Ahern v. Deputy Federal Commissioner of Taxation.

Sheppard J

Federal Court

Judgment date: Judgment handed down 28 October 1983.

Sheppard J.

This is an application for judicial review brought pursuant to sec. 5 of the Administrative Decisions (Judicial Review) Act 1977 (``the Judicial Review Act''). The decision review of which is sought is the decision of the respondent not to grant the applicant an extension of time in which to pay the amounts claimed in certain notices of assessment of income tax. The application for an extension of time was made pursuant to sec. 206 of the Income Tax Assessment Act 1936 (``the Act''). The notices of assessment were issued in respect of the years of income ending 30 June 1980, 1981 and 1982. The total amount claimed is $1,687,133.21. Additional tax for late payment is, according to the respondent, accruing at the rate of $924.45 per day.

It is first necessary to refer to the background of the matter without which the substance of the matters relied upon by senior counsel for the applicant cannot be fully understood. The applicant is a public accountant and has carried on practice in Brisbane for some years. In the tax years in question, and probably before, he made it his business to learn of companies which were or might be available for stripping by those interested in seeking to avoid income tax by entering into what are commonly known as ``bottom of the harbour'' schemes. He also advised on the availability of tax shelters overseas and on investments in certain areas, e.g. in films, which might have the effect of reducing income tax otherwise payable by his clients. Much of his work was for solicitors and other accountants. From all these activities substantial sums were earned by way of commission.

The applicant purported to carry on his practice through two trusts which were known as the Betar and Ahern Trust and the ABD Practice Trust. The applicant had amalgamated his own practice with that of another accountant but for taxation purposes the two practices were apparently kept separate.

The income of the applicant's practice was paid to the credit of one or other of the trusts and distributed to other trusts which, according to senior counsel for the applicant,

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did not benefit him except perhaps as the result of the exercise of a discretion by the trustees. The trust instruments are not in evidence.

What the applicant hoped to achieve by this method of carrying on his practice was the avoidance of the payment of income tax upon his professional earnings. His personal returns showed a loss for each of the years in question. The returns of the ABD Practice Trust showed the trust as receiving large sums in fees, as paying out expenses which would normally have been debited to the applicant's personal account and a substantial net profit. The Betar and Ahern Trust showed the Trust as having received even larger figures for commissions and as earning a very much greater net profit. For instance, commissions earned in the year ending 30 June 1981 exceeded $650,000. After taking into account an earlier distribution which had been received the gross profit of the trust was said to exceed 1.5 million dollars and its net profit more than one million dollars. The profits were shown to have been distributed in the main to two trusts known as the Ahern and Betar Subscribable Unit Trust and to the Betar and Ahern Subscribable Unit Trust.

I should say at this point that I have endeavoured to glean the nature of the principal activity of the practice from the documents which have been tendered. The applicant did not give evidence. If my understanding is in some ways incomplete, it is due to the fact that I was not afforded the opportunity of clarifying my mind on a number of aspects concerning the way in which the practice was carried on and the nature of the business which it did. I should add that it may not be strictly necessary for these matters to be precisely understood.

Instead of giving effect to the returns of the applicant as they were lodged, the respondent took the view that moneys earned by the trusts were in fact the applicant's personal earnings and assessed him for income tax accordingly. Additionally he disallowed deductions for interest claimed to have been paid to yet another trust, the Rocklea Trading Trust. That is the explanation for the very substantial total which the respondent claims in his notices of assessment.

The applicant objected to each of the assessments. The notices of objection are dated 24 February 1983. They were prepared, of course, without knowledge on the part of the applicant of the provisions of the Act which were relied upon by the respondent. But each notice objected to the inclusion in the applicant's assessable income of income from the ABD Practice Trust and the Betar and Ahern Trust and the disallowance of interest paid to the Rocklea Trading Trust. In an endeavour to meet, as best he could, possible bases for the notices of assessments the applicant in his grounds denied that he was assessable in respect of the various amounts because of the provisions of sec. 19, Div. 6 and 6A of Pt. III, and sec. 260 of the Act. In the notices of objection in respect of the 1981 and 1982 tax years reference was also made to Pt. IVA of the Act which was said to have no application. No decision on the notices of objection has yet been given. On 12 August 1983 the respondent wrote to the applicant seeking a great deal of information and copies of a number of documents. On 10 and 12 August 1983 letters were also written to a number of trusts and companies seeking information and copies of documents. It is to be observed that these letters were written almost six months after the notices of objection were lodged. The evidence does not disclose whether the information and documents have yet been furnished to the respondent. The notices of objection are yet to be dealt with at a point of time which is now eight months after their lodgment.

The due date for payment of each of the notices of assessment was 27 January 1983. On 26 January 1983 the applicant wrote to the respondent saying that objections to the assessments were in the course of preparation. The letter asked for an extension of time to pay pending the lodging of the objections and the respondent's dealing with them.

On 4 February 1983 the applicant's solicitors wrote the respondent a lengthy letter seeking particulars of the basis upon which the applicant had been assessed for tax in the notices of assessment. On 24 February 1983 the solicitors wrote again. With their letter they enclosed the notices of objection. Additionally they made a request for certain documents pursuant to the Freedom of

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Information Act 1982, a request that payment of the tax assessed ``remain in abeyance'', and a request for the amendment of the assessments pursuant to subsec. 82KL(7) of the Act.

With each of the notices of objection lodged on 24 February 1983 there was lodged a document entitled, ``Application for deferral of payment of tax''. The application was that the respondent permit the tax ``to remain in abeyance'' until 14 days after the date on which the applicant's notices of objection were allowed by the respondent or a Board of Review or, if not so allowed and an appeal were made to the Court, then until 14 days after that appeal or any further appeal therefrom was decided.

No reply to the solicitors' letters had been received by 31 March 1983 and they wrote again. They expressed concern at the failure of the respondent to deal with the letters and the matters raised by them. Included amongst the matters which were mentioned was the respondent's failure to deal with the application for extension of time to pay the assessments.

On 19 April 1983 the respondent wrote to the applicant care of his solicitors. He was told that the total of the assessments (which came to a figure in excess of 1.5 million dollars) remained outstanding on his account. Reference was made to certain of the provisions of the Act in relation to the payment of tax and the payment of a penalty in respect of amounts remaining unpaid after the due date of an assessment. The respondent said, however, that he was prepared to defer legal action for the recovery of 50 per cent of the tax in dispute, as well as the additional tax imposed, until the applicant was notified of his decisions relating to the objections. The offer was conditional upon the balance (almost $800,000) being paid within 14 days of the date of the letter, i.e. 19 April 1983. There was other correspondence concerning the applicant's request for information pursuant to the Freedom of Information Act which it is not material to set out.

On 5 May 1983 the applicant's solicitors wrote to the respondent seeking clarification of one of the matters in the respondent's letter to the applicant of 19 April. On 30 May 1983 the respondent wrote to the applicant care of his solicitors clearing up the matter of misunderstanding. The letter further said that it was noted that the date for acceptance of the offer of a deferment of the due date for payment had passed and, accordingly, the offer had lapsed. The letter concluded:

``To ensure that legal action for recovery of the debt is not instituted, full settlement should be made by 13 June 1983. Additional tax for late payment continues to accrue at the rate of $924.45 per day.''

On 14 June 1983 the applicant's solicitors wrote to the respondent and, amongst other things, asked whether the letter of 19 April 1983 (not the letter of 30 May 1983) ``was, or evidenced, a decision to refuse our Client's requests'', i.e. for an extension of time. Pursuant to sec. 13 of the Judicial Review Act there was then a request for reasons for any decision which had been made. Finally there was a request, pursuant to sec. 206 of the Act, that the time for payment of tax be extended, at the very least, until 30 days after the respondent's reply to the letter.

The letter of 14 June 1983 was acknowledged in two letters of 21 June 1983 to which it is unnecessary otherwise to refer. The letter was answered by a letter from the respondent dated 28 July 1983 addressed to the applicant care of his solicitors. The respondent referred to the earlier correspondence and to a number of sections of the Act. He referred to his practice of allowing one half of the tax in dispute to remain outstanding until the question of liability was resolved. The respondent said that the practice had been discontinued ``following the enactment of amendments of sec. 207 and a general reappraisal by the Commissioner of his practice in this area''. The letter continued:

``The Commissioner's current practice relating to requests for extensions of time where an assessment is disputed now dictates that, in deciding whether the circumstances of a particular case warrant the granting of an extension of time for payment, each application is considered in the context that income tax should be collected in the financial year in which it becomes due and payable. Moreover, every effort is to be made to collect tax as soon as possible after it becomes payable.

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An extension of time will only be granted where reasonable grounds are given by a taxpayer in support of his application together with sufficient details of his financial position to enable an assessment of the taxpayer's ability to pay to be made. Where any deferment arrangements are approved, the amount outstanding will be subject to additional tax in terms of sec. 207 which will accrue from the date the tax became due and payable.

With regard to your second request for a further extension of time to pay the tax outstanding, your letter of 14 June 1983 contains no information concerning your financial position or liquidity. In these circumstances, I am unable to grant your request for a further extension of time.''

The letter concluded with an indication that the amount of the assessments remained outstanding and that additional tax for late payment was continuing to accrue.

The applicant's solicitors wrote to the respondent on 3 August 1983. They acknowledged the letter of 28 July and said that the respondent's office had always had knowledge of the applicant's financial position because of the inclusion in each return of a balance sheet disclosing his then assets and liabilities. The letter said that the applicant was unable to meet the assessments ``or any significant part thereof''. It said that there had been no significant change in the applicant's financial affairs since the balance sheet lodged with his return of income for the year ended 30 June 1982.

The balance sheet to which reference was made showed assets of $413,000 and liabilities of almost $700,000. It said that there was a net deficiency of over $270,000. The liabilities included a sum of $500,000 said to be owing to the Rocklea Trading Trust by way of loan.

The applicant's solicitors' letter of 3 August 1983 also said that they were treating the respondent's letter of 28 July as a statement of reasons for decision pursuant to sec. 13 of the Judicial Review Act. They foreshadowed proceedings under that Act but said that they would stay their hand in case the respondent's decision had been made without reference to the information which their letter disclosed.

There appears to have been no reply to that letter and the present application was filed on 15 August 1983.

On 1 September 1983 the respondent furnished reasons pursuant to sec. 13 of the Judicial Review Act. These recounted the earlier correspondence and made reference to the notices of assessment. The substantive part of the letter was as follows:

``The reasons for my decision were that:

  • (1) the amount of outstanding tax as at 30 May 1983 was $1,687,133.21;
  • (2) there was no evidence put forward by you to show that at the time of application you were unable to pay your debt when it fell due.

Consequently, it was not an application to which I should grant favourable consideration pursuant to the guidelines laid down by the Commissioner of Taxation as set out in his memoranda to me dated 3 November 1981, 5 January 1983 and 8 March 1983. Copies of these memoranda are attached hereto and marked `Attachment G', `Attachment H' and `Attachment I'. Further, no reason was apparent why I should, in the exercise of my discretion through my authorised officers, depart from the guidelines in order to grant the extension sought.''

The attachments referred to disclose the respondent's policy in relation to the grant of extensions of time for payment of tax where notices of assessment are disputed. In order that they may be better understood it is appropriate first to refer to the relevant sections of the Act.

Section 177 of the Act provides that the production of a notice of assessment is to be conclusive evidence of the due making of the assessment and, except in proceedings on appeal against the assessment, that the amount and all the particulars of the assessment are correct. Section 185 provides for the lodgment of an objection. By sec. 186 the Commissioner is to consider the objection. He may disallow it or allow it in whole or in part. Succeeding sections in Pt. V provide for appeals against the disallowance of an objection. Section 201 provides that the fact that an appeal is pending does not affect the assessment and income tax may be recovered as if no appeal were pending.

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It is to be observed that the Act contains no express provision concerning the obligation of a taxpayer to pay an assessment pending the Commissioner's decision on an objection. But it would seem that sec. 204 obliges him to pay notwithstanding that he has objected to it. That section provides that any income tax assessed shall be due and payable on the date specified in the notice of assessment as the date upon which the tax is due and payable. Section 208 provides that income tax, when it becomes due and payable, shall be a debt due to the Commonwealth and payable to the Commissioner in the manner and at the place prescribed. By sec. 209 any unpaid tax may be sued for and recovered in any Court of competent jurisdiction by the Commissioner or a Deputy Commissioner.

Section 206 provides that the Commissioner may in any case grant such extension of time for payment or permit payment to be made by such instalments and within such time as he considers the circumstances warrant, ``and in such case the tax shall be due and payable accordingly''. Section 207 provides for the imposition of penalties for unpaid tax. It has undergone recent amendment (Income Tax Assessment Amendment Act (No.6) 1982 (Act No. 123 of 1982) sec. 9). In its present form the section provides that if any tax remains unpaid after the time when it became due and payable or would, but for sec. 206, have become due and payable, additional tax is due and payable at the rate of 20 per cent per annum on the amount unpaid computed from the time when the tax became due and payable. Power is given to the Commissioner to vary this time in cases where he has granted an extension of time or permitted payment by instalments pursuant to his powers under sec. 206. Subsection 207(1A) empowers the Commissioner in certain circumstances to remit wholly or in part the additional tax for which the section provides. That subsection is not in question in this case. Finally, subsec. 207(2) provides that, notwithstanding anything contained in the section, the Commissioner may sue for recovery of any tax unpaid immediately after the expiry of the time when it becomes due and payable.

With that legislative background it is now appropriate to come back to the guidelines set out in the attachments enclosed with the respondent's reasons of 1 September 1983. There are three dated respectively 3 November 1981, 5 January 1983 and 8 March 1983. Under the guidelines of 3 November 1981 it was the Commissioner's practice to accept half of what was due under a notice of assessment pending the determination of an objection and any consequent appeal. Additional tax under sec. 207 was usually remitted in cases of genuine dispute which were ultimately determined against the taxpayer. With the amendment of sec. 207 this practice was changed as appears from the guidelines dated 5 January 1983. The Commissioner was prepared to extend time pending the determination of the question of liability provided 50 per cent of the amount in dispute was paid. But usually the additional tax provided for in sec. 207 would have to be paid from the due date of the assessment on the unpaid 50 per cent if the question of liability to pay the tax was determined adversely to the taxpayer.

The guidelines of 5 January 1983 also dealt with what were described as general requests for extensions of time to pay. Before such a request could be considered the taxpayer was required to demonstrate that he did not have the means necessary to pay the tax by the due date. There are some other matters mentioned in the guidelines but it is not necessary to refer to them.

The guidelines of 8 March 1983 said that further consideration was being given to the policy to be applied in respect of the collection and recovery of tax in cases of disputed assessments. The procedures outlined in the guidelines of 5 January 1983 were to continue in the meantime. The March guidelines dealt comprehensively with extensions of time to pay in other circumstances. Applications for extensions of time falling into this category were divided into short-term applications and long-term applications. In relation to the latter it was said that the taxpayer must clearly demonstrate that he does not have the means necessary to discharge his liability when it falls due. If that is shown it is said that an extension should then only be granted where the taxpayer can demonstrate that he will, within the period for which extensions may be granted, have the ability or potential to pay the tax at some time in the future. The

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guidelines are lengthy and deal with a variety of circumstances, but so far as general requests for extension of time are concerned point to the primary consideration being the financial circumstances of the taxpayer.

It would seem to follow that in cases of dispute as to liability, the Commissioner would usually require payment of half the amount in dispute. If this were not made, he would treat the case as being in the category of a general request to which he would apply no different considerations than those which applied where no dispute existed. In such cases the outcome of a request for an extension would depend substantially on the taxpayer's ability to pay on the due date and his prospects of being able to pay if an extension of time were granted. The central question in such a case was what were the financial circumstances of the taxpayer.

In the present case it can be seen from the correspondence that the respondent has, subject to one qualification, implemented this policy. In his letter of 19 April 1983 he offered to extend the time if half the disputed amount was paid. This offer was refused and accordingly he applied the general guidelines involving consideration of the taxpayer's financial affairs. This is most clearly seen in the respondent's statement of reasons dated 1 September 1983. However, the respondent's letter of 28 July 1983 suggested that it was no longer the policy to accept half the amount of tax claimed in cases of dispute. That is not what the guidelines say. Nothing, however, turns on this matter because the applicant is not prepared to pay half the amount claimed in the notices of assessment.

The decision review of which is sought is the decision of the Commissioner evidenced in his letter of 28 July 1983 not to grant the extension of time which was sought. The grounds of the application were amended at the hearing. Not all grounds were pressed. The provisions of the judicial Review Act relied upon were para. 5(1)(a) and (e). The ground provided for in para. (a) is that a breach of the rules of natural justice occurred in connection with the making of the decision and that provided for in para. (e) that the making of the decision was an improper exercise of the power conferred by the relevant enactment. This latter paragraph has to be read in conjunction with subsec. 5(2). In this respect the application relied on para. (2)(b) and (f). The first of these paragraphs involves failure to take a relevant consideration into account in the exercise of a power and the second, an exercise of a discretionary power in accordance with a rule or policy without regard to the merits of the particular case.

The specific matters relied upon in argument were:

  • (a) the respondent failed to take account of the financial position of the applicant as disclosed in the balance sheet lodged with his income tax return for the year ending 30 June 1982;
  • (b) the respondent failed to take into account that there was outstanding an objection to the assessments which raised a bona fide dispute concerning the correctness of them;
  • (c) the respondent failed to take account of the adverse effect failure to extend the time would have on the professional standing and reputation of the applicant as an accountant;
  • (d) the respondent, in applying his guidelines of 5 January and 8 March 1983 had exercised his power without regard to the merits of this particular case.

This is not a case where the rules of natural justice apply. Apart from any problems which there may be in relation to the construction of sec. 207 of the Act, the applicant has no standing to rely upon any such ground. That is because he has no right nor legitimate expectation to the extension of time which he seeks. He is not to be likened to an applicant for relief in a case where there is involved the cancellation of or refusal to renew a licence; see
Fire & All Risks Insurance Co. Ltd. v. Winneke & Ors. (1982) 41 A.L.R. 1; (1982) 2 ANZ Insurance Cases ¶60-468. Nor is he to be likened to an employee whose employment is terminated or otherwise affected in a case where statutory provisions govern his terms and conditions of employment. The matter is at large and is in the discretion of the respondent. The discretion is a wide one, albeit that it must be exercised according to law. That does not involve the respondent in being bound to observe the rules of natural

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justice when he deals with an application. That disposes of the ground based upon para. 5(1)(a) of the Act.

I turn to the grounds based on para. 5(1)(e). The first of these relies upon a failure by the respondent to take into account the financial position of the applicant as revealed in the balance sheet forming part of his income tax return for the year ended 30 June 1982. I have earlier said that the only evidence before me is comprised in the various documents to which I have made reference. The applicant did not give evidence. I was thus not able to ask him questions which may have enabled me the better to understand the complexity of his financial affairs. I have said what I have because I do not wish, in the absence of the applicant's evidence, to be thought to be over critical of him. Furthermore, I wish it to be clear that in saying what I am about to say I have based my remarks on the evidence which is before me without the light that may have been shed on some of it by oral evidence from the applicant.

The respondent had no more before him than the evidence which I have. To say that the totality of the picture presented by the applicant's returns and the returns of the trusts is one of mystery is an understatement. For that reason the balance sheet is, in the context of an application for an extension of time based on inability to pay, quite meaningless. Not to put too fine a point on it the application, insofar as it relies upon that balance sheet is an affront both to the intelligence of the respondent and of this Court. If only for the reason that there is no way in which one can determine the circumstances in which it is said that there is a liability of $500,000 to the Rocklea Trading Trust, the balance sheet tells one nothing.

In my opinion it was not a matter which the Commissioner could possibly have considered in determining whether or not to grant the extension of time which was sought. I do not have to go so far. It is enough to say that it was certainly not a matter which the Commissioner was bound to take into account in reaching his conclusion. He had no evidence before him upon which he could have been expected to rely to come to a conclusion as to the financial circumstances of the applicant. Ground (a) therefore fails.

Ground (b) I propose to leave until last. Ground (c) relies upon the adverse effect the respondent's refusal might be expected to have on the applicant's professional position as an accountant. Reference was made to the Public Accountants Registration Act 1946-1971 (Qld.), particularly to sec. 24(e) thereof which empowers the registration board to remove the name of any undischarged bankrupt from the register. No reference to this Act was made in any letter to the respondent. The respondent knew no more than that the applicant carried on practice as an accountant and, with the help of a number of trusts, sought to achieve a situation in which he paid no tax on his earnings. The matter relied upon was again a matter of which there was either no, or no satisfactory, evidence. It was not a matter which the respondent was bound to take into account. I would add that bankruptcy is a long way off. Before bankruptcy proceedings can be instituted the respondent must recover judgment. Assuming he does, he must then persuade this Court to allow a petition to proceed notwithstanding that there is a dispute as to the applicant's liability to pay the tax in question.

Then there is the question of the guidelines raised in ground (d). It seems clear that the respondent has applied the policy laid down in the guidelines without particular reference to the circumstances of this case. But insofar as this ground is based on the respondent's failure to take into account the applicant's financial position and the adverse effect on his professional status as an accountant there can be no basis for complaint. For reasons already given there is no evidence, or no sufficient evidence, obliging the respondent to take these matters into account.

Counsel for the applicant said that until the guidelines were received it was not known that the financial position of an applicant for an extension of time was relevant. I accept that those were counsel's instructions, but, coming as they do from a professional accountant, I find them unbelievable. Furthermore, the fact that financial considerations had been taken into account is made clear in the letter of 28 July 1983. That the applicant was not prepared to furnish more particulars of his financial affairs than were disclosed in the balance sheet which accompanied his 1982 return is made clear in

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his solicitors' letter of 3 August 1983. That was as far as he was prepared to go. Insofar as the respondent's application of the guidelines was without reference to the applicant's financial position, the applicant has failed to show that the respondent has failed to take into account the merits of his particular case. As regards his financial position he put before the respondent virtually no material whatever.

The remaining ground relied upon (ground (b)) is that based on the fact that the objections which have been lodged have not been dealt with and further, that on the face of the evidence before me, the applicant has at least a reasonable chance of success, if not in having the objections disallowed, then in the appeals which he will bring against their disallowance. It seems to me that that matter may stand alone or may provide a reason itself why ground (d) should be upheld.

Before I proceed I should say that in many cases the respondent may be persuaded to extend time for a variety of reasons the cumulative effect of which he will take into account. Thus in a case where he had evidence that it would place a taxpayer in a difficult financial position to pay an assessment and further, took the view that there was a genuine dispute about the taxpayer's liability to pay, he may rely on the two grounds in reaching a decision to extend time. This is not such a case because there is no warrant for accumulating with the matters relied upon in ground (b) any of the other grounds. There is no material to support them.

It is clear from the respondent's reasons of 1 September 1983 that the matters encompassed by ground (b) were not taken into account by the respondent in reaching his decision. So much was conceded by his counsel. If such matters are relevant to be considered, it must follow, therefore, that the applicant has made out a case for relief under para. 5(1)(e) of the Act as amplified by para. 5(2)(b) and perhaps by para. 5(2)(f). That is subject to there being any discretionary reason why relief should be refused.

Counsel for the applicant pressed upon me the submission that the applicant's prospects of success in having the assessments overturned, whether by allowance of the objections or appeal from their disallowance, must be regarded as high. Insofar as sec. 260 was concerned it was said that the respondent would be unable to overcome the effect of the decision of this Court in
F.C. of T. v. Kareena Hospital Pty. Ltd. 79 ATC 4667; (1979) 28 A.L.R. 353, particularly that part of it which emphasised that the section was an annihilating provision. If its avoidance of impugned arrangement did not per se lead to moneys being income in the hands of a taxpayer, it was of no avail to the Commissioner. Part IV A, so it was said, could have no operation because any scheme otherwise falling within its provisions had been entered into before Pt. IV A took effect. No other provisions of the Act, including those specifically mentioned in the notices of objection, had the effect of making the income received by the trusts that of the applicant.

I think there is force in these submissions. But it is premature to reach any conclusion on whether the applicant's case on any appeal, assuming the objections to be disallowed, will be likely to succeed or at least have reasonable prospects of success. That is because one does not know the basis upon which the respondent has treated the income of the trusts as that of the applicant. Until one has an understanding of how the respondent's case is to be put, one cannot usefully express a view.

I think it is unfortunate that it has taken the respondent so long to deal with the notices of objection. One appreciates that his office, like many others in the Public Service, is no doubt overburdened with work. One knows from one's experience of other cases that the time which has so far passed without any decision being made is not unusual. But the passing of that time coupled with the requests for information and documents sent almost six months after the notices of objection had been lodged, leaves open the impression that the assessments have been made with insufficient consideration of the basis of the liability which is sought to be imposed. That may well be an erroneous impression. But when the basis for the assessments is not able readily to be perceived - none was suggested in argument - it is an impression which people may be pardoned for having.

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The provisions of the Act upon which the Commissioner's practice depends are stringent indeed. Without assigning any basis for an assessment the Commissioner may serve a notice of assessment which, subject to the appeal provisions of the Act, is final and conclusive in its effect. The fact that a notice of objection is lodged does not automatically entitle a taxpayer to the grant of an extension of time to pay. Its lodgment amounts to no more than one of the matters which the Commissioner or one of his officers may consider in determining whether or not to grant an extension of time. Yet until the objection is dealt with the taxpayer can do nothing; the matter is out of his hands. No time limit is fixed within which objections must be dealt with and failure to deal with an objection is not within the purview of the Judicial Review Act; see the definition of ``decision'' in subsec. 3(1) and para. (e) of Sch. 1.

It was no doubt considerations of this kind which led Mason A.C.J. to say what he did in
Clyne v. D.F.C. of T. 82 ATC 4510; (1982) 43 A.L.R. 342, namely (ATC pp. 4511-4512; A.L.R. p. 344):

``I was informed that it is a somewhat unusual course for the Deputy Commissioner to commence proceedings for recovery in a Court relying on a notice of assessment which is under challenge in proceedings under Pt. V of the Assessment Act. It is to be hoped that this is so. The institution of proceedings for recovery on a notice of assessment which is challenged in proceedings under Pt. V may operate oppressively and unfairly to a taxpayer. Fortunately, and this is conceded by Mr. Priestley Q.C., for the Deputy Commissioner, the Courts in which recovery is sought have a jurisdiction to stay or adjourn recovery proceedings when the notice of assessment is under challenge in Pt. V proceedings, insisting, if it be appropriate, on the taxpayer giving suitable security or a suitable undertaking to meet the exigencies of the situation.''

That was a case where the objection had been disallowed and an appeal was pending. In my view his Honour's remarks apply with no less force - some may say they apply with greater force - to a case such as the present where no decision has been given in respect of notices of objection so that the taxpayer can himself do nothing to bring the matter to finality.

In the light of what Mason A.C.J. had said in Clyne's case, I asked counsel for the respondent if his client were prepared to give some indication that he would not institute proceedings pending his dealing with the notices of objection. Counsel took instructions and I was informed that no such indication could be given.

The provisions of the legislation are Draconian in the strict sense of that word. Reflecting as they do the intention of Parliament they must be given effect to. This has been emphasised in a number of cases where stays of proceedings brought by the Commissioner in Courts of ordinary jurisdiction to recover outstanding tax have been sought. Such cases, unlike the present, involved the Court itself, not the Commissioner, deciding whether or not a stay should be granted. Thus in
D.F.C. of T. v. Mackey 82 ATC 4571; (1982) 45 A.L.R. 284, the New South Wales Court of Appeal took very much into account the legislative policy reflected by sec. 201. Reference was made to
D.F.C. of T. v. Australian Machinery Investment Co. Pty. Ltd. (1945) 8 A.T.D. 133. Reference was made by Moffitt P. to what Mason A.C.J. had said in Clyne's case, the learned Judge saying that sec. 201 had been criticised in that case by Mason A.C.J. (82 ATC at pp. 4572-4573; 45 A.L.R. at p. 286. Upon my reading of what Mason A.C.J. said I do not find criticism of sec. 201, but rather an indication of how Mason A.C.J. thought matters should proceed where the liability to pay tax was genuinely in dispute. For this reason there may be some inconsistency between what he said and what was said by the Court of Appeal in the Mackey case. It is unnecessary to reach any conclusion on that matter. It is enough for me to say that the matters mentioned by Mason A.C.J. in the Clyne case are matters relevant for me to take into account in determining what the outcome of these proceedings should be.

As I have said the considerations which I must take into account are quite different from those which concern a Judge asked to stay proceedings in a Court of ordinary jurisdiction. I am concerned with the

ATC 4708

question of whether the respondent was obliged, as a matter of law, to take into account in reaching his decision that no extension of time should be given, the fact that notices of objection had been lodged and were yet to be dealt with. His failure to do so has to be looked at in the context of a case where it cannot be said that the taxpayer's liability is certain to be established. The relative prospects of success are difficult to gauge especially as the respondent has not committed himself to the basis for the liability which he asserts. A further matter which is in the background is the very size of the liability which the notices of assessment impose. There was no evidence of financial hardship on the part of the applicant before the respondent. But the fact of the matter is that the respondent seeks to recover from an individual a sum in excess of 1.5 million dollars in circumstances where he has not disclosed his hand and has not taken the step which will enable the applicant to put in motion the appellate process which he is entitled to invoke if his objections are disallowed.

It having been conceded that none of these matters were taken into account, the question is whether the respondent was bound to have regard to them. Having reflected on the matter I have reached the conclusion that the applicant has demonstrated that the respondent's failure to take account of the matters I have mentioned constitutes a failure on his part to take a relevant consideration into account in exercising his power under sec. 206 to grant or refuse an extension of time. In reaching my conclusion I have had regard to a number of decisions which deal with the circumstances in which the Court will interfere in a case of this kind. The discretion conferred by sec. 206 is a wide one. No criteria which the Commissioner is to take into account are specified. In
Sean Investments Pty. Ltd. v. MacKellar (1981) 38 A.L.R. 363, Deane J. said (p. 375):

``The ground of failure to take into account a relevant consideration will only be made good if it is shown that the decision-maker has failed to take into account a consideration which he was, in the circumstances, bound to take into account for there to be a valid exercise of the power to decide.''

His Honour's decision was upheld on appeal ((1982) 42 A.L.R. 676). Reference should also be made to
Elliott v. Southwark London Borough Council (1976) 1 W.L.R. 499 and to
R. v. Australian Broadcasting Tribunal; Ex Parte 2HD Pty. Ltd. (1979) 144 C.L.R. 45.

For the applicant to succeed he has to demonstrate that the matters upon which he relies in ground (b) are such that the respondent was obliged to take them into account in reaching his conclusion. I do not think the matter is without difficulty, but I think the better view is that he was bound to do so. I also think that the applicant has brought himself within para. (2)(f) of the Act in that he has demonstrated that the respondent in applying the Commissioner's guidelines has done so without regard to the merits of the particular case, that is without taking into account the fact that his decision on the applicant's notices of objection remains outstanding.

There are no matters going to the exercise of my discretion which should dissuade me from granting the relief for which the applicant has made out a case. One may decry the way he has earned his living in the last few years or so. In some minds there will be conjured up feelings of resentment, even revulsion, at the extent of the tax avoidance which the applicant's activities seem likely to have made possible. But as is often said, this is a court of law, not of morals. The respondent is bound to exercise his discretion according to law. In my opinion he has not done so because he has failed to take into account the relevant consideration to which I have referred. There is no reason why, that being the case, the applicant should be denied relief.

Senior counsel for the applicant sought a direction that the respondent extend the time for payment until a reasonable time after the notices of objection had been dealt with. I have given consideration to that matter. But I have decided that the proper order is that the respondent's decision of 28 July 1983 be set aside and that the applicant's application for an extension of time be referred to the respondent for further consideration with a direction that he take into account the fact that the notices of assessment have been objected to, that the objections have not been dealt with and that the applicant has not

ATC 4709

been informed of the basis upon which it is claimed he is liable for the tax which has been imposed. Of course there is nothing to prevent the applicant from making a fresh application with which he might include a detailed account of his financial position and a statement of any hardship he will suffer if he be compelled to pay the tax now. That is a matter for him and his advisers.

Before I conclude I should mention that it was faintly argued that this case was outside the jurisdiction of the Court because review was sought of a decision excluded from the Court's jurisdiction in para. (e) of the first Schedule to the Judicial Review Act. It is enough for me to say that the decision here in question is not a decision making, or forming part of the process of making, or leading up to the making, of the assessment.

In the result I order and direct that:

1. The Commissioner's decision dated 28 July 1983 by which he refused to grant to the applicant an extension of time to pay income tax claimed to be due in notices of assessment dated 30 December 1982 be set aside.

2. The applicant's application for an extension of time be referred to the respondent for further consideration with a direction that he take into account:

  • (a) the fact that the notices of assessment have been objected to;
  • (b) the fact that the notices of objection have not been dealt with; and
  • (c) the fact that the applicant has not been informed of the basis upon which it is claimed he is liable for the tax which the notices of assessment impose.

3. The respondent pay to the applicant his costs of the application.

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