Slater Holdings Limited v. Federal Commissioner of Taxation.Judges:
David Hunt J
Supreme Court of New South Wales
David Hunt J.
This is an appeal against the decision of the Deputy Commissioner of Taxation disallowing an objection by Slater Holdings Ltd. (the taxpayer) to an assessment in relation to tax imposed upon income derived by the taxpayer during the year ended 30 June 1970.
The taxpayer was a shareholder in another company, Ogg Holdings Ltd., which declared a dividend in favour of the taxpayer of $26,900, divided as follows:
from Capital reserves $12,330.32 from Capital reserves represented by gifts to the company 12,000.00 from divisible revenue profits 2,569.68
The taxpayer's return showed under the heading ``Dividends and Distributions Received'':
Ogg Holdings Ltd.: - Taxable - from Accumulated Appropriations Account $2,569.68 Non-taxable: - Return of members funds 12,000.00 Dividend ex Capital Profits Reserve 12,330.32
The return was referred to Mr. Griffin, then the Company Assessing Team Leader in ``Section A Rebates (Liquidation)'', the section in the Department which deals with returns of companies in liquidation. This was done, Mr. Griffin said, by reason of an assumption by someone else in the Department that Ogg Holdings Ltd. was in liquidation. Mr. Griffin himself made the same assumption; he understood the reference to ``the Return of Members Funds'' to be a return of shareholders' funds on the liquidation of that company. It was the Department's understanding that the amount of $24,330.32 was non-taxable only if Ogg Holdings Ltd. was in liquidation. In fact, Ogg Holdings Ltd. was not in liquidation. Nor was it even a company limited by shares. In fact, it was a company limited by guarantee.
Mr. Griffin unsuccessfully searched a card index system kept by the Department to ascertain whether there had been a distribution by the liquidator of Ogg Holdings Ltd. He assumed, from his experience of similar lapses in the past, that the absence from the card index system of any reference to that company being in
ATC 4138liquidation must have occurred because the liquidator had neglected his statutory duty to make the Department aware of his appointment. Mr. Griffin therefore accepted the taxpayer's claim that the $24,330 was not taxable. He gave a direction in these terms:
``No card. Accept $24,330 as not taxable and refer back for review.''
When the taxation return of Ogg Holdings Ltd. was subsequently lodged, the Department became aware that that company was in fact not in liquidation. An amended assessment was thus issued to the taxpayer which included the sum of $24,330 as taxable income. The Deputy Commissioner's disallowance of the taxpayer's objection to the amended assessment has led to this appeal.
Provided that the taxpayer has made a full and true disclosure of all material facts, no amendment increasing the taxpayer's liability may be made by the Commissioner except to correct an error in calculation or a mistake of fact: Income Tax Assessment Act 1936, sec. 170(3).
The taxpayer submits that no mistake of fact was made and that the Commissioner was not entitled to make the amendment to his assessment. On the other hand, the Commissioner claims that there was such a mistake of fact and that in any event there had not been a full and true disclosure by the taxpayer of all the material facts.
Reliance was placed by the taxpayer upon the decision of Woodhouse J., in
Caldow v. Wall (1964) N.Z.L.R. 65. That case concerned an application for leave to bring an action for damages for personal injuries after the expiration of two years from the accrual of the applicant's cause of action. An applicant for such leave must show that his delay resulted from ``mistake or any other reasonable cause''. His Honour so interpreted the word ``mistake'' in that context as to oblige an applicant to demonstrate that not only was the mistake reasonably based but also that in itself the mistake provided a reasonable explanation for the delay; mistake, his Honour held, could not be equated with forgetfulness or ignorance (at p. 68).
No such context is apparent from the provisions of sec. 170(3), and I reject the submission that the word ``mistake'' in that subsection should similarly be interpreted. Such an interpretation would fly in the face of the interpretation by Latham C.J., in
F.C. of T. v. Hayden (1944) 7 A.T.D. 440, where his Honour held that mistake could arise from ignorance, misinformation or forgetfulness (at p. 442).
Next, the taxpayer submits that the mistake can only be one made in relation to an existing fact. Here, it is said, the mistake was as to the non-existent status of Ogg Holdings Ltd. as a company in liquidation. That submission was said to be based upon the reasons for judgment of Latham C.J., to which I have just referred. I cannot, however, find any support for it in those reasons for judgment. A belief as to the existence of a fact which in truth is non-existent is just as much a mistake of fact as a belief as to the non-existence of an existing fact.
Then the taxpayer argued that the Commissioner, through Mr. Griffin, had elected to treat as correct the fact that Ogg Holdings Ltd. was in liquidation upon an assumption (based upon the belief that the card index system was incomplete) that that was the fact or with an awareness that subsequent enquiries may demonstrate an error in that assumption but mistakenly believing that if that fact turned out to be untrue reliance could be placed upon sec. 170(3) to issue an amended assessment. The taxpayer points here to Mr. Griffin's direction: ``Accept $24,330 as not taxable and refer back for review''.
This submission was based upon the decisions of the High Court in
F.C. of T. v. Levy (1960) 106 C.L.R. 448, at p. 470, and
Lee v. F.C. of T. (1962) 107 C.L.R. 329, at pp. 334-336. The argument is that Mr. Griffin's direction acknowledges an awareness that his assumption may be incorrect but nevertheless constitutes an election to treat it as correct with the intention to amend should it prove to be incorrect.
The Commissioner sought to distinguish these two decisions upon the ground that in each case the assessor in question knew that the situation could change by reason of other factors within the Department but
ATC 4139nevertheless elected to proceed as if the particular return were correct.
In Levy's case the appeal concerned the return of one member of a partnership; a decision was pending within the Department concerning the validity of claims made in the partnership return, and the original assessment was made with that knowledge but nevertheless accepting the claim made by the taxpayer as correct.
Lee's case similarly dealt with the return of one member of a partnership. The individual return was considered without reference to the partnership return, which had been lodged on the same day. The assessor knew that the partnership return would be assessed in a different section of the Department; he accepted the figures in the individual return and marked the papers ``Review when partnership attached''. This phrase apparently recognized that an amendment might be required to the individual assessment when the partnership return had been considered.
It was argued by the Commissioner in the present case that the fact that the partnership return there had been lodged and was under query at the time the individual return was assessed made that decision inapplicable to the present case.
I can see no basis for saying that the partnership return was ``under query'' in Lee's case. The Commissioner in that case had sought unsuccessfully to distinguish Levy's case upon the basis that in Levy's case the partnership return was already under query whereas in Lee's case there was no reason to suspect the correctness of the partnership return (at p. 335).
In the present case, of course, Mr. Griffin was not assuming the correctness of any fact which was to be determined within the Department. It was no part of the Department's function to determine the correctness of any facts as to the status of Ogg Holdings Ltd., nor would the truth of the fact wrongly assumed by Mr. Griffin become apparent by reason of any decision by the Department concerning the return subsequently lodged by Ogg Holdings Ltd. It was the lodging of that return which led to the discovery by the Department that its assumption of fact made by Mr. Griffin was incorrect, but that return is otherwise irrelevant to this case.
The status of Ogg Holdings Ltd. as a company in liquidation was nevertheless an assumption of fact upon which Mr. Griffin proceeded, leaving the matter to be reviewed - presumably upon the basis that the assessment could be amended if that assumption of fact turned out to be erroneous.
I am therefore unable to distinguish the present case from that considered by the High Court in Lee v. F.C. of T. I hold that the amendment to the assessment was not made to correct a mistake of fact.
I turn then to the Commissioner's claim that there had not been a full and true disclosure by the taxpayer of all the material facts. In those circumstances, the Commissioner is entitled to amend the assessment to prevent avoidance of tax: sec. 170(2).
Avoidance of tax does not involve any notion of active or passive fault on the part of the taxpayer. It is not equivalent to evasion. If less tax is paid than ought to have been paid as a result of the non-disclosure, an avoidance of tax has occurred:
Australasian Jam Co. Pty. Ltd. v. F.C. of T. (1953) 88 C.L.R. 23, at p. 34. A merely inadvertent omission of a material fact may constitute such non-disclosure: Ibid.
The test for ``full and true disclosure'' is:
``If advice were to have been sought by the taxpayer whether or not the sum in question was a taxable (item), would the person from whom that advice was sought have required more information than this return disclosed to the Commissioner?''
Austin Distributors Pty. Ltd. v. F.C. of T. (1964) 13 A.T.D. 429, at p. 433;
A.L. Hamblin Equipment Pty. Ltd. v. F.C. of T. 74 ATC 4001 at pp. 4011-4012; (1974) 130 C.L.R. 159, at p. 175. The onus lies on the taxpayer to establish that there has been such a disclosure:
McAndrew v. F.C. of T. (1956) 11 A.T.D. 131.
In the present case, the Commissioner claims that the taxpayer should have disclosed to him the fact that Ogg Holdings Ltd. was not in liquidation, as such fact was, it is said, material to the assessment. The
ATC 4140taxpayer disputes the materiality of that fact to the assessment, but in my view the taxpayer's belief as to the materiality of the fact is irrelevant: Cain's case (1954) 91 C.L.R. 540. On the other hand, an incorrect claim for deduction based upon an incorrect view of the law does not amount to a failure to disclose:
W. Thomas & Co. Pty. Ltd. v. F.C. of T. (1965) 14 A.T.D. 78.
Here the company is correctly described as ``Ogg Holdings Ltd.''. That description appears in a return prepared by a tax agent who is shown elsewhere in the return to be a duly qualified accountant and the taxpayer's auditor (at that time, a registered public accountant: Companies Act, 1961, sec. 9(7)). It may reasonably be supposed that officers of the Department would know the distinction in the description of a company where it is named with and without the addition of the words ``in liquidation'', and that the use of the company's name without that addition by a qualified accountant and company auditor (although not caught by the Companies Act, sec. 283) would be understood precisely in that sense - namely, that it was not in liquidation. The material fact has, therefore, been disclosed to the Commissioner.
It is not necessary, in order that the disclosure be both full and true, to state further facts which would or may have put the Commissioner's officers on their guard against gratuitously allowing a claim to which the taxpayer was not entitled:
White v. F.C. of T. (1954) 10 A.T.D. 413, at pp. 420-421. See, also, W. Thomas & Co. Pty. Ltd. v. F.C. of T. (supra). Indeed, the avoidance of tax (if any) in the present case resulted not from any failure by the taxpayer to state what was obvious, but rather from Mr. Griffin's mistaken assumption that Ogg Holdings Ltd. must have been in liquidation and that the Department's card index system which showed otherwise was incomplete: compare
F.C. of T. v. Maurice Estate 77 ATC 4462, at p. 4471.
Insofar as Mr. Griffin relied upon the term ``Members Funds'' as indicating that the company was, however described, in fact in liquidation (as only a repayment of such fund would, he thought, have qualified as being non-taxable), it is clear from the evidence that such a term was quite acceptable also to a company limited by guarantee (as was Ogg Holdings Ltd. in fact) without any suggestion that it was also in liquidation.
It follows, in my view, that the requirements of sec. 170 had not been fulfilled, and the Commissioner was not entitled in this case to issue an amended assessment. It is therefore unnecessary for me to express any view as to whether the amended assessment was correct and, in the circumstances, I do not propose to do so.
The appeal is allowed. I order the Commissioner to pay the taxpayer's costs.