Richardson v FCT
48 CLR 192(Decision by: Evatt J.)
Richardson v Federal Commissioner of Taxation
Court:
Judges:
Dixon J.
Evatt J.McTiernan J.
Judgment date: 8 August 1932
MELBOURNE AND SYDNEY
Decision by:
Evatt J.
EVATT J. This appeal and cross-appeal from the decision of Starke J. under the Income Tax Assessment Acts 1922-1930 are described by his Honour as follows:
"All are concerned with the inclusion of profits derived from a business carried on in the Exchange Hotel, Melbourne. These profits had been originally returned by one P. H. Collins, as income derived by him in carrying on the business in the hotel, but it is not now disputed that Collins was a nominee or dummy for Richardson, and that the profits were in fact part of the latter's income, for the purpose of the Income Tax Acts. Richardson failed to include these profits in the return of his income, and was assessed in the various financial years upon the basis of the returns lodged by him. Richardson was guilty of a fraud upon the revenue, which cannot be excused or palliated, in pretending that the income represented by the profits of the Exchange Hotel belonged to Collins. He thus secured a considerable reduction in the rate of his tax, and thereby greatly reduced the amount of the tax payable by him. When the Commissioner discovered the facts, he amended his assessments upon Richardson, and included the profits from the Exchange Hotel in his assessable income."
Taking the income year of 1924 by way of example,-
- (1)
- Richardson's first return resulted in an assessment and payment by him of tax amounting to PD6,447 19s. 3d.
- (2)
- If Richardson had included the hotel profits, he would have had to pay an additional tax of PD3,775 11s. 2d.
- (3)
- In respect of such profits, included by Collins in his return, Collins was assessed and paid tax amounting to PD2,054 1s. 6d.
- (4)
- Subsequently the Commissioner assessed Richardson the PD3,775 11s. 2d. which should have been paid by him, and also, by way of liability under s. 67, twice that sum, i.e., PD7,551 2s. 4d., the total additional assessment being PD11,326 13s. 6d.
- (5)
- Starke J. ordered a reduction of such assessment of PD11,326 13s. 6d. by the sum of PD2,054 1s. 6d. (Collins's payment) and against that order no objection has been raised by the Commissioner, except so far as it is involved in the general question of the competence of the appeal.
The taxpayer's grounds of appeal are as follows:
- (1)
- That the assessment of the taxpayer in respect of the hotel profits is not authorized by the Act because the assessment against Collins includes such profits and it stands unamended.
- (2)
- That the PD2,054 1s. 6d. assessed upon and paid by Collins must be taken into account in estimating the amount of the liability which is imposed upon Richardson by s. 67 (1).
- (3)
- That the taxpayer's only liability is that under s. 67 and that such liability excludes the ordinary liability to pay tax in respect of the omitted income.
(1) The first point is based upon the general principle that the Act does not intend the same income to be assessed and taxed more than once, and that Collins's amended assessment is incontrovertible evidence of an intention to reach both him and Richardson in respect of Richardson's profits from the hotel. But we are not concerned with Collins's rights, if any, against the Commissioner, and it would be curious if, despite Richardson's "fraud upon the revenue" (as Starke J. calls it), he could establish the invalidity of the assessment upon him by production of the assessment arrived at in error through his own misrepresentation.
The general principle invoked need not be questioned. But it cannot be stated, without qualification, that the administration of the Act must be such that tax can never be leviable against two separate individuals in respect of the same income. "One income, one taxpayer, one tax" is the general scheme of the Act. But where A, acting in collusion with B, has returned part of B's income as his own and has been enabled by B to pay the tax assessed in respect of such income, with the result that B is successful in a fraud, I think that it is hopeless for B to claim that he is exempted from his liabilities under the Act unless and until A's assessment is altered and a refund made. Whatever rights A may have to obtain his refund, B cannot say, either that an altered assessment upon him in respect of what is admittedly his own income is unlawful, or that the liability under s. 67, which springs from his own default, is somehow suspended.
(2) The second question depends upon the meaning of s. 67. The difference between the two amounts described therein has to be ascertained, and then doubled. The first amount is "the tax properly payable," the second is "the tax assessed upon the basis of the return lodged." In this case the first amount is considerably greater than the second, but Mr. Ham sought to reduce the difference by increasing the second amount, introducing the assessment upon Collins in respect of his return. The tax assessed for the year 1924 would then be PD6,447 19s. 3d. assessed upon Richardson and PD2,054 1s. 6d. assessed upon Collins, i.e., PD8,502 0s. 9d. in all; the tax "properly payable" by Richardson would be PD6,447 17s. 3d. plus PD3,775 11s. 2d., i.e., PD10,223 10s. 5d. On this footing the "difference" would be only PD1,721 9s. 8d. Such figure-PD1,721 9s. 8d.-certainly represents the sum of which the revenue was deprived in respect of the year 1924 by the combined action of Richardson and Collins. But s. 67 (1) (b) strikes at every person who "fails to include any assessable income in any return." That presupposes a person's returning what is his own assessable income. If Richardson can rely upon Collins's return and assessment for the purposes of s. 67 (1) (b), it seems to me that he can just as well say "I am not hit by the provision at all, because all of the profits of the hotel were included in Collins's return," as say "The tax assessed upon the basis of the return lodged includes that assessed upon Collins in respect of the hotel profits as well as that assessed upon me." In truth s. 67 (1) (b) operates to make Collins's return and assessment irrelevant because "any return" and "the return lodged" must refer to the returns made by the person dealt with by the provision.
Mr. Herring ingeniously sought to produce the same result by contending that "the tax properly payable" was not the tax assessed upon the basis of Richardson's returns and paid by him, plus the increase of tax assessable and payable by him if he had included the hotel profits in his return, but those sums minus the tax already paid by Collins in respect of such profits. I think that the same answer applies and that "the tax properly payable" means the tax payable by the taxpayer if he had included the omitted income in his return.
I agree that the rejection of Collins's return and assessment from consideration in measuring the liability of Richardson under s. 67, operates with as much severity against him, as if there had never been any return or payment at all in respect of the hotel profits; and that the measure of liability under the section would as a general rule be only double the amount by which the Treasury was worse off by reason of the act forbidden. But Richardson's omission of hotel profits from his return is clearly within the intendment of the section. Whether, upon the facts, this is a proper case for the exercise of the power of remission, is a matter for the sole consideration of the Commissioner, under the terms of the proviso.
(3) The final argument of the taxpayer is that Richardson's liability to pay under s. 67 is substituted by the Act for any obligation to pay the extra tax for which he would ordinarily be liable by reason of the inclusion of the hotel profits in the altered assessment under s. 37. The contention is that, in respect of the year 1924, Richardson's total liability is limited to twice PD3,775 11s. 2d., under s. 67, and does not include his ordinary liability as a taxpayer, under the Act, to pay PD3,775 11s. 2d. in respect of the hotel profits. This argument is untenable. If it were conceded, the Commissioner would be given power, under the proviso to s. 67 (1), to remit the whole of the liability thereunder, thereby leaving the taxpayer under no liability whatever in respect of the omitted part of his assessable income. But s. 67 is a penal provision, as is indicated by the heading to Part VII., and the amount of liability therein specified is an amount in the nature of a penalty. The liability is not to pay "additional tax" but to pay an amount "by way of" additional tax. The liability is ascertained by the Commissioner, and the ordinary procedure of assessment and collection via the Commissioner is adopted. But the penal liability is in no sense a substitute for, but is cumulative upon, the ordinary liability to pay, and that the Act imposes upon those who do not, as well as upon those who do, include all their assessable income in their returns. Cases of unfairness or harshness are for the Commissioner to consider in the exercise of his discretionary power.
The last matter argued, logically the first, is the only one raised by way of cross-appeal. It is a matter of jurisdiction and raises the question whether an assessment of the taxpayer by the Commissioner is an assessment subject to objection under s. 50 (1), review by the Board of Review under s. 51 (4) and appeal to this Court under s. 51 (6) or s. 51A. In Penrose v Federal Commissioner of Taxation [F6] , Starke J. entertained an appeal in respect of an objection by a taxpayer in relation to liability alleged to have been validly incurred and assessed under s. 67. And he was of opinion that the ascertainment by the Commissioner of the rate and amount of tax "is a function within the duty of assessment." In spite of a contrary indication suggested by s. 35, I agree with the opinion of Starke J.
It has already been pointed out that s. 67 is a penal provision, but the procedure for meeting the liability to pay imposed by it is expressly stated to be "by way of additional tax." The amount of such liability depends not only upon the tax assessed upon the basis of the return lodged but also upon the "tax properly payable." The ascertainment of the amount of tax being "within the duty of assessment," it seems reasonably clear that the amount of liability is to be levied and collected through the medium of assessment in all respects as if it were an "additional tax." The liability assessed should, therefore, like an ordinary or amended assessment, be subject to objection and appeal. The result is both just and convenient, and I think that the Act secures that result.
It follows that both the appeal and cross-appeal have failed, and the judgments of Starke J. should be affirmed.