Richardson v FCT
48 CLR 192(Judgment by: Dixon J.)
Richardson v Federal Commissioner of Taxation
Court:
Judges:
Dixon J.Evatt J.
McTiernan J.
Judgment date: 8 August 1932
MELBOURNE AND SYDNEY
Judgment by:
Dixon J.
ON APPEAL FROM THE HIGH COURT (STARKE J.).
The following written judgments were delivered:
DIXON J. These are cross-appeals from an order of Starke J. made under s. 51 (6) of the Income Tax Assessment Act by which he allowed in part an appeal from a decision of the Board of Review and reduced the amounts to which the taxpayer had been assessed for tax and additional tax. According to the decision of the Board, which agreed with the Commissioner, the taxpayer in his several returns for the six financial years beginning on 30th June 1924 and ending on 30th June 1930 had failed to include large amounts of assessable income, and therefore became liable to pay in respect of each year by way of additional tax the amount prescribed by s. 67 (1) of the Income Tax Assessment Act 1922-1930, no part of which was remitted by the Commissioner.
The assessable income which the taxpayer failed to include in his returns arose from operations conducted by a person whom the Commissioner and the Board considered to be a nominee of the taxpayer. There is no appeal by the taxpayer from so much of the decision of the Board as determines the facts. The nominee, however, returned as his own the income derived from the operations which he conducted on behalf of the taxpayer, and, except in the last year, with which we are not now concerned, this income was included in his ordinary assessments. The consequence is that, in respect of the income now included in the taxpayer's assessments, tax has already been levied by the Commissioner although not upon the taxpayer, but upon his nominee, and, not at the rate payable by the taxpayer, but at a much lower rate. The Commissioner has not cancelled or amended the assessments made upon the nominee, and he has retained the full amount of tax paid under them. At the same time, in his amended assessments upon the taxpayer, the Commissioner has refused to take any part of the payments under the nominee's assessments into account, either in reduction of the amount of taxable income derived by the taxpayer from the operations conducted by the nominee, or as part payment of the tax levied upon that taxable income or of the additional tax levied under s. 67, or as otherwise reducing the total amount payable by the taxpayer. Thus a liability was imposed upon the taxpayer in respect of each year of a total sum consisting of the increase in the amount of tax arising from the inclusion of the omitted income in his assessment and of a further sum equal to double that increase, and neither he nor his nominee received any credit or repayment of the tax already paid by the nominee.
The Commissioner was upheld by the Board of Review, but Starke J. ordered a reduction in each year. He reduced the total amount of each assessment thus composed by a sum equal to the increased tax already paid by the nominee by reason of the inclusion in his assessment of the income now taken into the taxpayer's assessment. His Honour proceeded upon the ground that, having treated the person conducting the operations whence the income arose as a mere nominee or dummy for the taxpayer, the Commissioner was bound to act consistently and should treat all his acts upon the same basis. His Honour said: "The Income Tax Acts do not authorize the Commissioner to take income tax twice over in respect of the same source for the same period of time.
The appeal of the Commissioner from this order is based upon the single ground that under s. 51 of the Income Tax Assessment Act 1922-1930 neither the Board nor this Court upon appeal from the Board has any authority in respect of additional tax payable under s. 67. Sub-s. 1 of s. 50 provides that a taxpayer who is dissatisfied with the assessment made by the Commissioner under the Act may lodge with him an objection in writing against the assessment, and sub-s. 4 enables a taxpayer who is dissatisfied with the Commissioner's decision upon the objection to request him to refer the decision to the Board of Review. Section 51 (4) provides that the Board of Review shall give a decision and may either confirm the assessment or reduce, increase, or vary the assessment. From these provisions it follows that if the additional tax imposed under s. 67 is properly included in the "assessment," then it is a matter to which the taxpayer may object and his objection may be referred to and decided by the Board. But the question whether an assessment ought to include additional tax imposed under s. 67 cannot be answered unless an answer is first given to the further question whether an assessment is not a mere ascertainment of taxable income-whether, in other words, the calculation and levying of the tax are not subsequent to and independent of the assessment of taxable income, depending for their efficacy, not upon the Commissioner's determination (subject to review and appeal), but upon the operation of the statute upon his assessment of income. The language of ss. 35, 36 and 37 rather supports this view of the statute, and possibly it represents the intention of the original enactment of 1915. But a number of provisions in the Income Tax Assessment Act 1922 and in the amendments of that Act makes it clear that the ascertainment of the rate and amount of tax is part of the process of assessment. To begin with, s. 13 (2) of the 1922 Act speaks of assessments of tax in which the rate to be applied to the taxable income shall be calculated. Then s. 20 (4) refers to a rebate of tax in the taxpayer's assessment and to the tax payable in his individual assessment; sub-ss. 3 and 4 of s. 27 to the tax assessed; s. 29 to assessment for income tax at a prescribed rate; s. 30 (1) to a rebate in the taxpayer's assessment of a sum equal to the difference between two amounts of tax; s. 31 (3) to the tax assessed against a taxpayer; s. 32 (1) to the assessment and levy of income tax and s. 32 (2) to assessment of income tax for a financial year; s. 61 (c) to the income tax assessed; s. 62 (1) to tax not having been assessed; s. 67 to an amount of tax being assessable to a taxpayer and s. 71 to assessment and payment of tax. To this evidence further proof that the assessment includes the ascertainment of tax is added by the amending Acts. It is enough to refer to the amendments, substitutions, or additions made in s. 16 (b), second proviso, by No. 27 of 1923; in ss. 16 (a) (ii.) and 16 (aa) and 21 (2) and (2A) by No. 51 of 1924; in ss. 62 (3A) and 62 (3D) and the Second Schedule by No. 32 of 1927; in ss. 27 (3), (4) and (4A) by No. 46 of 1928; in ss. 21 (2) (proviso) and 54 (4) by No. 50 of 1930 and in s. 23 (1) (a) by No. 23 of 1931. The adoption of an amount of income tax is, therefore, part of the process of assessment and is accordingly subject to objection, review and appeal.
The Commissioner, however, contends that, although the ascertainment of ordinary tax may lie within the process of assessment and so be open to objection and appeal, that process does not extend to the obligation imposed by s. 67 upon taxpayers guilty of the acts and omissions which it describes to pay additional tax, unless it be remitted by the Commissioner. It is said that s. 67 is a penal provision which operates automatically unless the Commissioner exercises his power of remission, and that the additional tax is recoverable independently of assessment by proceedings at law to enforce a statutory obligation to pay a sum of money. Section 56 imposes an analogous obligation which must be subsequent to and therefore cannot be the subject of assessment. Under its provisions, upon late payment of the tax assessed, the taxpayer incurs a liability to an additional tax of ten per cent per annum unless it is remitted by the Commissioner. On the other hand, all the matters to which s. 67 relates except, possibly, the furnishing of information must from their nature precede assessment and in the case of failure or neglect to furnish information, although no doubt under s. 97 (1) (a) a notice requiring information may be given by the Commissioner after as well as before assessment, yet under s. 67 upon assessment the period ends in respect of which the percentage per annum is calculated.
Again, the matters which affect the existence and the amount of the liability under s. 67 are closely associated with assessment. In ascertaining the taxable income for the purpose of assessment, the questions must be dealt with whether assessable income has been omitted from, or excessive deductions have been included in, a return. What tax is assessable to the taxpayer or is properly payable depends upon the assessment as did the question which arose upon the section before the amendment of 1927, namely, what tax would have been evaded if the assessment had been based on the return lodged. It would be a departure from the legislative policy, if, in proceedings to recover additional tax, the questions what tax was properly payable, whether receipts omitted from the return are assessable and whether deductions included are allowable, were not concluded by the existence of a standing assessment but were left for determination as issues of fact upon a trial at law. Findings might be given upon these questions quite at variance with the conclusions adopted by the Commissioner in making his assessment of tax, or by the Board of Review in deciding a reference under the assessment, or by the Court in determining an appeal from the assessment. Further, some notification must be given to the taxpayer of the existence and the amount of his liability under s. 67. The Commissioner must formulate a claim to additional tax and must make a preliminary determination of these matters as well as consider remitting the liability. Except the process of making, amending and notifying assessments, no method is indicated by the Act in which such a determination or claim should be expressed or communicated. That process and the subsequent proceedings upon objection provide the Commissioner with a convenient method and an appropriate occasion for determining whether the section applies to the case, and, if so, how he will exercise the discretions which it reposes in him, and for recording and communicating the result in a formal manner. Finally the very description "additional tax" gives rise to a presumption that it will be levied and collected in the same way as the principal tax to which it is accessory. Unless some contrary intention appears, the inclusion of additional tax in the assessment is a natural consequence of the view that the ascertainment of the tax, as well as of taxable income, is part of the process of assessing. Notwithstanding the suggestion to the contrary which I hazarded on a former occasion (R. v Federal Commissioner of Taxation; Ex parte King [F1] ), I think that the better interpretation of the statute is that the procedure of assessment, objection, review and appeal does apply to additional tax under s. 67. It does not follow that upon an appeal to this Court under s. 51 (6) or s. 51A the discretion of the Commissioner to remit additional tax can be controlled. Whether the Board of Review is, or is not, entrusted with the revision of this discretion depends upon the language of s. 44, which does not apply to the Court. The decision of Starke J. in no way depends upon any exercise of discretion: It does no more than appropriate, in partial discharge of the prima facie liability of the taxpayer, a portion of payments already received by the Commissioner in satisfaction of tax levied upon another person in respect of the same income. Counsel for the Commissioner did not support the Commissioner's appeal against the correctness of this appropriation, but contented himself with denying the authority of the Court or Board to deal with the matter under s. 51, and with a further contention that what his Honour had done fell outside the limits of the taxpayer's objection. This latter contention depends upon the fact that the objection, so far as material, is confined to the excessive amount of the penalty and upon the suggestion that the order appealed from really reduces the ordinary tax. The order is not so expressed, but, on the contrary, purports to reduce the total liability of each assessment by amounts equivalent to the nominee's contribution to the revenue in respect of the income included in that assessment.
For these reasons the Commissioner's cross-appeal fails.
The first ground upon which the taxpayer complains that the order of Starke J. is not sufficiently favourable to him is that the Commissioner ought not to be admitted at all to set up the liability of the taxpayer to be taxed upon the income derived from the operations of his nominee, while the Commissioner maintains the assessment of the nominee in respect of the same income and retains the tax paid under the assessments. The assessments were not made upon the nominee in a representative capacity, and it is plain that two persons cannot be severally liable each in his own right to include in his individual assessment for the same year the same income. It is said, therefore, that, although upon the findings of the Board the income must be taken to be part of the assessable income of the taxpayer, yet so long as assessments upon the nominee which include the income as his are maintained in force to warrant the retention of the tax already paid, the Commissioner cannot assess the taxpayer in respect of that income. Although the cases were not cited, I understand the principle relied upon to be that formulated by Wilde B. in the Court's judgment in Cave v Mills [F2] , at p. 747; by Honyman J. in Smith v Baker [F3] , at p. 357; by Scrutton L.J. in Verschures Creameries Ltd v Hull and Netherlands Steamship Co [F4] , at p. 612. It is enough for present purposes to say that the general rule is that no person may, after obtaining an advantage by the assertion of rights in relation to another and while retaining it, set up and rely upon other rights against the same person inconsistent with the existence of those already asserted. When the present case was before Starke J. the Commissioner insisted that he should retain the whole amounts paid by the nominee under his assessments. This money, the taxpayer submits, must be treated as his upon the view of the facts adopted by the Board of Review. At the same time it is clear that if the Commissioner reduced these assessments by excluding the income now ascribed to the taxpayer, he would be bound to refund the overpayments of tax to the nominee, not to the taxpayer. It may be true that the nominee is, saving all questions of illegality of object, accountable to the taxpayer for the repayments he would so receive. But the Commissioner would not be accountable to the taxpayer. The order of Starke J., by crediting the nominee's payments of tax to the taxpayer, accomplishes the very object which would be effected if a refund of the tax was made to the nominee and he accounted to the taxpayer for the refund. The question is therefore reduced to the effect upon the Commissioner's authority to assess the taxpayer produced by the existence of the unaltered assessments upon the nominee. Is the alteration of these assessments so as to exclude the income an essential condition of the Commissioner's power to include the income in the assessments of the taxpayer? In considering this question it must be remembered that the assessments do not affect rights in property but personal liability only. The assessments do no more than ascertain and record the nominee's debt to the Crown. The nominee, being liable to pay to the Crown a sum for income tax calculated upon the difference between certain of his receipts and of his disbursements during a given period, has caused this difference to be computed at an excessive amount, and has thus incurred a liability upon his assessment of a larger debt to the Crown than he otherwise owed. But those facts considered alone do not affect the taxpayer. What affects the taxpayer is the withholding of his money, if it be his, under colour of the assessments. Again, the case is not one in which a given state of facts exposes two persons in the alternative to a liability at the option of another; it is not a case in which a public officer has an election between two courses so that he cannot pursue both at once. Upon the state of facts which must be taken to be true the taxpayer alone was exposed to tax in respect of the income in question. The nominee's liability arose only upon a false state of facts. No doubt, when and if the Commissioner arrived at the clear conclusion that to ensure the completeness and accuracy of the nominee's assessments the exclusion of the income he returned was requisite, it became his duty to exercise his power under s. 37. But it was not unnatural that he should delay relieving one of two persons whom he considered culpable until the liability of the other was established. The questions which may arise out of such situations are no doubt attended with difficulty. For this reason it is not desirable to enter upon them more at large than is necessary for the decision of this appeal. It is enough to say that there is nothing in the character of the power given in s. 37 or in the nature of the power of assessment which requires the formal alteration of the nominee's assessments before the alteration of the assessment of the taxpayer.
For these reasons the first ground relied upon in support of the taxpayer's appeal fails.
The remaining grounds depend upon the construction of s. 67. Section 67 imposes a liability by way of additional tax for double the amount of the difference between the tax properly payable and the tax assessed upon the basis of the return lodged. The taxpayer desires that in ascertaining this difference the sums should be taken into account which were paid by the nominee because of the inclusion of the taxpayer's income in his assessments. In other words, the order appealed from is said to have erred against the taxpayer in deducting these sums after the total amount of tax and additional tax had been made up, and not earlier. The contention is that, of the actual liability to tax to which the true amount of his income exposed the taxpayer, so much must be considered to be already satisfied as is represented by payments made by the nominee in excess of his true liability to the Crown. To meet the difficulty which this contention encounters in the language of the section, counsel for the taxpayer offers two interpretations-either of which would suffice. First, it is said that the expression the tax assessed upon the basis of the return lodged should be applied to all tax assessed in respect of the income whether against the taxpayer or against his nominee. No doubt the word return includes returns, so that, for instance, if the complaint was that a taxpayer who had made more than one return for the year had included excessive deductions in his statement of taxable income, the section might be applied as if there were one return. But it is quite another thing to construe it as if the identity of the taxpayer were irrelevant to the returns so long as they related to the income. Perhaps returns made under s. 89 might be considered with returns by the principal, and there may be other cases where persons are responsible for one another in respect of the same income, but the expression tax assessed upon the basis of the return lodged cannot, in my opinion, extend to the case of two independent persons assuming to make returns of their individual income. The second interpretation turns upon the phrase the tax properly payable. This is construed on behalf of the taxpayer as referring simply to the deficiency of tax levied upon items of income, to the amount of tax in respect of any income which the revenue should have, but has not, received, as disregarding the payer and concerning itself only with the payment, so that the amounts paid by the nominee must be allowed in ascertaining what remains to be paid in respect of the income of the taxpayer wrongly included in the nominee's return. Some support for this view of the meaning of the provision was sought in the consideration that the language of the provision was probably adopted merely to avoid the implication of fraud contained in the word evade in the provision as it stood formerly, when it was expressed the tax which would have been evaded if etc But, whatever may have actuated the change, the terms now employed leave no doubt that the tax properly payable means the tax which the taxpayer ought to have paid. A comparison is required between two amounts. The first amount is that which the taxpayer ought to have paid. The second is either what he would have been required to pay if his return had been adopted for his assessment, or what he has actually been required to pay by an assessment actually made upon the basis of the return lodged. It is for present purposes immaterial which of these alternatives correctly describes the second amount, although Starke J., following his decision in Penrose v Federal Commissioner of Taxation [F5] , adopted the latter alternative for the purpose of his decision in respect of the last year of assessment in this case upon which the Commissioner does not persist in this appeal. What is material is the nature of the first amount. It consists not of the loss suffered by the revenue at the time when s. 67 is put into operation, but of the sum which ought originally to have been levied on, and paid by, the taxpayer. For these reasons it is impossible to take the reductions ordered by Starke J. into account at an earlier stage in the calculations than his Honour did, that is, before ascertaining or in ascertaining the amount of the difference between the tax properly payable and the tax assessed upon the basis of the return lodged.
The last ground urged in support of the taxpayer's appeal is that s. 67 does not require double this amount to be paid in addition to the full ordinary tax, that is, in effect, not treble the difference, but only double the difference. It is said that the section is dealing with additional tax of the same character as that to which s. 37 applies, and differs only from s. 37 in that it requires payment of double the difference between the amount of the original assessment and that found to be properly payable as a result of making alterations and additions. Secs. 54 (2) and (3) and 56 speak of the amount of tax payable in consequence of an amendment as "additional tax," and much of the reasoning by which this argument of the taxpayer was supported depends upon the similar description contained in s. 67. But the use of the same expression does not justify the conclusion. Additional tax is a descriptive term applied to many different kinds of further liability imposed by the income tax legislation. It is used in s. 21 (2) of the Act of 1922 of a further amount of tax payable by reason of a distribution of profits by a company among its members, and probably in the provision substituted for that sub-section by No. 51 of 1924, s. 7, it has the same meaning (see also s. 21, sub-s. 2A, and s. 16 (b) (ii.) (3)). In s. 56 it is used in two different senses, first to describe the tax payable as a result of alteration or addition to an assessment and then a further liability of a penal character. In s. 5 of the Income Tax Act 1916 No. 37 of 1916), and I think in all the subsequent taxing Acts, the phrase is used to describe a further impost consisting of a percentage of the amount of tax resulting from the application of the declared rates to the taxable income. In s. 65 (6) of the Income Tax Assessment Act 1922-1930 it is used in the definition of tax to include all these meanings. No doubt, in s. 57 (2) and s. 58 its use is ambiguous. Section 67 itself applies the expression additional tax to a percentage increase by way of penalty, and in its original form (s. 59 of the Income Tax Assessment Act 1915) this percentage increase was the only consequence that ensued from failure to include assessable income in a return, and was described as a liability by way of additional tax. The change made in the provision by s. 40 of No. 18 of 1918 seems to have been directed not to an alteration in the nature of the liability but to a differentiation between and to an increase in its maximum amounts. Further, the reference to the tax properly payable, to a minimum of one pound, to the additional tax for late payment, and to remission, while none of them is inconsistent with the taxpayer's argument, all suggest its incorrectness. At first sight, the choice given the Commissioner of suing to recover a penalty appears to be still more against the taxpayer's view, but, perhaps, if stress is laid on the words this section in the statement in that case the additional tax payable under this section shall not be charged, the provision may be explained as implying that a single additional tax remains payable under s. 37.
It follows that s. 67 intends to impose a liability to the additional tax that it describes which is cumulative upon the ordinary liability of the taxpayer for tax in respect of his true taxable income, and therefore cumulative upon the additional tax payable by reason of an amendment made under s. 37.
For these reasons the order of Starke J., in so far as it has been attacked upon this appeal, should be affirmed. Both the taxpayer's appeal and the Commissioner's cross-appeal should be dismissed with costs. Costs to be set off.