COURT
IN THE SUPREME COURT OF THE NORTHERN TERRITORY OF AUSTRALIA
MARTIN CJ

CWDS
  Pay-roll tax - objections and appeals - appeal from decision of Commissioner
of Taxes - Nature of the appeal - Pay-Roll Tax Act (NT), s35, Supreme Court
Rules, O.83.  Builders Licensing Board v Sperway Constructions (Syd)  Pty Ltd
(1976) 135 CLR 616 at 621, applied.  Ex parte Australian Sporting Club Ltd; Re
Dash (1947) 47 SR (NSW) 283, applied.  Avon Downs Pty Ltd v Federal
Commissioner of Taxation (1949) 78 CLR 353, applied.  Federal Commissioner of
Taxation v Brian Hatch Timber Co (Sales) Pty Ltd (1972) 128 CLR 28,
distinguished.  Kolotex Hosiery (Australia) Pty Ltd v Federal Commissioner of
Taxation (1975) 132 CLR 535, applied.  Kolotex Hosiery (Australia) Pty Ltd v
Federal Commissioner of Taxation (1975) 130 CLR 64 at 84, referred to.
MacCormick v Federal Commissioner of Taxation (1945) 71 CLR 283, referred to.
Commissioner of Stamp Duties (Q) v Beak (1931) 46 CLR 585, distinguished.
Mead Packaging (Aust) Pty Ltd v Commissioner of Pay-roll Tax (NSW) (1978) 78
ATC 4164, considered.  Ballarat Brewing Co Limited v Commissioner of Pay-roll
Tax (Victoria) (1979) 10 ATR 228, considered. John French Pty Ltd v
Commissioner of Pay-roll Tax (1984) 1 Qd R 125, distinguished.  Cannon and
Peterson v Commissioner of Pay-roll Tax (1975) Qd R 177, referred to.

  Pay-roll Tax - Liability to taxation - Nature and degree of ownership or
control of the businesses - Pay-Roll Tax Act, s17H(1), "substantially
independently of", "substantially connected with".  Tillmans Butcheries Pty
Ltd v Australasian Meat Industry Employees Union (1979) 42 FLR 331 at 348,
applied.

HRNG
DARWIN, 25 - 26 May 1994
#DATE 5:9:1994

  Counsel for appellant:            Mr Close

  Solicitors for appellant:         Close and Carter

  Counsel for respondent:           Mr Spargo

  Solicitors for respondent:        Solicitor for the NT

ORDER
  Appeal dismissed.

JUDGE1
MARTIN CJ  The appellant is dissatisfied with a decision of the Commissioner
of Taxes on an objection made by the appellant to his not ordering that the
appellant be excluded from its grouping with another company for the purposes
of the grouping provisions contained in Part IVA of the Pay-roll Tax Act.  The
Commissioner disallowed the objection. The appellant appeals.

2.  It is common ground that the appellant and S G Kennon and Co Pty Ltd
constitute a group for the purposes of the grouping provisions which, in broad
terms, have the effect of aggregating the wages paid by each member of the
group for the purposes of assessment of pay-roll tax under the Act.  Without
such provisions it would be open to employers to so arrange a business or
businesses conducted by the employer through separate companies, and thus
avoid or minimise liability to taxation under the Act.  The grouping
provisions may, however, produce unjust results, and thus, notwithstanding
that a group may be constituted under the Act, if the Commissioner is
satisfied, having regard to the nature and degree of ownership or control of
the businesses, the nature of the businesses and any other matters that he
considers relevant, that a business carried on by a member of a group is
carried on substantially independently of, and is not substantially connected
with the carrying on of, a business carried on by any other member of that
group, the Commissioner may by order in writing served on that first mentioned
member, exclude him from that group (s17H(1)).  The Commissioner's refusal to
exercise that discretion in its favour forms the grounds of appeal brought
pursuant to s35.  By subs(2) of that section the objector is limited to the
grounds stated in his objection upon the appeal, and the burden of proving
that any assessment objected to is excessive lies on the objector.  Additional
questions have been raised in the context of this appeal, in particular,
whether or not it was open to the objector to call evidence before the Court
on the appeal which was not before the Commissioner when he disallowed the
objection, and, if so, the procedure that should be adopted in that regard.

3.  The appellant claims exclusion from the group for the period 1981 to 1987,
being the period covered by default assessments issued on 20 September 1989.
The assessments to pay-roll tax were made in respect of both the appellant and
S G Kennon and Co Pty Ltd.  Prior to that time there had been some
investigation of the affairs of the two companies by the Commissioner, and
notice had been given of the Commissioner's intention to assess pay-roll tax.
The response from the appellant was a letter of 10 February 1989 from its
solicitor.  In that letter, the solicitor first set out details of the
directorship and shareholding of each of the companies.  Mr S G Kennon held
nearly all of the issued shares in, and controlled more than 50% of the voting
power at a shareholdings meeting of Crusher Holdings Pty Ltd.  The other
shareholder was Mr P S Kennon, his son.  As to S G Kennon and Co Pty Ltd, the
directors were, again, Mr S G Kennon together with his wife, Mrs A A Kennon.
Mr Kennon owned one hundred shares out of the total number of shares issued of
550, however, one of those shares was a life governor's share. Pursuant to the
Articles of Association of the company, that life governor's share carries
with it 76% of the total of votes cast at a general meeting.  It was rightly
conceded that Mr Kennon, therefore, alone controlled more than 50% of the
voting power at a shareholders meeting of S G Kennon and Co Pty Ltd, and it
was acknowledged that because of that mutuality of control, the two companies
may be grouped by operation of s17D(2) and 17D(3)(b) of the Act.

4.  The representation then proceeded to draw attention to the provisions of
s17H, and it was contended that the businesses carried on by the two companies
were sufficiently different in character and were carried on substantially
independently of each other, such that the Commissioner should be satisfied to
make an order that the appellant be excluded from the group.  Details were
provided as to the separate arrangements made for the keeping of the books of
account of the two companies.  It was pointed out that the appellant carried
on the business of a crushing plant at Mount Bundy (some distance from Darwin)
and that the day to day running of that company was the responsibility of Mr S
G Kennon.  As to the company S G Kennon and Co Pty Ltd, its businesses were
carried on in Darwin, and the day to day running was said to be in the hands
of family members other than Mr S G Kennon.  The businesses operated by it
comprised property management under the control of Mrs A Kennon, a retail
section which was said to be by far the largest part of the operations of that
company which was under the control of Mr Robert Kennon, and the
engineering/welding workshop of which Mr S G Kennon was the foreman.  It was
said that Mr Kennon had never made use of his life governor's share at any
meeting in order to outvote the other shareholders.  There were approximately
14 employees (other than family) employed by S K Kennon and Co Pty Ltd and
there were 5 to 10 employees working for Crusher Holdings Pty Ltd.  They were
employed solely to do work for the respective employer and were paid their
wages by the employing company.  Apart from Mr S G Kennon, there were two
members of the Kennon family who did work for both companies.  One of them was
employed by the appellant, but did clerical work for S G Kennon and Co Pty Ltd
and another worked for S G Kennon and Co Pty Ltd, and his wages were paid by
that company, but he undertook bookkeeping for the appellant.

5.  Some months later the Commissioner for Taxes sought considerable
information in detail from each of the companies for the period from 1 July
1981 to the date of the request, September 1989, and a response was made in
mid-October.  On 16 July 1990, the Commissioner informed the appellant that he
had determined that an order for exclusion from grouping would not be granted
and in a contemporaneous document appearing on the Commissioner's file appears
the following:
    "Having considered the nature and degree of ownership, or
    control of the businesses, the nature of the businesses and
    other relevant matters, I am not satisfied that the business
    of S G Kennon and Co Pty Ltd is or was carried on
    substantially independently of, and is or was not
    substantially connected with the carrying on of, business
    carried on by Crusher Holdings Pty Ltd.  I therefore make no
    order to exclude S G Kennon and Co Pty Ltd from the group."
(There does not appear to be any similar document regarding the appellant).

THE OBJECTION
6.  The appellant forwarded a Notice of Objection to the Commissioner's
determination within the time limited by the Act, the relevant grounds being:
    "1. That the Commissioner should have exercised his
    discretion pursuant to S.17H of the Act to exclude the
    company from the grouping provisions in that the company's
    business is substantially independent of and not
    substantially connected with the carrying on of the business
    carried on by S.G. Kennon and Co. Pty. Limited.

    2. That the Commissioner should have been satisfied with the
    information and matters supplied to him by the Company in
    its application being the letter of David de Winter dated 10
    February 1989, and the letter and enclosure from the company
    dated 13 October 1989, that the business carried on by the
    company is substantially independent of and not
    substantially connected with the carrying on of the business
    carried on by S.G. Kennon and Co. Pty. Limited."

7.  It will be noted that in that Notice of Objection there was incorporated
by reference the letter from the solicitor, Mr de Winter of February 1989, and
the response made by the company to the Commissioner's enquiries in October:
"That the business carried on by the company is substantially independent of
and not substantially connected with the carrying on of the business carried
on by S. G. Kennon and Co Pty. Limited."  The emphasis draws attention to a
distinction which may be important.  The Act does not speak of "the" business,
it refers to "a" business, recognising that an employer may carry on more than
one business.

8.  The Commissioner disallowed the objection in due course (s34(3)), and the
appellant instituted this appeal, the grounds for which are in identical terms
to that contained in the Objection set out above, as required.

THE DISALLOWANCE
9.  The Commissioner's formal letter to the appellant disallowing its
objection did not contain any reasons, but an internal memorandum signed by
the Commissioner asserts, as would appear to be the case, that the objection
to the Commissioner's decision not to make an order under s17H was not
supported with any material other than that which had been put forward in
support of the application for that order.  Under the heading "Reasons for
Disallowance" appears the following:
    "The evidence shows that during the relevant period the
    taxpayer was, within the meaning of the Act, carrying on
    business which was substantially connected and was not
    substantially independent of the business carried on by S G
    Kennon and Co. Pty Ltd.

    The objection submission discloses no adequate reasons for
    reversing the decision not to exclude the company from the
    group.

    As to the matters raised by the taxpayer in the application
    for exclusion, these were properly and fully considered in
    determining the application.

    In particular, the information provided relating to the
    nature of the ownership of the companies, the nature and
    degree of control and the commercial and administrative
    links between the companies, disclosed a substantial
    relationship in respect of the carrying on of business by
    the companies.

    On the basis of the above I am satisfied that the decision
    not to exclude the taxpayer from the group was properly
    made.  For the above reasons Grounds 1 and 2 fail."

10.  The first paragraph simply asserts a conclusion both as to fact and law,
but it shows that the Commissioner was directing himself generally to the
proper question to be asked in the case.  (Although he has reversed the
criteria by which he ought to be satisfied or not from that set out in subs(1)
of s17H, and the distinction between "the" and "a" was not observed).  As to
the second paragraph, it is not a reason to say that a submission on an
objection to a decision "discloses no adequate reasons for reversing the
decision ...", nor does it advance the Commissioner's position for him to
assert, as he does in the third paragraph, that as to the matters raised by
the taxpayer in the application for exclusion "these were properly and fully
considered in determining the application".  What the Commissioner was bound
to do was to consider the material before him in the face of an objection to
his decision to refuse the application to exclude the appellant from the
group.  In any event, it is a self-serving statement and this Court is not to
be bound by the Commissioner's assertion that he had done his job properly.
Although he does not disclose details of the information upon which he based
his decision, he has in the fourth paragraph found in general terms, by
reference to the information previously provided to him by the appellant, a
failure to disclose "a substantial relationship in respect of the carrying on
of business by the companies".  There are two problems with that.  The first
is that the question is not whether there is a substantial relationship in
respect of the carrying on of the business by the companies, the question is
whether a business carried on by the appellant is carried on substantially
independently of, and is not substantially connected with the carrying on of,
a business carried on by S G Kennon and Co Pty Ltd.  The second point, and it
is probably just an extension of the first, is that nowhere in his reference
to matters considered does the Commissioner advert to what has been the basis
of the appellant's representations, that is, that the businesses carried on by
the two companies are different in character and are carried on substantially
independently of each other so as to entitle the appellant to be excluded from
the grouping provisions of the Act (see the letter of 10 February 1989 from
the appellant's solicitor to the Commissioner and the details there provided
as to the distinction between businesses carried on by each company).  Section
17H specifically requires the Commissioner to have regard to the nature of the
businesses, inter alia, and it is not apparent, and cannot be implied from all
that the Commissioner said in his ruling on the objection, that regard was had
to that factor.

THE NATURE OF THE APPEAL
11.  There is nothing in the Act which helps the Court determine the nature of
the appeal referred to in s35 nor the procedure by which it should be
conducted beyond s35 itself.  The provisions of O.83 of the Supreme Court
Rules, in particular, Part II, apply.  Amongst other things, it is provided in
r83.18 that upon being served with a Notice of Appeal the Tribunal (which
includes a person whose decision is under appeal) shall produce to the
Registrar the record relevant to the appeal, including the reasons for the
decision.  It is also provided in r83.20(2) that where an appeal is by way of
rehearing, either party may call new evidence at the hearing.  In this matter,
there had been a directions hearing pursuant to r83.13 when the Master made
orders, by consent, extending the time for the respondent to produce the
records required under the Rules, and as to the filing and serving of
affidavits between the parties.  At the commencement of the hearing of the
appeal, the further issue arose.  That is, what was the nature of the appeal
and how should it be conducted?  In particular, was the appeal to be
determined upon the material before the Commissioner at the time he made his
decision or could the Court receive additional evidence?  In that regard, Mr
and Mrs Kennon had each sworn and filed affidavits containing some material in
addition to that before the Commissioner, and counsel for the appellant
indicated that they might also wish to give oral evidence.  The questions
being novel, at least in so far as this Court was concerned, it was agreed
that argument would first be directed to the grounds of appeal upon the
material before the Commissioner when he made his decision, the affidavit and
oral evidence which the appellant wished to place before the Court would then
be brought forward, and if it was appropriate for the Court to take that new
material into account, it would do so, but if not, it would be ignored.  The
matter proceeded in that way.  (The respondent did not seek to put any
information before the Court other than that which had been brought in
pursuant to the Rules, and verified on the Commissioner's affidavit).

12.  The right of appeal is from a decision of an administrative or executive
authority and in the words of Mason J in Builders Licensing Board v Sperway
Constructions (Syd) Pty Ltd (1976) 135 CLR 616 at 621:
    "There are, of course, sound reasons for thinking that in
    many cases an appeal to a court from an administrative
    authority will necessarily entail a hearing de novo ( ... )
    The nature of the proceeding before the administrative
    authority may be of such a character as to lead to the
    conclusion that it was intended that the court was to be
    confined to the materials before the authority.  There may
    be no provision for a hearing at first instance or for a
    record to be made of what takes place there.  The authority
    may not be bound to apply the rules of evidence or the
    issues which arise may be non-justiciable.  Again, the
    authority may not be required to furnish reasons for its
    decision.  In all these cases there may be ground for saying
    that an appeal calls for an exercise of original
    jurisdiction or for a hearing de novo."

13.  In so saying, his Honour paid regard to what had been said by Jordan CJ
in Ex parte Australian Sporting Club Limited; Re Dash and Anor (1947) 47 SR
(NSW) 283, in that the word "appeal" "may refer to an appeal from an executive
authority to some other executive authority or to a Court.  If such an appeal
is to a Court, the jurisdiction which it exercises is not appellate, but
original" (ibid) but, as Mason J pointed out, that is not an absolute rule and
in the end result it all depends upon the intention of the legislature to be
gleaned from the legislation.

14.  In Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR
353, Dixon J was entertaining an appeal under the Income Tax Assessment Tax of
1936.  Division 2 providing for reviews and appeals established a system not
unlike that to be found in the Pay-roll Tax Assessment Act. Section 187(b)
provided for an appeal to the High Court from a decision of the Commissioner
of Taxation upon an objection made by a taxpayer. It was further provided, in
s190, that upon such an appeal a taxpayer shall be limited to the grounds
stated in his objection, and the burden of proving the assessment excessive
would lie upon the taxpayer.  As to those provisions, Dixon J at 360, said
that the Commissioner's decision was not unexaminable:
    "If he does not address himself to the question which the
    sub-section formulates, if his conclusion is affected by
    some mistake of law, if he takes some extraneous reason into
    consideration or excludes from consideration some factor
    which should affect his determination, on any of these
    grounds his conclusion is liable to review.  Moreover, the
    fact that he has not made known the reasons why he was not
    satisfied will not prevent the review of his decision.  The
    conclusion he has reached may, on a full consideration of
    the material that was before him, be found to be capable of
    explanation only on the ground of some such misconception."

15.  At the conclusion of his judgment, at p365, his Honour held that for
reasons connected with the transaction in question and "because no ground has
been shown for interfering with the Commissioner's judgment", the appeal would
be dismissed.  But what of the proposition that once such an error is found on
the part of the Commissioner, then the Court should decide the matter for
itself upon the basis of the material considered by the Commissioner plus any
further evidence which either of the parties may care to place before it on
appeal.  This is not a case such as Federal Commissioner of Taxation v Brian
Hatch Timber Co (Sales) Pty Ltd (1972) 128 CLR 28 where the above statement of
Dixon J was accepted, but the examination of that question was complicated
because little evidence was before Walsh J, who heard the appeal at first
instance, to show what was the material before the Commissioner when he made
his decision.  It was in those circumstances that his Honour allowed evidence
to be given concerning the facts surrounding the relevant transaction.  In
Kolotex Hosiery (Australia) Pty Ltd v Federal Commissioner of Taxation (1975)
132 CLR 535 at 568 Gibbs J said:
    "It seems that a court in deciding whether some ground has
    appeared to justify a review of the Commissioner's
    conclusion that he is not satisfied should consider the
    question on the basis of the material which was before the
    Commissioner even though further material is before the
    court - Federal Commissioner of Taxation v. Brian Hatch
    Timber Co. (Sales) Pty. Ltd. (supra).  However, it would
    appear to me that once it is decided that the conclusion of
    the Commissioner should be disturbed, for example, on the
    ground that it was based on error, it is right for the court
    to reach its final conclusion as to whether or not the
    Commissioner ought to be satisfied by reference to all the
    material before the Court, because if the matter were
    referred back to the Commissioner to reconsider the question
    he would obviously be entitled and bound to consider all the
    information then available.  Both parties in the present
    case put their submissions on the footing that once this
    Court decided that the Commissioner had been in error the
    appeal should be decided by reference to all the material
    before the Court."
And Stephen J at 578-579:
    "Consideration is, in the first instance, to be confined to
    material which was before the Commissioner when he made his
    assessment, as is made plain by the judgments in this latter
    case; but once it is established that the Commissioner has,
    in this case through error of law, failed properly to
    perform his statutory function the court will then determine
    what state of mind concerning the matters (.....) will
    amount to a discharge of that function and will do so having
    regard to the facts then before it, viewed in the light of
    what the court regards as the true effect of the
    legislation."

16.  It appears from the earlier judgment of Mason J, in Kolotex Hosiery
(Australia) Pty Ltd v Commissioner of Taxation (1975) 130 CLR 64 at 84, that
oral evidence was put before him.

17.  Both Stephen J (supra at 578) and Mason J (supra at 85) referred to
Federal Commissioner of Taxation v Brian Hatch Timber Co (Sales) Pty Ltd
(supra).  Rath J was not called upon to decide the issue in Mead Packaging
(Aust) Pty Ltd v Commissioner of Payroll Tax (NSW) 78 ATC 4164.  His Honour
discusses the cases at 4170 to 4171, but said it was not necessary to express
any opinion on the jurisdiction of a court to review the Commissioner's
findings.  In the course of his review of the cases, his Honour referred to
MacCormick v Federal Commissioner of Taxation (1945) 71 CLR 283.  In that
case, Latham CJ, (at 299) referred to the series of cases involving the
interpretation of taxation statutes where it had been held that where matters
are to be determined by the exercise of a discretion by the Commissioner of
Taxation, or in accordance with an opinion formed by him upon an appeal, the
court cannot substitute the discretion or opinion of the court for that of the
Commissioner:
    "(b)ut in those cases the court has also held that, if it be
    shown that the discretion was exercised or the opinion
    formed upon a wrong construction of the relevant statute, or
    that the discretion exercised or the opinion formed was so
    irrational as to be not a discretion or an opinion of the
    character contemplated by the statute, an assessment should
    be set aside and remitted to the Commissioner for
    reconsideration in accordance with law" (ibid).

18.  Dixon J, (at 307) with whom McTiernan J agreed, said much the same thing,
but said that the law had been developed by pursuing a course "which derives
more support from usage than from logic".  His Honour there referred to
Commissioner of Stamp Duties (Q.) v Beak (1931) 46 CLR 585, where in the
judgment of the Full Court, of which he was a member, it was open to the Judge
of the Supreme Court of Queensland on appeal at first instance to substitute
his finding as to the value of certain shares which, in the opinion of the
Commissioner, were worth somewhat more, for the purposes of succession duty
assessment.  His Honour had not gone beyond his jurisdictional powers in
making his own assessment of the value of the shares, but it is not clear
whether the Court took into account material additional to that before the
Commissioner.

19.  These various authorities were brought together and discussed in Ballarat
Brewing Co Limited v Commissioner of Pay-roll Tax (Victoria) (1979) 10 ATR 228
by Gray J, who was of the opinion that the right of appeal given by the
Victorian equivalent to s35 of the Territory Act should be regarded as
bestowing a right of appeal in the strict sense requiring the appellant to
establish that the decision appealed against was wrong at the time it was
given upon the material before the Commissioner.   His Honour spoke of the
prospect of the matter being sent back to the Commissioner with any fresh
evidence (at 235).  He was satisfied that in order to attack the
Commissioner's "'satisfaction' .... no fresh evidence can be looked at until
it is shown by the appellant that the Commissioner's judgment miscarried in
one of the ways stated by Dixon J in the Avon Downs case" (at 236).  It was
not necessary in that case for his Honour to decide whether evidence led upon
the appeal could be looked at because he could detect no error in the
Commissioner's finding.  Clearly, his Honour was doubtful as to whether
evidence led upon appeal could be looked at at all (ibid). There was a
difference in the Full Court of the Supreme Court of Queensland when the
matter came before it in John French Pty Ltd v The Commissioner of Pay-roll
Tax (1984) 1 Qd R 125.  McPherson J, with whom Campbell CJ agreed, said at
p139 that when the reasons for the decision of the Commissioner are before the
Court of Appeal and an error is demonstrated "it no doubt then becomes
appropriate to permit evidence to be adduced (....)".  Matthews J disagreed at
pp129 and 130.  McPherson J relied to some extent upon Cannan and Peterson v
Commissioner of Pay-roll Tax (1975) Qd R 177.  That was an application before
Andrews J for directions as to procedure in an appeal against the
Commissioner's decision on an objection to an assessment under the Pay-roll
Tax Act. Amongst the specific directions sought, was one as to the manner in
which evidence was to be given upon the appeal, but no where is the nature of
the appeal discussed nor the nature of the evidence it was proposed to adduce.
No reference was made to whether or not evidence, other than that before the
Commissioner at the time he made his determination, was sought to be put
before the court on appeal.  As his Honour pointed out at 182, the application
before him was "of the nature a test case", suggesting that the matter had
been brought on not long after the amendment giving the right of appeal.  In
any event, the position in John French Pty Ltd v Commissioner of Pay-roll Tax
(supra), as demonstrated by McPherson J at 139, may best be regarded as having
been decided on its own facts.  Here, all the material before the Commissioner
and the reasons for his decision are before this Court by operation of the
Rules.

20.  There is no authority binding on this Court regarding the receipt of
evidence on this type of appeal, other than that prescribed by the Rules.  It
is upon the basis of the material before the Commissioner alone that the Court
is to determine whether or not the Commissioner erred in such a manner as to
enable the Court to set his decision aside and determine the question for
itself.  There is no warrant for receiving evidence beyond that.  It is up to
the taxpayer to satisfy the Commissioner on the material available to the
Commissioner, and, in the event that an error is found in his reasons, giving
rise to a review of the material by the Court, that should be no opportunity
to enhance the submission or introduce any new basis for it.  Taxpayers ought
to be bound by their submissions to the Commissioner.  After all, the taxpayer
is in possession of all the relevant facts.  There is nothing to prohibit
successive applications for exclusion, even in relation to the same period of
time if it was thought that there was material omitted from a submission which
on reflection should have been included, or omitted by oversight.
Accordingly, if the Court finds a relevant error on the part of the
Commissioner, it will review the original material for itself and determine
the question upon that material alone.

DID THE COMMISSIONER ERR?
21.  In the words of Rath J in Mead Packaging (Aust) Pty Ltd v Commissioner of
Pay-roll Tax (supra) at 4172, s17H(1):
    "requires two findings to be made, namely (1) that a
    business carried on by the plaintiff (as a member of a
    group) is carried on substantially independently of a
    business carried on by any other member of that group; and
    (2) that the business is not substantially connected with
    the carrying on of the business carried on by the other
    member of the group.  The first limb appears to relate to
    the independence of the businesses, and requires an
    examination of the connection between the business
    activities.  The second limb appears to relate to connection
    in management.  At all events the composite expression used
    in the subsection requires a consideration of the businesses
    and their control, and a finding of substantial independence
    and substantial absence of connection."

22.  As s17H(1) itself shows, the carrying on of substantially independent
businesses is not established merely because the nature of the business of
each company is different.  However, in this case, that issue was at the
forefront of the appellant's submissions and ought to have been specifically
adverted to and dealt with by the Commissioner.  It may not have been quite as
dramatic as the ice cream parlour in Brisbane and the prawn processing plant
in Karumba referred to in John French Pty Ltd v Commissioner of Pay-roll Tax
(supra at 137 - 138), but nevertheless it was a matter calling for careful
consideration.  He has patently excluded from his consideration a factor which
should have been taken into account.

23.  The Commissioner's reasons show that he erred in his statutory duty, and
it is therefore necessary that this Court examine the evidence before him and
consider the issue for itself.

SHOULD THE APPELLANT HAVE BEEN EXCLUDED FROM THE GROUP?
24.  The thrust of the appellant's case is that it should be excluded from the
group because the nature of the business conducted by it is so different from
that conducted by S G Kennon and Co Pty Ltd.  It emphasises as well Mr
Kennon's control over the whole of its business and that he is at the crushing
plant, 100km from Darwin for much of his time attending exclusively to that
business.  Whilst in Darwin at the premises of S G Kennon and Co Pty Ltd he is
active as the foreman of part of its business only and the other businesses
are under the management of others.  He does not in fact exercise the powers
of control he has in relation to the affairs of that company.

25.  It is the Commissioner's contention that all the evidence shows that the
involvement of Mr S G Kennon in the businesses carried on by the appellant and
S G Kennon and Co Pty Ltd precludes any finding that the appellant should have
been excluded from the group.  In particular, it is Mr Kennon's position as
director and principal shareholder of both companies and his involvement in
the day to day running of the businesses which leads to this conclusion.
Further, the position and involvement of other personnel, particularly members
of the Kennon family, support the conclusion.

26.  It is convenient to approach the task by taking the matters referred to
in 17H and considering them separately.

THE NATURE AND DEGREE OF OWNERSHIP OR CONTROL OF THE BUSINESSES
27.  The businesses being conducted by corporations, this issue is best
considered in the light of the shareholding and directorship of the two
companies.  They are referred to above.  Mr Kennon holds nearly all of the
issued shares and certainly controls more than 50% of the voting power in the
appellant and is one of the directors of it along with Mr Paul Kennon.

28.  As to S G Kennon and Co Pty Ltd, Mr Kennon is a director along with Mrs
Kennon, and Mr Kennon owns 100 of the 550 allotted shares, but including a
life governor share which entitles him to cast 76% of all the votes. The other
shares are held by Mrs Kennon and Mr Paul Kennon.  In so far as the life
governor share is concerned, it was put to the Commissioner, and does not seem
to be disputed, that it was issued to him "in the early days of the company
when his skill and knowledge were required to guide the younger members of the
family.  Mr Kennon had never made use of the life governor share at any
meeting in order to outvote the other shareholders", see the letter from the
appellant's solicitor of 10 February 1989.  He may be entitled to exercise a
high degree of cntrol, but he has not done so.  There is nothing to suggest
that Mr Kennon exercises any greater degree of control over the businesses
conducted by S G Kennon and Co Pty Ltd than does anyone else involved.  As to
day to day conduct of the businesses, Mrs Kennon manages the properties, Mr
Robert Kennon manages the retail business, the larger section of the business,
and Mr Kennon is the foreman of the engineering/welding workshop, which infers
that he manages that aspect of the business. Those contentions put on behalf
of the appellant are not in dispute. The uncontroverted facts put before the
respondent are that the day to day running of the appellant's business is the
responsibility of Mr Kennon and he controls it.  Apart from the assertion that
the retail section of S G Kennon and Co Pty Ltd is the largest section of the
businesses conducted by that company, there is nothing to indicate the
relative size of the three undertakings in monetary or other terms .

29.  There is no mutuality of directorship of the two companies, other than
through Mr Kennon.  Although the question of control loomed large in relation
to the grouping of the businesses (and it is conceded that the two companies
here in question are grouped by operation of those provisions) it is not the
only factor to be taken into account when considering exclusion of one of the
companies from the group in accordance with s17H.

THE NATURE OF THE BUSINESSES
30.  This has already been described.  There is no similarity between the
businesses conducted by each of the companies, except that they both sell
things as part of that separate undertaking.

OTHER RELEVANT MATTERS
31.  To be relevant, the matters to be taken into consideration must go to the
issue of whether a business carried on by the appellant is carried on
substantially independently of and is not substantially connected with the
carrying on of a business carried on by S G Kennon and Co Pty Ltd.  For the
exclusion to be available, the appellant must demonstrate both criteria,
substantial independence and lack of substantial connection in the carrying on
of a business.  Information on these issues were put broadly in the
solicitor's letter of February 1989, but in more detail in answer to the
Commissioner's queries in October of that year.  There is a difficulty with
that material, because it does not focus upon events which may have occurred
during the period under investigation, and it may be that closer examination
would reveal that the independence and connection between the businesses
conducted by the two companies has varied from time to time.  But that is the
way the case has been presented and the Court must do the best it can on the
material before it.

32.  There are dealings between the two companies.  Total sales by S G Kennon
and Co Pty Ltd to the appellant amount to 1.25% of all sales of S G Kennon and
Co Pty Ltd.  That is made up in the sale of hardware items, and of a slightly
lesser value, the provisions of engineering services. It is not possible to
determine what the proportion of the purchases by the appellant from S G
kennon and Co Pty Ltd, either as to hardware or engineering services, is to
its total purchases.  There are no sales by the appellant to the other
company.  S G Kennon and Co Pty Ltd provides some storage facilities for the
aggregate produced by the appellant at its premises in Darwin, but for the two
years prior to the submission to the Commissioner, the approximate percentage
of the total sales of the appellant of materials stored at the S G Kennon and
Co premises was 0.95%.  The accounts and wages records for the appellant are
kept in the S G Kennon and Co Ltd office, and when he is not at the crushing
plant at Mount Bundy, Mr Kennon works from an office in the S G Kennon and Co
premises in Darwin.  As noted above, there is a degree of sharing of services
of family members between the two companies.  The telephone for the appellant
is unlisted, though regular customers know the number, but new or prospective
customers telephone S G Kennon and Co.  The two companies share a post office
box, but each has its own stationary. Apart from a motor vehicle used by Mr
Kennon to drive to the crushing plant at Mount Bundy, which is also used on S
G Kennon and Co business in Darwin, there is no sharing of plant, equipment
and motor vehicles between the two companies.  The same accountant provides
accounting services to each company, but they have separate legal advisers.
Their banking and financial facilities are separate, but the services provided
to each company by members of the Kennon family are noted above, and they
appear to be paid their respective wages by each company for the separate
services rendered.  Mr Kennon receives but a small proportion of his income
from S G Kennon and Co, the bulk of it derived from the appellant; Mrs Kennon
receives nothing from the appellant.  Mr Kennon is fully responsible for the
day to day operations and management of the appellant, but he and Mrs Kennon
and other members of their family are each partly responsible for the conduct
of the business of S G Kennon and Co.  The directors of the two companies meet
together once a year for formal meetings.  There are several informal meetings
of directors of S G Kennon and Co, but such meetings are not held in relation
to the affairs of the appellant, Mr Kennon having complete control of its
business.  He spends about half of his time in the day to day management of
the appellant at its plant in Mount Bundy and the other half in relation to
the engineering and welding part of the business of S G Kennon and Co Pty Ltd.
Mrs Kennon, apart from the bookkeeping services referred to, has nothing to do
with the appellant's day to day business affairs, although, along with Mr S G
Kennon and Mr Paul Kennon and Mr Paul Kennon she is one of the signatories to
its bank account.  As at 30 June 1988 the appellant owned S G Kennon and Co
Pty Ltd approximately $750,000, which balance is said to have been in
existence prior to July 1981.  Its balance sheet for taxation purposes shows a
substantial amount of liability in excess of the value of its assets.  It does
not appear that it could pay the debt to S G Kennon and Co Pty Ltd if called
upon to do so.  There is a common piece of property, described as "Title 74
Folio 121" which has been used by each of the companies as security for loans.
There are some customers who are common to each of the companies.

CONCLUSION
33.  The word "substantial", or, as here, "substantially", is not only
susceptible to ambiguity, it is a word calculated to conceal a lack of
precision (per Deane J Tillmans Butcheries Pty Ltd v Australasian Meat
Industry Employees' Union (1980) 42 FLR 331 at 348).  It calls for the
exercise of judgment.

34.  The defacto control of the whole of the business of the appellant by Mr
Kennon sets it apart from S G Kennon and Co Pty Ltd, as does the nature of the
business it conducts.  The sharing of the services of some family members for
bookkeeping and the like does not significantly impact upon that.  S G Kennon
and Co Pty Ltd stores and sells on behalf of the appellant a minimal quantity
of its output.  These factors count in favour of a finding that the appellant
has established that it should have been excluded from the group.

35.  The debt owed by the appellant to the other company, is of considerable
importance.  Although said to be historical, it is nevertheless a debt which
if called in would, on the material available, put the appellant into
financial difficulty.  It is not shown that its existence as a business
enterprise is not dependent upon the continuing goodwill of S G Kennon and Co
Pty Ltd.  Further, should the occasion arise, it would be open to Mr Kennon to
exercise his powers as a life governor of that company to inhibit its demand
upon the appellant.  There is also the question of the engineering work
undertaken by S G Kennon and Co Pty Ltd for the appellant.  The appellant has
not shown the extent to which its repair and maintenance requirements are
carried out by the other company in comparison with what is done for it in the
same field by others.  Nor is it possible to determine what the proportion of
the whole of the appellant's work bears to the whole of the
engineering/welding work of S G Kennon and Co Pty Ltd.  Mr Kennon's
involvement as foreman of that part of the latter company's business must also
be taken into account. There is no satisfactory evidence to indicate that the
business conducted by the appellant is not carried on substantially
independently of the engineering/welding business of S G Kennon and Co Pty
Ltd.  That would be enough to tell against the appellant on that account, but
it has also failed to show that there is no substantial connection between
those two businesses.  Mr Kennon runs both of them.

36.  The appeal is dismissed.