FEDERAL COURT OF AUSTRALIA

Lidono Pty Ltd v Commissioner of Taxation [1999] FCA 1152

TAXATION – whether profit arising from sale of land “assessable income” – judicial review of decision of the Administrative Appeals Tribunal – whether a dual purpose existed in relation to the land – whether reasons for decision of Tribunal disclose actual basis of decision.

Income Tax Assessment Act 1936 (Cth), s 25A, s 25A(1)

Administrative Appeals Tribunal Act 1975 (Cth), s 43(2A)

Comcare v Lees (1997) 151 ALR 647 considered

Sun Alliance Insurance Ltd v Massoud [1989] VR 8 considered

LIDONO PTY LIMITED v COMMISSIONER OF TAXATION

AG38 of 1998

FINN J

20 AUGUST 1999

CANBERRA

THE COURT ORDERS THAT:

            1.         The appeal be allowed.

            2.         The decision of the Administrative Appeals Tribunal be set aside.

            3.         The matter be remitted to the Tribunal to be heard and decided again.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     It is regrettable that the decision of the Administrative Appeals Tribunal (“the Tribunal”) under challenge in this proceeding must be set aside and the case remitted to the Tribunal.  This necessity arises because the Tribunal’s Reasons for Decision betray such internal inconsistency and ambiguity as to require speculation as to the actual basis for its decision adverse to the applicant Lidono Pty Ltd (“Lidono”).  The Reasons do not satisfactorily reveal the reasoning process of the Tribunal.

2                     The genesis of this application lies in the Tribunal’s finding that the profits made by Lidono from the sale of land as two parcels to separate purchasers were profits arising from profit-making activities under s 25A of the Income Tax Assessment Act 1936 (Cth) (“the ITA Act”) and were to be included in Lidono’s assessable income for 1988.  Before outlining the factual setting, it is appropriate first to note the provisions of s 25A(1).

3                     That sub-section provides:

“25A   (1)        The assessable income of a taxpayer shall include profit arising from the sale by the taxpayer of any property acquired by him for the purpose of profit-making by sale, or from the carrying on or carrying out of any profit-making undertaking or scheme.”

Background Circumstances

4                     The facts that need to be referred to for the purposes of this application fall within a narrow compass.

5                     (1)        Mr Alex Brinkmeyer controlled a group of companies the principal business of which was land development.  By 1984 the group’s activities included developing land for sub-division in Queanbeyan.  At that time the group’s operations were being conducted from premises in Canberra.

6                     (2)        Prior to September 1984 Mr Brinkmeyer was informed of the availability of a number of contiguous lots of land in Queanbeyan.  These are referred to in this matter as the “Wanniassa Street land”.

7                     (3)        Mr Brinkmeyer gave evidence that he was at the time interested in acquiring land in Queanbeyan so as to establish an office there both because it would be prudent to be in that city for business reasons given his developmental activities and because his existing office was inadequate.

8                     (4)        On 4 September 1984 sales instructions were issued for the sale of the Wanniassa Street land to Mr and Mrs Brinkmeyer with a proposed settlement on 30 March 1985.  That sale did not proceed.

9                     (5)        On 20 September 1984 a letter of understanding was signed between Amaroo Holdings (Australia) Pty Ltd (“Amaroo”), a company in the Brinkmeyer group, and Kentbrooke Pty Ltd (“Kentbrooke”).  It provided that should Amaroo purchase certain of the lots of the Wanniassa Street land it would sell those lots to Kentbrooke, Kentbrooke agreeing to withdraw from further negotiations for those lots with the vendor.  The balance of the land was to be used by Amaroo as the site for the group’s corporate office.

10                  (6)        The arrangement between Amaroo and Kentbrooke fell away in late 1984 or early 1985.

11                  (7)        Lidono was incorporated in the Australian Capital Territory on 5 February 1985 and was acquired by Mr Brinkmeyer and a business associate on 27 February 1985.  In April 1985 Lidono entered into a contract for the purchase of the Wanniassa Street land.  Settlement occurred on 2 September 1985.

12                  (8)        On 20 June 1985 a further contract was entered into to acquire an additional lot (“Lot C”) that would provide access to the land.

13                  (9)        The principal competitor of the group in Queanbeyan was the Woodger Corporation (“Woodger”).  It was known by April 1985 that there was a possibility of Woodger being wound up.  The Brinkmeyer group later took over Woodger’s development land and its head office in Queanbeyan, this being finalised by 1 September 1986.  This take-over eliminated any need for the group to develop an office in Queanbeyan.

14                  (10)      In October 1986 Lidono sold part of the Wanniassa Street land to McDonalds.  The balance of the lots was sold in September 1987, these ultimately going via an intermediate purchaser to KFC.

The Tribunal’s Reasons

15                  The Reasons, after narrating the evidence and facts, went on under the heading “Findings” to make a number of findings of fact.  These related primarily to the various intentions or purposes found to be entertained by Mr Brinkmeyer and his companies leading up to Lidono’s purchase of the land.

16                  The Tribunal found that (i) the initial intention for purchase was for Amaroo to acquire the site and to develop a corporate head office together with an investment in conjunction with Kentbrooke:  Reasons, para 34;  (ii) when the understanding with Kentbrooke fell away and it was decided Amaroo was not the appropriate vehicle to hold the land, “purchase by [Lidono] was arranged so that the subject land could be resold at a profit as the opportunity presented itself”:  Reasons, para 31;  (iii) actions taken in relation to the land in December 1985 indicated “there was not any then existing intention to develop the subject land as an investment”:  Reasons, para 30, emphasis added;  and (iv) the land was not initially purchased for resale to McDonalds and KFC:  Reasons, para 32. 

17                  In para 38 of its Reasons the Tribunal crystallised its findings in this fashion:

“38      The business of [Lidono] was to hold the land and develop the land presumably to its highest and best use.  Although the original intention was to hold the land and develop corporate offices and a further development as a motel whereby part of the land would be sold to [Kentbrooke] that was no longer the case when [Lidono] purchased the land.”

18                  Having made the above findings the Tribunal, under the heading “WHETHER SALE WAS REALISATION OF A CAPITAL ASSET”, went on to make a series of additional findings.

19                  First, in para 47 it was indicated that:

“I am satisfied and find that there was a twofold purpose in relation to the initial purchase of the land.  An unascertained portion was to be used for construction of a corporate head office and an unascertained portion was to be developed (probably as a motel) as either a short-term or long-term investment.  I can only speculate as to which.  It seems to be open on the evidence that this developed portion may well have been intended to be sold as was indicated under the original arrangement between [Amaroo] and [Kentbrooke].”

The last sentence of this paragraph makes plain (as does para 48 which I do not set out here) that the “initial purchase” referred to is the purchase by Lidono, not the projected purchase by Amaroo that did not eventuate.

20                  This dual purpose finding is then carried forward, albeit in a mutating form, into the decisive paragraphs of the Reasons:

“51      Consideration of the material before me has led to the conclusion that [Mr Brinkmeyer] as controlling mind of the company always had an intention to realise at least part of the land either by development and sale or by resubdivision and sale.  As it transpired the land was resubdivided and amalgamated and the subject land sold as two parcels.  This was an outcome not inconsistent with the original intention of [Mr Brinkmeyer].”  Emphasis added.

“52      Therefore, I find that the profits from the sale of the land as two parcels to each respective purchaser are from profit making activities under s 25A and are to be included in its assessable income for 1988.  The intention of [Mr Brinkmeyer] as controlling mind of the applicant was to gain short term profit from the sale or development and then sale of at least part of the land.  Opportunities however arose which maximised that use and gave rise to the sale of the whole of the subject land.  This is consistent with the initial intention to develop and or sell the land (or part of it) to thus achieve the highest and best use giving rise to a profit on the eventual sale.”  Emphasis added.

21                  Interspersed between the findings in para 47 and paras 50 and 51 were the additional findings that (i) some months after Lidono acquired the land it effectively committed itself “to the land development business although not as a participant in that business”;  and (ii) later in 1985 land development became the company’s business.

The Difficulty with the Reasons

22                  The purposes served by the statutory obligation to give reasons such as is imposed by s 43(2A) of the Administrative Appeals Tribunal Act 1975 (Cth) (“the AAT Act”) have been conveniently summarised by Finkelstein J in Comcare v Lees (1997) 151 ALR 647 at 656:

“The imposition of an obligation upon the tribunal to provide reasons for a decision achieves a number of very important objectives.  It ensures that the person whose interests may be adversely affected by a decision is told why the decision has been made:  Re Poyser and Mills’ Arbitration [1964] 2 QB 467 at 478.  It enables the public to have confidence that the tribunal has gone about its task appropriately and fairly:  Commonwealth v Pharmacy Guild of Australia (1989) 91 ALR 65 at 88.  It allows a party who is dissatisfied with a decision to determine whether there has been some reviewable error made by the tribunal:  Ansett Transport Industries (Operations) Pty Ltd v Wraith (1983) 48 ALR 500 at 507.  It imposes an intellectual discipline on the tribunal making it more likely that its decisions will not be arbitrary or capricious.  Finally, the giving of reasons furthers judicial and quasi-judicial accountability:  see Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 279.”  Emphasis added.

Reasons will be inadequate if a party or an appeal court is “unable to ascertain the reasoning upon which the decision is based”:  Sun Alliance Insurance Ltd v Massoud [1989] VR 8 at 18.

23                  In the present case the Reasons suffer from this last vice.  The Tribunal has made two clusters of findings each of which separately would have explained adequately the basis of its decision.  But the two clusters of findings are themselves contradictory.

24                  Those made under the heading “Findings” begin with Mr Brinkmeyer having a dual purpose during the initial consideration of the purchase of the Wanniassa Street land that was, however, reduced to a sole profit-making purpose at the time Lidono acquired the property.  This finding would seem to have been made with the first limb of s 25A(1) of the ITA Act (ie, “property acquired for the purpose of profit-making by sale”) in mind.

25                  The findings made under the heading “WHETHER SALE WAS REALISATION OF A CAPITAL ASSET”likewise proceed on a dual purpose being supplanted by a single purpose.  But in this instance the dual purpose existed at the time Lidono acquired the property and was only later abandoned.  Coupled with the findings made as to the change in Lidono’s business this cluster of findings would seem to have been made with the second limb of s 25A(1) (ie, “profit arising from [a] profit-making undertaking or scheme”) in mind.

26                  The inconsistent findings as to Lidono’s purpose at the time the land was acquired have the consequence that the applicant for present purposes is unable to ascertain the actual basis of the decision adverse to it and to challenge the decision because of that basis.  To be added to this is the absence of any finding as to which purpose was the dominant purpose if Lidono entertained dual purposes at the time of acquisition.

27                  It may be that one or other or neither of the two “bases” for the decision is unimpeachable in proceedings in this Court.  I express no opinion on that.  What, though, the applicant is entitled to know is what is the actual basis of the decision.  The inconsistencies to which I have referred are such that the Reasons for Decision do not enable Lidono to ascertain that basis.

28                  For this reason the appeal must be allowed and the decision be set aside.  On the authorities binding on me inadequacy in reasons amounts to an error of law:  see Comcare v Lees, above.  Nonetheless I should state that it is unfortunate that a procedure not requiring the redetermination of the matter is unavailable to correct a failure to satisfy adequately the obligation to give reasons imposed by s 43(2A) of the AAT Act.

Associate:

Dated:              20 August 1999