Deputy Federal Commissioner of Taxation v. Ewen.

O'Bryan J

Supreme Court of Victoria

Judgment date: Judgment handed down 7 May 1984.

O'Bryan J.

This is an application to enter summary judgment in the action pursuant to O. 14 of the Rules of Court. The summons was referred to a Judge pursuant to O. 54 r. 15(2).

The defendant seeks in a cross-application that the action be stayed pending a hearing and determination of the disallowance by the plaintiff of the defendant's objections against assessments of income tax issued to the defendant in respect of the tax years ending June 1977 and 1978.

The plaintiff's claim in the writ is for $336,079.22 for income tax assessed by the defendant in respect of the tax years ending June 1977 and June 1978, together with additional tax pursuant to sec. 226(1) of the Income Tax Assessment Act 1936 and additional tax for late payment pursuant to sec. 207 of the Act.

The statement of claim endorsed on the writ was amended pursuant to an order made by Master Mahony on 23 February 1984. The amount claimed is unchanged for income tax assessed by the defendant, but is only in respect of the tax year ending June 1978 together with additional tax pursuant to sec. 226(1) and 207. Reference to the tax year ending June 1977 was omitted after the defendant deposed that he had satisfied the tax claimed in respect of the year ending June 1977.

The affidavit of the plaintiff verifying the claim was made by James Edward McTigue, a Deputy Commissioner of Taxation, on 16 December 1983, before the delivery of the amended statement of claim. In para. 4, McTigue deposed that the defendant is justly and truly indebted to the plaintiff in the amount claimed, and relies upon a certificate which he signed pursuant to reg. 53 of the Income Tax Regulations and certified extracts of notices of assessment of income tax in respect of assessments for the years ending 30 June 1977 and 30 June 1978.

The certificate exhibited to the said affidavit purports to certify facts beyond the scope of reg. 53. This is made clear when one has regard to the extract of notice of assessment in respect of the income tax years ending June 1977 and June 1978.

In my opinion, the certificate under reg. 53 does not assist the plaintiff to verify the cause of action and the amount claimed. The certified extract of a notice of assessment of income tax for the year ending June 1978 is conclusive evidence of the due making of the assessment and that the amount and all the particulars of the assessment are correct pursuant to sec. 177 of the Act. The extract shows that income tax was assessed in the amount of $167,355.33 and $150 health insurance levy. Incidentally, these amounts are particularised in the amended statement of claim. In para. 7 McTigue further deposes he believes that there is no defence to this action.

The defendant's affidavit in answer to the O. 14 summons does not put in issue that the notice of assessment was duly made or that he, the defendant, is the taxpayer named in the assessment. The defendant does not assert that he has paid any amount on account of the assessment to the plaintiff.

Mr. Davies of counsel for the plaintiff intimated that the plaintiff did not seek a summary judgment in respect of the additional tax. The plaintiff is content to have judgment entered at this stage for $167,505.33 and that leave to defend be granted as to the balance, namely $168,573.89.

Mr. Magee of counsel for the defendant submits that the plaintiff failed to verify the cause of action and the amount claimed.

In my opinion, sec. 177 of the Act has the effect of proving conclusively that the amount of the assessment is correct. The cause of action

ATC 4552

and the amount claimed is verified at least up to $167,505.33. Beyond that sum the amount claimed is not verified. The defendant has not satisfied me that he has a good defence to the amount of the assessment claimed, and accordingly the plaintiff is prima facie entitled to an order that he may enter judgment.

The cross-application for a stay is made firstly on the basis that the defendant has challenged the assessment and in due course the issues will be determined by a Board of Review or a Court of law. The defendant sought to deduct from his gross income an amount of $170,400 paid by him during the year of income ending 30 June 1978 by way of lease payments in respect of various horses. The deduction was wholly disallowed by the plaintiff and the defendant has asked the plaintiff to refer the matter to a Board of Review. The defendant also sought to deduct from his gross income an amount of $150,001 representing his share of loss in a partnership. This deduction was also totally disallowed by the plaintiff and the matter will be referred to a Board of Review in due course.

Mr. Davies submits that whereas the lease deduction raises a bona fide arguable dispute, the partnership loss deduction is highly unlikely to succeed, as a similar issue was recently determined in favour of the plaintiff by No. 3 Board of Review in Case Q23,
83 ATC 84. In Case Q23 the deduction was disallowed because the scheme constituted a sham.

The second basis for a stay is based upon hardship. The defendant, who describes himself as carrying on the business of raising and breeding horses, and formerly a professional gambler, deposes that he has substantial gambling debts of $200,000 and debts amounting to $42,500 in respect of loans. He further deposes, in para. 9:

``In the event that judgment is awarded to the Commissioner for the amount he seeks, my position will be commercially untenable. It is almost inevitable that one or more of my commercial creditors will take bankruptcy proceedings against me and bankruptcy will almost certainly follow. If that occurs I will have been irreparably prejudiced by the entry of judgment notwithstanding that there are substantial grounds for believing that my applications to the Board of Review will be successful.''

Mr. Davies criticises this material, with some justification, I consider, as too meagre. It does not show the defendant's assets or whether any of his assets can be realised to satisfy his debts. If the defendant is facing insolvency already, Mr. Davies asks why the plaintiff should be required to await the outcome of protracted litigation before he obtains his share in the bankrupt's estate.

Section 201 of the Act is relied upon by the plaintiff. It reads:

``The fact that an appeal or reference is pending shall not in the meantime interfere with or affect the assessment the subject of the appeal or reference; and income tax may be recovered on the assessment as if no appeal or reference were pending.''

The section imposes an onus upon the defendant to show cause why the Court should intervene to stay proceedings.

D.F.C. of T. v. Mackey 82 ATC 4571; (1982) 45 A.L.R. 284 the question of staying proceedings brought by the Deputy Commissioner of Taxation against a taxpayer was considered by the Court of Appeal in New South Wales. Moffitt P. was of the opinion that merely because a bona fide arguable appeal is pending against the Deputy Commissioner's assessment of tax does not constitute a sufficient ground to grant a stay of proceedings. He considered it is a relevant matter that the appeal is arguable and does not involve a contrived scheme to avoid tax liability. It is also a relevant matter that great hardship will be caused to the taxpayer if he is called upon to pay the disputed tax before the appeal is determined. Hutley J.A. expressed the opinion that ``the power to stay under sec. 201 should be exercised with great caution and only under special circumstances''. A case of special circumstances would arise ``in cases of extreme personal hardship to a taxpayer called upon to pay''.

In my opinion, the circumstances disclosed by the defendant in the present case do not justify the Court granting a stay of proceedings. The defendant has failed to satisfy the onus which is imposed upon him by sec. 201 that he will suffer extreme personal hardship if a judgment is entered for $167,505. There is a paucity of material concerning the defendant's financial affairs, and the amount of the debt is long outstanding. In my opinion, the summons of the defendant for a stay should be dismissed.

ATC 4553

On the O. 14 summons there will be leave to the plaintiff to enter judgment for the sum of $167,505.33, and leave is granted to the defendant to defend the claim as to the balance. The defendant is ordered to pay the plaintiff's costs of the summons, including reserved costs, and I certify for the attendance of counsel. The exhibits will be returned to the parties.

Mr. Davies: Your Honour, there is one matter, the question of interest on the sum which had been ordered to be paid in favour of the Commissioner.

(Discussion ensued.)

His Honour: Now that I have seen the terms of sec. 78, and the note to Williams which I refered to, it would seem that I have power to order interest, and that view is reinforced by the fact that Beach J. in the Practice Court recently made such an order. Therefore, the plaintiff will be entitled to enter judgment for the sum of $167,505.33, together with interest at the rate fixed pursuant to the provisions of the Penalty Interest Rate Act 1983 from the date of issue of the writ to this date. Leave to the defendant is granted as to the balance of the amount claimed in the amended statement of claim. The order for costs which I announced previously will stand. The stay that is sought will be granted. There will be a stay of execution, by consent, granted for thirty days.

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