Re: RAYMOND WILLIAM JOLLEY

And: COMMISSIONER OF TAXATION

No. WAG 60 of 1988

FED No. 64

Income Tax - Administrative Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

Neaves(1), Burchett(2) and Lee(2) JJ.

CATCHWORDS

Income Tax - whether taxpayer carried on business in partnership with his wife - significance of intention of parties in formation of partnership.

Administrative Law - orders which may be made by Court consequent upon appeal from Administrative Appeals Tribunal - sub-s.44(4) Administrative Appeals Tribunal Act 1975.

Income Tax Assessment Act 1936, ss.90, 91, 92, 187, sub-s.6(1)

Taxation Boards of Review (Transfer of Jurisdiction) Act 1986, ss.222-224

Administrative Appeals Tribunal Act 1975, sub-ss.44(1), 44(4)

Second-Hand Dealers Act 1906 (WA)

Partnership Act 1895 (WA), s.8, sub-s.7(1)

TNT Skypak International (Aust.) Pty. Ltd. v. Federal Commissioner of Taxation (1988) 82 ALR 175

Keith Spicer Ltd. v. Mansell (1970) 1 WLR 333

Lombardo v. Federal Commissioner of Taxation (1979) 28 ALR 574

Federal Commissioner of Taxation v. McDonald (1987) 87 ATC 4541

Case N56 81 ATC 277

Pooley v. Driver (1876) 5 Ch.D. 458

Cox v. Hickman (1860) 8 HLC 268

Robert Coldstream Partnership v. Federal Commissioner of Taxation (1943) 68 CLR 391

Ayrshire Pullman Motor Services and D.M. Ritchie v. The Commissioner of Inland Revenue 14 TC 754

Federal Commissioner of Taxation v. Happ (1952) ALR 382

In re Commonwealth Homes and Investment Company Ltd. (1943) SASR 211

Case Q81 83 ATC 412

Minister for Immigration and Ethnic Affairs v. Gungor (1982) 42 ALR 209

Director-General of Social Services v. Hales (1983) 47 ALR 281

Commissioner for Superannuation v. Miller (1985) 8 FCR 153

Statham v. Commissioner of Taxation (1988) 89 ATC 4070

Commonwealth of Australia v. El Hassan (1985) 62 ALR 305

McBay, MD v. Director-General of Social Security (1985) ASSC 92-048

Scott v. Commissioner for Superannuation, Unreported (Federal

Court of Australia, Full Court, 23 December 1987)

HEARING

PERTH

#DATE 13:3:1989

Counsel for the Applicant: Mr M. O'Sullivan

Solicitors for the Applicant: Messrs Kott Gunning

Counsel for the Respondent: Mrs V. French

Solicitor for the Respondent: The Australian Government Solicitor

ORDER

The appeal be allowed.

The matter which is the subject of this appeal be remitted to the Administrative Appeals Tribunal for determination according to law.

The respondent pay the applicant's costs.



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

JUDGE1

In respect of the years of income ended 30 June 1978 to 30 June 1982 inclusive, Raymond William Jolley ("the applicant") was assessed to income tax on the basis that the business in which he was engaged during those years was his business and not a business conducted by him in partnership with his wife. Objections against amended assessments in respect of the years of income ended 30 June 1978 to 30 June 1981 inclusive and against the assessment in respect of the year of income ended 30 June 1982 were disallowed following which the applicant requested that the objections be referred to a Taxation Board of Review. Pursuant to the legislative changes effected by the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 (Cth), the objections came before the Administrative Appeals Tribunal ("the Tribunal"). Although the Tribunal remitted the assessments to the Commissioner of Taxation for amendment in certain respects, the Tribunal did not accept a number of the applicant's contentions, including the contention that, during the relevant years of income, the business was carried on in partnership with his wife. The applicant has appealed to this Court from the decision of the Tribunal but has pursued that appeal only in so far as the Tribunal determined the question of partnership adversely to him.

2. By virtue of the provisions of sub-s.44(1) of the Administrative Appeals Tribunal Act 1975 (Cth), an appeal to this Court lies only on a question of law. It is clearly not open to this Court to review the material that was before the Tribunal and reach its own conclusion whether the applicant had discharged the onus which rested upon him of showing that the assessments were, in the relevant respect, excessive.

3. The material before the Tribunal related to the conduct of the business by the applicant as a sole trader, subsequent discussions with his accountant when a suggestion was made that the business be conducted by the applicant and his wife in partnership, a discussion between the applicant and his wife in which she expressed her willingness to join in such a partnership and the subsequent conduct of the parties.

4. The essence of the applicant's case is that the Tribunal was bound, on the material before it, to find that a partnership existed. There is no doubt that there was material before the Tribunal which, taken alone, would justify a finding that a partnership existed. On the other hand, there was material, particularly material as to the way in which the business was conducted after the time when the partnership is said to have been established, which pointed in the opposite direction. It was a matter for the Tribunal to determine what weight it would give to these various factors or indicia.

5. In my opinion, the Tribunal was entitled, if not bound, to look at the whole of the facts and circumstances of the case. It has not been demonstrated to my satisfaction that the Tribunal's approach to the matter exhibits any error of law on its part. Looking at the whole of the material that was before it, I am unable to conclude that it was not entitled, on that material, to reach the conclusion that it did.

6. I would, therefore, dismiss the appeal with costs.

JUDGE2

This is an appeal from a decision of the Administrative Appeals Tribunal, constituted by a Deputy President, by which the applicant's objections to income tax assessments were remitted to the respondent for assessment of the applicant's liability for tax in accordance with certain findings of the Tribunal. The finding which has led to this appeal is that the applicant did not carry on business in partnership with his wife. Grounds of appeal related to some other matters were not pursued.

2. The Tribunal's decision relates to objections lodged by the applicant to amended assessments of taxation for the years of income ending 30 June 1978, 1979, 1980 and 1981 and an objection to an assessment of taxation issued for the year of income ending 30 June 1982. The principal ground of objection was the same in respect of each amended assessment and the assessment, namely; the respondent's failure to recognise the applicant's claim that he carried on business in partnership with his wife and the respondent's adjustment of the applicant's income by including the whole of the income returned as income of the partnership.

3. The respondent disallowed the applicant's objections and on 21 August 1984 the applicant requested that the respondent's decision be referred to a Board of Review pursuant to s.187 of the Income Tax Assessment Act 1936 ("the Act"). It appears that either such a reference had not been made to or no proceeding on that reference had been commenced by a Board of Review before the enactment of the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986. Accordingly, the right of appeal to this Court is the right provided by s.44 of the Administrative Appeals Tribunal Act 1975. (See Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 ss.222-224.) The foundation of that right of appeal is examined in detail by Gummow J. in TNT Skypak International (Aust.) Pty. Ltd. v. Federal Commissioner of Taxation (1988) 82 ALR 175 at pp 178-182.

4. Pursuant to sub-s.44(1) of the Administrative Appeals Tribunal Act 1975, the applicant's right of appeal from a decision of the Tribunal is restricted to an appeal on a question of law.

5. The question whether a partnership exists is a mixed question of law and fact (Keith Spicer Ltd. v. Mansell (1970) 1 WLR 333). If the Tribunal has misunderstood the law relating to partnership that will raise a clear question of law. (Lombardo v. Federal Commissioner of Taxation (1979) 28 ALR 574 per Bowen C.J. at p 576.)

6. Although the appeal turns on whether a proposition set out in the Tribunal's reasons is legally correct, it is most convenient, before turning to that proposition, to set out the undisputed or accepted facts of the matter.

7. In about March 1976 the applicant retired as production supervisor with Shell Oil Company of Australia Limited. After retirement he commenced a business of buying used oil drums and reselling them to a firm engaged in reconditioning such drums. Later the manner of business was varied by an arrangement being made with the reconditioner for drums to be reconditioned on behalf of the applicant's business and resold by him to several distributors of petroleum products. The nature of the business required the applicant to tour industrial areas and develop connections with people on industrial sites who would be able to alert him to the availability of used drums.

8. Mr Jolley testified that soon after commencing the business he was advised by his accountant to take his wife into partnership and as a result of that advice he put the proposition to his wife. Mrs Jolley confirmed in her evidence that she had been invited to join her husband in partnership and considered what it would entail before agreeing to do so. Mrs Jolley had discussed with the accountant the nature and purpose of the partnership after the accountant had advised her husband to suggest to Mrs Jolley that they commence to conduct the business in partnership.

9. A joint bank account was established to receive the proceeds of the trading of the business. Either party could operate that account although it appears that the applicant did so almost exclusively. There seems to be some lack of coincidence between the date of the opening of the joint account and the date of the alleged formation of the partnership. Both Mr and Mrs Jolley gave evidence that they had begun to conduct the business in partnership prior to June 1977. Thereafter accountants employed by them prepared accounts for a partnership and prepared for lodgement partnership taxation returns for each financial year from 1976-1977 to 1981-1982.

10. It was the applicant's estimate that his wife spent approximately twenty hours per week attending to business matters.

11. The business had no business name and the partnership accounts were prepared in the names of R.W. and J.C. Jolley.

12. The operation of the business required a licence to be held under the Second-Hand Dealers Act 1906 (WA). The applicant applied for and obtained such a licence in his own name in June 1981. A rubber stamp in the name of "R.W. Jolley Drum Dealer" was applied to some of the correspondence and invoices issued by the business. Most receipts and purchase orders issued by vendors and customers and invoices issued by the reconditioning firm were in the name of "R.W. Jolley" or "R. Jolley" but, perhaps significantly, four receipts issued in February and March 1980 by Esso Australia Ltd. were made out to "R.W. and J.C. Jolley". The reason why the issue of receipts in names suggesting a partnership may be more significant than the existence of other trading records in one name only is plain. Apart from the fact that, so far as partnership law is concerned, invoicing in one name is not inconsistent with the existence of a partnership, a failure to use both names may be a mere matter of neglect. But receipts made out in two names by a person trading with the business strongly suggest that this party had been informed that the business was conducted in partnership.

13. With regard to the earnings of the business, both Mr and Mrs Jolley testified that Mrs Jolley shared in or was entitled to half the profits of the business although it appears that the applicant applied the major part of those profits in investments in his own name but (according to the evidence) on trust in the interests of the family trust. Mrs Jolley testified that those investments were made with her accord.

14. Business invoices issued in the name of the applicant and the holding of a second-hand dealer's licence in his name do not of themselves deny the existence of a partnership although such items may be relevant for testing the worth of other evidence. In the present case the respondent does not rely upon those documents to contradict the oral evidence of the applicant and his wife. The respondent's argument is that the business of the applicant went on as before as the business of a sole trader and there was in truth no partnership in law, notwithstanding the parties may have expressed an intention to enter into partnership.

15. The relevant oral evidence as to the formation of the partnership was as follows:
    
    Mr Jolley:
    
    

"And did you commence it alone?......I started alone but then, having started to - when it started to gather momentum and I could see I could make a go of it in what I was doing, I approached an accountant who used to do my son-in-law's books, who was in business, and he agreed he would do my books and tell me how to go about setting up a partnership with my wife.



...



What was the advice he gave you?......That I make my wife a partner in the business and open up the joint account.



And open a. . . .?......A joint account. And is that what you did?......Yes. Did you make your wife a partner in the business?......Yes.



Did you discuss the matter with your wife?......Yes. Having visited Murray Mansell I came told (sic) my wife the discussion that we had had, and she agreed to go along with it. ...



Did you and your wife discuss the basis of the partnership, in other words, the terms upon which you and your wife would be in partnership? ......Yes. I indicated to her that I expected her to stay in each morning, nominally, you know, until midday to receive calls. ...



What was her role then in the partnership apart from receiving calls?......She did do some banking for me, although I made the banking up. And she did the mailing of accounts but I made the accounts up. I was more familiar with what was going on.



...



Was there any discussion between you and your wife as to the contributions that you would each make financially to the business?......Well it really was not necessary initially with the exception, you know, that when I ran into a cash flow half-way through the arrangement and I asked her for $5000 to help me out."



Cross-examination:



"I am just wondering in what circumstances was the partnership trading under the partners' names? ......Mr Mansell, whom I approached about forming a partnership - I approached him along the lines: how would I run a partnership? Mr Mansell was introduced to me by my son-in-law who was running a business with his wife. He advised to set up the bank account, to my knowledge, and he produced the necessary documents, or wrote the bank, and contacted you (sic) department - the taxation department. This was done by Mr Mansell not by myself.



...



On discussion with Mr Mansell I went home and discussed with my wife the setting up of the partnership, presumably I took it for granted it had been organized by the accountant. She agreed to go into partnership with me, we had an understanding.



...



You also mentioned that there was an equal capital contribution to the partnership between yourself and your wife?......Well there was not any capital involved really.



There was not any capital?......A very small amount in starting and gradually built up to it. And that was built up by your own efforts, was not it, Mr Jolley?......By the wife taking phone calls and that a lot of her effort went into it as well. I could not have operated without somebody on the phone.



...



Yes, what profits were you sharing with your wife, Mr Jolley?......In total all the moneys I received from drum trading."



Re-examination:



"Can I come to the question of the existence or otherwise of a partnership between yourself and your wife. Did your wife get paid a wage, or in any other way, other than a share of the profits out of the business?......No. How were the profits from the business handled - I am not talking about any money that was not banked - but was money banked in the joint account? ......Yes, there was money transferred from the business account to an access account. And, in whose name was that access account? ......In joint names."

Mrs Jolley:

"Can you recall the circumstances in which you became a partner? Did you discuss becoming a partner with your husband?......Well, Ray started out on his own with the car and the trailer and found out that it was going to be probably better than he thought and then when he went to Mr Mansell, he suggested that we should be a partnership because I was interested in helping him.



Did you go to Mr Mansell as well?......No. I see. All right. Well, how do you know he went to Mr Mansell?......Well, I take it that - he told me that he had.



Your husband told you, did he?......Yes. Also, I saw Mr Mansell afterwards.



All right. Well, when - after your husband had seen Mr Mansell, he came back and saw you, did he?......Yes.



And what did he say?......He said that Mr Mansell had suggested that we have a husband and wife partnership.



And what did you say to that?......Well, I thought about it for a little while and then I said, yes. Why did you think about it for awhile?......Because I had never been in - doing any business things and to be quite frank, I was not particularly interested in business. Right. But you did say, yes?......Yes. All right. And did - was there any more discussion about the partnership or about what should be done?......Well, it was necessary to have someone to take telephone calls when he was out. And he was out from early in the morning; he started very early because he used to go out looking for drums and then sometimes he would come back in early and then go to Drum Services or Egans, as they were called. And there were calls coming in requesting drums or with people who wished to sell drums.



So did you and your husband reach any arrangement about how things should be run, then?......Well, I was to be on hand to answer the phone when he was not available."



Cross-examination:



"All right. Well, now, towards the end of the year he starts the business and then you said there was a period where he sort of ran the business for himself and then after the advice of Mr Mansell, you came in?......Yes.



How long after he began the business, would you have come in as a partner? What was the time gap between his starting the business and you coming in as a partner?......A few months probably. I cannot really remember that either, but probably three or - two or three or four months, I should think.



When you did come in as a partner, did you sign any business name application papers to register a business name for the partnership?......No, no. Do you know whether your husband registered a business name?......I do not think so. I do not. . . .



You did not have a. . . .?......I do not think we were very good business people. We were not aware of a few things that should have been done. We should have been advised, probably, that way."

16. In addition to the evidence of the applicant and his wife, part of the evidence before the Tribunal was a statutory declaration by the applicant's accountant in which the declarant confirmed that he had advised the applicant to form a partnership with his wife and that he had prepared accounts for the partnership of R.W. and J.C. Jolley for the 1976-77 year.

17. With regard to capital contributions, the schedule accompanying the first partnership taxation return indicated that capital had been contributed equally. In his evidence to the Tribunal, the applicant asserted that only a small amount of capital was involved in the commencement of the business and no contribution was required from his wife at the inception of the partnership. The applicant gave evidence that she had contributed to the building-up of the business by attending to the telephone calls which were essential for the progress of the business. The telephone number for the business was the home number for the applicant and his wife. The applicant left home in early morning and perhaps ironically, approximately an hour earlier than the time he left home to go to work before his retirement from regular employment. It was the applicant's evidence that it was essential that the telephone be attended throughout the mornings whilst he was out touring industrial areas and making arrangements for the reconditioning of drums. In her evidence, Mrs Jolley confirmed that she had not been required to make a significant cash contribution to the capital of the partnership, but as a partner had lent monies to the partnership for a short period by obtaining monies from her own funds. She said that neither the provision of security nor the payment of interest was required because she was a partner and "part of the set-up". In her evidence, Mrs Jolley said that her part in the partnership activities lay in her providing assistance by receiving telephone calls for the business at home. She knew nothing about the reconditioning of drums and left that part of the business to her husband.

18. The term "partnership" as used in the Act is defined in sub-s.6(1) as follows:
    
    

"'partnership' means an association of persons carrying on business as partners or in receipt of income jointly, but does not include a company."

19. For the purposes of the Act a broader set of circumstances will satisfy that definition than would be sufficient to satisfy the definition of partnership in law as contained in sub-s.7(1) of the Partnership Act 1895 (WA). (See Federal Commissioner of Taxation v. McDonald (1987) 87 ATC 4541, 4550-4551.) Sub-section 7(1) of the Partnership Act 1895 provides:
    
    

"Partnership is the relation which subsists between persons carrying on a business in common with a view of profit."

20. Division 5 of Pt.III of the Act treats a partnership, as defined by the Act, as an entity for the purposes of the Act. Section 91 of the Act requires a partnership to furnish a return of the income of the partnership. Section 92 then provides that the assessable income of a partner is to include the individual interest of the partner in the net income of the partnership. Section 90 is an interpretation clause which provides a manner of calculation of the net income of a partnership.

21. The applicant lodged income tax returns for the years ending 30 June 1977 to 30 June 1982 which included assessable income in the form of his interest in the net income of the partnership, R.W. and J.C. Jolley in each of those years. A partnership return for that partnership was filed in each of those financial years as required by s.91 of the Act.

22. In respect of the 1977 year of income, and thereafter until 1982, the respondent accepted the applicant's return of income. In respect of the return for the 1982 year of income, the respondent declined to accept that the applicant was a member of a partnership as described in the return and issued an assessment treating the applicant as a sole trader and a series of amended assessments which included the whole of the income returned as income derived by the partnership as income earned by the applicant in the income years 1977-1978 to 1980-1981 inclusive.

23. The question for determination by the Tribunal was whether the applicant and his wife were members of a partnership within the meaning of the Act in each of the years of income from the years ended 30 June 1978 to 30 June 1982 being an association of persons carrying on business as partners or alternatively an association of persons in receipt of income jointly.

24. It was not in dispute that a business was being carried on with a view to profit. Whether the business was being carried on by Mr and Mrs Jolley in partnership was the remaining question to be answered in determining whether there was a partnership in law.

25. If the applicant alone performed all the work or activities of the business, that fact would be of clear relevance but would not preclude a finding that the business was being carried on in partnership as understood in law. If that finding could not be made by the Tribunal, it would be necessary for it to determine whether there was an association between the applicant and his wife pursuant to which they were jointly entitled to the profits of the business, such a circumstance being sufficient to satisfy the definition of partnership for the purposes of the Act.

26. The respondent did not dispute that Mr and Mrs Jolley discussed and agreed that they would enter into partnership. The respondent argued that Mr and Mrs Jolley were not aware of the meaning of the relationship of partnership and contended that when their actions are observed it may be seen that Mr and Mrs Jolley did not conduct a partnership and their acts were not the acts of partners. It is a fine line of distinction that the respondent has argued.

27. In deciding the matter the Tribunal referred to comments made by a Board of Review in Case N56 81 ATC 277 on the existence of a partnership in law and on the question of whether income had been received jointly within the extended meaning of partnership as defined in the Act. It concluded that no partnership in either sense existed between the applicant and his wife in the respective years of income.

28. The relevant passages in the Tribunal's decision are best set out in full rather than summarised:
    
    

"In Case N56 81 ATC 277 at 281 it was said: '... for a partnership to exist the law requires more than a bona fide intention of the parties to act as partners (see Waddington v. O'Callaghan (1931) 16 TC 187 at p 199) and a general understanding between the parties that they are in business as partners (see I.R. Commrs. v. Williamson



((1928) 14 TC 335) at p 340). ... Also, banks, suppliers and customers having dealings with a partnership have a right to know that they are trading with a partnership, as opposed to dealing with an individual, stemming from the obligation of partners to meet the partnership debts to the full extent of their own resources.' Looking therefore beyond the intention of the parties, regard must be had to the receipt of moneys in the joint account given that, in accordance with the definition of 'partnership' in sub-section 6(1) of the Act, receipt of income jointly is sufficient to create a partnership for the purposes of the Act. In the view of the Tribunal the following statement in paragraph 24 of Case N56



(supra) is applicable in this proceeding on this point: '24. Whilst it would seem that all business receipts of moneys were paid into the joint account, it does not necessarily follow that the husband and wife were in receipt of income jointly. The account was not specifically designated as a business account, and it is of course common practice for husbands and wives to operate joint bank accounts financed solely from the husband's own income. ... However, the overriding reason for ruling that they were not in receipt of income jointly stems from the fact that they never became jointly entitled to the profits. It was only the taxpayer who in a real sense conducted the business and therefore the profits of the business were his, and his only.'



That statement remains true in the opinion of the Tribunal even taking into account evidence of a withdrawal of a sum of money in respect of wedding expenses of the daughter of the Applicant and his wife. Furthermore, the acceptance by the Commissioner of the existence of the partnership in the year of income prior to the years here in question is not an estoppel against the operation of the Act in the years here under consideration - Federal Commissioner of Taxation v. Wade



(1951) 84 CLR 105 at 117.



Accordingly, the Tribunal finds that in the years of income with which this proceeding is concerned there was not a partnership between the Applicant and his wife in respect of the business activities in question."

29. The nature of a partnership has been a question to which much judicial wisdom has been applied and the definition of partnership contained in the Partnership Act 1895 is a distillation of those prior statements of the common law:
    
    

"Whatever may amount to a partnership is a subject which has been settled by decision according to English law, and the incidents of the partnership simply follow from the establishment of the fact of the partnership. If the partnership is established as a fact, then the liability to creditors is a mere incident flowing from the establishment of the fact. But it is a contract of some kind undoubtedly - a contract, like all contracts, involving the mutual consent of the parties: and it is undoubtedly a contract for the purpose of carrying on a commercial business - that is, a business bringing profit, and dividing the profit in some shape or other between the partners. That certainly partnership is. Whether it is anything more or not has been a question between various authorities, but it is that certainly."



(Pooley v. Driver (1876) 5 ChD 458 at p 472.)

30. Section 8 of the Partnership Act 1895 sets out matters to which reference is to be made in determining whether or not a partnership exists, but the criteria therein are expressed in a negative rather than a positive form and the principal rule for determination of the existence of a partnership is the requirement that the true contract and intention of the parties is to be ascertained according to all the facts and circumstances which bear on the relationship between the parties concerned. (Cox v. Hickman (1860) 8 HLC 268.)

31. In the present case, in the absence of a written agreement, the foundation of the partnership had to be found or rejected upon the basis of the oral statements of Mr and Mrs Jolley, as testified to by them, and of their conduct. As set out above, the respondent did not dispute in any way that the discussions occurred between Mr and Mrs Jolley in the terms set out by them in their evidence. That evidence makes it clear that the respective minds of Mr and Mrs Jolley were turned to the formation of a partnership which would conduct the business formerly conducted by Mr Jolley alone. It was not intended that Mrs Jolley have any major role in the management or conduct of the business, but she would make a contribution by keeping her mornings free and remaining at home to answer business calls.

32. Mrs Jolley's lack of participation in management of the business was in itself of no consequence. A partnership may exist notwithstanding that a partner may have no interest in anything but profits and may be denied a right of participation in management. (See Robert Coldstream Partnership v. Federal Commissioner of Taxation (1943) 68 CLR 391.) The right to share in the profits of the business is prima facie evidence of partnership although not conclusive.

33. The testimony of an oral accord to enter a partnership being accepted, the denial of a formation of a partnership has difficulties if the parties thereafter proceeded to regard themselves as carrying on business as partners. The formation of such a partnership was not dependent upon the contribution of any capital or provision of skills or services on the part of Mrs Jolley. Although the preparation of accounts in the name of the partnership was by no means conclusive, it was consistent with the accepted oral evidence that the parties had discussed the formation of a partnership and given instructions to their accountant in that regard. The manner of conduct of the business was not in itself redolent of conduct of a business in partnership and some actions may have indicated that the business was being conducted by a sole trader, but that material had to be assessed in the light of accepted oral evidence that the applicant and his wife had been advised to form a partnership, had discussed the formation of a partnership, and had agreed to commence business in partnership.

34. The case before the Tribunal was not one in which a partnership agreement had been ante-dated, which was perhaps the underlying circumstance in Case N56 referred to by the Tribunal. Two such cases were Ayrshire Pullman Motor Services and D.M. Ritchie v. The Commissioner of Inland Revenue 14 TC 754 and Federal Commissioner of Taxation v. Happ (1952) ALR 382 each of which was referred to in Case N56.

35. When the Board of Review in Case N56 stated that the existence of a partnership required more than the bona fide intention of the parties to act as partners, it was drawing a distinction between a state of affairs in which individuals respectively may merely hold intentions to act as partners and have a general understanding between them that they were partners, and a state of affairs in which the parties had directed their minds to the formation of a partnership and reached a state of mutual assent that a partnership would be then and there created and had acted accordingly. It is perhaps significant that the Board of Review added the following words in the passage quoted by the Tribunal:
    
    

"A business being carried on as a partnership represents to the world that a contractual obligation, either express or implied, exists between the parties forming the partnership. As part of this contract, a partner cannot transfer his share in a partnership to someone who is not already a partner unless all co-partners consent." (at p 281)

36. The evidence to be assessed in the matter before the Tribunal was the unchallenged direct oral evidence of the taxpayer and his wife to the effect that at a time during the 1976-77 year, they had discussed the formation of a partnership and agreed to conduct the business in partnership.

37. The various matters relied upon by the respondent as indicia of the conduct of a business by a sole trader might have been quite important if the veracity of the evidence as to the oral formation of a partnership had been in question. In the present case, the respondent put a different contention, that whatever the appellant and his wife thought they were doing they had not in fact established a partnership.

38. The establishment of mutual assent and intention is an essential element in demonstrating the existence of a partnership although it does not stand alone and must be assessed with all relevant circumstances including the conduct of the parties. In directing itself to look beyond the intention of the parties, however, the Tribunal appears to have considered that an oral agreement to conduct a business in partnership would be insufficient to constitute a partnership in law. The Tribunal's assessment of whether the applicant and his wife did carry on business in partnership should have proceeded with due regard to the established fact that they held a mutual intention to so act. The Tribunal failed to so assess the material before it and erred in law accordingly.

39. In the portion of its reasons which has been set out, the Tribunal implicitly accepted, but then set aside as insufficient to sustain the appellant's case, the evidence of intention expressed by the husband and wife when the wife assented to the husband's offer to form a partnership. The reasons do not explain what more was thought to be necessary. The leap to the conclusion is made in the phrase: "Looking therefore beyond the intention of the parties,..." It seems inescapable that the Tribunal saw itself as entitled to ignore a bargain the parties in question had intentionally concluded, and thereafter implemented, simply because of the principle it thought the Board of Review laid down in Case N56. But the Income Tax Assessment Act 1936 imposes taxes by reference to the law of partnership; it does not distort that law, or authorize the Tribunal to disregard it. In doing so, the Tribunal fell into error.

40. Having reached that conclusion, it is unnecessary to determine whether the Tribunal also wrongly applied the provisions of the Act by failing to find that the applicant and his wife constituted a partnership within the extended meaning of that term as defined in sub-s.6(1) of the Act; namely an association of persons in receipt of income jointly.

41. In the case before the Tribunal there was an association between the applicant and his wife consisting of an arrangement to share the profits of the business equally in return for the wife providing services in the business pursuant to which arrangement the profits were to be paid into a joint bank account. That arrangement was carried into effect and it was certainly open to the Tribunal to find that the applicant and his wife were an association of persons receiving the income of a business jointly.

42. In considering this question, the reliance placed by the Tribunal by analogy on Case N56 was misplaced in that the facts of that case, as found by the Board of Review therein, showed that the profits of the business were at all times earned or derived by the taxpayer. The monies there paid into a joint account of the taxpayer and his wife were stamped with the character of the taxpayer's moneys at the time of receipt, and the payment of the monies into a joint account did not produce the joint receipt of income by the taxpayer and his wife, but the disposition of it.

43. In the case before the Tribunal, consideration was required of the proposition that rights and duties arose out of the acknowledgement by the applicant and his wife in 1977 that they would be the common proprietors of a business formerly conducted by the applicant. There was evidence to be considered of an arrangement arising out of an oral accord resulting in entitlements held by the applicant and his wife to equal shares of the profits of the business and an obligation upon the applicant to account to his wife for the conduct of the business and the application of the profits. (See In re Commonwealth Homes and Investment Company Ltd. (1943) SASR 211 at pp 228-229 and Case Q81 83 ATC 412.)

44. It is apparent that the appeal should be allowed, but the question arises as to what order should be made. Sub-section 44(4) of the Administrative Appeals Tribunal Act 1975 empowers the Court to make such order as it thinks appropriate by reason of its decision. It has been pointed out that there is an implicit restriction on this power, the appeal being expressly limited to a question of law and it has been said that the question must be the sole matter before the Court and the only subject matter in respect of which an order may be made by the Court consequent upon the appeal. (See Minister for Immigration and Ethnic Affairs v. Gungor (1982) 42 ALR 209 at p 220; Director-General of Social Services v. Hales (1983) 47 ALR 281 at pp 309-310; Commissioner for Superannuation v. Miller (1985) 8 FCR 153 at pp 165-166 and TNT Skypack at p 181.) But there are cases where the resolution of the question of law, in a setting of facts already found or beyond dispute, compels a result that the Court should not shrink from itself declaring. (See Statham v. Commissioner of Taxation (1988) 89 ATC 4070 at p 4075; Commonwealth of Australia v. El Hassan (1985) 62 ALR 305 at p 316; McBay, MD v. Director-General of Social Security (1985) ASSC 92-048; Scott v. Commissioner for Superannuation, Unreported (Federal Court of Australia, Full Court, 23 December 1987 per Beaumont and Gummow JJ. at pp 19-20).)

45. The question of law in this appeal arises out of the question whether a partnership existed, that question being a mixed question of fact and law and perhaps the Court should decline to make any order on that question which pre-empts the function of the Tribunal in respect of any findings of fact. Accordingly, the appropriate order should be that the matter be remitted to the Tribunal for further consideration according to law.

46. The appeal should be allowed and an order made that the matter be remitted to the Tribunal for determination in accordance with these reasons.