Parrott v. Federal Commissioner of Taxation.

Judges:
Rogers J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 26 February 1982.

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Rogers J.

This is an appeal from a decision of the Taxation Board of Review No. 1 whereby it confirmed the decision of the Commissioner disallowing a claim by the taxpayer of a deduction in the sum of $800 paid by the taxpayer to a firm of registered tax agents.

It would seem, that conformably with the requirements of the Income Tax Assessment Act, 1936, the taxpayer filed his annual returns, inter alia, in respect of the years of income 1967 to 1972. Following upon the filing of those returns, assessments issued on the basis of the returns filed with or without adjustments.

However, by letter bearing date 4th June, 1973 the Commissioner indicated to the taxpayer that he had commenced an investigation of the taxpayer's affairs. For the purposes of completing that investigation the taxpayer was asked to do a number of things. These were:

``1. Set out on the enclosed Inv. 25 full details of the assets and liabilities both business and private of yourself, wife and dependent children as at 30th June, each year 1967 to 1972 inclusive. Assets should be shown at cost price.

2. Furnish a supplementary list indicating in respect of each asset:

• (a) date of acquisition,
• (b) cost price and,
• (c) date and cost of any additions, improvements and alterations.

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3. State where an asset has been disposed of:

• (a) sale price or trade-in value and,
• (b) date of disposal.

4. Furnish a list of any items of a non-taxable nature received during the above periods (e.g. gifts, legacies, matured life assurance policies) showing:

• (a) date received,
• (b) amount or value,
• (c) source from which derived and,
• (d) what supporting documentary evidence is available.''

It was upon receipt of this letter that the taxpayer approached the firm of registered tax agents carrying on practice as Finikiotis & Father, and it was to this firm that he subsequently paid the sum of $800 for services rendered. The services rendered consisted of satisfying the requirements of the Commissioner expressed in the letter of 4th June, 1973, and having a number of interviews with the investigator, Mr. Chong.

The taxpayer's agent supplied to the Commissioner an Assets Betterment Statement together with certain supporting information such as cheque butts drawn, details appearing from those cheque butts, details of the actual cheques drawn as well as sundry other information comprised in the document.

Following upon that document being forwarded to the Taxation Department, notices of amended assessments were issued in respect of years ended 30th June, 1968, 1969 and 1970, accompanied by a sheet setting out particulars of the alterations or additions to the assessments. The document set out the taxable income as assessed or returned in respect of the three years in question followed by the notation ``add; other income now included in accordance with the schedules furnished by you''.

The taxpayer claimed a deduction in his return of income for the year ended 30th June, 1975, of the $800 paid to Finikiotis & Father. That claim was disallowed by the Commissioner of Taxation and, as I have mentioned, an appeal from that disallowance was taken to the Board of Review and that appeal failed.

The claim for deduction is based on the provisions of sec. 69 of the Act which provides as follows:

``Expenditure incurred by the taxpayer in the year of income for the preparation by a registered tax agent of a return required by or under this Act to be furnished to the Commissioner in respect of income of the taxpayer shall be an allowable deduction.''

(My emphasis.)

On behalf of the Commissioner it has been submitted that the taxpayer has failed to satisfy two of the requirements of sec. 69; firstly, the document prepared by the tax agents did not constitute a ``return required by or under this Act'' and, secondly and alternatively, if the document did constitute such a return, it was not ``in respect of income of the taxpayer''.

The Act contains no definition of what is a return. It does, however, contain a number of provisions whereby taxpayers and others are required to file returns. These provisions are contained in Pt. IV of the Act which is headed ``Returns and Assessments''.

Section 161 calls upon every person, if required by the Commissioner by appropriate notice, to furnish to the Commissioner -

``... a return signed by him setting forth a full and complete statement of the total income (other than income upon which withholding tax is payable) derived by him during the year of income, and of any deductions claimed by him, and also setting forth such information (if any) being information that it is necessary for the Commissioner to obtain for the purposes of the administration or operation of a State income tax law, as is prescribed.''

It is conceded on behalf of the taxpayer that the section has no application.

Section 162 provides for further or other returns (if required by the Commissioner) whether before or after the expiration of the year of income. Such return is to be of the income or any part of the income derived by a person in any year whether on his own behalf or as an agent or trustee, and whether a return has or has not previously been furnished by him.

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Again, it is conceded that that section has no operation.

Section 163 provides as follows:

``Every person, whether a taxpayer or not, if required by the Commissioner, shall, in the manner and within the time required by him, furnish any return required by him, furnish any return required by the Commissioner for the purposes of this Act or of any State income tax law.''

It is submitted on behalf of the taxpayer that the information which was supplied in the form of the Assets Betterment Sheet and supporting statements was in satisfaction of a requirement or demand made under sec. 163 and, therefore, constitutes a return required by or under the Act.

It is inappropriate that I should finish the survey of the relevant provisions before dealing with the submission.

The relevant Part of the Act goes on to make certain necessary machinery provisions with respect to returns supplied under the Act before providing in sec. 166 that from the returns and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer.

Section 167 provides for the making of a default assessment in respect of, inter alia, a person who makes default in furnishing a return, or in the event that the Commissioner be dissatisfied with the return furnished by him.

Section 168 provides for the making of what are called special assessments, and authorises the making of an assessment at any time during any year or after its expiration in respect of the taxable income derived in that year or any part of it.

The relevant Part then goes on to make provision with respect to amendment of assessments and other provisions relating to them.

It is appropriate also to refer at this point to sec. 264 of the Act which is to be found in Pt. VIII under the heading ``Miscellaneous''. That section provides that ``the Commissioner may by notice in writing require any person, whether a taxpayer or not, including any officer employed in or in connexion with any department of a Government or by any public authority... to furnish him with such information as he may require''.

Although the taxpayer places primary reliance upon the provisions of sec. 163, it is submitted in the alternative that the demand of the Commissioner contained in the letter of 4th June, 1973 is supported by the power bestowed upon him by sec. 264. It is then submitted that even if that be the appropriate source of power, the documentation furnished in compliance with the demand thus made is a return required by, or under, the Act.

Counsel for the taxpayer has referred to the wide definition of the word ``return''. In the Shorter Oxford Dictionary the meaning given is ``Report of formal or official character giving information as to numbers or amounts the subject of inquiry''.

For the Commissioner it is submitted that whatever may be the width of the dictionary definition, the word here under consideration gets its flavour or meaning from the statutory context in which it is to be found.

A contrast is drawn between the type of document contemplated by sec. 161 being a full and complete statement of total income and of deductions and ancillary information necessary for the Commissioner to obtain for the purposes of administration, on the one hand, and the sort of information required by the letter of 4th June, 1973.

Counsel for the Commissioner has submitted sec. 163 does not support the demand for the detailed type of material called for in the letter. It is sustainable only pursuant to sec. 264 and the nature of the information sought stamps it as being outside the range of material to be comprised in a ``return'' within the meaning of the Act.

Thus, attention is drawn to questions such as the date of acquisition of assets, their cost price, the date and cost of additions, improvements and alterations, the date of disposal of assets, coupled with the sale price or trade-in value and, more importantly, information relating to items such as gifts, legacies, matured life assurance policies which are concededly of a non-taxable or capital nature, as the very formulation of the question indicates. In other words, one may fairly contrast the call of sec. 161 for a

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statement of total income derived during the year of income with, for example, demand for information as to a legacy which on any view would not fall within that category. Furthermore, the information which is sought in respect of such items is hardly for the purposes of administration of an Act which is directed to the assessment in respect of taxable income. Finally, and most importantly, the call in para. 4(d) for supporting documentary evidence is far outside the range of information encompassed by sec. 161.

When one has regard to the material contemplated by sec. 161 as contained in a return, and contrasts it with the width of inquisitorial questions which are permitted by sec. 264 and which are sought to be obtained by letter of 4th June, 1973, counsel for the Commissioner submits that it would be erroneous to consider the subject letter as a demand for a return within the meaning of the Act.

I accept that submission and I consider that it is inappropriate to categorise the letter in question as an exercise of power under sec. 163, nor do I consider that the demand satisfies the meaning of the word ``return'' in sec. 69.

Accordingly, in my view, the amounts paid by the taxpayer to Finikiotis & Father were not amounts paid by way of expenditure for the preparation of a return required by or under the Act.

The circumstances make it unnecessary to deal with the second ground relied upon by the Commissioner asserting that the return was not one with respect to income.

In my view the appeal must be dismissed and the appellant must pay the respondent's costs. Exhibits will be retained for twentyeights days. If no successful application for leave to appeal to the Federal Court is made, the exhibits may be returned.