Case: Commissioner of Taxation v Dalco [1990] HCA 3 ; (1990) 168 CLR 614 
Outcome: discussed
The operation of s 190(b) of the ITAA was explained by Mason J (dissenting) in Gauci v Commissioner of Taxation [1975] HCA 54 ; (1975) 135 CLR 81 at 89 as follows: "Section 190(b) of the Act imposed on the appellants the burden of proving that the assessments were excessive. The appellants relied on their evidence and that of Graham [their land agent who acted for them] in order to show that the assessments were excessive. Once that evidence was rejected, the appellants' case necessarily failed. The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail." The view expressed by Mason J in this passage has been endorsed: see McCormack v Commissioner of Taxation [1979] HCA 18 ; (1979) 143 CLR 284, esp at 302-304 (Gibbs J), 306 (Stephen J), 323 (Murphy J); Macmine Pty Ltd v Commissioner of Taxation (1979) 53 ALJR 362, esp at 371 (Stephen J), 381 (Murphy J); Commissioner of Taxation v Dalco [1990] HCA 3 ; (1990) 168 CLR 614 esp at 624-5 (Brennan J with whom Dawson, Gaudron and McHugh agreed, and Deane J generally agreed) (" Dalco "). Practice Note No 22, referred to at [37], is consistent with it. 115 The effect of ss 175 and 177(1) of the ITAA was considered by the High Court in Dalco . The Commissioner had assessed under ss 166 and 167 as in George . A majority in a Full Court of this Court had held that the taxpayer had shown that each assessment was excessive "in that it was not warranted by law" ( Dalco v Commissioner of Taxation 88 (1988) ATC 4649 at 4666). Accordingly, this Court had remitted each matter to the Commissioner for reassessment. 128 Mason CJ observed (at 178) that the making of a determination under s 177F "forms part of the process of assessment and goes to the ascertainment of the substantive liability of the taxpayer to tax " (emphasis in original). His Honour referred to the distinction recognised in George , McAndrew , FJ Bloemen and Dalco , between the procedural mechanism by which taxable income is ascertained on the one hand, and the taxpayer's substantive liability on the other, the former (alone) involving the "due making" of the assessment (at 182-184). After referring to certain illustrations of the distinction, the Chief Justice observed (at 184): "... the making of a determination by the Commissioner under s 177F of the [ITAA] is a determination going to substantive liability and, in conformity with the interpretation of s 177(1) adopted in George , McAndrew , FJ Bloemen and Dalco , is put in issue by an appeal which challenges the assessment on the ground that it is excessive." Later, Mason CJ referred specifically to the susceptibility of a determination under s 177F to attack in an appeal to this Court against an objection decision. His Honour stated (at 187-8): "In such an appeal, it is for the taxpayer to show that the assessment is excessive. In that context, the existence of an inadmissible purpose on the part of the Commissioner plays no part. The central element of the legislative r&eacute;gime is the making of an assessment by the Commissioner which ascertains the taxpayer's liability to tax and the reference to the Tribunal or the appeal to the Federal Court, in which the taxpayer is entitled to dispute his or her substantive liability to tax. In such an appeal, the taxpayer is at liberty to challenge the exercise of any relevant discretion by the Commissioner. Thus, on appeal, the court will set aside the assessment if any relevant exercise of discretion by the Commissioner is affected by error of law, if he has taken an extraneous factor into account or if he has failed to consider a material factor [citing Avon Downs at 360]" (emphasis added). 154 The position established by Peabody (see [119] above), Sleight (see [136] [145] above), and Syngenta (see [146] [150] above) seems to be that a distinction is to be drawn between cases in which the ITAA specifies a state of mind on which the assessment of the amount of taxable income (and tax) depends (cf Avon Downs , George , Giris , Duggan , Brian Hatch , Kolotex , WA Capital , Dalco ), and those in which it specifies, not a state of mind, but the making of a determination, as the event on which the amount of taxable income (and tax) depends (cf Jackson , Peabody , Richard Walter , Binetter, Sleight , Syngenta ). In the latter class of case, the legislature is taken to indicate that the interaction between s 177(1) of the ITAA and s 14ZZO(b) of the TAA produces the result that the Commissioner's state of mind, on the basis of which the determination was made, is part of the due making of the assessment, and cannot be put in issue by the taxpayer.