose in the commissioner a discretionary power to say whether there has been, in his opinion, an avoidance due to fraud or evasion, and the sections of the Acts of 1936 or 1941 dealing with objections and appeals intend to repose only in the Board of Appeal the authority to re-examine that discretion on the merits. The provisions of the Act substitute the Board of Appeal for the commissioner, once there has been a reference to the Board of Appeal as a result of an objection by the taxpayer to the exercise of the discretion, the objection having been overruled by the commissioner. I think that that conclusion is the necessary result of the interpretation which has been given to provisions of the same character as the Income Tax (Management) Act over a period of years. I am alive to the fact that it might have been possible to take a very broad view and say that the ascertainment of taxable income must in all respects be dependent upon opinions, judgments, and conclusions on the part of the commissioner and that it was not very material whether the statute authorizing assessments spoke specifically of his opinion on a particular matter or left it generally to him to ascertain the income of the taxpayer and form a conclusion. In either case the appeal from the assessment made by him might have been considered to cover every matter dependent on his opinion or judgment because the whole assessment represents his determination of the taxpayer's liability and of every matter on which it rests. But in reference to the Federal legislation on which the New South Wales Act of 1928 is based a completely contrary view has been taken from the beginning and there is every indication in the present Act and in the 1936 Act that the New South Wales Parliament intended to legislate in the same sense. Nor does it seem to matter that an appeal from the Board on a question of fact is given. Many questions of fact must necessarily be decided by the Board and s. 238 of the Act of 1941 shows clearly enough that the Board and not the Court is to review opinions and the like given in the exercise of a discretion. I do not propose to mention the cases that are dealt with in the judgment of the Chief Justice of the Supreme Court but a long experience of the manner in which discretionary decisions of the Federal Commissioner and Board of Review are dealt with in this Court would be quite enough to convince one that the gallant enterprise of Dr. Louat, who set out to overcome that practice, was doomed to failure. The next question is what is the test to be applied by the Supreme Court in examining the Board's decision to see whether the discretion has been lawfully exercised. In the first place, I think it is quite clear that once there has been an appeal to a Board of Appeal and the Board has expressed its opinion the Supreme Court is no longer concerned with the opinion of the commissioner. If the Board has stated that there has been an avoidance due to evasion it is for the Supreme Court to examine processes by which the Board arrived at that conclusion in order to see whether there has been any error in law or misconception of the Board's duty or any such miscarriage as will show that it cannot stand. It is not perhaps either necessary or desirable to attempt to state all the grounds upon which the exercise of discretion by such a body as the Board of Appeal may be invalidated but it has to be borne in mind that the question is whether they have exercised their functions according to law and it is a question of the validity of their conclusion rather than its intrinsic correctness. If the Board has not addressed itself to the question which sub-s. (2) (a) of s. 210 formulates or if the conclusion of the Board is affected by some mistake of law, or if the Board takes some extraneous reason into consideration or if it excludes from consideration some factor which should affect the determination, then I think on those grounds the conclusion of the Board is liable to review in the Supreme Court. Again, although it is not this case, the fact that the precise reasons on which the Board acted are not stated and are not known will not prevent the judicial review of their decision. But in such a case it is probably necessary that, on a full consideration of the material which the Board had before it, the Court should be able to say that the decision of the Board could not be explained on any ground which would be consistent with the valid exercise of functions committed to it. That is a broad statement of the considerations which will induce the Court to overturn a discretionary decision by an administrative tribunal. But the recent cases of the Minister of National Revenue v. Wrights' Canadian Ropes Ltd. [1] and Pioneer Laundry and Dry Cleaners Ltd. v. Minister of National Revenue [2] are two decisions of the Privy Council which provide guidance in such a matter. To those citations I should add a reference to the case mentioned by Williams J., D. R. Fraser & Co. Ltd. v. Minister of National Revenue [3] . 1. (1947) A.C. 109, particularly at pp. 122, 123. 2. (1940) A.C. 127, particularly at p. 136. 3. (1949) A.C. 24. To apply these principles it is necessary to consider what relevant conduct amounts to evasion and whether the Board correctly applied their minds to the question of evasion. I think it is unwise to attempt to define the word "evasion." The context of s. 210 (2) shows that it means more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information. It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion. In the present case the Board concluded that the appellant intentionally omitted the income from the return and that there was no credible explanation before them why he did so. They thought that the conduct of the taxpayer answered the description of an avoidance of tax by evasion. The majority of the Board expressed their conclusion thus by adopting the expressions used by McTiernan J. in Barripp v. Commissioner of Taxation [4] . That part of their reason seems to me to be a statement which brings the case completely within s. 210 (2) (a) and to state a conclusion which exhibits no error of law and I do not think that what they said prior to announcing that conclusion shows any actual failure to apply the considerations which I have mentioned with reference to what is an evasion. In the formation of the opinion of the Board of Appeal no error of law appears. 1. (1941) 6 A.T.D. 69. The next point which was made was that, assuming that it was open to the Board to conclude that an amended assessment could be made, nevertheless the amendment which was actually made went beyond the power given by s. 210 to the commissioner, and so beyond the power of the Board, because the amendment was not limited to correcting the assessment so as to overcome the effect of the avoidance and impose a liability for the tax which had been avoided by the evasion. That contention was supported by the view that the commissioner, having adopted the percentage basis initially, could not desert the percentage basis and proceed to amend the assessment so as to ascertain the actual income of the taxpayer by ordinary methods of accounting. On the hypotheses which our decision adopts there had been avoidance of tax because an inadequate account had been given of the sales which had been made, that is to say, sales made in other States had been omitted. It was contended that the commissioner was limited in his amendment to rectifying that position and to including the sales made to residents in other States so that he might obtain the same result as would have existed had returns been made in the year 1923 and the following years on the same basis as had been made in the years 1917 to 1922. In my opinion s. 210 (2) (a) does not limit the commissioner in that manner. Section 210 (2) (a) is a provision which provides that in a case of fraud or evasion there shall be no time bar to the exercise of the power given by s. 210 (1) to amend the assessment. In other words, if there is fraud or evasion its effect is to remove the time bar which exists under the other subsections. I am of opinion that, once it is found that in relation to any particular topic there has been fraud or evasion, the commissioner is at liberty to reconsider the whole matter, at all events in relation to everything that is material to the assessment of the tax under the head of liability affected. In this case the whole question was what should be the assessable and taxable income of the taxpayer. The commissioner had considered that and had adopted the view that he might take a percentage of sales. Because of evasion there was an avoidance of liability in relation to the assessable income. It appears to me that, when it was found that that was the case, he was at liberty to reconsider the whole question of how he would ascertain the assessable and taxable income of the taxpayer and he was not limited merely to rectifying the result which would have been produced by a candid use by the taxpayer of the basis which the commissioner had been prepared to adopt. It was then said for the appellant company that we should reach the same result by holding that the commissioner is not at liberty by a subsequent use of the sections authorizing amendment of assessments to depart from the opinion which he had formed that a percentage basis was the correct method of assessing the tax. That argument was founded on the sections which, as the appellant asserts, were relied upon by the commissioner for the purpose of assessing the taxpayer on a percentage of sales. In the years 1923 to 1928 s. 18 of the Income Tax (Management) Act 1912 was, it is said, the necessary basis of his taking five per cent on sales. That is not a section the application of which rests on opinion; it is a section which operates on the facts themselves. I do not think it is necessary to examine the provision in detail; it is sufficient to say that, in my opinion, it is inapplicable to the present case. It deals with an agent selling goods in the State of New South Wales on account of a resident out of the State or on account of a foreign company not registered in the State. The present company was registered in the State and I do not think it can be brought within the scope of the section, although no doubt for fiscal purposes it may be considered as a resident of New York. I do not think it can be brought within the application of the provision because properly understood the section is addressed, not to the case of a company carrying on a manufacturing or other business here by means of a branch organized with a manager, officers and servants, but to the case of a company carrying on an undertaking abroad and employing an agent here to sell its goods or enter into transactions in a representative capacity. The distinction is between the company being here and merely being represented by an agent here. For the years that follow there are two provisions which are or may be in point. To s. 27 of the Income Tax (Management) Act 1928 there is a proviso which, it is said, was availed of by the commissioner in fixing a percentage of seven and one-half upon the sales for the years 1929 to 1931. In the case of this enactment it is not necessary now to examine its provisions in detail, but having read the section carefully I am disposed to think that that proviso should be construed as a true proviso ought to be construed, that is as something which operates as a qualification upon, and within the general scope of, the main provision of the section. The leading provision says that in the case of any person carrying on business both in and outside the State, income derived from sources within the State shall be determined as follows; and then are set out a number of ways of arriving at a proper apportionment or proper proportion of the income in New South Wales. The first direction relates to cases where the taxable income derived from sources in the State is capable of being kept separate and apart from income derived from sources out of the State. That is the present case. It is a case of a company deriving its business at material times in the manufacture of a commodity and selling it in New South Wales. The proviso contemplates a case in which the necessary information cannot be obtained or one of failing to state the true state of affairs. If the commissioner was satisfied that the necessary information could not be obtained he was wrong. He did not quarrel with the correctness of the information. For the years 1931 to 1934, s. 25 of the Act of 1928 must, it is said, have been applied. That provision again raises some difficulties of interpretation, but it applies to a case where a person in the State acts on behalf of a principal resident or carrying on business out of the State or on behalf of a foreign company. Again, I think that in the present case that is not an appropriate section, for reasons which I gave in connection with s. 18 of the Act of 1912. This is a company carrying on business here by its servants. I do not doubt that it is possible that the commissioner did apply those sections, but I do not think that, if he did so, he did so correctly. In any case I would not be prepared to say that if he had applied them, and in the case of ss. 26, 27 and 25 of the 1928 Act, if he had formed a valid opinion in accordance with the provisions they contain, he could not depart from them for the purpose of ascertaining the true taxable income appropriate to the circumstances of this case. The power of amendment in s. 210 appears to me to be sufficient for the purpose. That, I think, covers the grounds which are taken and, for the reasons which I have given, I am of opinion that the appeal should be dismissed. McTiernan J. I entirely agree. I do not wish to add anything. Williams J. I also agree and shall state my reasons shortly for reaching this conclusion. The right of the commissioner to issue the amended assessments depended upon s. 210 of the Act of 1936. There were no limitations as to the time when the commissioner could make the amendments authorized by the section except the limitations imposed by the section. In the present case the commissioner contended that the section imposed no limitation as to time because he was of opinion that there had been an avoidance of tax and that the avoidance was due to evasion. The appellant objected to this opinion of the commissioner and appealed to the Board of Appeal. Under s. 248 of the Act of 1941 the opinion of the Board of Appeal then became the opinion of the commissioner for all the purposes of the Act except for the purpose of objections thereto and appeals therefrom. Objections and appeals therefrom were no doubt expressly excepted to make it clear that a taxpayer could not lodge an objection to the opinion of the Board similar to the objection which he could lodge to the original opinion of the commissioner. The Board was of the same opinion as the commissioner. I agree with Dixon J. that the combined effect of ss. 238, 248 and 255 of the Act of 1941, as the Supreme Court held, is to confine the appeal to the Supreme Court under s. 255 from this opinion to an appeal on a question of law under sub-s. 1 (a) and that an appeal from such an opinion is not an appeal on a question of fact within sub-s. 1 (b). This construction of the sections is in line with Moreau v. Federal Commissioner of Taxation [1] and the other cases in this Court referred to in the judgment of Jordan C.J. in the Supreme Court. It is also in line with the reasoning of the Privy Council in Minister of National Revenue v. Wrights' Canadian Ropes Ltd. [2] and D. R. Fraser & Co. Ltd. v. Minister of National Revenue [3] . The jurisdiction of this Court, like that of the Supreme Court, is therefore limited to examining the materials on which that opinion was formed and unless the appellant can satisfy the Court that the Board acted capriciously or arbitrarily or upon irrelevant considerations the appeal on this ground must fail. In D. R. Fraser & Co. Ltd. v. Minister of National Revenue [4] , Lord Macmillan said "The criteria by which the exercise of a statutory discretion must be judged have been defined in many authoritative cases, and it is well settled that if the discretion has been exercised bona fide, uninfluenced by irrelevant considerations and not arbitrarily or illegally, no court is entitled to interfere even if the court, had the discretion been theirs, might have exercised it otherwise." There was in the present case evidence on which the Board could reasonably find that from 1923 Woodward intended to withhold from the commissioner the fact that he was no longer returning as the total sales of the company the total sales to persons in Australia but was only returning the total sales to persons in New South Wales. To my mind that was evidence sufficient in law to justify the Board forming a valid opinion that the avoidance of tax was due to evasion. 1. (1926) 39 C.L.R. 65. 2. (1947) A.C. 109. 3. (1949) A.C. 24. 4. (1949) A.C., at p. 36. The commissioner was therefore entitled to amend the assessments and to make such alterations therein or additions thereto as he thought necessary. The expression "as he thinks necessary" in s. 210 means, in my opinion, as he thinks necessary to assess the taxpayer for the full amount of tax legally payable by him under the provisions of the relevant Act. For this purpose he can make such alterations in and additions to the existing assessments as he thinks necessary. The expression confers a wide authority to amend the existing assessments and I think that the words are wide enough to authorize the commissioner to alter the whole basis on which the assessments had previously been made if the commissioner bona fide considers that such an alteration is necessary to make a proper assessment of the income tax payable by the taxpayer. It is therefore unnecessary to determine whether the original assessments could legally be and were made, in the case of the years 1923 to 1927 under s. 18 of the Act of 1912, and in the case of the subsequent assessments under ss. 25 or 27 of the Act of 1928, because, assuming that they could be and were so made, s. 210 (1) would still authorize the commissioner to change from such a basis to the ordinary basis of the actual assessable income less all deductions authorized by the Act derived in each relevant year in order to determine the true taxable income. I agree that the appeal should be dismissed. Webb J. I agree with the judgment of Dixon J., but with some hesitation as regards the meaning of the words "as he thinks necessary" in s. 210 (1) of the Income Tax (Management) Act 1936.