Commissioner of Taxation v Ryan M126/1998 [1999] HCATrans 354 (1 October 1999)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M126 of 1998

B e t w e e n -

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Appellant

and

GWENDA BLANCHE RYAN

Respondent

GLEESON CJ

GUMMOW J

KIRBY J

HAYNE J

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 1 OCTOBER 1999, AT 10.17 AM

Copyright in the High Court of Australia

MR G.A.A. NETTLE, QC: May it please the Court, I appear with my learned friend, MR T.P. MURPHY, for the appellant Commissioner. (instructed by the Australian Government Solicitor)

MR D.G. RUSSELL, QC: May it please the Court, I appear with my learned friend, MS J.J. BATROUNEY, for the respondent. (instructed by Hall & Wilcox)

GLEESON CJ: Yes, Mr Nettle.

MR NETTLE: If the Court pleases. This appeal is about the time limits which are imposed upon the Commissioner of Taxation by section 170(3) of the Act.

GLEESON CJ: Which Act should we be using for this?

MR NETTLE: It is the 1985 Act, but your Honour can see the section set out in the form in which it was, relevantly, at page 189 of the appeal book. As your Honours can see, section 170(3) provides that:

Where a taxpayer has made to the Commissioner a full and true disclosure -

the Commissioner has only -

3 years from the date upon which the tax became due and payable under that assessment -

in which to amend the assessment. In particular, see the last two lines of section 170(3).

KIRBY J: How long has that provision been in the Act or was it in its predecessor?

MR NETTLE: Yes it was. It has been there since 1936, more or less in the form as it is before you.

GUMMOW J: It has a history before that, does it not?

MR NETTLE: It does, indeed. As your Honours will have seen from the written submissions it goes back to a time before that, at least until the 1922 Act.

GLEESON CJ: What is the current provision?

MR NETTLE: It is still 170(3). It has altered but, relevantly, the words which are, in effect, the subject of this appeal remain the same. It is now four years from the date upon which the tax became due and payable under that assessment.

KIRBY J: Is there anything in the Acts Interpretation Act 1936 that suggests that you read a phrase like that as "the tax payable (if any)"?

MR NETTLE: Not that I am aware of, your Honour.

KIRBY J: I just have a dim recollection that there is something in the Acts Interpretation Act or it may be the New South Wales Act.

GLEESON CJ: You could not have a situation in which there was no tax which became due and payable.

MR NETTLE: We would so submit, your Honour, and therein lies the essence of the appeal.

GLEESON CJ: I am just wondering how the words "if any" would work in the second-last line of 170(3).

MR NETTLE: Your Honour goes to the heart of the matter. What the appeal concerned were really two questions. First, what is meant by an assessment within the meaning of the subsection and secondly, what is meant by the expression when the amount becomes "due and payable under the assessment". Before I go to the matter - ..... principle, might I briefly invite the Court's attention to some of the salient facts just because so much emphasis was placed upon them by the Full Court below. If I can do it very briefly, may I ask the Court to begin with to page 8 of the appeal book where begins the income tax return of the respondent for the year ended 30 June 1987.

At page 9 of the appeal book, which obviously is the second page of the return, your Honours will see towards the bottom of the page a deduction claimed in the amount of $10,000 for "Bonville Beach Hardwoods". It is about three inches up from the bottom of the page:

Bonville Beach Hardwoods

Primary production income (loss) $10,000 -

is claimed. The significance of that $10,000 is explained at page 12 of the appeal book in the sixth page of the return. Your Honours can see there was an outlay of $20,000 for the purchase of trees in a forestation scheme, one half share in which the taxpayer claimed to enjoy, thus she claimed, at the bottom, $10,000 by way of the deduction.

If your Honours would go then, briefly, please to page 15. You can see that the consequence of that claimed deduction of $10,000 was that there was a carry forward item of $4,801, which is the result not set out, but capable of being calculated at the bottom of page 9 of the appeal book which results, ultimately - towards the bottom - at item 21 at page 15 in a "Total income" of $4,470 positive.

KIRBY J: Is it common ground, as I noted it was, before the board of review in Batagol that there was full disclosure in this case?

MR NETTLE: Yes, indeed, your Honour. But that $4,470 total income is then re-expressed at page 16 of the appeal book at item 45 as the taxable income as returned - again, about two-thirds of the way down the page.

GLEESON CJ: What was the threshold at this stage?

MR NETTLE: $4,900, your Honour, so it is just below. What happened then was that, in response to that return lodged by the taxpayer, the Commissioner issued to the taxpayer on 11 December 1987 a document described as a "refund notice", which is at page 19 of the appeal book.

It is necessary to look in some little detail at the document because of what his Honour Justice Merkel said in the court below. Note these things if your Honours will. At the top about three lines down it is described as a "Refund Notice" just below the heading "Income Tax Assessment Act", two lines below the Commonwealth coat of arms. Then in the large box which is in the middle of the page, the first entry is "Your Taxable Income is Nil", and the second entry is "Tax on Taxable Income $0.00". The last entry within that box, "Above in Tax on Taxable Income $0.00".

Now, in a sense, the first entry on that page is incorrect. It is clear enough that the taxpayer has had her return treated as being accurate and if it were treated as being accurate, the taxable income, as your Honours saw at page 15, is $4,470 but the Commissioner has, in a sense, incorrectly specified that the taxable income is nil. He has, however, been correct in going on to specify that the tax on the taxable income is nil because, as the Chief Justice points out, the threshold is above the $4,470.

On the reverse of that document, the reproduction of which is at page 20 of the appeal book, there are a number of explanatory notes. Your Honours will note that the first line of the explanatory note refers to helping to "explain your assessment", and the numbered paragraph 2 within the explanatory notes is headed "Dissatisfied with your assessment". The second sentence in that note 2 is that if you are still not satisfied you can object to your assessment.

KIRBY J: The respondent makes some point about the repeated reference and I think it is suggested that there are more to your assessment throughout this - - -

MR NETTLE: I dare say that there are, your Honour. The thing is replete with references to assessments, it cannot be denied, and that was apparently a significant consideration with his Honour Justice Merkel in reaching the view which he did.

KIRBY J: Well, a forensic consideration cannot change the Act.

MR NETTLE: We would submit not, although in the end, it is the burden of our submission that that is exactly what his Honour purported to do.

KIRBY J: But if you were asked just as a citizen, "Have you got your assessment, has your assessment arrived?", there would be no doubt a citizen would say that what he or she got on page 19 was "my assessment", no doubt at all. "Have you got your assessment?" "Yes, yes, I have my assessment." "What was your assessment?" "Oh, I didn't have to pay any tax."

MR NETTLE: Your Honour, I am not here to disagree with you that many people would regard that document, perhaps, as being an assessment, and then I take you to these provisions to make the point at the outset that it can be said, and can be said with a degree of justification, that a number of people ill-informed about the Income Tax Assessment Act 1997 would regard that as being a notice of assessment just because it is called a notice of assessment, or at least it is referred to at various places within itself as being a notice of assessment.

However, can I go on briefly with these facts before we turn back to why that should not be the informing consideration by asking the Court to turn to page 22 of the appeal book, where your Honours will see that on 11 February 1994, some six and something years later, the Commissioner issued to the taxpayer a notice of assessment in the amount of $4,589 on the basis that her taxable income was $14,470, the entry for which your Honours will see in the first line below the heading "Notice of Assessment". That change is explained in the next document at appeal book 23 in the adjustment sheet which accompanied that assessment because, as your Honours can see, the income is returned, the $4,470 is increased by the disallowance of the $10,000 deduction which I showed your Honours a little while ago.

KIRBY J: Presumably on the back of this form there would have been all the same references to your assessment, your assessment, your assessment.

MR NETTLE: That is an assumption that is well made, but I honestly do not know, your Honour. From what I can ascertain looking at the many forms of documents that are around, it is a high probability that something very much to the same effect was written on the back of this document.

KIRBY J: So outside the three years, and outside the apparent policy that section 170 is seeking to secure, the taxpayer gets - - -

MR NETTLE: I will go with your Honour as far as being outside the three years. As to the policy, it would be submitted no, the policy is to provide to the Commissioner at least three years following the date on which tax first becomes due and payable under the assessment. That is the policy, that is - - -

KIRBY J: That undermines finality though, does it not?

MR NETTLE: Certainly. It also underlines or is informed by the policy of the Act being one to collect tax. The misconception, or perhaps the error, which has arisen in this case arises by reason of not going back far enough to the milieu into which the 1936 Act was enacted; it was a milieu in which taxpayers were defined in terms of those who pay tax and it was a milieu in which it was very, very clear indeed that the only persons with whom the machinery provisions like section 170 were concerned, were those who were liable to pay tax.

GLEESON CJ: Well, the three years is not a date at large, it is three years from the date on which the tax became due and payable.

MR NETTLE: Correct.

KIRBY J: I have heard of originalist construction of the Constitution, but is this a notion that you construe the Act by reference to the original purposes for which it was enacted and not as it operates in the tax system today?

MR NETTLE: Well, certainly one construes the Act by reference to what one can discern was the intention of the Parliament that enacted it; what was intended to be conveyed by the expression "3 years from the date upon which the tax became due and payable".

KIRBY J: I just think "intention" is a very misleading word myself.

MR NETTLE: We are, if I may say so, happy to submit to your Honour that you should come to it solely on the basis of the words, but if your Honour wishes, as it were, to look to policy in forming it, we would make the submission that the policy is to be understood in the context of that which immediately preceded the enactment of this Act.

CALLINAN J: It is not very convincing in the case of a PAYE taxpayer though, who puts in a return every year and deductions are made from her wages weekly or fortnightly and then she gets a document which says she owes nothing and then years afterwards she is told that she owes some further $4,000-odd in respect of a year seven years before. I would need a lot of persuasion that there is a policy consideration in favour of that.

MR NETTLE: Well, the policy consideration, your Honour, is in favour of collecting the revenue for which, as a matter of law, she was always liable.

CALLINAN J: And giving people some idea of what their obligations are.

MR NETTLE: Undoubtedly. With respect, that is right and it is a matter which has been the subject of repeated comment by royal commissions and inquires since the legislation was enacted and the difficulties to which your Honour refers, to which some taxpayers may be subjected, have attracted, more than once, recommendations that the Act be changed so as to treat a nil notification as an assessment in order to provide the sort of certainty that your Honour regards is desirable, but those recommendations have never been acted upon and, indeed, in the most recent of the committees to consider the matter, the Asprey Committee in the mid-70s, the recommendation, contrary to those which preceded it, was against it for the reasons which are set out and to which we have made reference in the written submissions. So, your Honour, this is not something that comes new to the consideration of the Court.

CALLINAN J: All my point is, Mr Nettle, that the policy considerations can pull strongly the other way as well as the way in which you say they point.

MR NETTLE: It depends upon policy considerations but it was a matter raised by his Honour Justice Kirby as to what is the policy and the submission we would make and, with respect, adhere to is that if one is looking for a policy which informs this provision, it is to be understood in the context of what immediately preceded it.

GUMMOW J: There are competing policies and what was done was a balance was struck and you find the balance by looking at the terms of section 170(3).

MR NETTLE: If the Court pleases.

GUMMOW J: So we have to construe section 170(3) and the balance was struck by reference to the three year period and the requirement of full disclosure.

MR NETTLE: If your Honour pleases.

GUMMOW J: It could have been another balance but it was not. It was this one, so that is what we have to look at.

MR NETTLE: Yes, indeed, your Honour. In the Administrative Appeals Tribunal the argument of the Commissioner was accepted. It was rejected before Mr Justice Spender at first instance and it was rejected before the Full Court principally by Justice Merkel who delivered the judgment and with which the other members of the court agreed. If your Honours can look at page 189 of the appeal book which really starts the section where the provision is set out, and move from there to page 202, your Honours will see that Justice Merkel reached a conclusion, expressed in the middle of the page beginning at about line 13, that Batagol's Case decided one thing but in the second bullet point did not decide:

that an assessment is made only when a positive amount of tax is.....payable -

At page 205 at lines 19 to 23 his Honour, after developing his reasons, concluded that he was of the view that his Honour Justice Spender:

was correct in concluding that Batagol is not authority for the proposition that -

an assessment requires a positive amount of tax. At page 218 his Honour Justice Merkel got over the problem to which his Honour the Chief Justice adverted a little earlier about what date is it that tax becomes due and payable when there is no tax due and payable by reference to section 204 of the Act and his Honour reasoned that, because section 204 provides the tax becomes "due and payable", a specified number of days after the date on which an assessment is served when no other date is specified, that was enough to make tax due and payable even though none was.

GUMMOW J: I am sorry. Could you explain that again, Mr Nettle?

MR NETTLE: Yes, your Honour. Perhaps it would be better by asking you to look to section 204 of the Act.

GUMMOW J: I hope I am slow-witted rather than dim-witted, but I did not follow.

MR NETTLE: I hardly think so, with great respect, your Honour. At section 204 of the Act - - -

CALLINAN J: Has that changed, Mr Nettle?

MR NETTLE: A little, but not relevantly, your Honour. In 204(1):

tax becomes due and payable.....on the date specified in the notice -

of assessment -

or, if no date is so specified, on the thirtieth day after the service of the notice.

GUMMOW J: How does that help?

MR NETTLE: It does not.

GUMMOW J: You say it does not, but how is it said to help?

MR NETTLE: What was said was that one could use section 204 to provide an answer to the question of when does something become payable when nothing is payable. By saying that, the nothing becomes payable 30 days after the service of the notice of assessment.

GUMMOW J: I do not understand that.

MR NETTLE: That is the reasoning which is used by his Honour Justice Merkel on section 204, in particular at page 218, but in detail at pages 215 to 216.

KIRBY J: Now, 204 is in Part VI and opens with the provision, "Subject to the provisions of this Part", but do you accept that it is a provision, subject to the provisions of Part VI of general application throughout the Act?

MR NETTLE: I do accept, your Honour, that it is open, as a matter of principle, to have regard to it in order to construe another section in the Act and, in particular, section 170.

KIRBY J: Is there anything in the provisions of Part VI which cuts down its operations relevant to its relevance to section 170, is it?

MR NETTLE: Only its own words, namely, that it presupposes as a matter of necessary textural analysis that there is something due and payable. What it does not do is say that where nothing is due and payable, that nothing will be deemed to be due and payable and, moreover, will be deemed to be due and payable 30 days after the notice of assessment. It is as a matter of necessary operation confined to a case where there is something due and payable, and what it is providing for, as all the extrinsic material shows, is simply the case where the Commissioner does not specify a particular date by which is to be paid the amount which he has been assessed as due and payable. But he forgets to put it in or, for some reason or another, he does not write down 3 June 2000. The Act provides that it will be 30 days after the date of service.

GUMMOW J: You need a date for section 208 to work to create the debt.

MR NETTLE: Exactly so.

GLEESON CJ: Mr Nettle, has the argument in the courts below proceeded upon the assumption that the amendment that was made was made to correct a mistake of fact?

MR NETTLE: Yes, I suppose that it has.

GLEESON CJ: Is it the case that if the amendment had been made to correct a mistake of law, we would not be concerned with the concluding words of subsection 170(3)?

MR NETTLE: At the time at which this arose, yes, your Honour. Can I just endeavour to complete what we wish to say about section 204 by reminding the Court that where a refund is due by reason of, for example, amounts prepaid in advance being in excess of the amount which is finally assessed, it is provided for in section 220H in a way which appears to draw a distinction between an assessment which requires the amount of amount due and payable and a case in which - - -

GUMMOW J: Sorry, 220?

MR NETTLE: Section 220H(2).

GUMMOW J: That was not in the Act at the time, was it?

MR NETTLE: That is correct. In any event, the only point we wish to make was that it has been enacted subsequently as your Honour Justice Gummow points out, but it has been enacted apparently on a supposition or an assumption on the part of the Parliament that one needs to draw a distinction between a case where there has been an assessment necessarily meaning that there is an amount due and payable, and a case where - - -

KIRBY J: Your theory of the section is that the assessment which is your assessment repeated seven times over in the form comes in at $1, you gain the benefit of the protection of finality which section 170(3) provides, but if it comes in at zero you are forever thereafter liable to reassessment. That seems a capricious operation of the section that I would not lightly attribute to the intention of Parliament that is a reasoning.

MR NETTLE: Your Honour, I will need to go through three phases at least in an endeavour to persuade your Honour otherwise starting with the authority of Batagol.

KIRBY J: I realise the things that run for you, it seems to me, are the words, and that is the cardinal approach to statutory interpretation, and the authority, although it suggested the authority is not right on point, but in terms of the policy of the legislature in enacting section 170 it results in a very capricious - indeed, it destroys the policy of finality which is important to taxpayers to organise their affairs; to expend their capital; to go about their lives without being harassed 20, 30 years later.

MR NETTLE: The answer which was provided to that, or sought to be provided to that problem at the time of the enactment of the 1936 Act, was section 171. That gives to the taxpayer the right, albeit it one which is infrequently exercised, to require the Commissioner to issue an assessment and if he fails to do so within three months of that requirement being directed to him, the situation is deemed that any assessment which is thereafter issued is an amended assessment. I want to take the Court to the way in which it works in particular, because it has been misunderstood before but to put it in simple terms now if I can endeavour to do so.

It says that if one lets a period of 12 months go by after one has lodged a return and the Commissioner has not issued an assessment - is the term at strict sense - one may ask the Commissioner to do so and if he - or she I suppose - does not within three months thereafter do so, any assessment which the Commissioner may issue thereafter is deemed to be an amended assessment.

KIRBY J: How many taxpayers would take advantage of that as distinct from rest, comfortable and safe in their homes under the protection of section 170(3)?

MR NETTLE: Your Honours, I have said to you, I doubt that very many have in the past, at least, taken advantage of it, but what I do submit to your Honour is that - and I will endeavour to show to your Honour that - it was the intention of those that passed the Act that that provision be there to provide the sort of certainty, lack of which your Honour regards as being in the intolerable consequence of Batagol.

KIRBY J: I interrupted you rather rudely when you were explaining how, when it was originally enacted there was a different assumption on which tax legislation; if that is an important point, I would like you to develop it.

MR NETTLE: Indeed, your Honour. Might I begin by endeavouring to place the think in historical context by reminding your Honours that Batagol's Case started in the Tax Board of Review, a copy of which we have taken the liberty of attaching to our written submissions - - -

KIRBY J: And it was a divided board of review in which some of the issues we are debating divided the board.

MR NETTLE: Not much changes, your Honour, exactly right; if you look at it you - - -

KIRBY J: May be that is a point for you in the sense that this is a matter on which minds can differ and it has been settled and laid down and it has been there for a long while and if it is applicable it should be obeyed.

MR NETTLE: But your Honour said - they split 2:1. Now importantly, after they split 2:1, but in favour of the Commissioner, the Ligertwood Committee, a copy of which we have referred to in our written submissions, and an extract of which we would hand up to the Court, if we may, "Inquired into the Provisions of the Act". May we give that to our Honours, if you do not have it?

HAYNE J: Is this extracts of paragraphs 591 to 595?

MR NETTLE: Yes, thank you, your Honours, yes.

HAYNE J: I do not know why I am favoured - I think other members of the Court have it.

MR NETTLE: I am pleased to hear it, thank you, your Honour. Paragraph 591 refers to the position where there are:

non-taxable returns -

and makes in particular in the second line:

The departmental view supported by the Board of Review -

which can only be Batagol -

is that the treatment of returns as non-taxable does not amount to an "assessment" -

A little further down, about level with the heading Amended Assessments, it is said:

Further unless a taxpayer makes a request for an assessment under section 171, a return originally treated by a Commissioner as non-taxable may be later assessed as taxable, and a notice of assessment issued upon the taxpayer without any time limit.

Now this does not determine anything, I appreciate, but I show it to you to show the way in which the law on the matter developed. First of all there was a decision by the board of review favourable to the Commissioner; next there was the Ligertwood Committee inquiring into the Income Tax Assessment Act, which took it as read that, that was the law for the time being and made a recommendation for change, which is dealt with first in paragraph 592:

At the time of the introduction of section 171 into the 1936 Assessment Act, it was explained that although a request made under the section would apply to both taxable and non-taxable returns, the examination by the Taxation Office of non-taxable returns was in many cases deferred until after the assessment of taxable returns.

In other words, the Commissioner puts the nil tax returns on the back-boiler while he concentrates on the ones which have immediate money. That was the practice into which section 171 was enacted as here recorded.

What is then said in paragraph 593, a little amusingly, is that the practice had by the time of this inquiry changed so much that the legislation should be changed and then in paragraph 594, in the last five lines, there is a consideration that all non-taxable returns should be treated as taxable returns, and the recommendation in 595 that the legislation be changed to achieve that result. Then, after that has been done comes the decision of this Court in Batagol - - -

KIRBY J: What year was the Ligertwood? Oh, I see, 1961, it is on the front cover.

MR NETTLE: June 1961, and the decision of the Court here was late in 1963, I think, your Honour.

Now, to again put the matter in historical context, may we submit to the Court that the board and the apparent affirmation of the board's view of the matter was clearly right as a matter of principle, at least historical principle, because of what had been said by Mr Justice Isaacs in Ex parte Hooper (1926) 37 CLR at page 368 about what was meant by an assessment.

KIRBY J: That must have been under the old Act. Is the provision set out in that decision.

MR NETTLE: Yes.

KIRBY J: I think the respondent says this is distinguishable.

MR NETTLE: He does. Your Honour has seen it set out in the judgments, your Honour has seen it set out in the written submissions, but nonetheless there it is, that famous passage from the judgment of Mr Justice Isaacs, talking about what is the nature of an assessment, if you like, in its pure form before it gets defined in section 6 of the Income Tax Assessment Act. At the top of page 373 in the report, his Honour Justice Isaacs says in the first line:

It is as to the nature of an assessment - - -

HAYNE J: Sorry, Mr Nettle, you are moving away from the microphone and I am having difficulty hearing you.

MR NETTLE: I beg your pardon, your Honour.

HAYNE J: Yes.

MR NETTLE: I was making reference to Justice Isaacs' decision in R v Deputy Commissioner of Taxation; Ex parte Hooper [1926] HCA 3; 37 CLR 368 and I wish to draw the Court's attention to the passage in the judgment at page 373 which begins in the first line, noting particularly, your Honour, that it is the ascertainment of the amount chargeable.

KIRBY J: One answer that can be given to that is to insert the words "if any".

MR NETTLE: Correct.

KIRBY J: But can I say what is in the back of my mind so that if it is a wrong thing you can take it out. In 1926 when Justice Isaacs wrote what he did, and in 1963 when Justice Kitto wrote what he did, there was in a sense a slightly different judicial approach to construction of statutes. The task is the same but what has come about in the recent times of the last 20, 15 years is what the House of Lords led and other courts have followed, a more wholehearted approach to seeking to give effect to the purpose of Parliament as construed from the language and, therefore, one is looking more closely now at what the purpose of the legislature was.

MR NETTLE: Yes.

KIRBY J: Now, is that an inappropriate consideration, or not? I mean we now have given special leave. The matter is now before this Court. We must construe the section and we construe it, if I can adapt constitutional terms with today's eyes, as judges who are looking more closely, perhaps, to effecting the purpose of the legislature which, on one view, you say is to raise the revenue, but, on another view, is to let people have quiet and not be disturbed by reassessments 15 or 30 years later.

MR NETTLE: If your Honour pleases, I do not, with respect, disagree with the proposition that the Court should approach the construction of any Act by reference to the modern techniques of judicial construction. That having been said, however, those techniques will not yield the result that a nil assessment is an assessment when you have regard to, first, the way in which tax is imposed; secondly, the terms in which it is imposed and, thirdly, the words of section 170(3) themselves.

Now, can I take each of those points. Tax is imposed, not by the Income Tax Assessment Act but by the Income Tax Act which charges tax at the rates set out in the Income Tax Rates Act. There is no rate set out for no taxable income. Secondly, the words themselves, if you have regard to section 170(3). Whether it was a sensible thing to do or a silly thing to do is not really to the point. What the Parliament did do was say that the Commissioner had:

3 years from the date upon which the tax became due and payable -

not the date on which he determines that no tax is payable, but the date on which tax becomes due and payable and tax only becomes due and payable if there is a positive amount of tax assessed, if there is positive taxable income above the threshold at which tax begins to be imposed.

It might have been a silly thing to do or it might have been something which has become inappropriate by reason of the development in socio-economic patterns in the last 60 year, but it is what the Parliament did do. It did deliberately say that the time should run from the date on which tax becomes due and payable and section 204 will not provide an answer because it does not say, no matter how purposive one is in one's approach to the matter, that where no tax is due and payable, it shall, for the purposes of section 170(3) be deemed to be payable.

GUMMOW J: Now, this notice of assessment at page 22 which is the one you took us to, specifying $4,500, what was the specific statutory power relied upon to make that assessment?

MR NETTLE: Section 166. An original assessment, taking the view, on the basis no doubt of Batagol, that there had been no assessment to that point. It is not, as your Honour can see, an amended assessment. It is an assessment.

GUMMOW J: Yes, it is not done under section 170(1) which talks about amendments at any time.

MR NETTLE: No. It purports to be and was intended to be an original assessment.

GUMMOW J: Yes. So 166, on its face, is unconfined as to time.

MR NETTLE: Certainly, thank you.

GUMMOW J: So that is the stark legislative policy, if you want one, that you start with.

MR NETTLE: Yes. it is indeed.

GUMMOW J: And the rest cuts that down.

MR NETTLE: Your Honour is absolutely right.

GUMMOW J: What we are talking about is really an attempted exception to 166.

MR NETTLE: Yes, thank you.

GLEESON CJ: That is interesting because the objection was filed on the basis that it was an amended assessment.

MR NETTLE: Yes, it was. It cannot be denied. The point has always been taken that, by the taxpayer, it was to be treated as amended assessment and thus being one out of time by reason of the fact that it was more than three years after the first assessment. That has always been its argument.

The second of the passages to which we have made reference in our written submissions is the judgment of Mr Justice Dixon in Trautwein 56 CLR 62 at 107.

GLEESON CJ: Just before you pass on from that last remark you made, to revert to something I mentioned to you earlier. You said it has always been the argument of the taxpayer that the Commissioner only had three years in which to issue this assessment.

MR NETTLE: Yes.

GLEESON CJ: That assumes that the assessment under dispute was made to correct an error in calculation, or a mistake of fact.

MR NETTLE: As your Honour said before, yes.

GLEESON CJ: The three years would not have been relevant otherwise.

MR NETTLE: At that time, no. It becomes particularly pertinent when one looks at Ferguson, to which the respondent has made reference in its submissions, where the dichotomy between error of law and error of fact was thought to be inappropriate and a recommendation was made that the same limitation period apply to both which, as we know, was something that did not occur until much, much later. But, yes, your Honour is correct, had it been error of law at that time, time would have been unlimited.

CALLINAN J: Mr Nettle, how does section 166 operate, or does it have any room to operate at all, if the assessment is a nil assessment; if in fact there is a loss?

MR NETTLE: Yes, it does, your Honour, in the sense that one is to read it together with, say, section 8 of the Act which provides that the Commissioner is charged with the administration of it, and the sorts of considerations that informed this Court's decision in Industrial Equity and say that, even if at the end of the day, after looking at everything that is relevant, the Commissioner reaches the view that no tax is payable, he is nonetheless compelled to go through the exercise of looking in order to reach a view as to whether or not he should assess. So section 166, whilst not directing him to assess someone who has no taxable income, does, when taken together with section 8, require him to go through the process of ascertaining whether one does have a taxable income.

CALLINAN J: But there is no statutory obligation, or is there any statutory obligation upon the Commissioner, in that situation, to notify the taxpayer?

MR NETTLE: No, there is not.

CALLINAN J: So that a taxpayer claiming a loss, in theory in that case, the Commissioner could just not do anything for, say, 20 years - - -

MR NETTLE: Exactly. It happened. Through significant decades of the last 40 years it happened that people who claimed a loss went for year after year after year without receiving a communication from the Commissioner as to whether he accepted that as being so. And in both Ligertwood and Asprey the apparent uncertainty which that created was the subject of comment. But to answer your Honour's question, the obligation imposed on the Commissioner under 166 is to issue assessments. "Assessments", if one looks to the definition in section 6(1) is "the ascertainment of the taxable income.....and the amount of tax payable.

CALLINAN J: To issue an assessment, which means, among other things, a notification of the tax payable, do you accept that?

MR NETTLE: That is true.

CALLINAN J: But there is no statutory obligation anywhere in the Act, you tell me, for the Commissioner to notify a person if no tax is payable.

MR NETTLE: That is correct and hence, therefore, for those who wished not to live in uncertainty and were brave enough to raise the matter to the Commissioner's attention, section 171 was enacted so that they could compel Commissioner to be placed in the position as if he had issued an assessment.

KIRBY J: Which is that section again, would you just give us?

MR NETTLE: Section 171, your Honour.

KIRBY J: Thank you. I wonder how many of those are done every year? Brave is the key word - - -

MR NETTLE: Next to none I would think, your Honour.

KIRBY J: Yes.

MR NETTLE: It is a section which just has not been used or exploited by those who have things such as carry forward losses, one might suppose, for the reason that many of them would not wish to raise the matter for the attention of the Commissioner. They are very happy to let it sit there in the hope, ultimately, it will be forgotten about. But, more importantly, in a case where there is, for example, a loss incurred, or a loss said to be incurred in a year of income, such that there is no taxable income for that year, it remains open to the taxpayer to have vindicated that amount of loss in subsequent years. When in a subsequent year the taxpayer derives taxable income and seeks to carry forward as against it the loss said to be incurred in the previous year, it is open to the taxpayer at that point to argue against any contention of the Commissioner that that was not the amount of the loss.

GLEESON CJ: An expression that is sometimes used, and perhaps it is only a colloquial expression, in relation to a recent development or change in the administration of the Act, is that "We now operate under a process of self assessment."

MR NETTLE: That is correct.

GLEESON CJ: How is that reflected, if at all, in the statutory professions?

MR NETTLE: Section 166A, your Honour, which your Honour may have seen, forms the subject of one of the submissions of the taxpayer.

GUMMOW J: When was that inserted?

MR NETTLE: It was 1987, I think, your Honour.

GUMMOW J: It was 1987, was it? I think much later.

MR NETTLE: , or 1995 perhaps. 1987, yes, I was correct, apparently. I was correct, I am happy to say, your Honour, I think. But can I draw your Honour the Chief Justice's attention, in particular, to section 166A(1)(a), to ask you to look at the words "taxable income" and "of the tax payable" which appear in it. In other words, it is our submission, and it is a submission which is made that the Act is pretty clear, that 166A, although deeming a return to be an assessment, does only deem it to be such when there is taxable income. That is to say, section 166A(1)(a) provides that the Commissioner is taken to have made an assessment of the taxable income and of the tax payable specified in the return. If the return specifies no taxable income or no tax payable, then there is nothing which he can be taken to have assessed.

GUMMOW J: I thought Mr Russell complained that 166A was not in the Act in this year of income and you are seeking to interpret the Act as it stood in the relevant year of income by some stitching-up process indulged in later.

MR NETTLE: No, I am not. Perish the thought, your Honour, I was merely responding to the Chief Justice's question as to what, if any, has been the change, the result of self-assessment. But I must say I seize the opportunity to the extent that it exists to say that if one looks to 166A, it, like a host of other provisions has been enacted post-Batagol on the basis of a parliamentary assumption that an assessment requires a positive amount of tax payable for otherwise the words are inexplicable. Whether or not it is appropriate, either as a matter of policy or just standard construction technique to have regard to that, I suppose it does not really matter very much, but there is certainly nothing negative which is in it for the Commission.

CALLINAN J: Mr Nettle, do you get any benefit out of the fact that section 171 uses the word "notice of assessment" and section 173(3) just refers to "assessment"?

MR NETTLE: I am not sure that I do, your Honour, but if I do it is a point that has not occurred to me before.

CALLINAN J: I am not asserting it, but it occurred to me that it might make a difference because on request the Commissioner has to give a notice of assessment under section 171.

MR NETTLE: As opposed to "an assessment".

CALLINAN J: Yes. Whereas section 170 refers to "assessment".

MR NETTLE: It does, but it is submitted, your Honour, that the answer may be that section 171 is couched in the terms in which it is because it is only by getting notice, or failing to get notice, that one knows that one is entitled to request the Commissioner to make an assessment. In a sense it is all self-defeating, because we are told by Batagol there has got to be a notice anyway to carry it all the way home to assessment but, nonetheless, it is submitted that that is really the explanation for the use of the word "notice". My learned junior reminds me, if it need to be, that section 166A, of course, only applies to companies and superannuation funds, not to individuals. There is still no full self-assessment for individuals.

Briefly may I touch on Batagol in the High Court, Mr Justice Kitto's judgment - - -

GUMMOW J: It would be useful for me, anyway, to begin by isolating what the actual issue was in Batagol.

MR NETTLE: Thank you. The question was whether there had been assessments.

GUMMOW J: People discussing Batagol tend to jump in the middle, but what was the actual issue before the Court in Batagol? How had the problem arisen?

MR NETTLE: Batagols were butchers that carried on trade in Carlton. There were in issue four years of income. In three of those years no notification had been issued by the Commissioner; in the fourth of them a nil refund notice - - -

GUMMOW J: But returns had been furnished?

MR NETTLE: Yes, and there was full true disclosure and so forth. Now, the Commissioner then subsequently then sought to assess. The contention was put against the Commissioner that by section 170(3) it was now too late. The taxpayer argued that, in the case of those years where the refund notice had not been issued, the Commissioner had assessed, because he had gone through the intellectual process of determining what was the taxable income, and that was - - -

KIRBY J: And made a note on his own files. I think that is a very significant distinction from this case though; here it is not just a note on the Commissioner's files, it is a notice to the taxpayer.

MR NETTLE: I understand there is a distinction, your Honour. That is the first three years. In the fourth year the Commissioner had actually issued a refund notice, which was nil. The refund notice forms part of the attachment to the written submissions in the Tax Board of Review and your Honours can see that, whilst it is in different form to the refund notice in this case, it does have in common with it, reference to assessment. It should be the first page after the last page of the submissions. It is a photocopy marked G "Refund Advice" on the second half of the page below "Employees Record".

GLEESON CJ: Well, the assessment number is in the middle of it.

MR NETTLE: Whilst it cannot be pushed too far, your Honours, it is not altogether dissimilar from the refund notice, in this case, in the reference which it makes to assessment, at least on the front page of it.

Anyway, back to what your Honour Justice Gummow said, it is on that basis that the matter came first before the Tax Board of Review and then, subsequently, on a case stated by his Honour Justice Menzies to the Full Court of this Court. The Tax Board of Review dealt with it on the basis of the majority exclusively on the basis that there had to be a positive amount of tax payable before there could be an assessment.

Similarly, it is submitted, so too did both Mr Justice Kitto and Justice Owen in this case when it got to the Full Court. Batagol is reported in [1963] HCA 51; 109 CLR 243. Sufficient of the facts of the matter, for relevant purposes, appear at page 247 in the beginning in the penultimate paragraph:

With respect to each of the said returns the appropriate officers pursued and completed the normal routine and processes, both physical and mental, for the purposes of deciding whether or not there was a taxable income and tax payable for the relevant year. After the action referred to was taken, nothing further remained to be done under the departmental routine and processes.

On 14th June 1955 -

many years after the returns which had been lodged, assessments issued and it was argued it was too late. One can see the argument in Dr Coppel's submission towards the bottom of page 248 of the report in the last ten lines or so:

The ascertainment of taxable income as nil was treated as an assessment in Ruhamah Property.....Section 221H treats the case where no tax is payable as an assessment.

Then in the judgment of Mr Justice Kitto - - -

HAYNE J: Just before you come to that, did any of the questions in the case stated that we see at 248 directly or indirectly ask the Court to consider the effect of the refund advice to which you earlier took us?

MR NETTLE: I think the answer to that is yes. Your Honour should have the case stated.

GUMMOW J: The questions are at the top of 248.

MR NETTLE: Thank you.

HAYNE J: I am concerned to identify which, if any, of those questions either directly or indirectly raised a question about the refund advice.

MR NETTLE: If your Honours would go to item (c):

the year of income ended 30th June 1954, had the Commissioner made an assessment within the meaning of the Act in respect of the taxpayer - - -

HAYNE J: Yes. I see.

MR NETTLE: Because on the facts stated in the case stated it was noted, as is noted in Justice Kitto's judgment, that the refund notice in that year, but not in other years, had issued.

GUMMOW J: Where do we see that in the stated case?

MR NETTLE: That was back on page 250. At the bottom of page 250, last line:

The appellant was not informed of the conclusion in respect of either of the first two years. In the third year, however, he had suffered deductions of tax from his wages, and a cheque by way of refund was sent to him together with a "refund advice" stating that no tax was payable.

And then the undoubted stand taken by the Commissioner. So that refund advice is the one which I showed you marked G attached to the board of review decision which, in turn, is attached to the written submissions.

HAYNE J: Well, question 2(c) to which you earlier took us, is answered no, as appears from 257.

MR NETTLE: That is correct.

GLEESON CJ: Your submission, I take it, is the same as that attributed to Mr Aickin in the first sentence of the report of his submissions on page 249.

MR NETTLE: It is, your Honour, as indeed his Honour, himself, confirmed later as a Judge of this Court in the Estate of Maurice, when he said that that is what Batagol decided. A case which is not referred to in our outline of authorities, but of which we have copies that we may hand up if we may - sitting as a single Judge of the Court under a different Act, but nonetheless reaffirming as part of his necessary reasoning process to what Batagol had decided.

KIRBY J: Perhaps the resonances of his submissions were still ringing in his ears.

MR NETTLE: Well nothing sounds sweeter than one's own formulations, your Honour.

HAYNE J: Especially when you have won.

MR NETTLE: It is true to say that Mr Justice Kitto does not give specific attention thereafter to the refund notice. His Honour decides the matter on the basis that there has to be tax due and payable. May I show to your Honours why that is so by asking if you go to 252 about 10 lines down after the reference there to section 177 in the middle:

The respective amounts of the taxable income and the tax have been rendered certain. The word "ascertainment" being understood in this sense, the definition of "assessment" means, in my opinion, the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case.

A little further down after the reference to Hoffnung:

"If an assessment definitive in character is made, it assumes that, so far as can there be seen, a fixed and certain sum is definitely due, neither more nor less.

Your Honour Justice Callinan, reference is made particularly to section 166 a little bit further down, about 10 lines from the bottom:

The making of assessments by the Commissioner is the subject of provisions in ss 166, 167, 168 and 169, and from these it is clear that assessment is a process which by force of the Act is definitive of the amount of the taxpayer's liability, though subject of course to review and appeal.

There are two other important grabs in Mr Justice Kitto's judgment. The first is at 253, almost exactly halfway down, where his Honour says it:

cannot, I think, be reconciled with any other view than that without a notice of assessment fixing a taxable income and a tax there is no assessment. Indeed it would be hard to find clearer indications of this then s 170 itself provides. The topic of the section is the power of the Commissioner to amend assessments, a concept which pre-supposes that an assessment is something creating a legal obligation -

The second of these brief passages occurs about six lines further on:

To speak, as does sub-s (1), of tax being paid in respect of the assessment, or to speak, as do sub-ss (2)(b), (3), (4), (5) and (6), of tax having become due and payable under the assessment, would be impossible unless "assessment" meant the whole process which comes to a head in the service of a notice of assessment and thereby becomes, as a whole, an act in the law.

CALLINAN J: Page 251 at point 5.

MR NETTLE: Yes. Very good:

difficulty in the way of -

HAYNE J: And at 252 line 3:

Thus, and thus only, there is brought about an "ascertainment" -

MR NETTLE: Your Honour will see we set those passages out in the written submissions. I just wanted to feather thoughts, as it were, direct your Honours' attention to these.

Justice Owen's approach was a little different in that he dealt specifically with the refund notice, but only en passant as it were. At page 256, ten lines from the bottom - that is two lines into the penultimate paragraph:

In the case of the year ending 30th June 1954, the "refund advice" sent to the appellant contained a statement that no tax was payable in respect of that year. But this was not a notice of assessment: it was merely to explain why it was that the whole of the tax deductions made during the year was being refunded. Here again I think the taxpayer's objection fails since, for the reasons stated -

Now, if one goes back to the reasons stated, they really begin at the bottom of 255 with the reference to the definition of assessment in the last paragraph, namely the ascertainment of the amount of taxable income and of the tax payable thereon, and then beginning on the last three lines of that page, and going through to point 5 at 256, one sees clearly that his Honour's reasoning requires there to be an amount "due and payable", the words are used twice right in the middle of the page.

KIRBY J: Just on the premises, can you not say, on the face of your client's notice to the respondent, there was an ascertainment of the assessable income?

MR NETTLE: No, you cannot. You can say that there was an ascertainment that there was no taxable income.

KIRBY J: No, there was the ascertainment. The ascertainment was the amount of the taxable income and the fact that that fell below the threshold which the Parliament had fixed meant that then there was no tax payable on it.

MR NETTLE: I beg your pardon. Your Honour is absolutely right, I have jumped ahead one too far. You are quite right, there was an ascertainment of the taxable income. What there was not was the amount of tax payable.

KIRBY J: But the amount of the tax payable was fixed by law and it just happened then to be nil, but they were both ascertained in accordance with law.

MR NETTLE: Your Honour is correct

KIRBY J: Otherwise, what was your client doing?

MR NETTLE: He was discharging his function of administering the Act to ascertain whether there was a liability to be the subject of assessment.

KIRBY J: Exactly, quite.

MR NETTLE: Can I just say to your Honour that one needs to bear in mind the definition of assessment. It is not simply the ascertainment of the taxable income, it is the ascertainment of the taxable income and of the tax payable.

KIRBY J: I realise the power of those last words and that you have to latch on to them - - -

MR NETTLE: I do.

KIRBY J: - - - but it is a question of reading those words in the context of the higher purpose that the Parliament arguably has to protect people against subsequently being troubled.

MR NETTLE: Let me try to deal with that if I can. I latch on to those last words not just to create a liability, but because the question is, when does the Commissioner become time barred? The answer to that question is provided solely by section 170(3) and it provides not when the Commissioner ascertains that there is an amount of taxable income, but rather when the Commissioner ascertains by assessment that there is tax payable. It is not until he ascertains that there is tax payable that time will begin to run. Now, in a sense, what is in 170(3) informs the definition of assessment just as much as the definition of assessment informs the meaning of 170(3).

If one stops at any point along the process of continuum that is constituted by both, you can reach the wrong conclusion that the ascertainment of one aspect of the matter without the other is enough; but if you look at the totality and see that for whatever reasons, good, bad or indifferent, Parliament decreed by legislation the time would run only when there had been assessment of taxable income, then the answer is irrefutable. There cannot be an assessment until there is an assessment of taxable income and there cannot - - -

KIRBY J: It is scarcely "irrefutable". There was a member of the Tax Board of Review who dissented and there are decisions in other countries that have come to a different view and it is in like legislation and the Full Court of the Federal Court came to a different view in this case, so it is - - -

MR NETTLE: Perhaps I overstate it, your Honour, but I do wish to convey by way of submission that whatever might have been Mr Webb's motivation in the board of review, or whatever might have been said in other places such as New Zealand by the Privy Council, when you have a look at the particular statutory regime which operates here, unless you enter into some sort of semantic exercise of the kind which was engaged in by Justice Merkel about the meaning of 204, you cannot get to an operation which would allow time to begin to run, until there is the ascertainment of taxable income.

KIRBY J: I just repeat that that leads to a bizarre result that if tax is levied at $1 then you are protected thereafter under subsection (3) and if it leads to nil then you are ever at risk, 20, 30, 40 years on, and that is a bizarre result.

MR NETTLE: Can I seize upon something which was said by the - - -

CALLINAN J: Notwithstanding that you have made full disclosure too.

KIRBY J: And have spent your money and reordered your affairs. I find it very hard to believe that the Parliament of Australia would intend that, to use your word, or have the purpose of that consequence. It seems plainly unjust.

CALLINAN J: You get a document of this kind which says nil and then you still have to make an application for an assessment because you are uncertain. Or before you can get any certainty, even though you have a document which says nil, you have to make an application under 171.

KIRBY J: Have mercy on the taxpayer, Mr Nettle.

MR NETTLE: I beg your pardon?

KIRBY J: Have mercy on the little taxpayer.

MR NETTLE: Your Honour, there is no equity in the Tax Act.

GUMMOW J: That is not what it is about. Now, do you not have to have regard to Moorebank's Case too?

MR NETTLE: I do not know, your Honour.

GUMMOW J: Well, Moorebank's Case said the attempt was made to Moorebank in response to the horror of the scope of section 204 which is what one would really be horrified about. That seems to be creation of a debt of a common law nature, no limitation on time as to its recovery. Did not this Court say Moorebank that that is what it is and it does not pick up - it is an exclusive code, it does not pick up State Limitation Acts?

MR NETTLE: Yes, it does not pick up the State Limitations Act 1987 , yes. That is correct, it did, in particular, the Queensland Act.

GUMMOW J: That is the policy that is manifested in Moorebank. Mainly it favours you.

MR NETTLE: It does indeed favour me, thank you - - -

HAYNE J: But you need to begin at 166 - - -

MR NETTLE: You need to begin at 166 - - -

HAYNE J: You cannot begin in the middle at 170.

GUMMOW J: That is right, you have to begin at 166 and you end with 204 and Moorebank.

MR NETTLE: I want to try and deal, if I can, with the concerns expressed by Justice Kirby and Justice Callinan.

GUMMOW J: Perhaps I should say Moorebank is reported in [1988] HCA 29; 165 CLR 55.

MR NETTLE: I am obliged for that, thank you. Your Honour Justice Kirby says it is a Draconian situation to impose upon the taxpayer to such an extent that it cannot be conceded that is what Parliament intended or at least raises that by way of argument, with respect. It is, when you see the way in which the Tax Act, at least at the time of its creation, was intended to operate. An assessment is the means by which an obligation is imposed. That obligation, once fixed, cannot be altered or at least could not be altered for mistake of fact more than three years after it had been fixed. In the case of mistake of law, his Honour the Chief Justice pointed out, before amendments were made recently, time went on forever.

Now, because of the fact that very few people were the subject of assessment who did not have taxable incomes anyway, that is to say because the whole social situation was different, it was not of concern to people that they did not get an assessment usually. But to cover the rare situation in which they might be concerned by the lack of the imposition of an obligation upon them, 171 was inserted to provide that degree of certainty.

In the Ferguson Committee Report, which was the first of the royal commissions to follow the enactment of the 1936 Act, Ferguson referred to what was perceived to be the lack of fairness resulting from the fact that whilst time was limited for mistake of fact to three years, time for change to the law was not limited.

KIRBY J: We do not have that, apparently.

MR NETTLE: May we provide it to your Honours.

KIRBY J: All these royal commissions and inquiries making suggestions of fairness, they are not needed, if the court interpreting the legislation in the modern manner, says "Well, it is just not necessary", that is what the Privy Council has said.

HAYNE J: And the deafening silence of Parliament in response to all of these reports is set at nought.

MR NETTLE: Your Honour, that was the point. Whether or not your Honours were now to take the view that Justices Kitto and Owen were wrong in what they decided, they did decide what they decided. It has been the law for 40 years and a great deal has been done on the supposition that it is the law of the Commonwealth. Now, it is true, as we concede in our written submissions, obviously as we must, that you may change the law if you decree that what was said then was wrong.

GLEESON CJ: Justice Kitto may have approached the Tax Act with lower expectations as to the amount of equity to be found there.

MR NETTLE: He dated from an era in which there was perhaps less concern for the taxpayer than there is now.

GUMMOW J: As did this Court in Morebank, very recently and unanimously.

MR NETTLE: Yes, indeed, your Honour. The point is, those considerations of fairness and even play and the rest of it are, of course, relevant with respect to the construction of an Act but not when they have been sought to be dealt with by different means by the legislature itself. The legislature, conscious, in effect, of the uncertainty which might be left, the consequence of section 170(3), provided, itself, a mechanism in section 171. If it were of concern to taxpayers to be left in the dark as to whether or not they were liable, Parliament said "Here is a procedure which we give you under 171 to redress the difficulty".

If one accepts that and, your Honour, it is submitted clearly one should when one has regard to, first of all, it was enacted into the 1936 Act, secondly, it was the subject of consideration in both the Ligertwood and the Asprey Committees, then it is not a correct exercise, it is submitted with respect, of judicial interpretation to say that the Parliament might have achieved this as certainty better by another means, and to reason to get to that by construing the Act in a way which it was not intended to be construed. Sure, one would - - -

KIRBY J: Do you take a technical point that this Court, in Justice Kitto's opinion and that of the other members of the Court, made a holding in dealing with the third year that, technically, is a precedent controlling all other courts on this section which has not materially changed and that it stood for a long while and that the Federal Court disobeyed it and ought not to have?

MR NETTLE: Clearly ought not to have. It's own court, it's own prior Full Courts, had construed it in the way for which we contend, just as this Court had subsequently construed section 170(3) in the way in which we contend.

KIRBY J: And that even if we, looking at the matter with fresh eyes and coming with different techniques, might reach a different view, that it is a holding of the court which has been controlling this area of the law for a long while and ought not to be changed by courts.

MR NETTLE: Exactly so.

GLEESON CJ: Mr Nettle, I am sorry to nag about this point which I do not suggest is decisive at all, but I want to be clear about the way section 170(3) operates in relation to mistakes of law and one thing that is exercising my mind is whether there is only one question we are here concerned with or whether there may be two.

If a taxpayer has made "a full and true disclosure" and if an assessment, whatever that may mean, is then made, the only amendment that can thereafter be made is one to correct an error in calculation or a mistake of fact and even that amendment has to be made within three years. Is that the way it works?

MR NETTLE: No. No, it is not. The way in which it used to work - - -

GLEESON CJ: I am looking at the print of the Act as at 31 December 1985.

MR NETTLE: Yes.

GLEESON CJ: That is the relevant one, I think.

MR NETTLE: Yes. That is correct. What that provides is that there can be amendment within the three years for mistake of fact.

GUMMOW J: What is the relevant year of income here, Mr Nettle?

MR NETTLE: , your Honour.

GLEESON CJ: I thought you told me the relevant Act was 1985.

MR NETTLE: Yes, I did.

GUMMOW J: How can it be?

KIRBY J: We had better have these sections photocopied.

GUMMOW J: I have a reprint 31 December 1986 which is different to the one the Chief Justice is reading from.

MR NETTLE: Your Honour is correct.

GUMMOW J: And I think that section 170(3) was amended by Act 46 of 1986, the commencement date of which I am not sure, by omitting the words "except to correct an error in calculation or mistake of fact" et cetera, which are the very words that we are presently engaged on.

MR NETTLE: Yes, you are right, your Honour.

GLEESON CJ: Now, let us get clear then which is the relevant Act. What is the year of income that we are talking about?

MR NETTLE: 30 June 1987.

GLEESON CJ: So it cannot be the 1985 Act that is relevant.

MR NETTLE: Your Honour is correct.

GUMMOW J: The question is what was the commencement date of Act 46 of 1986 and, in particular, section 20 thereof, which made this amendment?

MR NETTLE: It was certainly in force by the year of income ended 30 June 1987. The exact date I am getting for your Honour but it was in force.

KIRBY J: I must ask that the parties agree on the applicable Act and hand up the terms of the relevant sections to us so that we are not fussing around looking - this is a very difficult enterprise and we have to have your help on this.

CALLINAN J: And all of the relevant sections, too.

MR NETTLE: As best I can say for the instant, and I will check it with absolute clarity a little later, the position was that the amendment had taken effect by the time of this year of income.

GLEESON CJ: Well now, assuming that is right, we can forget about the distinction between mistakes of fact and mistakes of law, but there is still this perhaps unimportant question: it is one thing to ask whether or not that document on page 19 of the appeal book, when issued, completed a process which satisfied the meaning of the word "assessment".

MR NETTLE: Yes.

GLEESON CJ: But there is another question too, is there not, and that is whether or not the time referred to in subsection (3) ever ran.

MR NETTLE: Correct.

GLEESON CJ: Now I know you say they are related questions and the very existence of the second question throws light on the answer to the first question, but, whatever the answer might be to the first question, unless you make the use of section 204, that was earlier referred to, there was no time running.

MR NETTLE: Correct.

KIRBY J: You are not shocked at that proposition at all.

MR NETTLE: We indeed advance it. We have advanced it below and we advance it in the written submissions to the Court here, in the two ways which the Chief Justice has outlined, one informing the meaning of "assessment" and separately, and in any event, starting time running. So yes, we do and have always had and we are not shocked by that, your Honour, nor should one be, for the reason that this was an Act about the imposition of liability and it was only once liability was determined.

KIRBY J: In the milieu of finality. I mean, it depends ultimately on two things: one, the meaning of the Act, which may provide the whole answer, and two, even if you take a view for yourself about the meaning of the Act, your loyalty to the holding, if it is a holding, that has stood for a long time, and that the Full Court of the Federal Court should not purport to disobey, but which can only be altered by this Court or by the Parliament. The second may be your stronger point with me, but others may take a view on the first point.

MR NETTLE: If your Honour please.

HAYNE J: Mr Nettle, as to that question of when the amendment to section 170(3) came into operation, the note in the CCH edition in December 1987 suggests that it applied, that is the amendment, to assessments not being amended assessments made on or after 1 July 1986 in respect of income of the year of income commencing 1 July 1985 or any subsequent year.

MR NETTLE: I thank you, your Honour. I had it too, and it was on that which I based that I thought that was so, but I thought we could just check, a final check. That means, happily, that the extract of section 170, which is set out at appeal book page 189, is correct.

Your Honour, anyway, there is Batagol. I have made reference to both Justice Kitto's judgment and Justice Owen's judgment.

KIRBY J: Who is the third that makes it a holding?

MR NETTLE: Mr Justice Menzies, who was indeed the judge that had stated the case and agreed with both. In the report, Mr Justice Menzies is, at page 254, reported as agreeing with both Justices Kitto and Owen. Now, can I say something briefly about the way in which the two courts below have approached the matter?

GLEESON CJ: You were going to show us something of Justice Aickin?

MR NETTLE: I was, yes. Thank you, your Honour. The Estate of Maurice, which we pass up and copies to our friends, Federal Commissioner of Taxation v The Administrators of the Estate of Edward Maurice 77 ATC 4462. I think it is also in the Australian Law Journal Reports, but we could not get it within the time after it was discovered. It is not in the Commonwealth Law Reports. We pass it up to the Court.

GUMMOW J: What is the first one of the two page?

MR NETTLE: It is the extract from the Ligertwood Report, your Honour.

GUMMOW J: That is a bit of Ligertwood we do not have.

HAYNE J: I do not think it is, Mr Nettle. I do not know what Mr Murphy has given to the clerk, but I do not think it is Ligertwood. You might just ask Mr Murphy what it is he has handed up. It is not something you were referring to.

MR NETTLE: I do not know, your Honour. You should have the Estate of Maurice in 77 ATC.

HAYNE J: Yes, and we have also been given something else, and I do not know what it is.

KIRBY J: I assume that is the Ferguson Report which was referred to earlier, but it does not have the cover. In order to sight a thing we have to have the cover on it.

MR NETTLE: It is in the list of authorities and referred to in full in the written submissions.

KIRBY J: Yes, but does it have the year and all the other things we are supposed to footnote?

MR NETTLE: All that is there. It is there, your Honour.

KIRBY J: It is better to, just as a matter of principle, to have the appropriate cover on these documents.

MR NETTLE: With respect, I could not agree more. I had hoped that it would be, and it is not there.

The passage in Maurice in the judgment of Mr Justice Aickin is at page 4468 in the right column, beginning with the words:

The meaning of the term "assessment" -

It concludes over the page at about point 5 of the page in the left-hand column. In particular in the last four lines there:

thus applicable and produce the result that nothing becomes "payable" until there is a "notice of assessment" -

KIRBY J: You handed, or you cited Trautwein and mentioned Justice Dixon, then you made no reference to the case. Is there anything in that? Did Justice Dixon ever turn his mind to this problem or not?

GUMMOW J: He was counsel in Hoffnung.

MR NETTLE: Trautwein predated this Act, but it was put there to demonstrate to your Honour that as a matter of principle, even without the statutory definition, assessment was conceived as something which imposed a liability. Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 62, the passage is at page 107. Down the bottom of that page, about eight lines up, the words:

The assessment is a computation into which components enter that may be altered or added to. When the proviso speaks of imposing a fresh liability or increasing an existing liability, the word "liability" cannot refer to the indebtedness for tax which an assessment expresses in its final figure.

Here are the important words:

For the original assessment must state an amount of tax as the sum for which the taxpayer is a debtor of the Crown. If this were the liability meant, it might be increased by an alteration or addition, but no alteration or addition -

et cetera:

The word "liability" thus must refer to the constituent elements in the assessment of taxable income, treating them as separate sources of liability.

Now, it is the words or the reference to the original assessment in that passage upon which we place reliance, your Honour. They are set out, as you may recall, at page 8 of our written submission.

If it please the Court, I wanted to say something briefly of the way in which the courts below approached the matter, first by reference to what was said by Justice Spender at first instance - - -

KIRBY J: Just before you come to that and as a last matter on the introductory material, you did mention the Asprey inquiry. Do you have the extract from that or have got the?

MR NETTLE: I do.

KIRBY J: Did they say the same thing as the Ligertwood - - -?

MR NETTLE: No, they do not. Well, in a sense they do, in that they accept or proceed upon the assumption that Batagol had decided that a nil assessment would not be an assessment, but - - -

KIRBY J: Apparently we have that, so we can look at that ourselves.

MR NETTLE: What it did do, your Honour, was to again consider whether there should be a change made in order to treat a nil assessment as an assessment so as to give certainty. It rejected that as a good idea and, instead, proposed a different regime altogether somewhat similar to the Canadian regime where one can get a binding determination as to the amount of losses for the purposes of carry forward in subsequent years. Like the recommendations of the committees which had preceded it, they were not enacted.

KIRBY J: Is that because the Parliament is content, or that the Executive Government or the Treasurer, or the Commissioner, or is that just a matter of speculation?

MR NETTLE: In the case of the last, that is to say, in the case of Asprey, I think one could say with modicum of confidence that it reflects, albeit no more than it reflects, but it reflects the attitude of the Executive Government because one can find a passage in Hansard where they were asked which of those recommendations they intended to adopt and they listed those, excluding, amongst others, the one to which I have just made reference.

GLEESON CJ: It is rather more complicated than that, is it not? Has there not been established in recent years a system of rulings - - -

MR NETTLE: Yes.

GLEESON CJ: - - - which are given now which have certain consequences for people?

MR NETTLE: Both public and private rulings, yes, your Honour.

GUMMOW J: Yes, and one can come along and seek a ruling and it get to court sometimes too.

MR NETTLE: Yes, indeed it does.

GUMMOW J: I sat on one in the Full Court. A ruling in respect of a proposed transaction.

MR NETTLE: Yes, and might I add, again, at the risk of irritation, a binding determination in respect of past under section 171 if you want it.

GUMMOW J: Yes.

MR NETTLE: Justice Spender approached the matter on the basis that there was an amount of tax payable even though it was nil because his Honour determined nil is an amount. He approached the matter, I suppose, linguistically - - -

GLEESON CJ: When did he say it became payable?

MR NETTLE: He took the view also that section 204 could be used in the way in which Justice Merkel held that it could be in order to say that that nil amount being an amount as he construed it mathematically became payable at a date 30 days after the date the communication was served.

GLEESON CJ: You have to do that because what you are directed to by section 170(3) is a date from which the period of three years commences to run.

MR NETTLE: Absolutely right. Even if - as you rightly say, with respect, Chief Justice - even if you say, well it is an assessment even though it has nothing, you still do not get a start date for the limitation period without an amount due and payable. There is no date for it so you have to pretend or to manipulate 204 in a way to provide it.

At page 91 of the appeal book in the judgment of Justice Spender at first instance - - -

CALLINAN J: You know Justice Spender had a first in mathematics, took a first in mathematics.

MR NETTLE: I did not know that, your Honour, but it explains, perhaps, his attraction towards a mathematical approach.

CALLINAN J: Yes.

MR NETTLE: In the middle of that page 91, right in the middle, there is a couple of lines:

In my opinion, to require "the ascertainment of the tax payable" to be positive number is an impermissible gloss on the definition of assessment in s 6(1) -

Then at line 16:

The number zero is the beginning of and hence the first number of, and included in, the domain of natural numbers.

Then reference is made to the VNR Concise Encyclopedia of Mathematics as authority for the proposition set out in italics. Then at page 93 after that, his Honour concluded at lines 11 to 13 that:

Batagol's case does not require the acceptance of the submission made on behalf of the Commissioner -

nor the view of Mr Justice Tadgell in the Supreme Court of Victoria which followed it, nor the decision of Mr Justice Northrop sitting as a member of the Full Court of the Federal Court in Stuart (No 2), that there had to be an amount due and payable. He thought that those judges were incorrect in reaching the view which they had done.

GLEESON CJ: Where does he deal with the question of the date?

MR NETTLE: I am just searching for that desperately, your Honour, having lost the page.

GUMMOW J: Do you accept the proposition at the top of 93, Mr Nettle?

MR NETTLE: The answer to 204 is the bottom of 81 and continuing. Your Honour Justice Gummow at 93 - - -

GUMMOW J: Yes, "The Commissioner is under a duty to make an assessment".

MR NETTLE: He is under a duty to make an assessment.

GUMMOW J: With mandamus operating?

MR NETTLE: The mandamus would not go. This Court has said so, well, in effect, it said so in Industrial Equity.

GUMMOW J: His Honour says it does, that is all, that is what I am asking.

MR NETTLE: I beg your pardon.

GUMMOW J: So, you do not accept what his Honour says at the top of 93?

MR NETTLE: Except in the sense that he is under a duty to make an assessment because section 166 says so, but I do not accept, because it is not the law, that mandamus would go to the Commissioner to issue an assessment.

GUMMOW J: That follows from Industrial Equity?

MR NETTLE: It is submitted, your Honour. That is about as much of 204 as I can find dealt with by his Honour, your Honour.

Now, we wish to submit that first of all his Honour was incorrect to conclude on the basis of that mathematical analysis, if that is what it was, that Batagol did not require there to be an amount of tax payable. Clearly enough, in the passages to which we have just taken the Court, that is exactly what it did require.

Secondly, we wish to say that it was incorrect to, as it were, set aside and as it being at nought the decision of the Full Federal Court in Stuart (No 2) and also the reasoning of Mr Justice Tadgell, albeit as a single judge, in Sheehan v Supreme Court of Victoria. It was wrong, it is submitted, to set its side at nought because they were judges, as it were, loyally following a decision of the leading court of the land.

KIRBY J: But what is the point? Are we really concerned to review what Justice Spender did? I mean, we are here sitting on an appeal from the Full Court of the Federal Court. Why are we troubled about what the single judge did?

MR NETTLE: Only because it seems, with respect, to have informed much of what was done by his Honour Justice Merkel. He too has taken the view that Batagol does not require the conclusion that there be a positive amount tax payable.

KIRBY J: Attack Justice Merkel but I just do not see what the point of going back at whether Justice Spender should have followed the other single judges or followed this Court. That is obvious that he should have followed this Court. The question is what this Court has held and, if it has not held, what it should now hold.

MR NETTLE: I wish to say no more about Mr Justice Spender except that the Full Court did uphold his judgment.

KIRBY J: But for reasons which Justice Merkel gave.

MR NETTLE: At page 198 in the appeal book, he too was satisfied as it would seem as a consequence of very much the same sort of reasoning process that it did not follow from what Justice Kitto had said that a nil assessment could not exist. In particular, in the middle of the page about line 12:

Although it was central to the reasoning of Kitto J that an assessment fixed the legal liability.....his Honour did not decide that:

. a nil assessment is an impossibility;

. an assessment for the purposes of the Act must have a positive amount of taxable income or a positive amount of tax due and payable on the taxable income; or that

. a notice that the taxable income or the tax thereon is nil cannot be an assessment for the purposes of s 170.

With respect, that is exactly what his Honour Justice Kitto did decide at pages 252 and 253 in the report of Batagol, the passages to which we went a little earlier. That is what his Honour said.

HAYNE J: But the order on the case stated, or the answers to the case stated, might also be said, may they not, to make that plain? It is not simply the reasoning of Mr Justice Kitto. The orders made in the case reveal it to be so.

MR NETTLE: Yes, with great respect, that is so although Justice Merkel seeks to deal with that point in a sense by saying that even if there were a holding that the notification in Batagol was not an assessment. That was different because it was just a notification. This one has "assessment" written on it which makes it distinguishable. That is the point, really, your Honour Justice Kirby was adverting to, I think, with respect, earlier on. We would say, with great respect, there is no distinction but, nonetheless, one is perceived by his Honour Justice Merkel.

Importantly in this process of the reasoning of Justice Merkel about what Justice Kitto had held, at lines 19 and 20, at page 198 of the appeal book, what his Honour Justice Merkel does is to say it is all very well to look at the literal meaning of what Justice Kitto said but we are not stuck with the literal meaning.

GLEESON CJ: He has given a purposive construction to the judgment.

MR NETTLE: To the judgment. But, your Honour, one should pause - with respect, this is not a statute. Why would Justice Kitto speak in anything other than literal terms in construing a Tax Act? It is beyond contemplation that he would speak in terms of metaphor when construing mechanical provisions.

GUMMOW J: Yes. The history of not giving a literal interpretation is the perhaps unhappy history of the decisions on 260, which pushed it and shoved it to achieve a result which was obviously not the purpose, so some people think.

MR NETTLE: Ultimately rectified, your Honour.

CALLINAN J: And that he was referring to the literal meaning and adopting it is really clear from 251, I think, of Batagol where Justice Kitto said:

A difficulty in the way of the appellant's argument appears at once upon a reading of s.170(3) itself, for according to the literal meaning of its terms -

MR NETTLE: Exactly, and thereafter continues to adopt it. Your Honour Justice Gummow, yes, there was difficulty created by the literal construction of section 260, but it is a different sort of section. It was a broad anti-avoidance section which - - -

GUMMOW J: It was read down. I have never understood why. It was read down by some illusory hunt for a purpose, which is obviously not its purpose.

KIRBY J: But if you were here arguing that, you would be urging on us a new approach to statutory construction of give it its full meaning, and girt its full purpose. Ignore those silly old decisions of the past with their literalist approach.

MR NETTLE: With great respect, I would urge upon you the views expressed by his Honour Chief Justice Gibbs about the meaning of it after the Barwick Court was over, and that was one based upon a clear construction of the Act; indeed, having regard to the purpose which was to stop blatant avoidance of tax. And I do the same here. I am not speaking in different tongues according to the occasion. I ask you to adopt the literal construction which was adopted in Batagol, not just because it was adopted in Batagol, but because it accords with the purpose decreed by Parliament, that time should not run until an amount of tax had been determined. Put aside, your Honour, how better it might have been done if they had thought about it 60, 70 years ago. The fact of the matter is that, they thought about doing it in the way in which they did. That is, the purpose which a literal construction gives effect to.

GUMMOW J: And of course the amendment by Act 46 of 1986 rather supports you, does it not?

MR NETTLE: It does support me? Yes, it does, as do a few others to which we have made reference, your Honour. May we ask the Court then to look in the appeal book at page 200 where Justice Merkel dealt with what had been said by his Honour Mr Justice Owen in Batagol's Case, between lines 15 and 20. Having set out the relevant passage that it was necessary to create a debt due and payable, his Honour said:

However in my view his Honour's statement should not be taken literally or treated as determinative of this issue. There are several reasons for that conclusion.

The most important of those, with respect, is the second reason:

2. If it was decisive that tax be due and payable under the assessment or that an assessment must have "created a debt due and payable by the taxpayer to the Crown" there was no need for Owen J to differentiate, as he did, between the 1952, 1953 and the 1954 years of income -

But, again, with respect, it is submitted that that is misconceived. His Honour Justice Owen dealt separately with the 1954 year of income because two things had been argued. First, that there had been no ascertainment of an amount of tax payable; and, secondly, and in any event, there had been no notification.

What was argued below - I should say, in Batagol, with respect to the 1954 year, was that there was an ascertainment of tax payable, which was notified in the 1954 year by means of the slip. Nothing which is said by Justice Owen - you might remember that long passage which concludes at the bottom - says the contrary; indeed, what his Honour does is go back after making reference to the refund notice and say, for the reasons already given, that is not enough.

At page 217 in the appeal book, his Honour Justice Merkel, Justice Kirby, deal with the distinction in point of fact between the refund notice here and the refund notice in Batagol's Case. In the middle of the page, line 9:

The Commissioner also contended that the Court should be hesitant -

In the last sentence of that paragraph -

Indeed the distinguishing feature between that determination and the notice in Batagol is that the Commissioner, in his printed form, made it plain to the taxpayer -

I interpolate it in this case -

that the determination is a refund notice on the basis of the assessment of the Commissioner set out in the notice.

GUMMOW J: Is there any stipulation in any regulations as to this printed form?

MR NETTLE: There are not.

GUMMOW J: I thought not.

MR NETTLE: And, as a consequence, the forms have tended to vary wonderfully from time to time.

GUMMOW J: Yes.

MR NETTLE: Now, your Honour, if there be anything in the point of distinction which is sought to be made here, it is submitted that it is not enough, because, as I have attempted to demonstrate already, when one has regard to the refund slip or note or document in Batagol, it did itself, ex facie, make reference to an assessment.

KIRBY J: That is in respect of the third year, is it?

MR NETTLE: No, in Batagol there was only a refund notice for the third year; there were no refund notices in the earlier two years. I am sorry I failed to make that plain. That is why Justice Owen had to deal with two questions, as it were.

If I can backtrack in point of pages, but really to go forward in terms of the analysis, to page 204 of the appeal book, in the passage which begins at that page and continues at page 205 to line 23, his Honour dealt with submissions made to him that this Court had implicitly accepted Batagol as requiring the imposition of a liability to tax in Prestige Motors and in a couple of other cases. He simply put it on the basis that nothing which had been said in those cases was inconsistent with the view that he took, that Batagol did not require a positive amount of tax.

KIRBY J: I looked at Webb because of Justice Hill's expertise in this area and I just do not quite understand - maybe you would prefer to deal with this in reply.

MR NETTLE: No, I will do it now, your Honour, I am obliged to you.

KIRBY J: His Honour does seem at 399 to accept that Batagol means what you say but - - -

MR NETTLE: Mr Justice Hill does?

KIRBY J: Yes.

MR NETTLE: He clearly does. Webb it is absolutely right, for all the reasons that we advance. What Webb decides ultimately is this, that where the Commissioner has issued an assessment of positive taxable income giving rise to positive tax payable, it does not cease to be an assessment by reason only that prepayments already made are brought to account within the same document in order to reduce the amount payable to nil.

KIRBY J: But does not that run counter to your argument that - - -

MR NETTLE: No, it does not. There is a difference - can I ask, before I answer that squarely, to bear in mind a difference between, on the one hand, the establishment of a liability which is then extinguished by the setting off of another - that is on the one hand - and on the other hand, the ascertainment that there is no liability because one has to bring into the equation deductions or rebates.

KIRBY J: I see the way you put it but if you take up the Chief Justice's repeated question, if the end product, the bottom line, is nil, when does the time run from? It just seems that Justice Hill's holding is inconsistent with your theory of the section.

MR NETTLE: No, not so - - -

KIRBY J: I mean, we are not sitting here on appeal in Webb, but I think it is something the respondent has mentioned and I have a lot of respect for Justice Hill's views in this area of the law.

MR NETTLE: Of course. Your Honour, I wish to pursue it with you because it makes the very point for which we contend. If you bear that distinction in mind between, first, a liability, and then its distinguishment as a matter of contractual obligation in debt by reason of a set-off, there is no difficulty. That is what happened in Webb. The Commissioner ascertained that there was positive taxable income. He ascertained as a consequence of that, and he assessed tax and then within the assessment document, he brought to account payments made in advance in order to reduce the liability in debt to zero. But he, nevertheless, within the assessment, ascertained an amount of tax payable.

Put aside the fact that $100,000 had been paid up front in advance by way of payments in anticipation which then had to be brought to account to reduce the liability to nil, the fact was that before that could be done there had to be an ascertainment of tax payable. What followed after that was really no more than an application of Spargo's Case. Now, that is to be distinguished from the sort of case where the Commissioner, in working out whether there is tax payable, in the equation, for example, brings to account a family allowance rebate, like a deduction but different because you cannot carry it forward and it has certain rules about it.

Nonetheless, it goes into the calculation of taxable income. It is taken off by force of the Act from the assessable income in order to reason what they now call the bottom line, of the taxable income. Now, in that sort of case there would have to be a positive amount left. If the effect of the rebates were to reduce the bottom line to nil then there would be no assessment because there would be no taxable income that had been calculated. If rebates or deductions reduce the assessable income to nil, then there is no tax payable and there is no assessment.

On the other hand, if rebates and such like do not reduce it to nil but leave a positive amount against which there is then set off prepayments and such like, there has been an amount of tax assessed as being payable and section 204 can operate according to its terms on that amount of tax payable from the date 30 days after the service of the notice.

So Justice Hill completely, with respect, in accordance with what was said in Batagol, supportive of it and correct - despite what might have been said by the Commissioner to the contrary on other occasions - in his conclusion that the fact that prepayments may be taken off to reduce the obligation in debt to nil, did not make the document cease to be an assessment once it had assessed a positive taxable income.

KIRBY J: It is true that at 399 of that report which is at [1993] FCA 612; 47 FCR 394, his Honour does appear to start his reasoning from an understanding of Batagol which is the one you advance, and then he proceeds to the reasoning which you just described.

MR NETTLE: Yes.

KIRBY J: But I still have a little difficulty with the date upon which the tax became due and payable on the assessment.

MR NETTLE: That is easy, your Honour. Back to section 204, if you will: 204 provides the answer as to when that tax became due and payable. That tax, as assessed, became due and payable 30 days after the issue of the notice of assessment. It is true that almost an instant later there was set off as against it prepayments which reduced it to nil, but for the purposes of beginning time to run against the Commissioner for the purposes of amendment, section 204 provides the answer that that tax became due and payable 30 days after the issue of the notice of assessment.

KIRBY J: There was no appeal in Webb?

MR NETTLE: No, there was no appeal in Webb.

HAYNE J: It is the distinction between "due and payable" and "paid", is it not? The tax may have been paid instantly.

MR NETTLE: Yes, indeed.

HAYNE J: That says nothing about when it was due and payable.

MR NETTLE: That is correct, your Honour. Can I go one step further and say, whilst as a consequence of the set-off or the payment I understand he ceased to be paid or payable, nonetheless, there was for the purposes of starting time to run under section 170(3), a time at which it became payable by reason of section 204(1).

KIRBY J: You said in your written submissions that practice books supported your contentions, but that is answered by the respondent by saying that lots of people have suggested that that is not so, or at least a number of commentators have, and have welcomed with open arms the Full Court's sensible decision in this case.

MR NETTLE: It would not be the first time, your Honour, that commentators have welcomed with open arms decisions the Full Court subsequently reversed. But your Honour is correct, we perhaps do overstate it to say that - - -

GUMMOW J: They welcomed Prestige, too, in the Full Court. I remember well, commentators. It did not last long, it was reversed.

MR NETTLE: A good example. It is true that the respondent says that there are commentators who would suggest the contrary. I take it that what they are talking about is Pagone's article, but if one reads that, it does not suggest to the contrary that matters. It just suggests it is a pretty rum deal for the taxpayer that that should be the way things are and it would be desirable if it were otherwise.

Might I ask your Honours to go to page 215 in the appeal book where there is set out in Justice Merkel's reasons for judgment a passage from the second reading speech of Sir Arthur Fadden at the time of the introduction of the amendment to 204(1) which gave a time when no date was specified in the section.

KIRBY J: Now, this is one thing we can be sure Justice Kitto did not look at.

MR NETTLE: Indeed, we can.

KIRBY J: We can be absolutely sure his Honour would have paid no regard whatever.

MR NETTLE: That is right. The point at the end of the day, whichever way you construe Sir Arthur Fadden's second reading speech goes no more than to what did the Parliament think that section 170(3) meant at the time that they enacted this. There is some light support to be gleaned from a couple of decisions earlier of this Court which we have set out in the written submissions that one is entitled to look at the view taken by Parliament after the event in order to construe what it meant before - - -

KIRBY J: There are lots of recent decisions which say that is a myth and, indeed, there is an old decision of Justice Dixon which says that is should be given no weight.

MR NETTLE: But, in any event, it is there for what it is worth, and if it is worth anything it shows the contrary; it certainly does not show what the appellant contends. Sir Arthur Fadden was directing himself solely to the sort of case with which Justice Hill was concerned in Webb, that is to say, where there had been an amount of tax assessed and then, as a consequence of credits or pre-payments, the tax was paid and in those sorts of cases the Commissioner - being hopefully logical - did not put in a date in the assessment on which one should pay one's money to the Commissioner. The consequence was one was left without a date to determine when time began to run under section 170(3). An amendment was made in order to provide for a case where, for whatever reason, the Commissioner had forgotten or had failed or chose not to put in a date. That is as high as it goes.

KIRBY J: But - I am sorry to go over this, I do want to understand it - if as a result of credits, the Tax, capital T, is reduced to nil, because of credits, then there is no date from which the Tax is due and payable.

MR NETTLE: No, I am sorry, I have not made this clear. When your Honour speaks of credits one needs to be very careful. Some of the provisions in the Act now talk about off-setting credits. They are not credits like pre-payments; they are credits like rebates, which one brings into the equation of the calculation of taxable income. Can I draw a clear distinction. If, after ascertainment of the taxable income, before looking at any payments made on account, the answer is that there is taxable income payable, then, even if pre-payments reduce the debt to nil, there was tax payable, it is just that it has by the institution of set-off been extinguished, it has been paid, the point Justice Hayne, with respect, was making earlier. Nevertheless, because there was tax assessed as being payable, there was a date upon which section 204 can fix and thus section 170(3) begins time to run.

CALLINAN J: So, Mr Nettle, if provisional tax is paid, and it proves to have been more than would have been payable having regard to the income actually earned, then, in the subsequent year there is a nil assessment in respect of the year that has attracted the provisional tax, then that is not an assessment in the meaning of section 170.

MR NETTLE: Exactly so, your Honour, because it is a payment on account rather than something which figures in the ascertainment of taxable income, like a deduction or a family rebate allowance or a foreign income off-setting credit or whatever else it might be.

HAYNE J: I am sorry. The answer did not seem to me to meet the question. I may have slipped in understanding.

MR NETTLE: It would be my fault.

HAYNE J: I thought his Honour was putting to you the case where provisional in year one exceeds the amount of tax that would be paid in year two.

MR NETTLE: Yes.

CALLINAN J: Yes, exactly, after it has been ascertained.

MR NETTLE: I took his Honour to say that. So that there is no bill issued by the Commissioner.

HAYNE J: There is no bill but there is an assessment, is there not, an assessment of - - -

MR NETTLE: Certainly there is an assessment.

HAYNE J: I understood you to be saying there was no assessment in such a case.

MR NETTLE: Your Honour, I am sorry, I misunderstood.

CALLINAN J: The assessment is the provisional tax that is payable but you would say that if the net result after the income is actually ascertained is that no tax is payable, then you do not have an assessment.

MR NETTLE: Provisional tax will form no part in the calculation of whether tax is payable. The taxable income for that year will be calculated by reference to the assessable income and allowable deductions and other such things. Having ascertained the taxable income, then provisional tax is brought to account as payment in advance on the tax so calculated. That will not preclude, as his Honour Justice Hayne says correctly, that will not preclude that document being an assessment.

However, in the case postulated by Justice Kirby, if it were not provisional tax but were, for example, a family allowance rebate which reduced assessable income to nil, then that which issued would not be an assessment because the taxable income, calculated as a consequence of bringing that rebate to account would be zero and therefore there could not be an assessment. So that is why it is of critical importance to bear in mind the distinction between what may loosely be described as payments on account or in advance which do not have an effect upon the question of whether there is taxable income, on the one hand, and on the other, deductions or rebates which do figure in that equation.

HAYNE J: But, just so that there is no doubt about it, because I am by no means certain that the matter is clear beyond doubt, year one, provisional tax is paid of $5,000.

MR NETTLE: Yes.

HAYNE J: Year two, assessment is made and assessing the income it is found that tax of $4,000 is due.

MR NETTLE: Yes.

HAYNE J: But $5,000 provisional has been paid and the happy taxpayer gets $1,000 refund.

MR NETTLE: Clearly an assessment has issued.

CALLINAN J: In year two?

MR NETTLE: Yes.

CALLINAN J: As well as the provisional assessment?

MR NETTLE: As well as the provisional tax assessment, yes, but I mean we are talking about the year two which is important, and the reason it is issued is that, on the example given, tax for year two has been assessed in the amount of $4,000. The $5,000 which is paid on account does not go to eliminate or to reduce the taxable income and thus the amount of tax. What it goes to do is to reduce or to eliminate an obligation by way of debt to the Crown to pay the amount of tax which is found to be due.

CALLINAN J: And you say it is the same if instead of - if the amounts turn out to be equal, it is a precise balance? It does not make any difference.

MR NETTLE: It makes no difference. My learned junior kindly reminds me that the very point I am seeking inexpertly to make is dealt with by his Honour Justice Hill in [1993] FCA 612; 47 FCR 394 at lines C to E on page 401.

Your Honours, again turning back chronologically to page 208 in the appeal book, Justice Merkel make reference to the decision of the Privy Council in Lloyds Bank v Commissioner of Inland Revenue (1991) 2 AC 427 and derived a degree of support from it for his conclusion that Batagol did not require the assessment of a positive amount of tax in order for there to be an assessment. It cannot be denied that the Privy Council did hold what it did hold, and that it was unimpressed by Batagol, but it is to be observed that the reason that it thought Batagol not to be important was because of what it perceived to be significant differences between the legislation in Australia and the legislation in New Zealand.

We, however, with respect, would go a bit further by submitting to this Court that even at the sort of basic level of principle at which the Privy Council was operating rather than the higher level which is created by section 6 of our Act, the Court of Appeal's analysis in New Zealand is superior. We, I think, have not - - -

KIRBY J: So you do not accept that the matter can be distinguished? You just say that the Privy Council got it wrong, and we should prefer the majority in the Court of Appeal in New Zealand and our own authority - - -

MR NETTLE: No, that is not quite it.

KIRBY J: You want it both ways, do you?

MR NETTLE: Of course. I accept that there is a point of distinction to be made. There is a definition in Australia which figured not insignificantly in the judgments of Justices Kitto and Owen, and there is no such definition in New Zealand. The view can be taken, therefore, that because of that distinction the Privy Council was correct in the conclusion which it reached. But, that having been said, the Court of Appeal in New Zealand reached the contrary view on the basis of an application of Batagol, which we submit is not only pretty good, but right.

GLEESON CJ: The Privy Council disposed of Batagol in one brief paragraph on page 437 saying it was not of assistance.

MR NETTLE: Not of assistance because different statutory regime.

KIRBY J: I notice the appellant in that case was Lloyds Bank Export Finance. I have been sometimes said to be critical in these sorts of decisions. I hope not.

MR NETTLE: Your Honours have seen that decision. It talks about what was the Commissioner doing if not making an assessment whilst he was doing the calculations which he did. These are points which are open to be made, with respect, but they do not answer at the end of the day what is it that he ultimately issues. He may be criticised for being slow in issuing an assessment. It may be said that he has dilly-dallied too long, but the question is: did he issue an assessment, namely the ascertainment of tax payable, and the answer, just as much in Lloyds Bank, we would say, as in Batagol, was that he did not.

That is why, if we may, we would wish specifically to draw the Court's attention to what the Court of Appeal said about the matter as a matter of principle in Lloyds Bank Case (1992) NZLR 154. I do not know if your Honours have it. If you do not, we can provide a copy of it.

KIRBY J: If you have a photocopy, it might be handy to have it.

GUMMOW J: It is a judgment of Lord Cooke's, is it not, in the New Zealand Court of Appeal? No, it was Justice Richardson.

MR NETTLE: We would ask the Court to look at page 157 in the report to the last couple of lines, but in particular at page 158 at point 5 just after the citation of the debate where it is said:

We were referred by counsel to numerous decisions in Australia and Canada.

Then there is mention of the broad thrust -

The significant differences in the detailed provisions of the legislation in other jurisdictions make the judgments of marginal relevance.....But there are two well known observations of Isaacs J, both made in relation to the term "assessment" under the Australian statute before it became the subject of any statutory definition there, which are in our view equally applicable under our legislation. The first, is ex parte Hooper, is that an assessment "is an official act or operation; it is the Commissioner's ascertainment, on consideration of all relevant circumstances, including sometimes his own opinion, of the amount of tax chargeable to a given taxpayer". The second, in Hoffnung.....so far as there can be seen, a fixed and certain sum is definitely due, neither more nor less. In short, it ascertains a precise indebtedness of the taxpayer to the Crown".

Also we have not found it necessary to discuss Mr Jenkin's alternative submission.

And the crucial point, at page 159, in the second line, to the end of the paragraph:

is that unless there is taxable income which is payable for the income year there is no assessment. The calculations of the loss to be carried forward constitute a determination of loss -

et cetera. Now, your Honours, we draw attention to that first because, it is submitted, it is superior; and, secondly, it gives a bit of guidance as to the historical context in which the 1936 Act was enacted. It was enacted into a context in which, as a matter of principle, it had already been held by decisions of this Court that assessments required, in order to prove that they exist, the imposition of a positive amount of tax. That is what the Parliament had in mind in 1936 when it enacted section 170(3).

If the Court please, I will not now mention it, but in our written submissions beginning at paragraph 48 and following, we set out what we hope are submissions supportive of our contention that it would be inappropriate for the Court now to change the law as determined by Batagol.

GLEESON CJ: Have there been any decisions of the Federal Court since April 1998 touching on the question of whether an assessment requires a positive amount of tax payable?

MR NETTLE: As far as I know, there has been no decision on section 204 or section 170(3). There is, of course, the decision of the Full Federal Court in CPH, reference to which - - -

GLEESON CJ: That is what I had in mind.

GUMMOW J: I think Mr Russell relies on that.

MR NETTLE: He does, inefficaciously, it is submitted - - -

GUMMOW J: I am not sure whether there is a special leave application pending, you might know whether that is so, or those instructing you will.

MR NETTLE: I do not think that there is.

GLEESON CJ: Do you have the reference to that handy?

MR NETTLE: Yes, I do. I withdraw that. Not so far has there been an application advanced for special leave. Yes, your Honour, I do.

GLEESON CJ: I have it. It is (1999) FCA 1229.

MR NETTLE: Thank you. Your Honour, I believe, probably have copies provided by our learned friends of the unreported decision. Indeed you do, I see.

GLEESON CJ: Thank you.

CALLINAN J: Mr Nettle, it has nothing to do with how we decide this case, but just out of curiosity and you may not be able to answer this, but can you tell me whether the Commissioner, since the Full Federal Court decision, has changed the form of notice that he customarily issues if there is a nil assessment of the kind here, or a nil notification, if you like?

MR NETTLE: Your Honour, I can only give you some limited information about that albeit that we sought to ascertain what the position is. I think that the answer is yes. Whether that change has been implemented universally on all occasions, I cannot say nor can I find out.

CALLINAN J: It does not matter. Some might think it highly desirable, that is all.

MR NETTLE: Clearly it is, for the reasons given earlier, and I think the answer is that, by and large, what might be described as the embarrassing inclusions in the refund notice in this case, are no longer there. But the thing is just so vast it cannot be excluded as a possibility that some have issued in that form since the decision.

CALLINAN J: Thank you.

GLEESON CJ: Thank you. Judging from the cover sheet in this CPH Case, there was not any reference in it to the case with which we are concerned.

MR NETTLE: No, there was not; what there was reference to was section 79D of the Act and the question of whether a nil amount can be an amount. If your Honours turn in the unreported decision - - -

GLEESON CJ: What paragraph number?

MR NETTLE: It does not have numbers on it.

GLEESON CJ: Yes, it does, in the left-hand side. This is our media neutral citation system that you are looking at here.

HAYNE J: Which makes life so much easier for all concerned, Mr Nettle.

MR NETTLE: Paragraphs 64 and 65 are the ones in the media neutral version to which we make reference, your Honour. The court was dealing with the question of whether there had to be a positive amount of foreign-sourced income, for the purposes of section 79D, in order to limit the deductions which could be claimed as against it. As you know, section 79D, in broad terms, limits the amount of deductions one can claim from foreign-sourced income to the amount of the foreign-sourced income. What was argued below by the taxpayer was that, if there were not any foreign-sourced income, there was no limitation.

GLEESON CJ: The taxpayer did not rely on Batagol in support of that proposition.

MR NETTLE: No, he did not; what was argued by the Commissioner and accepted was that in the way in which "amount" is used in that case, it was a descriptive of a category or class of income, so that, even if there were none, one could say that, nevertheless, deductions of the kind prescribed were limited, so that, because there was none, there were no deductions, and that is all it decided.

Now, that is what is sought to be put against the Commissioner as contrary to the conclusion expressed in Batagol that there cannot be a nil amount or there cannot be an assessment where there is no amount. In our submission, it goes nowhere. It is to do with something which is completely different and rightly did the Full Court decide that. The word "amount" in section 79D was to be interpreted as it was in that case. That is.....with the regime.

KIRBY J: Is the decision under appeal reported?

MR NETTLE: I do not believe so, your Honour.

GUMMOW J: It was only decided recently.

MR NETTLE: I am sorry, that is wrong. I think it is reported and I think that I found it in a Federal Court Report.

GUMMOW J: It is in 153 ALR 300.

MR NETTLE: I have said that there is nothing that we wish to say about the reasons advanced as to why the Court should not change the law but, if we are permitted to do so in the time available, we would make a couple of observations about the submissions made by the respondent.

KIRBY J: Is not that better to do in reply, otherwise you might double up?

MR NETTLE: If it suits your Honours, certainly.

KIRBY J: I mean, it is a matter for you but I think doubling up should be discouraged.

MR NETTLE: Thank you. In that case I will do just one thing and it is not to do with - - -

KIRBY J: I speak only for myself about these matters, but it is Friday afternoon.

MR NETTLE: I am happy to take your Honour's lead for that reason, amongst others. Canadian authorities probably do not mean a great deal but, nonetheless, there are a number of decisions, some of which are cited in our written submissions at the level of the Supreme Court of Canada and in subsequent Federal Court decisions which have it that, as a matter of principle, an assessment cannot be an assessment if it is a nil assessment.

KIRBY J: That seems to have changed in Canada according to the respondent.

MR NETTLE: It has changed for the reasons which are very helpfully set out in Mr Saltman's article, to which we make reference in our list of authorities under section B. If your Honours do not have a copy of it, we would be pleased to hand one up. What it explains is that because of the fact that nil assessments were treated as nil assessments, and then there was a decision the other way so that they were treated as assessments, and then there was a subsequent succession of cases which tended largely to favour the view that they were not assessments, there was the uncertainty of the kind to which your Honour Justice Kirby referred before.

There was then brought into existence a very detailed new statutory regime which permitted taxpayers to lodge a request for a definitive determination of losses, so that they could have it sorted out there and then, and carried forward in subsequent years.

What one is left with then is, if it matters, a Canadian view which, on majority, and informed by a Supreme Court decision, tends to be in accordance with what this Court has said about it being necessary to have a positive amount of tax before you can have an assessment, and a recognition by the Canadian legislature that the best way to deal with it is in terms of a detailed legislative regime, rather than just reinterpreting the Act, so as to do something along those lines. We would urge that consideration upon the Court if it ever comes to the Court to consider whether it should change the law as articulated in Batagol. If the Court please.

GLEESON CJ: Thank you. Yes, Mr Russell.

MR RUSSELL: May it please the Court, I would open by addressing five questions which came from various members of the Bench to our learned friends, but first take the Court to the document here in issue which, as your Honours would be aware, is at page 19 of the appeal book because it was said that this was to a large extent a similar document to the document which issued in Batagol.

In the first instance, your Honours will see at the top of the printed figures and after the address of the taxpayer "Details of your assessment", so that is not something that just appeared in the later pages, it was right at the top of the document. Rather more importantly, the fact that there had in fact been an ascertainment of the amount of taxable income of the taxpayer also appears on the face of the document. Your Honours will see at line 20, as part of the averaging calculation, a list of the taxable incomes for each of the income years from 1983 to 1987 and - - -

KIRBY J: I can see the way you are going to use this forensically, going through an underlying assessment everywhere in this form - - -

MR RUSSELL: No, I am not proposing to do that at all, your Honour.

KIRBY J: - - - but these are the actions of the Executive Government. Our duty is to the words of the Parliament.

MR RUSSELL: Indeed, your Honour. I was simply seeking to make the point because we will develop it in our analysis of Batagol that on this occasion it can be shown on the face of the document that the Commissioner had actually ascertained the amount of Mrs Ryan's taxable income, because our submission is that the key to understanding the Court's decision in Batagol was that it was stated in the case stated that the Commissioner had not in fact done that in relation to Mr Batagol.

GLEESON CJ: You are pushing at an open door, are you not? There is not any dispute that the Commissioner in the present case ascertained the amount of the taxable income.

MR RUSSELL: But, your Honour, in our respectful submission, it is clear in Batagol that the Commissioner had not ascertained - - -

GLEESON CJ: You may be right about that but you do not need to persuade us, do you, that in the present case the Commissioner ascertained the amount of taxable income?

MR RUSSELL: The concessions that are made by our learned friend are not in precisely those terms and that is the only point I was seeking to make there, your Honour. The second question was a question that came from your Honour the Chief Justice and supplemented a later question by your Honour Justice Gummow about the effect of Act 46 of 1986 and the position in respect of mistakes of law prior to the amendment made in 1986. Mistakes of law were also the subject of a protective regime. That was contained in the former subsection 170(2). Those provisions are set out on page 60 of the appeal book. So that, it was not the position, as we understood our learned friends to submit, that there was no cut-off date in relation to mistakes of law and that was part of the Parliament's balancing process. In fact, mistake - - -

HAYNE J: What date do you speak of? Are you speaking of the regime in place at the time of the tax year with which we are concerned, or are you speaking of some earlier year?

MR RUSSELL: Both, your Honour. From 1936 onwards there was a protective regime in relation to other mistakes and the terms of that are set out at pages 60 and 61 of the appeal book. So, that there was always a provision which prevented the Commissioner from going back, except, if our learned friend's submissions are correct, in respect of those cases where the amount of tax payable was less than $1.

The third question to which we would briefly take your Honours is the question of the framework or the circumstances that surrounded the enactment of the legislation initially, because, in our respectful submission, it is not necessary for the Court to guess at Parliament's understanding of the term "assessment". That matter was in fact dealt with in the legislation itself. Your Honours have it in our bundle of cases, document 36, which we have called Explanatory Memorandum to the Income Tax Assessment Bill 1936. Because section 171 has taken such a significant place - - -

GUMMOW J: I am not sure where all this goes, Mr Russell. The definition of "assessment" was substituted in 1984. Was there a definition there in section 6 at the outset?

MR RUSSELL: Yes, and it has always been the ascertainment of the taxable income and the amount payable thereon.

GUMMOW J: Yes.

But what our learned friends have said is that there is no indication that Parliament understood an assessment to be possible in circumstances where there was no amount of tax payable and that, if there was uncertainty created by the terms of section 170(3), then that could be resolved by section 171, which was there for that purpose. In our respectful submission, the explanatory materials for section 171 or section 172, in fact, as it was in the Bill, make it very clear that Parliament did contemplate assessments being made when there was no taxable income or, indeed, when there was a loss.

The explanatory memorandum is, as I have said, with your Honours, and what is said about section 171 or clause 172, as it then was, is this:

In practice, the Department concentrates on the examination and assessment of returns which disclose a taxable income, and the revision of non-taxable returns is, in many cases, deferred. As a result, assessments -

not refund notices or something else -

are at times issued in respect of these returns at a much later date. The final examination of all non-taxable returns concurrently with taxable returns would result in a considerable increase in departmental expenditure. Clause 172 will, however, cover special cases, and will permit of the fixing of a time limit for the issue of any assessment after the date of the taxpayer's request.

So that, in our respectful submission, Parliament plainly intended that assessments, properly so-called, would issue in respect of all taxpayers.

GUMMOW J: The note is pertinent to what is now section 171, is it not?

MR NETTLE: Section 171, your Honour, yes, and your Honour will recall that our learned friend submitted that section 171 provided the certainty that taxpayers might seek if section 170 did not provide it and went on to say, in the background of 1936, Parliament clearly understood that a process of assessment necessarily required a positive amount of tax payable. In the very Bill itself, it refers to assessments in circumstances where there would be no such amount.

GLEESON CJ: Mr Russell, how long do you expect to require to complete your submissions?

MR RUSSELL: I do not expect to be able to do it before lunch, your Honour.

GLEESON CJ: No, I was not inviting that, but I was trying to work out what time we should resume after lunch.

MR RUSSELL: That, of course, is in your Honour's hands, but an hour and a half. Certainly no more than two hours, your Honour.

GLEESON CJ: All right, well, we will resume at 2.00 pm.

MR RUSSELL: Thank you, your Honour.

AT 12.48 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.02 PM:

GLEESON CJ: Yes, Mr Russell.

MR RUSSELL: If the Court pleases, before the luncheon adjournment I was addressing some questions which had been raised by the Bench to our learned friends, and I was dealing with section 171 and the notes to that section which, in our respectful submission, showed that Parliament did not intend this notion that there could be an assessment if the taxpayer had taxable income and in respect of which an amount of tax was payable, but not otherwise. We say that is shown by, amongst other things, the note to section 171.

Your Honour Justice Kirby mentioned the issue of certainty. We have, in the bundle of material we have provided to the Court in folio 35, set out the report of the Ferguson Royal Commission on this issue. I will not take the Court to it. The matters are dealt with in principle in paragraphs 966 to 972. Beyond saying that there is no indication in the report of the Royal Commission that there is an appropriate distinction to be made as to those who need certainty, and between those who have a tax liability of $1 or more, on the one hand - - -

KIRBY J: Do you not really have to start, in the logic of your argument, with Justice Kitto's reasoning, because unless you can knock that away as a binding holding of the Court, then it was the duty of the Full Court of the Federal Court to give effect to it, and we would not disturb it except for very good reasons after such a long time, and amendments of the Act in the meantime, and respect for authority. If we do not respect those who came before us, we will not, ourselves, be respected.

MR RUSSELL: That is so, your Honour, and it was to precisely that question that I was coming because that was a question which your Honour had asked: what was, in effect, the holding in Batagol and also, his Honour Justice Hayne asked the same question in the context of what does the answer to the case stated tell us.

Your Honour, in our respectful submission, the key to the analysis of Batagol starts at page 245 of the report. It sets out the processes engaged in by the Commissioner in that case and, as appears from the Ligertwood Committee, in fact, by the Commissioner then and thereafter. Perhaps starting at the second-last line on page 244:

The normal processes, both physical and mental, involved in forming conclusions on the part of the appropriate officers of the Commissioner as to whether or not there was a taxable income and tax payable thereon by a taxpayer were, in the relevant years, as follows:-(i) An assessor ascertains whether or not there is a taxable income of a sufficient amount to attract tax. (ii) If satisfied that there is not a taxable income of sufficient amount to attract tax -

then certain things are done. Then about halfway down the page:

(iii) If not so satisfied the assessor ascertains the amount of taxable income and proceeds as follows -

and then itemises another set of steps.

HAYNE J: But all of this owes its origin to the first two years of income under consideration in Batalog, does it not? Because, there, there was no document issuing out of the Commissioner's hand, was there?

MR RUSSELL: That is right, your Honour.

HAYNE J: But the contention was that the physical and mental processes undertaken within the office constituted an assessment, and that was rejected.

MR RUSSELL: And, in our respectful submission, your Honour, rightly so; and rightly so because the process that was undergone, because that is set out then in respect of each of the years later in the case stated - in relation to what happened in 1952, it is set out at page 246; in relation to 1953, at the bottom of page 246 and the top of page 247; and in relation to 1954, about the third of the way down page 247. What emerges - - -

KIRBY J: 1954 was a different year, was it not? Was that not a year in which some form of notice or slip was sent to the taxpayer?

MR RUSSELL: A slip was sent, the refund notice, your Honour.

KIRBY J: Therefore, whatever Justice Kitto was grappling with had to deal, not just with the case of some internal notation.

MR RUSSELL: That is right.

KIRBY J: And it is pretty easy to see why that might fail as an assessment, but with the case where the notice had actually given.

MR RUSSELL: Yes. In our respectful submission, your Honour, the key to it is the distinction between what I might loosely call category two returns and category three returns, dealing with the categories that are set out on page 245. Because there was a preliminary process that was directed to deciding, in effect, at the end of the day are we likely to get any tax out of this. If the decision was that they would, then the formal process of assessment was undertaken. That was category three. There was an actual ascertainment of the amount of taxable income followed by a series of notifications. And that was undertaken if there was not satisfaction that the return would produce no taxable income. So in category three there would presumably have been some returns on which simply the matter needed to be further investigated before a definitive opinion could be formed.

So, in effect, the first category of returns were those returns which plainly were going to produce no tax and there, as appears, both in terms of the usual practice, as set out at page 245, and in terms of the actual practice that is set out in relation to each of the returns submitted by the taxpayer, there was no attempt to ascertain the taxpayer's taxable income.

HAYNE J: But the category two cases, as you refer to them, include those where refund advices went out.

MR RUSSELL: Yes, so that the - - -

HAYNE J: How can you do the amount of the refund without working it out?

MR RUSSELL: Because, your Honour, your Honour would know the other amounts to be taken into account and could simply say either there was a loss or there would be a taxable income of below the threshold amount and we do not need to inquire any further. We do not need to ascertain the taxable income because we do not need to know it. It is sufficient to know that it falls below the threshold amount.

HAYNE J: Do you accept that Batagol held, as a matter of decision, that the refund slip, so I may describe it, was not an assessment?

MR RUSSELL: That is right, your Honour, yes.

HAYNE J: Does your argument then depend upon distinguishing between the form of that document and the form of the document that issued here?

MR RUSSELL: No, your Honour, it depends upon identifying the process that occurred here as opposed to the process which occurred in Batagol. It is authority, I think, and common ground before the Court, that an assessment is not a piece of paper but an official act or operation. The act or operation must involve, as section 6 of the Act says, the ascertainment of the amount of the taxable income of the taxpayer and of the amount of tax payable thereon.

We say that it is plain in the report on Batagol that that simply did not occur in Batagol because there was no attempt to ascertain the amount of taxable income. It simply did not happen. Because the person who did the preliminary check in the office was satisfied that there would be no taxable income at the end of the day, there was no further investigation of the return. It was only in those cases where that person was not satisfied that there was then the ascertainment of the amount of taxable income, and that were the facts as stated before the court. So that we would say that Batagol was an entirely correct result. The processes required by section 6 of the Act were not engaged in. We say that on the facts of this case, the processes required by the Act were engaged in. There was an ascertainment of the precise amount of taxable income of the taxpayer; there was an ascertainment of the precise amount of tax payable thereon; and there was then a notification of those two pieces of information to the taxpayer.

GLEESON CJ: We understand you do not quarrel with the decision in Batagol, but do you say that the reasons that were given for that decision were wrong?

MR RUSSELL: Your Honour, we say that the reasons given have to be seen in their context, and seen in their context when the Court talks about the necessity to engage in a threefold process which involves fixing the amount of liability. The Court is saying, but saying in the context where there was no notification of any amount, that when the Court said "a positive amount of tax payable", the Court was not addressing the question whether it had to be one dollar or more, but it was addressing the question whether there had been a final determination of all of the matters that needed to be determined in order to properly assess the taxpayer and a communication of that.

GLEESON CJ: Is your submission that Mr Justice Kitto's explanation of his reasons for decision was wrong or that it was loosely expressed?

MR RUSSELL: Loosely expressed, your Honour. One hesitates to say that in relation to Justice Kitto, obviously, your Honour, but there are observations in the section which, it seemed to us, express precisely the idea which his Honour was trying to get at, and there are other expressions which are concerned about the facts of that case. So, for example, at page 253, his Honour says:

at least shows that "assessment" is regarded as a process producing a legal effect.

He says, a little further down the paragraph, there must be "a legal obligation". To us, in our respectful submission, a legal fixing of the rights of the parties would relevantly be a legal obligation. So, he then goes on to say:

any amendment of it must depend upon a positive grant of power to alter that obligation.

He then goes on to refer to the necessity that there be something which is "decisive of liability". We do not quarrel with any of that, and his final conclusion appears at the bottom of page 253:

If this be correct, it follows that until a notice of assessment has been served on the taxpayer the Commissioner and his officers neither need statutory authority to go back over any or all of the steps that have been taken in the office, and correct anything they consider to be erroneous -

GLEESON CJ: What about what he says at the middle of page 252 where he says:

the completion of the process -

of assessment involves a step that has the:

consequence that a specified amount of money will become due and payable -

MR RUSSELL: Your Honour, in our respectful submission, that has to be understood in the context that zero is a specified sum of money.

GLEESON CJ: Section 170(3) requires it to be payable on a date. On what date is nil amount payable?

MR RUSSELL: We freely concede that this was the final of the questions I was going to come to. It is not our case that we can succeed on section 170(3) without reference to section 204. We do say that that section, which was not in any way considered by the Court in Batagol beyond a mention of its operation so far as fixing a date where the Commissioner has not specified one in the notice occurred, we say that section 204 provides the answer that subsection 170(3) requires. If I could, perhaps, because this was a matter of questioning from Justice Callinan to our learned friends - - -

GUMMOW J: I am not sure of what you say about 204 not being in the mind of the Court in Batagol. In the middle of 253 Sir Frank Kitto obviously says he is not going to refer in detail to the provisions.

MR RUSSELL: His Honour refers to it explicitly at the top of page 252, your Honour, line 3.

GUMMOW J: Yes, that is right.

MR RUSSELL: But in that respect only in relation to one of the possible operations of the section. The section was amended in 1954 and we propose to take your Honours to the second reading speech of the Treasurer because - - -

GUMMOW J: And as Justice Hayne reminds me, Justice Owen too, in the middle of 254.

MR RUSSELL: Yes, but, your Honour, in that regard it is a reference to its operation as to fixing a date. Although there is a reference to the wording, no dates are specified on the 30th day after service of the notice. There is no consideration of, we say, having regard to the parliamentary debates, the explicit intention of those added words and the intention of those added words was not, as appears from the Treasurer's second reading speech, simply to deal with what happened if the Commissioner forgot to put in the day.

In fact, the amending legislation authorised for the first time the omission of the date because, as was recognised by the Parliament, there would be times when amounts did not become payable and then provided a notional due date for payment.

HAYNE J: The expression "notional due date" is one that I find rather troublesome. At some point in your submissions I would be much assisted by you working, I regret to say, laboriously through 204 and its words in connection with section 170(3) and its words to tell me how the words actually apply and operate, without reference to notions of notional date which, as I say, I find troublesome.

MR RUSSELL: Your Honour, I will have to come back to that.

HAYNE J: Yes.

MR RUSSELL: But, in our respectful submission - it may be convenient, in fact, to deal with it now, your Honour. The position that Parliament had to address in 1954 was threefold. The first was that during the Second World War the system of provisional tax and pay-as-you-earn taxation had been introduced. The consequence was, for the first time, that the Commissioner actually held substantial sums of money on behalf of taxpayers prior to their liability being determined as a result of assessment.

The second point from the commencement of the Act, by reason of section 46, there was an inter-corporate dividend rebate. Rebates were mentioned and credits were mentioned in the discussions between our learned friends and Justice Callinan but, in our respectful submission, there is an important distinction that has to be drawn between the two. A credit can be available in the way that was instanced by Sir Arthur Fadden in his second reading speech because the Commissioner holds money on behalf of the taxpayer because of prior payment but a credit can also arise under the Act and could arise under the Act from 1954 because of amendments made to the Income Tax (International Agreements) Act because of payment of foreign tax where, although the Commissioner held no money on account of the taxpayer, the Commissioner was nonetheless required to grant a credit to the taxpayer for the tax paid abroad on income with foreign source. The Commissioner was also required to grant a rebate under section 46 of the Act as then introduced and in various forms ever since in respect of an inter-corporate - - -

GUMMOW J: When do you say 46 came in?

MR RUSSELL: Section 46 was in the Act from its inception in 1936.

GUMMOW J: That is what I thought.

MR RUSSELL: So, that was a problem from day one, what was the position with a taxpayer that had a substantial taxable income but on which no tax was payable because the whole of the income was a dividend from a wholly owned subsidiary because there would be an entitlement to a 100 per cent rebate of tax payable. In addition, of course, now there are further types of credits that can be available to taxpayers, for example, imputation credits. These amounts are assessed by the Commissioner, not as amounts which he is already holding on account of the taxpayer, because they are not, but as a reduction from the total amount of tax payable.

So that, if our learned friend's submission is right, the taxpayer who had, well, prior to 1954 and on the assumption that Webb's Case - there seems to be an assumption that Webb's Case would not deal with the problem - a taxpayer who had taxable income but had no tax payable on because they were below the threshold; or because the Commissioner already had money on account of the tax paid by somebody else; or because of an intercorporate rebate; or because of a foreign tax credit; had no protection. That was the situation which the Parliament sought to redress in 1954.

It is true that the two instances given in the Treasurer's Second Reading Speech were instances of circumstances in which money had been received by the Commissioner on account of the taxpayer but they were by no means, even at that time, the only situation in which a taxpayer could have a taxable income but no liability to tax. In our respectful submission, and I accept this does not answer the question which your Honour Justice Hayne has put to me, the Parliament was told that this provision would remedy the problem that was acknowledged to exist in those situations that the certainty for which the Parliament had legislated in subsection 170(3) was not available. What was said by the Treasurer was this:

By reason of credits for provisional tax paid or for tax instalments deducted from earnings, many notices of assessment show, instead of an amount payable by the taxpayer, a refund due to him. As it is inappropriate in such instances to specify in the notice a due date for payment, the proposed amendment will authorize the omission of this particular from the notice. However, the omission would affect the operation of those provisions of the principal act that authorize the amendment of assessments within three years - or, in some instances, six years - from the date on which the tax became due and payable under the assessment. I refer to both amendments that have the effect of increasing the tax.....and those that have the effect of reducing that tax. If no date were specified.....there would be no commencing point for the period within which the assessment might be amended.

Which is the very question - problem that your Honour the Chief Justice has posed -

It is proposed, therefore, that, where no date is specified.....the thirtieth day after service of the notice shall be a notional due date for payment, from which the period for amendment of the assessment may be reckoned. This amendment will effect a saving in administration without inconvenience or detriment to taxpayers.

Effectively, we would say that given that we know that the Parliament was seized of the problem and was told by the Treasurer of the day that the problem would be fixed by this amendment, what the Court is being asked by our learned friends to do is to say notwithstanding that, the section did not achieve it.

GLEESON CJ: The section being section 204.

MR RUSSELL: Yes, your Honour, and we have to concede that that is the law. Parliament often intends things which it does not achieve.

GLEESON CJ: So the issue is not so much an issue of construction of section 170(3) as one of section 204?

MR RUSSELL: Yes, your Honour, or more particularly, the capacity of section 204 to provide the information that section 170(3) requires.

GLEESON CJ: What section 204 appears to be all about is a case where income tax is assessed to be due and payable.

MR RUSSELL: Yes. One might say, parenthetically, your Honour, any income tax.

GLEESON CJ: Yes.

MR RUSSELL: Yes, on its face, that is what it says.

GUMMOW J: Thereby triggering 208.

MR RUSSELL: Yes, your Honour. It certainly has that effect and we do not - - -

GUMMOW J: In other words, making a liability certain and recoverable.

MR RUSSELL: Yes, your Honour, but we say it also has the effect that no amount of income tax is specified as being payable because no date would be specified because there may be none assessed. If no date is specified, then there is a deemed date of liability created by the words, "thirtieth day after the service of the notice". So, in other words, we say it has an additional operation and the additional operation for which we contend is precisely the additional operation which a Parliament was told it would have.

GLEESON CJ: Is that the essence of the reasoning of Justice Merkel?

MR RUSSELL: His Honour would appear to have said two things. The first is that - particularly as I understand it before Justice Spender, although I did not appear - the argument that was put was very much the proposition that there could never be an nil assessment, and that being so, one never got to the issue of section 170(3) or section 204, and Justice Merkel's reasoning addresses that issue, and I will come to that because obviously as your Honour the Chief Justice pointed out in a question to our learned friends this morning, if we lose on that point, then the proper construction of section 170 never arises. Justice Merkel had to deal at some length with that argument, but, yes, indeed, he dealt with section 204. He dealt with it, perhaps, at the top of page 218 of the appeal book, your Honour:

For these reasons I am satisfied that under ss 170(3) and 204(1) the date upon which tax "became due and payable" is a reference to the date specified in the notice of assessment for the payment of tax in accordance with s 204(2) or, if no date is specified because no tax is assessed or payable, to the notional - - -

GUMMOW J: What page are you reading from, Mr Russell?

MR RUSSELL: I am sorry, page 218 of the appeal book at the top, your Honour.

GUMMOW J: Page 218, thank you.

MR RUSSELL: Your Honour, if Justice Merkel is not right there, then, effectively, the amendment that was made in 1954 to section 204 had no effect at all in respect of section 170(3). It would be read solely as relating to the date on which tax became payable. It could not operate at all in respect of 170(3).

KIRBY J: What were the provisions of 204 before the amendment?

MR RUSSELL: Your Honour, we have given you, in our papers, the text of the amendment. They are at page 21 of our outline, your Honour. We have also handed up to the Court the text of that Bill. It was amended by section 11 of the Income Tax and Social Services Contribution Assessment Act which is item 33 in the bundle of material we have put before the Court. The Court will see that section 11 is the relevant section. It simply added the words "or, if no date is so specified, on the thirtieth day after the service of the notice", so that if the amendment fails to achieve what we have submitted achieved, then it wholly failed to achieved the intentions put to the Parliament by its originator.

HAYNE J: As I say, for me, a problem lies in how you say the words work. You start with 170(3):

the expiration of 3 years from the date upon which the tax became due and payable -

You say we go to 204 to identify the relevant date. How do the words of 204 do that in a case where no tax is due and payable?

MR RUSSELL: They do it, your Honour, by providing a notional date for payment of an amount which is not owning. They were there to deal specifically with the situation where an amount was not owing. The alternative view is to regard them simply as solving the problem of what happens if the Commissioner fails in his duty to specify a due date for payment.

GUMMOW J: Yes.

MR RUSSELL: And, effectively, that is the option the Court has to - - -

GUMMOW J: Because the mischief would have been that 208 would not have operated to create the debt because you had to have something become due and payable, when it becomes due and payable, for 208, and you found that out, I think, only from 204?

MR RUSSELL: But, your Honour, the mischief as actually identified in the parliamentary debate was that there was something in the legislation which required the Commissioner to state a date for payment when, in fact, nothing was due. So the purpose of the legislation was to say to the Commissioner who, up until then, presumably had in fact been stating a date due for payment when there was no monies due, to authorise him to omit that particular from the assessment. And having authorised him to omit that particular, then to provide a notional date so that section 170(3) could continue to operate. That was the mischief as actually identified to the Parliament.

KIRBY J: Some textural support for you may come from the word "any", because it could have said "the income tax assessed", which would have confirmed that there was to be an assessment which contemplated actual income tax payable, but it said "any" and therefore contemplates the income tax assessed, if any.

MR RUSSELL: Yes.

GLEESON CJ: But it does not contemplate that no amount may be payable, does it? It is all about when tax becomes payable. That is the subject matter of the section.

MR RUSSELL: Your Honour, if one were uninformed by knowledge of the parliamentary history, that might well be so. That is undoubtedly the sense, for instance, in which Sir Frank Kitto referred to it in Batagol. But - - -

GLEESON CJ: You say Sir Frank Kitto misunderstood it?

MR RUSSELL: No, your Honour.

GLEESON CJ: Well, what are you - - -

MR RUSSELL: It plainly has that effect.

GLEESON CJ: What are the words in section 204 that address a situation where no tax is payable?

MR RUSSELL: Only, your Honour, the reference to "any", and - - -

GLEESON CJ: But it is a reference to "any" in the phrase "any income tax assessed shall be due and payable".

MR RUSSELL: Yes, but having said "shall be due and payable", then goes on to say what happens if the thing that makes it due and payable does not happen. We do not contend it is a model of the draftsman's art, your Honour, but the court does know what it was intended to achieve.

KIRBY J: Yes, but you see, once you are in that realm and you are accepting that this is a matter upon which minds can differ, just as Mr Webb in the first attempt at this differed, then you are in the realm of saying minds can differ, but we have had very distinguished minds in this Court have given it a construction and given reasons for it, and it has stood for a very long time, and why should we, as courts, be revisiting it now. If minds can differ, stick with the last.

MR RUSSELL: Your Honour, it seems fairly clear that section 212, if the report is accurate, then this operation of section 204 was not put to the Court.

GLEESON CJ: You mean Batagol was decided per incuriam?

MR RUSSELL: Your Honour is trying, with respect, to put words into my mouth.

KIRBY J: That is the third - - -

GLEESON CJ: No, the argument that was overlooked by Dr Coppel and Mr Aickin and Mr Stephen.

MR RUSSELL: One can only make a judgment on the basis of the arguments that are listed in the report. But, the report does not suggest that it was in any way submitted to the Court that section 204 had the operation of providing a missing date in circumstances where tax was not payable, and filling the lacuna that would be thought to exist in relation to section 170(3).

KIRBY J: I have made a note of your answer to the first of those three questions by the Chief Justice, that Kitto J loosely expressed, with two exclamation marks, and my hands trembling as I took the note down.

MR RUSSELL: Your Honour, not loosely expressed. Perhaps not fully exhaustively expressed. We do not cavil at all with what his Honour has said. The section plainly has that operation, but we submit, first, that parliamentary materials show that it has an additional one in relation to section 170(3), and that in those circumstances the Court, in the interests of the overall scheme of the Act, would be reluctant to say that the intended operation of the final words of section 204 do not exist. It was not necessary to put any of this to the Court because, on the material before the court, the taxpayer was either entitled to say, "Gotchya", having been served with a notice in relation to a process which was, on any view, incomplete. What his Honour was concerned to do was to emphasise the integrity of the process and the three elements of it, and to point out that in that case they simply had not occurred.

HAYNE J: Just as to the contention that the process was incomplete, at least at first blush that seems to me to stand in stark contrast with the description of facts given at 247.

MR RUSSELL: I do not have it in front of me, but I assume that is the statement which says that all that had to be done in terms of the department's internal processes had been done.

HAYNE J: In the second year, for example, the determination that the amount disclosed in the return otherwise would be taxable income, et cetera, and the like, and that by application of section 80 there was a set off of losses, therefore nothing. It does not look a terribly incomplete process, does it? What is incomplete?

MR RUSSELL: There was no attempt to determine the taxable income of the taxpayer, your Honour.

HAYNE J: I must say to you that is not how I read 247, and the description of facts there described.

MR RUSSELL: At page 247:

He formed the opinion that by reason of the accrued losses carried forward as noted in the loss sheet the taxpayer was not assessable to tax upon the income stated in such return although it disclosed what would otherwise be a taxable income.

So, there is no attempt there to determine its amount. All he has said is that there is a loss claimed which is higher than the disclosed taxable income; in the circumstances there will be a loss. In other words, if one goes to the two categories set out at page 245, this is a category two case, not a category three case.

GLEESON CJ: Mr Russell, can I just take you back to the Treasurer's speech in 1954.

MR RUSSELL: Yes, your Honour.

GLEESON CJ: In both of the examples he gives of the situation with which this amendment was intended to deal, there would, would there not, be tax payable?

MR RUSSELL: In the two instances that he deals with at the commencement of that speech, yes.

GLEESON CJ: I am looking at page 885.

MR RUSSELL: Yes, your Honour, yes, in those two cases there would be.

GLEESON CJ: Yes.

MR RUSSELL: But he does not seek to say, in our respectful submission, that those are the only circumstances in which it would be inappropriate for - these are the only areas where it is considered there is a problem.

GLEESON CJ: I understand that, but I thought you were saying that the reasons that were given to Parliament as to why the legislation should be amended in 1954, are inconsistent with the argument that is now being advanced on behalf of the Commissioner. The reasons there expressed are not inconsistent with the argument being advanced on behalf of the Commissioner, are they?

MR RUSSELL: If the Commissioner's argument is correct, then the problem that is identified by Sir Arthur Fadden will not be resolved.

GLEESON CJ: When you say "the problem", the examples given by Sir Arthur Fadden would be covered, would they not, if the Commissioner's construction is correct?

MR RUSSELL: Yes, your Honour. There were, of course, in this case, your Honour, credits payable. If your Honour looks at page 19 of the appeal book there were two credits applicable to the taxpayer and, in fact, the very credit is referred to by Sir Arthur Fadden, one in respect of tax stamps and one in respect of provisional tax.

GLEESON CJ: Yes, the problem in the present case arose because her income did not reach the threshold, and that is why there was no tax payable.

MR RUSSELL: Yes. And it should be said, your Honour, that the comment being made "income does not reach the threshold", the threshold itself is a movable feast. If the taxpayer had been a non-resident then there would not have been a threshold at all; if the taxpayer had been below the age of 16 years, the threshold would have been $416, so that a determination that a taxpayer has a taxable income of $4,470 does not produce an automatic tax result, there is still then a number of things to be done before one can work out what the tax consequence for the taxpayer is and, once again, that was done here, in our respectful submission.

Your Honour, turning now to our outline, your Honour Justice Gummow said that there has to be a starting place in the Act and it is not section 170. It is section 166. In fact we had listed that under the scheme of the Act at page 6 of our outline as the statutory duty.

GUMMOW J: Yes.

MR RUSSELL: But in a sense, as Justice Merkel pointed out in the Federal Court, the scheme of the Act relevantly starts before that. It starts with the requirement that the affairs of the taxpayer be divided on a yearly basis. There is then a requirement in section 160 that "each taxpayer shall furnish a return in respect of his or her or its income" and it is at that point that section 166 comes into play.

On our submission section 166 creates a positive duty on the Commissioner to make an assessment. If our learned friend's submission is correct then section 166 should have parenthetically included the words "if possible" - and this, of course, is the point that your Honour Justice Kirby made in argument and also was made by the Privy Council in Lloyds Bank - that if there is no assessment in such a case, then what is the Commissioner doing and what is his warrant for doing so, to which our learned friends respond that one goes to section 8 in the general administration provisions of the Act.

In our respectful submission it is much more logical to assume that the assessment process is what section 6 says it is, the ascertainment of taxable income and tax payable thereon and notification thereof.

KIRBY J: You have passed your analysis of Justice Kitto and the other Justices and you are now into the general analysis of the reasons for upholding your submission?

MR RUSSELL: Yes, your Honour.

KIRBY J: Because I have to tell you that if we were starting with a blank page I would have a lot of sympathy for your submissions, but you have to get over that first hurdle. If you have said everything you can say on that, well so be it, but assume that one were against you on that submission and that Justice Kitto and the other Justices did hold what judges since, including I think Justice Hill in Webb, took them to hold, would you still be submitting to us that we should overrule that or reverse that determination, given more recent analysis of the problem in other common law jurisdictions or do you accept that once you come to that point, well, "goodnight nurse".

MR RUSSELL: Your Honour, if one were forced to that position we would submit that in the light of what the Court now knows, as your Honour pointed out Justice Kitto and the other Judges who decided Batagol were not told, it is now clear what Parliament intended in relation to what was an assessment and also what the purpose of section 204 was and, in the face of that clear legislative intention, it ought to be given effect by the Court. But, your Honour, in our respectful submission, it does not come to that.

We have done some more submissions on Batagol starting at page 13 of our outline and we put our submission that it really stands for authority about when and what are the processes involved in making an assessment and the statements about a determining or definitive liability to tax are. Those were made in the context that the steps had simply not been completed. We set out the factual differences at paragraph 39 of our outline. In our respectful submission, too, there is something of a difference of approach between Justice Owen and Justice Kitto.

Justice Owen, perhaps again, having gone through the provisions and saying certainly that section 170 proceeds on the basis that a liability to tax has arisen, and we say that that does involve a reference to section 204, is really concerned, in our respectful submission, with identifying a final outcome of the process. Certainly, it is identified in terms of creating a liability to pay tax but that involves assuming that the Parliament was wrong in section 171 where it talked about assessments being made in the cases where there was no tax payable.

He then analysed the document itself and says that it operated merely as an explanation of what was occurring, and then takes the matter to refer to the decisions of Justice Isaacs that what is involved is an official act or operation that fixes on consideration of relevant circumstances the amount chargeable to a taxpayer, completes the ascertainment and gives notification. In our respectful submission, that is the gravamen of what Justice Owen is saying. Justice Kitto, his reference to a specified amount of money at page 252, then follows with his observations in relation to Justice Isaacs in Hoffnung's Case:

If an assessment definitive in character is made, it assumes that, so far as can there be seen, a fixed and certain sum is definitely due, neither more nor less.

In other words, it "ascertains a precise indebtedness of the taxpayer to the Crown". In effect, we say that what his Honour is fixing on is the precision of the process and the precision of the result and it really comes down to a question of whether to deal with the question dealt with by Justice Spender zero can be an amount. The minute it is accepted that zero can be an amount then the requirements of precision that are at the heart of the judgments of Justices Kitto and Owen, are met.

KIRBY J: If you had a blank page - - -

GUMMOW J: It cannot be a debt; this is all about fixing debts, rendering something served as a debt.

MR RUSSELL: That is certainly the way in which it would almost always operate, your Honour, but, fixing a precise legal relationship can occur, notwithstanding there is not a debt.

GUMMOW J: What is meant by "legal relationship"?

MR RUSSELL: Well, a precise state of affairs binding on both parties.

GLEESON CJ: You mean one party owes the other party nothing?

MR RUSSELL: I mean that the Commissioner, by his issuing the notice, has authoritatively, unless the taxpayer takes the matter elsewhere, established, yes, that he is not in a position to claim anything from the taxpayer.

CALLINAN J: On a balancing of accounts, the result is X or O or $400, as the case may be; it is a balancing of accounts and in a sense - - -

KIRBY J: An economist or a - - -

MR RUSSELL: Well, it is an ascertainment of the obligation of a taxpayer under the Act. In this case the conclusion is that the taxpayer does not have to pay anything. Most of the time - - -

GUMMOW J: Did the taxpayer get a declaration to this effect, outside this self-contained regime?

MR RUSSELL: That comes down to the issue - - -

GUMMOW J: A declaration of no debt or - - -

MR RUSSELL: Well, there might be remedies under the Administrative Decisions (Judicial Review) Act and, indeed, that was the point taken by Justice Hill in relation to rebates or credits and by the Privy Council in Lloyd's Bank, that because there is this self-contained regime and because taxpayers are entitled to have those matters resolved, that it is an unsatisfactory state of affairs to have the amount of a positive liability fixed by the procedures laid down under the Act.

HAYNE J: But that argument, if I may say so, has the symmetry of circularity; it begins from the proposition that the taxpayer is entitled to have the situation resolved and the very question that we are debating is whether the taxpayer has that right.

MR RUSSELL: Whether the taxpayer is entitled to have it - - -

GUMMOW J: I do not see how you can get a declaration of right, that is what I am trying to get at; where is the right?

MR RUSSELL: Certainly there are reported cases in which taxpayers have sought declarations under sales tax legislation.

GUMMOW J: This Act is about liability, it is not - - -

MR RUSSELL: It has sought declarations and obtained them under sales tax legislation, that they owe no money to the Commissioner; that was a - - -

GUMMOW J: Yes, but that is because of the special provisions in the Sales Tax Act or lack of special provisions in the Sales Tax Act. You get actions in this Court that have to be remitted and so on and so forth.

MR RUSSELL: Of course, in relation to this Act, your Honour, the point is more that any form of Act, any form of seeking relief, where an assessment has issued, will be futile because it will be met with the Commissioner tendering a notice under section 177 of the Act that is conclusive evidence of its validity, so that one cannot challenge an assessment by seeking a declaration of right.

GLEESON CJ: But why cannot a taxpayer bring all this to a head under section 171?

KIRBY J: Prod the tiger.

MR RUSSELL: There may, of course, be the problem that was identified - - -

GLEESON CJ: Taking an action for a declaration sounds like a bit of a prod; why is not sending a notice under section 171?

MR RUSSELL: It is doubtful, according to the literature, whether it would achieve it in any event. Your Honours were given a reference by our learned friends to an article by Kevin Burgess in respect of the operation of section 171, in which it said that section 171 may itself suffer from the deficiency that section 204 suffers from.

GLEESON CJ: Can you just explain that to us; tell us what your submission is about that?

MR RUSSELL: Subsection (2) simply has the effect that it deems the taxpayer:

to have been served on the last day of the 3 months with a notice of assessment in respect of which income tax was payable on that day.

GLEESON CJ: Well, that starts time running, does it not?

MR RUSSELL: Not if, in fact, there is no time running - there is no money owing.

HAYNE J: Why not, if there is a deeming? It depends how far you are deeming, does it not?

MR RUSSELL: Yes. All I can say, your Honour, is that there is certainly in the literature a great deal of questioning whether or not section 171 can adopt - - -

GLEESON CJ: But it deems a notice to have been served in respect of which income tax was payable on a certain day. That is the deemed fact. Is that not all the fact you need to start time running for section 170?

MR RUSSELL: That is, in our respectful submission, probably the correct construction. But, of course, then if one asks the question, "How can the Commissioner comply with section 171?", on the face of it, if the Commissioner's argument is right then if we had given a notice under section 171, he could simply not have complied with it.

HAYNE J: I am sorry, I do not follow what you mean by non-compliance, because 171(2) operates on the Commissioner doing nothing.

MR RUSSELL: Well, if the impression that one gets from section 171(1) is that the purpose of the request is actually to get an assessment - - -

HAYNE J: But if the Commissioner cannot issue assessment, so the Commissioner says, 171(2) bites with the consequences that follow. Now that argument may be right or wrong, but that is the argument against you that has to be addressed, is it not?

MR RUSSELL: Yes. One asks the question, "What happens if the Commissioner does issue a document which purports to be a notice of assessment and confirms that no tax is payable?", does one then - - -

GLEESON CJ: If the Commissioner's argument is right and it is not a notice of assessment, then section 171(2) will apply.

MR RUSSELL: Yes. Certainly, that is - - -

KIRBY J: Can I ask you, if you leave aside the language and leave aside the authority just for the moment, can there be a reason of principle why the Parliament would have attached consequences to an assessment of $1.00, in other words, the consequences of protecting the taxpayer, but not provide protection to the taxpayer if the assessment is zero? Could you say, if you are lucky enough to have a zero assessment, then you stand at risk because you have got away with nothing?

MR RUSSELL: The argument put by our learned friends below was not perhaps unlike that. It was that, why do you need to have protection of this sort until it matters? And if the Commissioner has made a wrong assessment, but you do not have to pay any money, then it is either something that has a consequence down the track because your losses are disallowed when you claim them, at which point you can object, so that, in effect, because the taxpayer has not been fixed with a liability the taxpayer has not suffered any disadvantage. I think that - - -

KIRBY J: That taxpayer, on the theory of the Commissioner, does suffer a disadvantage because every taxpayer in the nation who has a zero assessment is at risk forever.

MR RUSSELL: Yes, I think the Commissioner's argument would be that there is really not a problem about being at risk. The only problem is if you have actually got an assessment and have to pay it and at that point you can object.

KIRBY J: But this why I asked this question, because, you see, if you were looking for what is the purpose of Parliament, its purpose is to give, as I understand section 170, protection and finality so that you can all go on as a citizen and a taxpayer, order your affairs and not be troubled.

MR RUSSELL: Yes.

KIRBY J: That is quite a significant parliamentary purpose which is, at least on the face of things, undermined by the construction which is being urged upon us, or that we should adhere to.

MR RUSSELL: Yes. Your Honour, we are unable to discern any basis which would make it more logical to provide a protection to somebody who is assessed for $1 in tax than for somebody who is assessed to no tax at all.

HAYNE J: More logical from whose perspective? Does it not begin from the premise that those who promote this legislation had a concern to protect the taxpayer, as opposed to a concern to maximise the revenue? On its face, there may seem much to be said for the view that the tax legislation is more concerned with the latter than with the former.

MR RUSSELL: But the question that was put to me by his Honour Justice Kirby as I understood it was whether there is any logical basis for picking a liability of $1 as the basis for determining whether taxpayers get the protection of certainty and not get it.

HAYNE J: The point I seek to have you address is, does that not assume a parliamentary purpose of protection, absolute protection, rather than a parliamentary purpose informed in whole or in part by a "maximise the revenue" purpose? That is, does it not turn on where you start?

MR RUSSELL: Your Honour, the Parliament has expressed that intention in other ways. For example, if your Honour looks at section 170(10), there are a range of circumstances, including schemes to which Part IVA may apply to which there is simply no protection at all. So that there are a range of circumstances that Parliament has identified in which it is said that irrespective of whether or not tax has become payable, the Commissioner can go back forever.

HAYNE J: And thus the premise may be a premise of limited protection in some circumstances of taxpayers.

MR RUSSELL: Yes. It is plainly limited protection to honest taxpayers. I mean, if there is fraud or evasion, the Commissioner can go back forever. If the transactions in which the taxpayer is found to have engaged are of a type that fall within defined sections, then the Commissioner can go back forever. So it is a protection directed to a category of taxpayers and we would submit the logical basis for drawing the line, if one was starting from scratch, to take his Honour Justice Kirby's question, is the protection of honest taxpayers who have made a full and true disclosure and who have not engaged in transactions of a particular type that has led Parliament to say that if you play with fire, you cannot complain of burnt fingers. As I said, they are all listed in section 170(10). So it is not as if the submissions that we are putting forward can enable taxpayers who then engaged in egregious activity to obtain protection.

KIRBY J: Now, where stands the overseas authority now and is the legislation distinguishable or do you draw some comfort from the Privy Council decision on New Zealand and the most recent Canadian decision?

MR RUSSELL: Your Honour, there are two decisions in Canada on different provisions of the Act. We have given your Honour the reference to Anjulin Farms which is in our favour. That is at item 44. It is one of the ones we have handed up, your Honour, and it is the last of the cases that we handed up. The question there was whether or not one could have a nil assessment.

KIRBY J: I gather the Canadian courts changed their tune on this issue, did they?

MR RUSSELL: There are inconsistent judgments, your Honour. In Anjulin Farms which dealt with one provision the - - -

KIRBY J: Has the Supreme Court dealt with this issue, or not?

MR RUSSELL: This is the Exchequer Court, your Honour. In Gary Bowl they dealt with it. There is a reference to Anjulin Farms saying that the court would not necessarily follow it but it was not overruled. The court was dealing with a different section. But there is a summary of the authority in Canada in an article which our learned friends have handed up to the Court. What, essentially, it shows is that courts have gone each way on the matter.

In New Zealand your Honours have Lloyds Bank. The issue there, there was no definition of assessment or income in Lloyds Bank so that one is not able to take the comfort that we do from the reference to the ascertainment of taxable income and the amount of tax payable thereon. There is also Hutchinson. That is at tab 15. That is very much along the lines of if Parliament had wished to extend the time for amended assessments it would do so by way of specific legislation, but we cannot contend, and do not contend, that you can derive specific assistance in relation to the interpretation of the Australian Act from those cases.

In the Privy Council which is in our favour in principle, the Privy Council itself said that it made that decision because of different statutory provisions so we can, and do, submit that the broad principles of the decision are correct and that it represents an approach which the Court would find attractive if the wording of the statute permitted it, but we are not in a position to submit that it assists us in terms of its particular words because, as I say, the Privy Council has said that it was dealing with different statutory provisions.

In England, of course, there is no question of the meaning of the word "assessment". Our learned friends have given your Honours a reference to one case in which the comment is made that a nil assessment is a logical impossibility. We would say in response to that that one has to deal with our definition of "assessment" in section 6(1) which talks about ascertainment which, we say, means making certain, and one makes certain the amount of a liability as much by determining that there is not one as by determining that it is of some other amount.

In relation to the submission that a nil amount is a logical impossibility, it is interesting that the Parliament, although possibly not of much assistance to the Court, that the new Act addresses this problem by saying, in fact, that you may owe an amount of money which is nil. It paragraph 54 of our submissions, in section 4-1 of the 1997 income tax legislation, it is expressly said that:

The actual amount of income tax payable may be nil.

Because, for example, the taxable income is below the threshold, as in this case.

GUMMOW J: Which paragraph of this in your submissions?

MR RUSSELL: Paragraph 54, your Honour.

GUMMOW J: Thank you.

MR RUSSELL: The term "amount" in the 1997 Act is specifically defined in 995(1) to include a nil amount.

KIRBY J: How can we use this to construe the statute 10 years earlier - 12 years earlier?

MR RUSSELL: Our learned friends made the submission that you could, and we would put that forward by way of response.

KIRBY J: I know you are responding to them. It does not make it any the more palatable.

MR RUSSELL: Our submission is that the Court will not take much assistance from what was decided, what Parliament said about it later.

KIRBY J: Because the Parliament had three inquiries, at least two, which said, "This is terribly unfair. Correct it", and in its wisdom it did not do so.

MR RUSSELL: It was either your Honour, or your Honour the Chief Justice who made the point that it was not Parliament who had the inquiry, it was the Executive Government.

KIRBY J: That is right, but they would be tabled in the Parliament.

MR RUSSELL: If your Honour is concerned to deal with that, in our respectful submission, the Ligertwood Report which is - - -

KIRBY J: It is only a tiny matter because the fiction that Parliament sits there glued to royal commission, Law Reform Commission, and even court decisions, is, I think, one that is not given a lot of weight nowadays.

MR RUSSELL: In our respectful submission, your Honour, the observations in the Ligertwood Report are explicable as a statement that having regard to the Commissioner's practice, which was outlined in Batagol, in other words, of dividing returns into taxable and non-taxable, assessing the former and not assessing the latter, and saying that should come to an end, was really addressing the practice. It was not addressing the legalities at all. The Commissioner said that is what he was doing.

It did not occur to the Ligertwood Committee to ask the question whether what he was doing was correct in terms of the law, they simply said that if that is what you are doing, and you claim statutory authority for it, then you should not do it; all returns should be assessed, and the law should be amended to make it clear that you do. It was really a debate about the Commissioner's practice of not assessing all of the returns. It is in our learned friend's material, your Honour. Item 14 of their material. At page 589, it said:

Regarding taxable assessments, there was a period.....when assessment work fell seriously into arrears -

then "time limits were shortened". Then in section 591 they went on to say:

The position in regard to non-taxable returns, that is those where no tax is payable, is different. The departmental view.....is that the treatment of returns as non-taxable does not amount to an "assessment".....In consequence, there is no obligation under the Act upon the Commissioner of Taxation to make an assessment in such cases and advise the taxpayer -

and then at the bottom of paragraph 593:

From information obtained from the Commissioner of Taxation, it has been calculated that 94.5 per cent of non-taxable returns.....had been, in fact, examined during that year.

Then at 594 is their recommendation:

In these circumstances, we consider that in the case of all non-taxable returns the stage has now been reached where it is practicable and desirable to extend the technical process of assessing including the issue of a notice of assessment showing the quantum of taxable income or "loss".

So, we would see the discussion in the Ligertwood Report is really adopting the Commissioner's practice in relation to non-taxable returns rather than a considered opinion of what was meant in section 170(3) about the amount of tax payable.

GLEESON CJ: Mr Russell, should we understand from something that was said on the special leave application that there is an arrangement between the parties about costs.

MR RUSSELL: Yes, your Honour.

GLEESON CJ: Does that mean that whatever the outcome of this appeal, whether it is allowed or dismissed, we should make no order as to costs?

GUMMOW J: But what would we do about costs in the Full Court and at first instance in the Federal Court?

MR RUSSELL: There is an agreement in relation to that, your Honour. They should not be - - -

GLEESON CJ: So, we are invited by both parties, whichever way the case goes, to say nothing about costs?

MR RUSSELL: Yes.

GLEESON CJ: Thank you. Yes, Mr Nettle.

KIRBY J: Mr Nettle, would you mind dealing with that issue that I asked Mr Russell at the end there? I should have really asked you in-chief, but can you suggest a purpose that would, as it were, give, apart from raising revenue and giving the Commissioner a free kick and not worrying too much about poor old taxpayers, including not just taxpayers like this one but large corporations which, in a sense, have a right to, and section 170(3) gives a right to, order their affairs without the peril that many years later they will be harassed over, now, can you suggest any reason why there would be a very large, significant and protective consequences attaching to $1 and complete no protection attaching to zero?

MR NETTLE: Can I ask your Honour to pick up what was given to you by our learned friends, namely the Income Tax Bill, with the footnote which was relied upon to suggest that nil tax assessments were contemplated at the time of the enactment of the 1936 Act. On the second last page of that photocopy, our learned friends took - - -

KIRBY J: Is this item 11, the Bill for the Act of 1922?

MR NETTLE: Yes, thank you, it is. The footnote below section 172 of the Bill, which became section 171 of the Act. In that note - there are two columns as you can see - in the last line of the left-hand column, there are the words:

As a result, assessments are at times issued in respect of these returns -

that is, nil returns -

at a much later date.

Our learned friend invited the Court to derive from that the conclusion that at the time at which Parliament enacted the 1936 Act, it had in contemplation cases in which nil assessments, and thus assessments, would issue. It is a happy theory, but it is divorced from reality. As is plain from the earlier part of this note, the Commissioner did not issue assessments unless there were some tax payable. He it did not issue assessments, because you cannot issue an assessment unless there is tax payable. He threw the nil returns on the back of a heap and waited until subsequent years when it became relevant to look at them, as it would, for example, if in a subsequent year of income there were assessable income against which it were sought to set off losses derived in the earlier nil year. So, the assumption was that the Commissioner is not going to issue assessments to people who do not return taxable income.

KIRBY J: That is very convenient to the Commissioner. It is pretty unfair. Does section 160 not alter this, that the Commissioner has duties now to - - -

MR NETTLE: Section 166. Well, he has always been under a duty to issue an assessment in this qualified sense that where the circumstances are propitious to the issue of an assessment he will issue one, but he cannot be under a duty to do the impossible.

KIRBY J: That is on your theory that assessment has to have a tax return.

MR NETTLE: Can I go a little further to try and explain it was thought appropriate to limit time for those that had a taxable income and not for those that did not. If one starts from the assumption that the Commissioner did not issue assessments because he could not, for taxable income, he threw them on the back of the heap, there came the realisation that because the Commissioner did not, because he could not, issue assessments, people who did not return taxable income and therefore did not get an assessment would be left in a state of relative uncertainty ad infinitum. That is what this was all about, and to overcome that difficulty, to the extent that it was one for those who craved certainty, section 172 of the Bill, then 171 of the Act, was introduced to give to persons who wanted certainty, at the risk of examination, the chance of seeking from the Commissioner an assessment which, were he not to produce one, would result in circumstances that any subsequent assessment would be treated as an amended assessment.

GLEESON CJ: It may not be right to assume that the administrative convenience of the Commissioner is totally excluded from the purposes of the legislation.

MR NETTLE: With respect, I would agree, Chief Justice, clearly so.

KIRBY J: Yes, but one does not, in this society, as distinct from Kafka's society, assume that the Parliament of Australia elected by the electors would introduce legislation which puts a taxpayer at risk in apparent defiance of the overall purposes of section 170, which is, as I see it, as I read it, a section of protection, of finality and of settling your affairs.

MR NETTLE: Your Honour, if you would approach it slightly differently, as I would invite you to do, one can see that what the Parliament had in mind was that where the Commissioner assessed someone he could not go back and alter that assessment after a certain period of time. Ordinarily others would not be interested in it, but if they were, if they were not in the league who got an assessment - and there were many of them in the past as, indeed, there are now - they could get the certainty they wanted by section 171. That is why it was put there. It was put there in terms expressly so that persons who did not get an assessment could get the certainty that they want.

KIRBY J: I may be wrong, but I would have thought 171 is a very exceptional provision for a very exceptional case, whereas 170(3) is the norm. It is the usual situation, especially where you get a document - I know assessment is not the document - but where steps, many steps, as Mr Russell has pointed out in his submission have to be taken, and are taken, and were, in this case taken, by the Commissioner. You say, "Well that is just not an assessment for the purpose of the protection".

MR NETTLE: Every year the Commissioner under his powers issues an edict that certain classes of persons are not required to file a tax return. More than two million every year in this country do not. There is no way in which they can be assessed, yet they are in a state of, what your Honour describes as, uncertainty ad infinitum until such time as there is an audit and it is inquiring into it. It is not for a moment thought that that should be a circumstance which means that one should construe section 170(3) differently, but if those sorts of people want protection it is there in the Act for them to get it.

KIRBY J: So your theory of the Act puts two million Australians at risk?

MR NETTLE: No, not at all, not my theory of the Act.

KIRBY J: Indefinitely.

MR NETTLE: No, no. What puts them at risk, as your Honour calls it, if they choose not to exercise the right which is conferred them by 171, is that the only limitation which the Parliament has seen fit to impose on the Commissioner against his duty to get in for the revenue that which the subject is lawfully liable to pay is that he should not be permitted to amend more than three years after the date on which he determines the tax is payable. That was the choice of the Parliament and the historical reason for it being the choice was because, ordinarily, no one was too concerned about the case in which tax was not thought to be payable and no assessments were issued.

That is why I submitted to your Honour this morning whatever one might think about it at the end of the millennium about its social utility and the rest of it, it was the way in which it was sought to be done at the time. It was done. It was done clearly. The explanation for why it was thought to be just inheres in the history of it. In a sense, it is submitted, there is an end of the matter even if it creates a situation which, to some, might seem to be somewhat undesirable. But it is not quite as undesirable as it might seem.

To answer the question earlier given, asked by your Honour Justice Callinan and which I think I did not answer adequately, in section 221H of the Act, the Commissioner is required, where he holds credits in excess of any amount due, to refund those credits - to repay the amount which is due. So, every year there comes upon him an obligation, either if he has assessed or, as it is in terms, if there is no amount payable, thus implicitly accepting that there would be no assessment, to refund the excess. If your Honour please, Justice Kirby, that is about the best I can do on the policy of why it ought to be thought to be reasonable.

May we hand up to your Honours copies of both the decision of the Supreme Court of Canada in Okalta Oils Limited and also of the Federal Court - can I very quickly, because Okalta is the only decision of the Supreme Court of Canada on the matter as opposed to others to which reference has been made, direct your Honours attention in the judgment of Mr Justice Fauteux at page 1177 of the 55 DTC to the right-hand column where it is said that:

It is the contention of the respondent that, construed as it should be, the word "assessment", in sections 69a and 69b, means the actual amount of tax which the taxpayer is called upon to pay by the decision of the Minister, and not the method by which the assessed tax is arrived at; with the result that if no amount of tax is claimed, there being no assessment within the meaning of the sections, there is therefore no right of appeal -

Reference is made to "In Commissioners for General Purposes of Income Tax for City of London and Gibbs and Others" (1942) AC to Viscount Simon's speech concerning the meaning of the word "assessment".

Now, there is then set out in the remainder of that column the provisions and in the last paragraph on that page:

Under these provisions, there was no assessment if there was no tax claimed.

KIRBY J: That is where section 58 of their Act talked of objecting:

to the amount at which he is assessed -

MR NETTLE: Correct. And the other decision to which we have handed up to you is the subsequent decision of the Federal Court of Appeal in The Queen v Gary Bowl Ltd 74 DTC 6401, which is a decision of the Federal Court of Appeal subsequent to the Court of the Exchequer decision of Anjulin Farms, to which our learned friend referred and in the judgment of Mr Justice Thurlow at page 6402 right column about halfway down, his Honour deals with Anjulin Farms and reaches the view that whatever view is to be taken about its correctness, it cannot be regarded as applicable on the basis of the sections as they now stand.

GLEESON CJ: Is the scheme of the objection provisions in the legislation with which we are concerned such that you cannot object against a nil assessment?

MR NETTLE: Yes.

GLEESON CJ: Because it is not an assessment?

MR NETTLE: First, because it is not an assessment and secondly, because it is not excessive.

GLEESON CJ: However, there are circumstances in which people sometimes wish to object against an assessment on the ground that it is too low, perhaps because it takes into account, in respect of one year of income, something which the taxpayer claims should be taken into account in respect of another year of income.

MR NETTLE: But his remedy, as it were, would be to object in respect of that year of income, in which he claims that the Commissioner has failed to bring to account some off-setting entry or deduction.

GLEESON CJ: That is what I thought; there are certainly many examples in practice, particularly in relation to the tax affairs of large corporations, where matters are at issue between the taxpayer and the Commissioner for many years before there actually arrives a time at which the taxpayer has something to which it can object.

MR NETTLE: With respect, your Honour is absolutely right, and that is the very point we sought to make in the written submission, that whatever might be said about the totality of an assessment in one year, it is not determinative of the elements of the assessment for the purposes of a subsequent year.

Thus, for example, if the Commissioner determines that taxable income is $1,000, the consequence of losses in some part of the business in that year being $900, and the taxpayer does not object to that assessment but in a subsequent year of income wishes to contend that the losses which were incurred in that part of the business were not merely $900 but let us say $9 million, it is open to the taxpayer so to do. Equally, it is open theoretically, and sometimes factually, to the Commissioner to do the same. So all that is determined by an assessment, if there is an assessment in each year, is the amount of assessable and taxable income for that year.

KIRBY J: Under the Act, does the Commissioner or the court or some other body have the power to then reassess in respect of a year which has passed and in respect of which you say there is no assessment, no assessable - - -

MR NETTLE: Until there is an assessment, it is open to assess.

KIRBY J: But the year has passed, because you say a nil return is no assessment.

MR NETTLE: It remains open to the Commissioner to assess for that year.

GLEESON CJ: The year has always passed when an assessment issues.

MR NETTLE: Correct. I think, with respect, what his Honour Justice Kirby was having was past the point of the nil assessment document. Yes, with respect, it would. It would remain open until and unless he issued an assessment of taxable income.

GLEESON CJ: I thought - I may be wrong - that the practice of the Commissioner where you have a taxpayer who over a series of years returns losses is for each year to issue not a notice of assessment, but an adjustment sheet.

MR NETTLE: Your Honour is absolutely correct but, whilst as a matter of practicality and usual course, that is the basis on which subsequent years are sorted out when assessable income comes in and it is sought to bring forward the losses and set them off against it, it remains open both to the Commissioner and to the taxpayer to say that that determination, to the extent that it was one in that notice, is not determinative.

That is what Barnes' Case is all about which we set out in the written submissions. That is what Oates' Case is all about. It remains for each year to assess the taxable income for that year and it matters not, whether as a matter of practicality, the Commissioner has said an element in it was something different.

Go back to the Division 7 days, which gives rise to Barnes' Case, where the Commissioner said even though he had worked out the amount of dividends which came in for the purposes of calculating taxable income for year one, remained open for him to determine again and refresh the amount of those dividends for the purposes of subsequent Division 7 tax and the subsequent year of income. So, too in Oates' Case where Mr Justice Hill picks up these propositions and applies them to other sorts of elements. It is only the totality.

CALLINAN J: Mr Nettle, if you could just help me on this? If a company had carried forward losses and there are losses of that kind, it would not be able to get a ruling under 171 with respect to those losses in a final way unless and until such time as it had income which would have made those losses valuable to it. Is that right?

MR NETTLE: That is exactly right.

CALLINAN J: So that, notwithstanding section 171, there are still many cases in which the taxpayer could be in limbo as to its or his or her liabilities. Is that right?

MR NETTLE: Yes, but both in limbo and in ecstasy in the sense that many years later he can come back and contend that he has a great many losses which he is allowed now to bring forward and set off.

CALLINAN J: That is unrealistic. Reporting requirements and other transactions - it may be that that is just a consequence of the proper construction of the Act, but you can hardly say it is commercially convenient.

KIRBY J: It does not sound like ecstasy to me.

MR NETTLE: The reality of this case is not about Mrs Ryan but about the much larger sorts of corporations when there have been nil assessments or notices of the kind referred to by the Chief Justice.

CALLINAN J: But in the case I put to you, they do not derive any assistance at all from section 171, unless and until they have sufficient income to make it relevant.

MR NETTLE: They derive this assistance. If they put in a section 171 request and the Commissioner does not give them an assessment because he cannot give them an assessment, then any assessment which is thereafter issued to them is deemed to be an amended assessment. However, that means that they have the protection for that year of income, that the Commissioner has only got four years now in which to issue that assessment, changing the position.

CALLINAN J: That answers one of the problems, certainly.

MR NETTLE: Your Honour is clearly right.

CALLINAN J: But it does not answer the problem of possible, and very significant, commercial inconvenience and uncertainty.

MR NETTLE: That is true, also. But, with respect, I am glad that your Honour raises it because it is a point which goes to show that is the way it has always been. This Court in Barnes' Case, the Federal Court in Oates' Case has said that. Let me try and put it better. It is no different, with respect to the sorts of things your Honour is speaking of, whether there is an assessment or there is no assessment.

Take a case where there are losses claimed of $10 million resulting in $1 million worth of taxable income, and the taxpayer is assessed as returned. In a subsequent year of income it remains open to the taxpayer to contend that, "My losses were not just the $10 million which I returned last year. They were, in fact, $20 million which I seek now to bring forward under section 79D and following". That is why I say somewhat theoretically, or hysterically, it is a position of ecstasy. It remains open for them to contend that the contrary, as, for example, they might, if they were to say that deductions which had previously been thought not to be open under Division 10 or Division 10AA of the Act were now sought to be claimed. They would seek to bring them forward.

I seek to give you examples which are realistic. Oil companies exploring and spending millions of dollars, who might in a subsequent year of income say, "The law is not what you thought it was before. It is different, such that there is a deductible item. Our loss in that year was 10 times what we claimed. We seek now to bring it forward". Because of the way in which the Act works and always works, whether there is assessment or there is not, it remains open to that oil company in subsequent years to dispute the efficacy of items as opposed to the bottom line in previous years.

Therefore, whilst your Honours Justices Kirby and Callinan say the contention which we advance is productive of some uncertainty and unhappiness for taxpayers, it is also productive of a degree of disadvantage for the Commissioner also.

KIRBY J: Uncertainty and unhappiness do not worry me, but trying to find the purpose of legislature is our duty, and I realise there is a lot of authority on this, and you do not come to it afresh, but there is just something bizarre in the notion that you get the protection if you are $1.00 and you get nothing if you are zero. But, the Privy Council said this; I have said it four times now, so the problem does not go away, but there is still the question of authority, and we have just got to think it through.

MR NETTLE: The last attempt to try and provide something which is satisfying: it is a question of balance at the end of the day. There are competing considerations. One is certainty for the subject. The other is undoubtedly just as important, if not more so, that revenue which is lawfully due be corrected. The Parliament has sought, however inexpertly, to strike a balance through section 170(3). Your Honour can see how it came historically to strike that balance in the way in which it did. It may be said in another place that it is desirable now to strike a different balance but that is the one which it struck.

GUMMOW J: Balance has a bright line, even though to some it might seem sometimes to shine too much on the one side rather than the other, but there it is.

KIRBY J: But the balance would be a bright line if you said really what Justice Kitto was talking of was the case where the Commissioner struck his balance and made his notes all internally and put his notes on his file, as distinct from issuing a slip, giving a notice, giving an assessment that happened to be in the particular case zero.

MR NETTLE: That is true if one is prepared to ignore the fact that the case stated proceeded on the basis that there was a notification for the last year of income and that the answer which was given to the question was that there was no assessment issued. That takes us - that is the same point, with respect - to one of the contentions which was advanced by our learned friend that what was said in Batagol is distinguishable on the basis that there was no determination.

With great respect, if one looks at what is said at Batagol, in several places there clearly is, on the facts assumed, a final determination. The 1951 year is dealt with at the top of page 246 of the report:

R. perused the return and formed the opinion that it disclosed no taxable income -

12 lines up from the bottom of 246, there is the 1952 year:

formed the opinion that by reason of accrued losses carried forward.....the taxpayer was not assessable to tax upon such return -

The 1953 year is at the top of page 247, three lines down

He formed the opinion that by reason of accrued losses carried forward as noted in the loss sheet the taxpayer was not assessable -

Finally in respect of the 1954 year, in the passage to which his Honour Justice Hayne made reference halfway down 247:

He formed the opinion that by reason of accrued losses carried forward as noted in the loss sheet the taxpayer was not assessable.....He accordingly noted -

them, et cetera, and thereafter he issues the refund slip. Now, that is not distinguishable on the facts or otherwise from this case. There is in any sense of the word a determined and final determination of what was due, of whether there was taxable income. The consequence at least in the 1954 year of income was a piece of paper which said there was none.

HAYNE J: The consequence was there was a cheque.

MR NETTLE: I know nothing of such things, unfortunately, your Honour.

HAYNE J: No, the Bar does not.

GLEESON CJ: Does that complete what you want to say, Mr Nettle?

MR NETTLE: If the Court please.

GLEESON CJ: We will reserve our decision in this matter.

AT 3.38 PM THE MATTER WAS ADJOURNED