Robinson v. Deputy Federal Commissioner of Taxation.

Lockhart J

Federal Court

Judgment date: Judgment handed down 13 April 1984.

Lockhart J.

This case raises the question whether the Deputy Commissioner of Taxation has a duty to give particulars to a taxpayer of his reasons for disallowing the taxpayer's objection against an assessment made under the Income Tax Assessment Act 1936 as amended (the ``Assessment Act'').

The taxpayer, a Queensland solicitor, submitted his income tax return for the year ended 30 June 1982 in which he claimed a deduction of $29,679, being his share of a loss said to have been incurred by E.E. Gold Traders, a partnership of which he was a member, which carried on the business of trading in gold.

The taxpayer's taxable income as returned was $15,668. The Deputy Commissioner issued a notice of assessment on 14 March 1983 to which was attached an ``Adjustment Sheet'' which stated:

      Taxable income as returned         15,668
      E.E. Gold Traders                  29,679
      Taxable income as shown in
        attached notice                  45,347''

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The taxpayer lodged with the Deputy Commissioner, pursuant to sec. 185 of the Assessment Act, an objection in writing dated 11 May 1983 against the assessment in which he claimed that the assessment should be reduced by the sum of $26,679 to $15,668 as returned. The notice of objection set out many detailed grounds on which the taxpayer relied in support of his objection. Essentially the taxpayer asserted that the total amount of the relevant partnership loss was allowable as a deduction under subsec. 51(1) of the Assessment Act.

The Deputy Commissioner wrote to the taxpayer on 7 February 1984 disallowing the objection in these terms:

``Your objection dated 11 May 1983 against the assessment which issued in respect of the year ended 30 June 1982 has been considered and has been partially allowed to the extent of remission of sec. 226(2) additional tax amounting to $7,327.48.

In this regard your attention is directed to sec. 187 of the Income Tax Assessment Act which provides that:

  • A taxpayer dissatisfied with the decision may, within 60 days after service of such notice, request the Commissioner either:
    • (a) to refer the decision to a Board of Review; or
    • (b) to treat the objection as an appeal and to forward it to a Supreme Court specified by the taxpayer.

Any request that you do make must be in writing, be accompanied by a fee of $2 and be lodged within 60 days after service of this notification. This fee will be refunded if the assessment is reduced either by amendment or as a result of the decision of the Board or Court but your request cannot be complied with if the amount of $2 is not included.

It should be pointed out that Boards of Review are administrative tribunals, independent of the Commissioner of Taxation, set up to review decisions of the Commissioner which are referred to them. A Board makes its decision on the basis of evidence given before it at a hearing. You may appear before the Board in person or engage a representative to present your case to the Board. The date and place of the hearing is fixed by the Chairman of the Board of Review to which the request is referred.

If you request that your objection be treated as an appeal to the Supreme Court, you should specify the State or Territory in which you desire to have your appeal heard. In this regard it should be noted that appeals to the Supreme Courts of the Northern Territory and the Australian Capital Territory are restricted to the taxpayers who reside in or whose principal place of business is in the Territory concerned and to Trustees of trusts with assets in the appropriate Territory.''

The taxpayer subsequently sought from the Deputy Commissioner particulars of the grounds relied upon by him for disallowing the objection. The reason advanced by the taxpayer to the Deputy Commissioner in support of this request was that he proposed to test the Deputy Commissioner's disallowance either before a Board of Review or on appeal to a Supreme Court, but that he preferred to appeal to a Supreme Court because if he succeeded he would probably obtain an order for costs against the Deputy Commissioner. The taxpayer told the Deputy Commissioner that in order to make an informed decision on which avenue of appeal to pursue he needed to know whether and, if so, to what extent and in what respects, the Deputy Commissioner had exercised discretions or formed opinions under provisions of the Assessment Act because only a Board of Review has power to review those discretions or opinions. Reference was made in telexes from the solicitors for the taxpayer to the Deputy Commissioner to discretions or opinions under Subdiv. D of Div. 3 of Pt. III of the Assessment Act including Subdiv. 82KK(4), 82KL(2) and 177F(1). The Deputy Commissioner declined to provide this information on the ground that he was under no duty to do so.

On 23 March 1984 the taxpayer filed an application, amended on 2 April 1984, seeking an order of review of the alleged failure of the Deputy Commissioner to provide the particulars requested by the taxpayer or, alternatively, to review the Deputy Commissioner's alleged failure to serve upon the taxpayer written notice of his decision disallowing the taxpayer's objection.

When the hearing of the application commenced before me last Friday, counsel for the taxpayer sought an order from the Court

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having the same effect as a peremptory writ of mandamus pursuant to O. 54A r. 27 of this Court's Rules requiring the Deputy Commissioner to perform his alleged duty to give appropriate particulars to the taxpayer of his decision to disallow the objection. This course was taken by the taxpayer in the event that he should fail in his primary application for an order of review under the Judicial Review Act on the ground that, although the Deputy Commissioner had a duty to give particulars of his grounds for disallowing the objection, his decision not to provide those particulars may be excluded from review under Sch. I of the Judicial Review Act which relevantly excludes from the scope of the Act -

``(e) decisions making, or forming part of the process of making, or leading up to the making of, assessments or calculations of tax or duty, or decisions disallowing objections to assessments or calculations of tax or duty, or decisions amending, or refusing to amend, assessments or calculations of tax or duty, under any of the following Acts... Income Tax Assessment Act 1936...''

The emphasis is mine.

The taxpayer argued that, whatever may be the position under the Judicial Review Act, the Deputy Commissioner's duty to provide particulars still remained and was properly the subject of an order of mandamus. The Deputy Commissioner did not oppose the matter being heard on these alternative bases.

Mindful of the difficulties possibly created by the exemption from the Judicial Review Act of ``decisions disallowing objections to assessments... of tax'' under the Assessment Act in Sch. I, counsel for the taxpayer did not seek to challenge the decision of the Deputy Commissioner disallowing the taxpayer's objection; but argued that the Deputy Commissioner had a duty to decide to give particulars of his reasons for disallowing the objection. Any such decision was said to be a separate and independent decision from a decision disallowing the objection. The source of the duty was said to be sec. 186 of the Assessment Act which provides:

``186 The Commissioner shall consider the objection, and may either disallow it, or allow it either wholly or in part, and shall serve the taxpayer by post or otherwise with written notice of his decision.''

The taxpayer's case was put on two alternative bases: first, that, although no such duty was imposed upon the Deputy Commissioner in terms by sec. 186(and it was conceded that no other section applied), the duty is inherent or implicit in the section; alternatively, that the duty necessarily springs from the obligation to give ``written notice of his decision'', that is a notice which must specify the reasons for his decision.

The question of the taxpayer's entitlement to particulars from the Deputy Commissioner has been discussed in a number of cases. I use the expression ``Deputy Commissioner'' to include the Commissioner of Taxation because the respondent to this application is the Deputy Commissioner and it is therefore a more convenient reference notwithstanding that some of the authorities concern the Commissioner. It is now established that the taxpayer has a right to obtain particulars from the Deputy Commissioner in proceedings by way of an appeal to a Supreme Court under para. 187(1)(b) of the Assessment Act to assist in defining the issues in the appeal, including particulars of the basis upon which the assessment has been made and the facts on which the Commissioner based the assessment:
Bailey v. F.C. of T. 77 ATC 4096; (1977) 136 C.L.R. 214. The power of a Supreme Court to order the Deputy Commissioner to give particulars in the course of litigation is general and is not limited to cases where the assessment is made under a section of the Assessment Act which makes it dependent upon the opinion of the Commissioner or on his being satisfied of some matter: Bailey's case. The source of a Supreme Court's power to order particulars is under its rules or its inherent jurisdiction: Bailey's case.

Where the taxpayer elects to have the Deputy Commissioner's disallowance of his objection referred to a Board of Review (para. 187(1)(a)) the Deputy Commissioner is required by para. 35(1)(c) of the Income Tax Regulations to furnish the Board with a statement containing his reasons for disallowing the taxpayer's claim. He is required by subreg. 35(2) to furnish the taxpayer with a copy of that statement. A statement of the Deputy Commissioner's ultimate conclusions which does not reveal the steps in reasoning by which those conclusions were reached satisfies para. 35(1)(c):
Sutton v. F.C. of T. (1958) 11 A.T.D. 499 at pp. 502-

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503; (1959) 100 C.L.R. 518 at p. 524 and
Cain, F.C. of T.; ex parte Evatt 75 ATC 4254; (1975) 133 C.L.R. 37. The Board has no power to require the Deputy Commissioner to give more reasons: Sutton's case.

An examination of the authorities reveals some divergence of opinion on the question whether a taxpayer is entitled to particulars from the Deputy Commissioner before an appeal is brought to a Supreme Court. In
Giris Pty. Limited v. F.C. of T. 69 ATC 4015; (1969) 119 C.L.R. 365, Barwick C.J. said at ATC p. 4018; C.L.R. p. 373:

``However, in my opinion, the Commissioner is under a duty in each case to form an opinion and the taxpayer is entitled to be informed of it, and upon the taxpayer's request, the Commissioner should inform the taxpayer of the facts he has taken into account in reaching his conclusion.''

The Chief Justice was there considering sec. 99A of the Assessment Act which gave the Deputy Commissioner authority to dispense with the application of that section if he thought it unreasonable to apply it to a particular taxpayer in respect of a particular year of income. That passage was cited with approval by Owen J. in
F.C. of v. Brian Hatch Timber Co. (Sales) Pty. Limited 72 ATC 4001, (1972) 128 C.L.R. 28 in relation to cases arising under sec. 80A of the Assessment Act which authorised the Deputy Commissioner to disallow losses as deductions unless he was satisfied of certain matters specified in the section. Owen J. said at ATC p. 4012; C.L.R. p. 60 that what Barwick C.J. stated in Giris's case in relation to sec. 99A was ``equally applicable in cases arising under sec. 80A''. In
Kolotex Hosiery (Australia) Pty. Limited v. F.C of T. 75 ATC 4028; (1975) 132 C.L.R. 535 Barwick C.J. repeated at ATC p. 4031; C.L.R. p. 541 in substance what he had said earlier in Giris's case. In Bailey's case, Aickin J., with whose reasons for judgment the other members of the High Court (Barwick C.J., Gibbs, Mason and Jacobs JJ.) agreed, expressly left open the question whether a taxpayer is entitled to particulars from the Deputy Commissioner at the time of the issuing of a notice of assessment.

Other statements have been made in the authorities which suggest that the Deputy Commissioner should in appropriate cases give particulars to a taxpayer of the basis of his assessment so that he may determine whether he will object to the assessment and subsequently appeal; but these views are obiter dicta and have been expressed as statements of what the Deputy Commissioner should do as a matter of fairness rather than as a matter of legal obligation:
Spence v. F.C. of T. (1967) 15 A.T.D. 80; (1967) 121 C.L.R. 273 per Windeyer J. at A.T.D. p. 85; C.L.R. p. 282;
McClelland v. F.C. of T. (1967) 14 A.T.D. 529; (1967) 118 C.L.R. 353 per Windeyer J. at A.T.D. p. 533; C.L.R. p. 361; Giris's case per Windeyer J. at ATC p. 4024; C.L.R. p. 384 (although his Honour may have written in terms of legal obligation which he had not done in Spence's case and McClelland's case) and the Brian Hatch case per Menzies J. at ATC p. 4007; C.L.R. p. 52. But in Bailey's case Mason J. said at ATC p. 4100; C.L.R. p. 221:

``Indeed, there is very much to be said for the view that fairness to the taxpayer demands that the Commissioner should be compelled to give particulars of his assessment when it issues so that the taxpayer is adequately informed as to the manner in which the assessment has been arrived at and may then determine whether he will object to the assessment and subsequently appeal. But that is a matter for the legislature. It goes quite beyond the scope of this case where we are concerned with the giving of particulars in litigation after an appeal has been instituted.''

The emphasis is mine.

The researches of counsel and my own researches have not revealed any case where consideration was given in terms to the question whether particulars should be furnished of the grounds for disallowance by the Deputy Commissioner of a taxpayer's objection to an assessment.

In my opinion fairness requires that the Deputy Commissioner should, in appropriate cases, inform the taxpayer of the basis of his assessment. Where the Deputy Commissioner forms opinions or exercises discretions in making his assessment he should, especially if requested by the taxpayer, inform him of the grounds of his opinion and for the exercise of his discretion. The reason for this requirement of fairness is that the taxpayer may be sufficiently informed of the basis of the assessment and the grounds relied upon by the

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Deputy Commissioner in making it so that the taxpayer may then make an informed decision whether or not to object to the assessment.

Once the Deputy Commissioner has made his assessment and issued his notice of assessment and the taxpayer has decided to object, the Deputy Commissioner is required by sec. 186 to consider the objection and to disallow it or allow it, wholly or in part, and to give the taxpayer written notice of his decision. The taxpayer then has a choice. He may accept the disallowance or decide to appeal; but may not be able to make an informed decision whether to appeal to a Supreme Court or have his objection referred to a Board of Review merely from the bald statement of the Deputy Commissioner that the objection has been an disallowed. In recent times there has been an increasing tendency to vest in the Deputy Commissioner wide discretions and opinions, even discretions as to which sections of the Assessment Act apply. Whether this is a desirable tendency is not for me to say; but it does mean that the citizen is increasingly subject to the powers of the Deputy Commissioner. In some areas of tax law this may be inevitable; but it is surely not asking too much to expect the Deputy Commissioner, when exercising discretions and forming opinions under the Assessment Act, to tell the taxpayer in appropriate cases what he has done and why he has done it. When the Deputy Commissioner disallows a taxpayer's objection fairness requires that he tell the taxpayer, in appropriate cases, not only of his disallowance or allowance, in whole or in part, of the objection, but of the reasons for his doing so sufficiently to enable the taxpayer to make an informed election between a Supreme Court and the Board of Review if he should decide to take the matter further.

I have said that particulars should be given by the Deputy Commissioner both of his assessment and of his disallowance of objections in ``appropriate cases''. I chose this expression because I doubt if it is every case that requires the Deputy Commissioner to give this information to a taxpayer and it may be open to abuse. It is a question of balancing the need for fair play to taxpayers on the one hand and the efficient and proper administration of the Revenue on the other hand.

It does not follow, however, that the Deputy Commissioner is under a legal obligation to do those things which fairness should lead him to do in appropriate cases.

The taxpayer relies on sec. 186 as the source of a legal obligation; but I cannot construe the section this way. Section 186 is part of a legislative scheme designed to afford remedies to a taxpayer dissatisfied with the assessment or the disallowance of his objection. The section in terms requires the Deputy Commissioner to consider the objection and to either disallow it or allow it, wholly or in part, and to serve the taxpayer with written notice of his decision. Notwithstanding the tractability of the English language, the section cannot be interpreted so as to provide a springboard for an entitlement of the taxpayer to obtain particulars of the Deputy Commissioner's decision if unfavourable to him.

Also it must be remembered that the Deputy Commissioner, when considering the objection, is not reviewing his earlier assessment. He may do this by issuing an amended assessment. He may, of course, look at the material which was before him when making his assessment and refresh his mind on the matters which led him to assess; but his duty is to consider the taxpayer's written objection. The objection is the taxpayer's document in which he states the grounds on which he relies in support of his objection. Indeed, the taxpayer is limited to those grounds in any appeal or reference (sec. 190).

There was an assumption, inherent in the form of some particulars sought by the taxpayer in his amended application in this case, that the particulars, if ordered, would reveal the particular sections of the Assessment Act relied on by the Deputy Commissioner when making his assessment and the discretions and opinions then exercised and formed by him. This misconceives the distinction between the Deputy Commissioner's powers of assessment and his duties when considering the taxpayer's objection to the assessment. They are two separate steps arising at different times and involving different considerations, although there may be some degree of overlap. For example, the taxpayer seeks in his amended application, inter alia, the following particulars:

``(iii) whether in determining the objection, a determination made or an opinion formed was relied upon pursuant to subsec. 177F(1), subsec. 82KK(4) or subsec. 82KL(2) of the Act, and, if so, identify:

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  • (a) each determination or opinion so made or formed;
  • (b) the action considered necessary to give effect to any determination in accordance with subsec. 177F(1);
  • (c) each tax benefit alleged to have been obtained by the Applicant in connection with a scheme to which Pt. IV A applied;
  • (d) the scheme alleged to be one to which Pt. IV A applied and, if in writing identify it and insofar as the same is not in writing, the terms thereof, and if it be inferred from circumstances, what are the circumstances;
  • (e) the parties to or participants in the scheme and, if participation is said to be by or through agents, those agents;
  • (f) the amount of expenditure (if any) considered to be an allowable deduction in a later year of income than that the subject of the objection in terms of subsec. 82KK(4);
  • (g) the facts, matters or circumstances relied upon in forming any expectation pursuant to subsec. 82KL(2).''

Most of the particulars sought in that paragraph of the amended application go to matters which, if taken into account by the Deputy Commissioner at all, would have been considered by him when making his original assessment rather than when ruling on the taxpayer's objection to the assessment. The reference to subsec. 177F(1), 82KK(4) and 82KL(2) is to sections which are involved at the time of the assessment process. Other particulars sought by the taxpayer, but not all of them, reflect the same problem.

In my opinion the Deputy Commissioner is not obliged to give particulars to the taxpayer of the grounds of his disallowance of the taxpayer's objection. It follows that there was no duty on the Deputy Commissioner which he failed to perform or in respect of which he failed to make a relevant decision for the purposes of sec. 7 of the Judicial Review Act. An order pursuant to O. 54A r. 27 cannot be made as there is no relevant duty of the Deputy Commissioner. If I had found otherwise, the question would have arisen whether the Court's discretion should be exercised in favour of requiring the Deputy Commissioner to furnish appropriate particulars. The form of request appearing in the amended application and in a document handed to me by counsel for the taxpayer would not have been entirely appropriate and would have required amendment. I seriously doubt whether any form of request for particulars of the decision disallowing the objection would, if particulars were supplied, have armed the taxpayer with the information he sought to enable him to elect between a Supreme Court and a Board of Review as the appropriate forum. This, however, is an arguable question which I need not decide.

I would dismiss the application with costs.

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