Barina Corporation Ltd. v. Deputy Federal Commissioner of Taxation.

Wilcox J

Federal Court

Judgment date: Judgment handed down 22 April 1985.

Wilcox J.

This is an application under the Administrative Decisions (Judicial Review) Act 1977 in which the applicant taxpayer, Barina Corporation Limited, challenges the legal validity of a decision made on behalf of the respondent Deputy Commissioner refusing to grant to it an extension of time for payment of tax under sec. 206 of the Income Tax Assessment Act 1936. As with the decision itself, the various actions relevant to this matter were performed by officers of the Australian Taxation Office. As no question arises in relation to the authority of any such officers, I will refer to all such actions as being performed

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by the Deputy Commissioner. Section 206 provides:

``206(1) The Commissioner may in any case grant such extension of time for payment of tax, or permit payment of tax 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.

(2) In sub-section (1), `tax' includes additional tax under Part VII.''

The applicant carries on business as an investor and land developer. In December 1982 it submitted a return in relation to the income earned by it in the year ended 30 June 1982. That return showed a taxable income for the year in the sum of $235,539. On 19 April 1984 the Deputy Commissioner issued a Notice of Assessment by which an amount of $556,356.86 was shown as being payable for income tax. That amount was calculated upon the basis that the taxable income of the company for the year was $1,443,884; the difference between the two figures - as appears from an adjustment sheet - being substantially attributable to a difference of opinion between the Deputy Commissioner and the taxpayer as to the value which ought to be attributed, as at 30 June 1982, to ``completed houses and work in progress''. This item included land held for future development. The Notice of Assessment required payment of the assessed amount on or before 21 May 1984. Section 204 of the Act provides that, subject to the provisions of Pt VI of the Act dealing with collection and recovery of tax, ``any income tax assessed shall be due and payable by the person liable to pay the tax on the date specified in the notice as the date upon which tax is due and payable, not being less than 30 days after the service of the notice...''. Therefore, 21 May 1984 was the due date for payment.

Payment was not made by that date. It has not yet been made. On 1 June 1984 the solicitors for the applicant forwarded to the Deputy Commissioner a letter enclosing, inter alia, an objection to the assessment and a formal request for an extension of time for payment. The objection contended that the assessment of taxable income should be reduced by the sum of $1,206,813, or alternatively some lesser amount. Various grounds were set out. It is unnecessary for me to say more than that the substantial matter advanced on behalf of the applicant was an assertion that certain lands acquired by the applicant at a cost of $1,478,229 were, as a result of zoning restrictions and other factors, worth only $271,416 at 30 June 1982. The application for extension of time was in the form of a letter from the solicitors which included the following:

``Our client seeks, in terms of sec. 206 of the Income Tax Assessment Act 1936 (hereinafter referred to as `the Act') an extension of time in which to pay the tax due under the above assessment and, as a consequence of that request, that the tax assessed become due and payable as from the date to which the date for payment is abridged. Our client seeks an extension of time for payment of the assessment to a date thirty (30) days after the date of final determination by you of your decision upon the taxpayer's objection to the assessment or, in the event that the taxpayer being dissatisfied with your decision it either refers the matter to a Board of Review for review or appeals to a Supreme Court, to a time not later than 14 days after the time expires for any appeal from a decision which is given by either such Board of Review or Court adverse to the taxpayer and from which no appeal by it be lodged and prosecuted and in the event of any such appeal until that same be finally disposed of by the ultimate appellate tribunal to which appeal be made.

The taxpayer has, in order to assist you with your consideration of the within request, lodged of even date an objection to the assessment. This has been lodged at the earliest possible moment, and in conjunction with the request for time to pay, so that you may see that our client is indeed in earnest in its attitude to the assessment.''

The letter went on to attribute to senior counsel certain views regarding the validity of the objection and to conclude:

``Further it is clear that you have nothing to fear with respect to ultimate payment of the monies said to be due to you. Our client is a listed public company and our client will suffer irremedial harm in the financial loss which will occur should it be obliged to pay

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the monies in dispute. You will appreciate, of course, that all monies not in dispute have been paid.

By way of additional formal submissions with respect to the propriety of our client's request for time to pay, we suggest that the following submissions are likewise matters which ought fairly to be taken into account by you when making your decision on this request for abridgement of the time when the assessment shall be due and payable as set forth earlier in this letter.

  • 1. The taxpayer has objected against the assessment issued in respect of the increase of taxable income over that which was returned by the taxpayer and accordingly contends that there is no additional taxable income and thus no additional tax payable. This objection is lodged with you of even date.
  • 2. The objection is manifestly based on genuine and substantial grounds and the taxpayer avers that opinions from lawyers skilled in income tax law has been given to that effect. This is indeed known to you. You hold those opinions.
  • 3. The objection has not yet been determined.
  • 4. The taxpayer has not the necessary liquid funds to pay the tax but will have this same within a reasonable period of time and certainly by the time this dispute is determined by the appropriate authority should you not allow the taxpayer's objection. To be obliged to make such a payment would substantially impede the taxpayer's ability to continue to carry on business. At the very least it would most substantially curtail its activities in the home building field.

We ask that you give us your answer hereon within the next twenty-one (21) days and foreshadow that failure by you to give proper reasons for your refusal will trigger an application by us on our client's behalf to have you state your reasons for refusal in terms of sec. 13(2) of the Administrative Decisions (Judicial Review) Act 1977 and an application to the Court pursuant to the provisions of sec. 5 of that Act.''

The Deputy Commissioner forwarded to the applicant a letter dated 21 June 1984. This letter appears to be a stereotype letter sent to taxpayers who lodge objections. It acknowledged receipt of the objection but not the application for extension of time, and pointed out that, notwithstanding the objection, the tax was, under sec. 204 of the Act, payable on the due date notified. Attention was drawn to sec. 207 of the Act which provides for additional tax for late payment to accrue at the statutory rate of 20% per annum on any amount that remains unpaid after that date. Reference was made to the then pending legislation to provide for interest to be paid to a taxpayer on any amount refunded or credited as a result of an objection. The letter, ignoring the fact that an application for extension of time had already been made, concluded:

``In the event that you seek to pay only part of the tax assessed pending the resolution of your objection you may if you so wish apply for a formal extension of time for payment of the balance until your objection has been determined. Ordinarily, it would be expected that a request for such an extension would be on the basis that, within 14 days of the date of this letter or by the due date shown on your notice of assessment, whichever is the later, you have paid at least one-half of the tax attributable to the matter at issue, together with any tax that would remain payable irrespective of the result of the objection. Such an extension will be on the basis that legal action for recovery of the amount held in abeyance will be deferred pending determination of the objection but, if the matter is not resolved in your favour, any amount ultimately held to be payable will attract additional tax for late payment calculated from the original due date.''

On 2 July 1984 the solicitors for the applicant responded. They offered some views - the correctness of which I need not consider - relating to the interpretation of sec. 206 and 207 of the Act, asserting that, in a case where the Commissioner extended time under sec. 206, interest ran under sec. 207 only after the date to which time was extended. After quoting the concluding paragraph of the Deputy Commissioner's letter of 21 June, they pointed out that they had not yet received a reply to their application for extension of time. They

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indicated that, unless a reply was received within 14 days, they would assume refusal of a reply and would call for reasons under sec. 13 of the Administrative Decisions (Judicial Review) Act. They threatened mandamus proceedings in the event of failure to supply reasons.

On 19 July 1984 the Deputy Commissioner wrote disallowing the objection and referring to sec. 187 of the Act, which provides that a dissatisfied taxpayer may within 60 days request the Commissioner either to refer the decision to a Board of Review for review or to treat the objection as an appeal and to forward it to the Supreme Court of a State. The letter concluded:

``With the posting to you of this notice, the review of the assessment by this office is now complete. You are reminded that if there is any tax still outstanding on the assessment, any arrangement whereby payment was deferred is now terminated and payment in full should be made within 14 days or by the due date previously notified, whichever is the later.''

The solicitors responded on 23 July 1984, stating their client's dissatisfaction with the disallowance of its objection and requesting that the objection be treated as an appeal and forwarded to the Supreme Court of New South Wales. A fee of $2 was enclosed.

Section 188(1) of the Act provides that, if the taxpayer's request to treat the objection as an appeal and to forward it to a specified Supreme Court is accompanied by a fee of $2, the Commissioner shall forward the objection in accordance with the request. It follows that, upon receipt of the solicitors' letter the Deputy Commissioner came under an obligation forthwith to forward the objection to the Court. He did not do so. Although, as will appear, the Deputy Commissioner continued to hold - and to press - the view that he was entitled to immediate payment of the tax assessed he took no action to facilitate resolution of the issues raised by the applicant's objection. The applicant was forced to take the further step of serving a formal notice to refer under sec. 189 of the Act. That section provides that, if within 60 days after receiving the request accompanied by the fee of $2 the Commissioner does not forward the objection, ``the taxpayer may at any time thereafter give him notice in writing to do so, and the Commissioner shall within 60 days after receiving the notice... forward the objection to a... Court accordingly''. It is puzzling that this section was thought to be necessary, having regard to the existence of a subsisting mandatory duty by the Commissioner to refer under sec. 188. It is more puzzling that a period as long as 60 days was allowed for the simple mechanical task of referring the objection to the Court, especially in a context where the objecting taxpayer is under an obligation to pay the tax pending resolution of the objection. It is even more puzzling that, in this case and despite the formal notice under sec. 189, the Deputy Commissioner did not succeed in producing and filing in the Supreme Court the necessary one page standard form Notice of Transmission of Objection until 24 January 1985 - 93 days after the sec. 189 demand and six months after the letter of 23 July 1984 requesting the reference. There are no doubt good policy reasons why the Income Tax Assessment Act adopts the principle that, unless an extension of time is granted by the Commissioner under sec. 206, tax is due and payable and recoverable by action at law notwithstanding the existence of an unresolved objection: see sec. 177, 201, 204, 208 and 209. However, that principle is capable of effecting considerable hardship on a taxpayer, especially if it is ultimately held that the tax has been erroneously assessed. Under such circumstances, considerations of basic fairness demand that the Deputy Commissioner should immediately comply with a request under sec. 188 - a formal notice to refer under sec. 189 should never be necessary - and should co-operate in arranging an expeditious hearing of the appeal. I regard as intolerable the delay of six months unnecessarily inflicted upon the present applicant in relation to the determination of its appeal. Such delay appears not to be peculiar to the Sydney taxation office. I note from the facts of
The Hell's Angels Ltd. v. D.F.C. of T. (No. 4) 85 ATC 4034 (Northrop J. 20 December 1984) that, in that case, it took the Melbourne office over nine months to refer the taxpayer's objection to a Board of Review. If it is beyond the capacity of the Australian Taxation Office to so order its procedures as to ensure immediate reference of an objection to the court or to the Board, after request by the taxpayer, perhaps the legislation should be amended so as to allow the taxpayer himself to initiate proceedings in the court or the Board by filing a suitable document.

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On 31 July 1984 the solicitors for the applicant wrote a further letter to the Deputy Commissioner in relation to the matter of an extension of time for payment. The letter was a little cryptic, referring to the subject matter only by a reference to the Deputy Commissioner's letter of 21 June. The solicitors said that no reply had been received to that letter and they called for a statement of reasons under sec. 13 of the Administrative Decisions (Judicial Review) Act. This letter, for the first time, produced a responsive reply; all of the previous letters from the Deputy Commissioner appear to have been stereotype letters not directed to a situation where a request for an extension of time had actually been made. The letter, which was dated 3 August 1984, read:

``Reference is made to your letter of 2 July 1984 in which you expressed dissatisfaction with the content of the reply from this office dated 21 June 1984.

It is understood the application was submitted in terms of sec. 206 of the Income Tax Assessment Act but it was decided that the circumstances did not warrant the application of such provisions. Discretionary power of the Commissioner was therefore exercised in terms of sec. 209.

Policy currently adopted as you are well aware, in cases of disputed assessments is to withhold legal action for recovery of the tax outstanding, provided the component of tax not disputed together with 50% of the disputed tax is paid within reasonable time of the due date notified in the assessment.

Formal notification of the decision on your client's 1982 objection issued on 19 July 1984 requesting payment within 14 days. Should the client company be unable to comply with payment, full details of assets/liabilities income and expenditure together with a projected cash flow for 1984-1985 should accompany any further application.''

On 13 August 1984 the solicitors responded by seeking reasons, under sec. 13 of the Administrative Decisions (Judicial Review) Act, for the decision under sec. 206 referred to in the second paragraph of this letter. The reasons were requested to be supplied within 28 days of the letter. This was not done and, on 11 October 1984, the present application was filed. Eventually, by letter dated 30 October 1984, the respondent supplied reasons. The findings on material questions of fact referred to the various letters mentioned above and concluded with a finding (g) as follows:

``(g) In the circumstances I was not satisfied that the company was unable to pay the tax assessed by 19 April 1984, being the date due and payable in the notices of assessment, or that exceptional circumstances existed by reference to, inter alia, the company's notice of objection.

Accordingly, it was considered that the relevant facts did not warrant granting an extended date due and payable. However, subject to payment of 50% of the tax outstanding, the circumstances did warrant a deferment of legal recovery action in relation to the balance of the amount due.''

The letter then proceeded:

``The evidence and other material on which these findings based were:

  • (h) The company's Notice of Objection dated 1 June 1984.
  • (i) The returns of income of the company for the year ended 30 June 1982.

The reasons for the decision not to grant an extension of time under sec. 206 of the Income Tax Assessment Act were:

  • (j) There were insufficient grounds for concluding that the financial position or liquidity of the Company was such that at the time of the application the company was unable to pay the tax on or before the due date.
  • (k) The circumstances of the case, including the fact that an objection was lodged against the assessment for the year ended 30 June 1982, were not considered exceptional circumstances which warranted granting an extended date due and payable for the purposes of additional tax pursuant to sec. 207 of the Income Tax Assessment Act 1936.
  • (l) The circumstances of the case, particularly the fact that objections had been lodged against the assessments, and subject to the company agreeing to pay 50% of the amount due, did warrant a

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    deferment of legal recovery action in relation to the balance of the amount due.''

On 7 January 1985 this letter was supplemented by a further letter sent on behalf of the respondent, the relevant paragraph of which read:

``In making the decision not to grant the extension of time for payment, regard was had to the guidelines laid down by the Commissioner of Taxation in his memoranda to the then Deputy Commissioner, Mr J.B. Millen, dated 8 March 1983 and 28 April 1983. Applying those guidelines to the particular facts set out in your request for an extension of time, no reason was apparent for the exercise of his discretion and departure from those guidelines in order to grant the extension of time sought.''

The memoranda referred to in that letter are lengthy. I will not set them out in full. The earlier document refers to the desirability of consistency in the application of policies relating, inter alia, to extension of time for payment. The document stresses that, ``in providing these guidelines, there is no intention of laying down any conditions which may restrict a Deputy Commissioner in the exercise of his discretion''. The guidelines themselves in relation to extension of time, read as follows:

``• Extensions of time for payment are, on the request of the taxpayer to be used as an alternative to legal action in respect of a taxpayer who is clearly unable to pay his debt when it falls due but has the ability or potential to pay at some time in the future.

• Taxpayers who suffer serious financial hardship as a result of drought, flood, bushfire or other natural disaster may be granted an extended due date with penalty accruing from that date.

• With the exception of taxpayers so affected by natural disasters, all extensions of time are to be granted subject to additional tax from the original due date. That is, use of extended due date to alter the date from which penalty is calculated is restricted to natural disaster situations.

• Extensions of time are to be considered on two levels. Firstly, short-term arrangements to pay, where the debt will be discharged within three months of the due date, and in any event before 30 June, may be approved where the taxpayer provides reasonable arguments. Secondly, long-term payment arrangements (i.e. those exceeding three months or going beyond 30 June) should only be approved after careful consideration of the taxpayer's ability or potential to pay.

• Where an extension of time is granted, all recovery action should be held in abeyance and only recommence if the taxpayer defaults on the terms of the payment arrangement.

• The period of the extension should not go beyond the expected due date of the taxpayer's next tax liability.''

The memorandum of 26 April expanded upon the directions contained in that of 8 March. The document dealt separately with what were described as ``artificial scheme cases'' and ``genuine dispute cases''. In relation to the latter the memorandum said:

``7. In respect of genuine dispute cases, it has been decided that there will be a special basis for granting an extension of time in addition to the arrangements set out in Head Office memorandum of 8 March 1983. In these cases an offer by the taxpayer to pay 50% of the tax in dispute (plus the full amount of tax not in dispute) subject to the balance being subject to additional tax for late payment from the original due date, is to be accepted as sufficient to defer legal recovery action for the period of the stage of the dispute in which the payment is made. The 50% payment of the tax in dispute should include 50% of the amount of additional tax under sec. 226 unless there is a decision against the Commissioner on the application of sec. 226 in respect of the matter at issue.

8. Where a taxpayer makes such an offer at the objection stage and the objection cannot be quickly determined, the offer is to be accepted pending the determination of the objection but it is to be made clear that the arrangement lapses on determination of the objection. However, if the objection is determined against the taxpayer, a similar offer by the taxpayer at the reference or appeal stage is to be accepted pending the resolution of the dispute in the taxpayer's

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case or in a case that is regarded by the Commissioner as on all fours with the taxpayer's case.

9. Where a taxpayer is not prepared to pay 50% of the tax in dispute plus any amount of tax not in dispute and the other bases for granting an extension of time do not apply, action should be taken to determine the objection as soon as possible. Once that is done the taxpayer should be advised that legal recovery action will commence without further notice. Legal recovery action should then be commenced subject to the case not being one where the matter at issue is one where we have a decision against the Commissioner. However, should the taxpayer offer to pay 50% of the tax in dispute plus any tax not in dispute following determination of the objection this offer should be accepted and legal recovery action should be discontinued.

10. As with artificial scheme cases, it is considered that there is no room for any remission of late payment penalty simply because there is a genuine dispute. However, as mentioned in para. 6, there may be a need to honour an arrangement entered into prior to the enactment of the amendments to sec. 207.''

The application filed by the applicant claims two orders: an order extending the time for payment of the income tax notified as being due and payable on 21 May 1984 to a date being 14 days after the final determination of the applicant's appeal to the Supreme Court of New South Wales or of the decision of any ultimate appellate court on appeal therefrom and an order requiring the respondent to vary the date from which the late payment penalty under sec. 207 commenced to run to the day following that to which time was thus extended. In justification of these orders the applicant referred to para. (c) and (d) of sec. 16(1) of the Administrative Decisions (Judicial Review) Act which paragraphs confer power upon the court, in its discretion, to make ``an order declaring the rights of the parties in respect of any matter to which the decision relates'' (para. (c)) and ``an order directing any of the parties to do, or to refrain from doing, any action or thing the doing, or the refraining from the doing, of which the Court considers necessary to do justice between the parties'' (para. (d)).

Alternatively, counsel for the applicant contended for an order setting aside the decision of the respondent of 3 August 1984 to refuse an extension of time and for an order remitting the application for extension of time to the respondent for further consideration: see sec. 16(1)(b) of the Administrative Decisions (Judicial Review) Act.

The application listed a number of grounds for the relief claimed. But, as senior counsel for the applicant put in argument, the grounds reduce in essence to two matters: the claimed failure of the respondent to take into account the liquidity position of the applicant and the claimed failure of the respondent to have regard to the merits of the applicant's objection to the assessment.

There was some debate before me as to the date upon which the decision to refuse an extension of time was taken. Counsel for the respondent submitted that the relevant decision was made not later than 3 August, upon which date a letter was written informing the solicitors that it had been decided that the circumstances did not warrant the application of sec. 206. By contrast, counsel for the applicant contended that the decision was made sometime between 3 August and 30 October, when the sec. 13 reasons were supplied. The reason, as I understood it, for the suggestion that the decision was made after 3 August was that para. (g) of the sec. 13 reasons referred to the respondent not being satisfied ``that the company was unable to pay the tax assessed by 19 April 1984'', it being said that there is nothing in the letter of 3 August to show that liquidity had, at that stage, been considered whereas, on 23 October 1984, the company's accountant swore an affidavit in support of the application in which he dealt with the company's then position in relation to liquidity. I note that this affidavit was not filed in the Court registry until 1 November. I do not know whether it was served upon the respondent any earlier but, in any event, it seems to me that the evidence indicates that, by 3 August, a firm decision - whatever its effect in law - had been made to refuse an extension under sec. 206. It is true that the final sentence of the letter of that date contemplated the possibility of a further application for extension of time, supported by financial details, on the basis that payment could not be made. However, there is no inconsistency between an immediate and

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operative decision to refuse an extension of time and an indication that, under particular circumstances, a further application may be made. A decision under sec. 206 to refuse an extension is not usually irreversible. By its nature the decision is one which may call for reconsideration under changing circumstances. This does not deny the fact of the decision or deny to the decision the status of a ``decision of an administrative character... under an enactment'' within the meaning of sec. 3 of the Administrative Decisions (Judicial Review) Act: See
Lamb v. Moss (1983) 49 A.L.R. 533 at p. 556. It is, I think, germane to note that the solicitors for the applicant understood the letter of 3 August to convey an announcement of a decision under sec. 206 refusing an extension. In their letter of 13 August 1984 they said that ``it is now apparent that you have refused our client's request that it substitute a later date for the date upon which the amount of the assessment is expressed to be'' (due) and requested sec. 13 reasons. There was, between 3 August and 30 October, no fresh application under sec. 206. I think that I should deal with the matter upon the basis that the decision under attack is the refusal announced in the letter of 3 August, being a refusal decided upon at some unidentified date between the initial request on 29 May and 3 August.

In relation to the first matter relied upon by it, liquidity, the applicant puts a series of alternative submissions: that, without proper evidence, the respondent made a finding, contrary to its submission, that the applicant had sufficient liquidity to pay the assessed tax; that, without any proper basis, the respondent rejected the applicant's assertion that it lacked the requisite liquidity; and that it failed to take into account that assertion.

In relation to the first of these alternatives, that the respondent found a sufficient liquidity, counsel for the applicant rely upon para. (g) of the sec. 13 reasons conveyed by the letter of 30 October. They argue that this paragraph must be read as a positive statement that the company had the requisite liquidity, that the sec. 13 reasons identify the evidence relied upon for that conclusion as being confined to the company's Notice of Objection dated 1 June 1984 and the tax return for the year ended 30 June 1982, and that that evidence was not capable of providing a basis for a finding that, as at April 1984, the company was in a position, in respect of liquidity, to pay the tax assessed. Reliance is placed upon sec. 5(1)(e) - read with sec. 5(2)(g) - of the Administrative Decisions (Judicial Review) Act, it being said that the conclusion reached was one that no reasonable person could have reached, and sec. 5(1)(h) of the Act, it being said that there was no evidence or other material to justify the making of that decision.

There is, in my view, an immediate difficulty about this argument: the respondent did not in his reasons say that he had found that the company possessed in 1984 the liquidity to pay the tax assessed. He said that he ``was not satisfied that the company was unable to pay the tax assessed by 19 April 1984'', a very different finding and one consistent with an insufficiency of information to find either way. The applicant argues that what is important is the fact, or otherwise, of liquidity - not the satisfaction of the respondent - but sec. 206 does not make liquidity a pre-condition of a refusal of an application for an extension of time. Nor does it contain any requirement that the Commissioner reach any positive conclusion upon this matter before making a decision whether to extend time thereunder. It is common ground between the parties - and I agree; although the weight to be given to it was entirely a question for the respondent - that the matter of liquidity was something relevant to be taken into account by the Deputy Commissioner in considering an application under sec. 206. That being so, he was bound to have regard to such material as was before him in that regard but he was entitled to do so in the context that it was for the applicant for extension of time, who relied upon lack of liquidity as a factor in support of his application, to demonstrate lack of liquidity. If, having looked at the material already available to him and there being no additional material put before him by the applicant, the respondent reached a conclusion that he is not satisfied of a lack of liquidity, there could be no challenge to his decision upon the basis of insufficiency of evidence. It might, no doubt, be argued in an appropriate case that the material before the Deputy Commissioner was such that no reasonable person could be left unsatisfied as to the taxpayer's lack of liquidity but that is not this case. As counsel for the applicant pointed out, the Notice of Objection said nothing relevant to liquidity, so the applicant would

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have to contend that the Deputy Commissioner was bound to accept the accuracy of the material in the taxation return and to find from such material an inability to pay the tax. Argument was submitted upon the question whether the financial statements included in the taxation return indicated an inability in the company, as at the date of which those documents spoke, to find $556,356.86, the amount of the assessed tax. I am by no means convinced that they did but it seems to me that this inquiry is irrelevant. The accounts spoke of the position as at 30 June 1982. The parties were not concerned with the company's liquidity position at that date but rather with its position in mid-1984. The 1982 accounts could furnish little assistance on that score. The same comment may be made in respect of the 1983 tax return which, it was agreed between the parties, had been received by the Deputy Commissioner prior to the decision to refuse the extension of time but which was not referred to - according to the sec. 13 reasons - in making that decision. No doubt recent tax returns containing operating statements and balance sheets, may give a general idea as to the nature and scale of a company's operations but the two relevant returns, which are in evidence before me, show the volatility of those operations. Thus, upon the basis of the company's own accounts, the value of sales - which of course provided the company's cash flow - has varied from $8,977,850 in the year ended 30 June 1981, up to $11,682,150 in the year to 30 June 1982 and down to $5,277,400 in the year to 30 June 1983. The variation in net profit has not been correlative to that of sales: $1,832,116 to 30 June 1981, down to $232,652 in the year to 30 June 1982 and up to $466,011 in the year to 30 June 1983. The balance sheets show significant variations in both assets and liabilities over these three years. They do not demonstrate whether or not, as at any particular balance date, the company could have borrowed half a million dollars to pay its tax. None of the returns, of course, show the position in mid-1984; they furnish no guidance as to the company's cash flow or profitability during the financial year 1983-1984, they say nothing about borrowing capacity in 1984. In short, it is impossible to say that this material admitted only of the conclusion that the company lacked the capacity to pay its 1982 tax assessment in mid-1984. They provided little useful, and no conclusive, material either way upon that question. Under those circumstances it was open to the Deputy Commissioner to be ``not satisfied'' of lack of liquidity. Although the quality of the information in these accounts, as at the relevant dates, is higher than that found by Sheppard J., in relation to the accounts furnished to the respondent in
Ahern v. D.F.C. of T. 83 ATC 4698 at p. 4705; (1983) 50 A.L.R. 177 at p. 186 the conclusion expressed in that case is equally applicable: there was no evidence before the Deputy Commissioner ``upon which he could have been expected to rely to come to a conclusion as to the financial circumstances of the applicant''.

The submissions relating to the applicant's assertions of lack of liquidity may be taken together. There was never a request for an extension of time until a particular date or until particular funds came to hand. The request always was for an extension of time until the ultimate resolution of the issues raised by the objection. However, in their letter of 29 May 1984 making the initial request for an extension of time the solicitors for the applicant did refer to liquidity: see para. 4 of the extract quoted above. The statement of sec. 13 reasons referred to the letter of 29 May and, in particular, the four reasons set out in that letter in support of the request for an extension. The respondent, therefore, claims by his sec. 13 statement that he did in fact take into account the assertion of lack of liquidity. There is nothing to indicate otherwise. The argument that the respondent failed to take into account the solicitor's assertion is not substantiated by the evidence. The weight to be given to the assertion was entirely a matter for the respondent. It was open to the respondent, without coming to a decision which no reasonable person could reach, to take the view that little weight should be given to an assertion by solicitors of a taxpayer of the non-availability of liquid funds which was unsupported by any financial or other factual information relating to their client. The applicant contended that, before rejecting the assertion, the respondent should have notified the applicant of his intention so to do and should have given to it an opportunity of putting before him further material. Reference was made to the decision in
Mahon v. Air New Zealand (1984) 3 W.L.R. 884 and especially to the passage at pp. 895-896 in which the Judicial Committee of the Privy Council

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referred to the rule of natural justice that a person represented at an inquiry, such as a Royal Commission, who will be adversely affected by a decision to make a particular finding, should not be left in the dark as to the risk of the finding being made and thus deprived of an opportunity to adduce material which might have deterred the decision-maker from making that finding. However, that was a case quite unlike one such as the present, in which an applicant for the exercise in his favour of a statutory discretion takes advantage of the opportunity of putting before the decision-maker such material as he believes will support his case. I know of no principle of law that requires the decision-maker to give to such a person advance notice of a view that the material is insufficiently persuasive to warrant a favourable exercise of discretion. The decision-maker evaluates it for what, in his judgment, it is worth and decides accordingly. There is, in the present case, no suggestion that the respondent misled the applicant in relation to the course which he would take. On the contrary, the solicitors clearly contemplated that the respondent would deal with their application upon the basis only of the material contained in their letter, and such other relevant material as was otherwise in his possession. Their letter of 29 May requested a response to their application for extension within 21 days and they foreshadowed that a failure by the Deputy Commissioner ``to give proper reasons for your refusal'' would result in an application for reasons under sec. 13 of the Administrative Decisions (Judicial Review) Act.

The second main area of challenge to the respondent's decision rests upon his alleged failure to have regard to the merits of the applicant's objection to the assessment. Counsel for the applicant concede that the Deputy Commissioner treated the case as being one in which there was a genuine issue as to liability for payment of the tax but they stress that genuineness of issue is a different matter from prospects of success. In the present case, it is said, any careful consideration of the matter would have resulted in a conclusion by the Deputy Commissioner that the objection was well-founded and likely to succeed upon appeal. In argument, although not in the Notice of Objection or the correspondence with the Deputy Commissioner, reference was made to sec. 31(1) of the Income Tax Assessment Act, which gives to the taxpayer - subject to certain exceptions - the option to value trading stock, other than livestock, either at cost price, at market selling value or at replacement price. The applicant argues that this provision justifies its contention that it was entitled to value its land, as at 30 June 1982, at market value. It points to material put before the Deputy Commissioner to support those values and the fact that it had put before the Deputy Commissioner the opinion of senior counsel supporting the validity of its objection.

The validity of the objection to the assessment is not a matter for my determination. I have heard only an outline of the case in favour of the objection and nothing upon the other side. It is a matter in respect of which I have formed no view. That there is a difference between the parties in respect of the matter is demonstrated by the fact that the Deputy Commissioner decided to disallow the valuation of land and work in progress relied upon in its return by the applicant and to vary the figure for profit calculated upon the basis of that valuation. Whether that decision stemmed from a view that sec. 31 was not applicable to the case or whether the Deputy Commissioner, accepting the application of sec. 31, was dissatisfied with the valuations submitted by the applicant does not appear from the evidence. There may have been yet other reasons. Counsel for the respondent did indicate that he understood there to be a question as to the application of sec. 31 to land which has, since purchase, been subdivided by the taxpayer but this was not profferred as a definitive or exhaustive statement of the issues likely to arise at the hearing of the appeal. All that I do know, from the sec. 13 statement of reasons, is that the Deputy Commissioner claims to have had regard both to the tax return and to the Notice of Objection. There is no evidence to indicate to the contrary. The Deputy Commissioner did deal with the matter upon the basis that there was a genuine dispute about the matter, he accepting that it would be reasonable for him to accede to a request for an extension of time under sec. 206 if the applicant agreed immediately to pay one half of the disputed amount. Under these circumstances it seems to me that the applicant's case must rest upon the proposition that, leaving aside extraordinary cases, whenever an extension of time is sought in respect of disputed tax, it is encumbent upon the Commissioner to address himself to, and to form an opinion about, the likely result of the

ATC 4196

objection or of any appeal from its rejection. In fairness to them, I should say that counsel for the applicant did not go quite so far. They expressly declined to submit that, in every case of an application for an extension, the Commissioner must take into account the prospects of success but they did submit that ``there will be circumstances in which it would be a wrong exercise of the power subject to review if the prospects of success were not taken into account''. In theoretical terms, that may be conceded. Theoretically, the objection or, conversely, its disallowance may be frivolous or unarguable because, for example, it is inconsistent with clear words in the Act or with a clearly indistinguishable decision of the High Court of Australia. In practical terms such a situation is unlikely to arise. It is not suggested that either the present objection or its disallowance may be so categorised. No particular ``circumstances'' were identified by counsel in relation to this case. This being an ordinary case of genuine dispute, the applicant's submission, therefore, has to amount to the contention that, in such a case, there is a duty upon the Commissioner to attempt a prediction of the outcome of the appeal. I reject that view. Whilst, no doubt, it is relevant to the consideration of an application under sec. 206 to look at all of the circumstances, including the question whether there is a real issue about the liability to pay any disputed tax, it seems to me to go too far to say that the Commissioner is required to formulate a prediction as to the ultimate outcome of the matter. There is nothing in sec. 206 which would warrant the imposition of that burden. In many cases the issue between the taxpayer and the Commissioner will depend upon disputed questions of fact, the ultimate resolution of which may be extremely difficult to predict. In a case where a view of the relevant facts consistent with maximising revenue receipts is fairly open the Commissioner is entitled - indeed, in the public interest, virtually bound - to take, and to contend for, that view. The policy of the Act is that, subject to the discretion to extend time in particular cases, the tax is payable notwithstanding the fact that there is an objection which might succeed. To require the Commissioner, without the benefit of a curial investigation of the disputed facts, to determine an application for an extension of time upon the basis of a prediction as to the ultimate findings of fact is to place the Commissioner in a position of having to compromise the policy in the legislation by reference to a prediction which may turn out to be quite wrong. Similar considerations apply to disputes based upon differing views of the law. It is true that the Commissioner has access to expert legal advice but it is not always possible confidently to predict the ultimate resolution of questions of law, including in the area of taxation.

The view I have expressed is consistent with such authority as exists upon the matter. In Ahern, Sheppard J. held that, in considering certain applications for extension of time, the respondent Deputy Commissioner was bound to take into account the existence of outstanding objections to the assessments which raised bona fide disputes concerning their correctness, but he did not hold that the respondent was bound to predict the likely result of the objections. His Honour alluded to the difficulty, in that case, of gauging from the documents before him the prospects of success but he did not indicate that any attempt to do so should be made by the respondent before the applications for extension were resolved. Nor did his Honour so indicate in the subsequent case of
Thurecht & Ors. v. D.F.C. of T. 84 ATC 4480. In that case Sheppard J. dismissed a claim for judicial review of a refusal to grant an extension of time under sec. 206. Amongst other things, the applicant claimed that the respondent had failed to take into account the ``facts'' that the applicant had objected to the assessment and that such objections ``were genuinely based upon substantial grounds''. At p. 4495 his Honour said:

``... the mere fact that the applicants had objected to the assessments... is not a matter which the respondent was obliged to take into account. The legislative policy... militates against such a contention.''

This passage should, I think, be read with emphasis upon the word ``mere''. Sheppard J. did not exclude the possibility that, in some cases, the fact and nature of an objection may be a relevant matter for consideration. His reference at p. 4486 to counsel's argument in relation to the similarity of the facts to those under consideration in
F.C. of T. v. Westraders Pty. Ltd. 80 ATC 4357; (1980) 144 C.L.R. 55 indicates to me a view that it would have been highly material if the information before the respondent in that matter had shown that the case was covered by that decision and the objection therefore bound to succeed. But there

ATC 4197

is nothing in Thurecht to suggest that, short of those extraordinary circumstances, the Commissioner in considering an application for an extension of time is bound to address himself to the prospects of the taxpayer's ultimate success. In
The Hell's Angels Ltd. v. D.F.C. of T. (No. 4) 85 ATC 4034 - a case in which it was not suggested that the outcome of the objection was obvious - Northrop J. held that the issues raised by the applicant's objection were not matters relevant to a decision by officers of the respondent to proceed with legal action for recovery of the assessed tax. He said that the recovery officer ``was not concerned to consider whether the assessments were correct or not, she acted on the basis that the assessments were correct. That is in accord with the provisions of the Act''.

Counsel for the applicant said that the point at issue in the objection related not to the ultimate quantum of tax paid but merely to the time when payment was made. That is probably, although not necessarily, true. As they said, if the land proved to be worth more than the value contended for by their client, the net earnings in subsequent years would be increased with a resultant increase in tax in those years; provided that the operations returned a profit. Conversely, if the Deputy Commissioner's view succeeded in respect of 1982, but the land was subsequently sold for a lesser amount, this would reduce subsequent profits and - depending again upon the final result - tax. But these contentions seem to me not to affect the situation. Income tax for the year ended 30 June 1982 is to be assessed upon the basis of the result for that year; it is not to the point what effect the figures accepted in that assessment may have in subsequent years. In any event, of course, the date at which money is payable is itself a matter of financial consequence; which is no doubt why the applicant seeks a value which will have the tendency to defer the payment of tax and why the Deputy Commissioner seeks the opposite result. I can see no legal error in the decision of the Deputy Commissioner to refuse the application for extension of time.

As previously indicated, the application sought an order relating to the manner of calculation of additional tax under sec. 207. This matter was referred to during argument but counsel accepted that the resolution of that question at this stage may be premature. It seems to me that this is so. If no extension of time is granted, the question does not arise. If an extension is granted, something may turn - in the application of sec. 207 - upon the terms and/or date of any such extension. The argument would be better addressed when these matters are known. Consequently, I refrain from expressing any conclusion about that matter.

The application should be dismissed, with costs.


1. The Application be dismissed.

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

3. The exhibits be handed out at the expiration of 21 days unless a Notice of Appeal is filed in the meantime.

(Settlement and entry of order is dealt with by O. 36 of the Federal Court Rules.)

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