Grapsas v. Unger (Deputy Federal Commissioner of Taxation).
Judges: Young CJMurray J
Murphy J
Court:
Supreme Court of Victoria (Full Court)
Murray J.
This is the return of eight orders nisi to review the decision of a stipendiary magistrate sitting at Geelong. The applicant was charged on a number of informations laid in September 1983 under sec. 228 and 230 Income Tax Assessment Act 1936 as those sections then stood. The hearing of the informations was extremely protracted and took place on numerous days between 30 November 1983 and 21 February 1984. A number of informations was dismissed and others withdrawn. The magistrate convicted the applicant upon eight informations namely informations numbered 919,920,922,923,924,925,926 and 960. He fined the applicant $250 on each information other than No. 960 in respect of which he imposed a fine of $100. On the information No. 919 he ordered the applicant to pay $3,416.40 costs.
The applicant is a registered tax agent and the informations, save No. 960, as originally drawn charged him, pursuant to sec. 230(1) of the Income Tax Assessment Act 1936 with knowingly and wilfully making a false statement in an income tax return affecting the liability of the person named therein to tax. Information No. 960 charged the applicant pursuant to sec. 228(1) of the Act with signing a tax agent's certificate on the income tax return of Lisa Helene Ewer which was false.
During the course of the proceedings the respondent sought and obtained leave to amend informations Nos 919 to 926 inclusive so as to charge the applicant with knowingly and wilfully understating in an income tax return the amount of the taxable income of the person named therein by overstating the amounts allowable as deductions in respect of the various items set out. At a very late stage in the proceedings the respondent further amended
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informations numbered 919, 920, 925 and 926 back to their original form namely charging the applicant with making a false statement in a return affecting the liability of the person named therein to tax. Three informations, namely informations numbered 922, 923 and 924 were not further amended back to their original form.For a consideration of many of the submissions made on behalf of the applicant it is sufficient to say that the evidence led by the respondent was directed towards proving that in respect of each of the applicant's clients whose income tax returns were the subject of the eight informations the applicant had either inflated the amounts claimed in respect of deductions which were supplied to him by the clients or, in some cases, originated the claims of his own initiative. In each case the clients were sent their returns for signature and duly signed them as taxpayers. In some cases the clients said in evidence that they had not checked the return at all and in other cases that they glanced through them and assumed that the applicant knew what he was doing and relied upon his expert knowledge.
Mr Castan Q.C. who, with Mr Danos, appeared for the applicant relied upon five grounds in his submissions. He first submitted that the provisions of sec. 230 do not apply to a tax agent who is merely acting as a tax agent.
Section 230(1) (as it then applied) provided as follows:
``Any person who, or any company on whose behalf the public officer, or a director, servant or agent of the company in any return knowingly and wilfully understates the amount of any income or makes any misstatement affecting the liability of any person to tax or the amount of tax shall be guilty of an offence.''
Mr Castan submitted that the section is directed towards the person making a return and not a person merely preparing a return to be made by somebody else. He submitted that the concept of making a return extended to persons such as the public officers of companies, trustees who make returns on behalf of trust estates and persons, who acting as agents for others, make returns on behalf of their principals in the names of their principals. He submitted that in the present case the applicant had submitted the returns he had prepared to his clients for their inspection and approval and that by signing them the clients had adopted the contents of them. He submitted that by adopting them the clients ``made'' the statements within the meaning of the section and further that their adoption made it impossible for the Court to find that the applicant had knowingly and wilfully understated the amount of any income or made a misstatement affecting the liability to, or the amount of, tax.
In my opinion the very wide words used in sec. 230 cannot be limited in the manner Mr Castan submitted that they should be. Omitting irrelevant parts the section reads:
``Any person who in any return knowingly and wilfully understates the amount of any income or makes any misstatement affecting the liability of any person to tax or the amount of tax shall be guilty of an offence.''
(my underlining)
If Parliament intended the section to apply only to persons making a return either as a taxpayer or on behalf of the taxpayer it could very easily have used a more limited phraseology. It will further be observed that the section refers to making a misstatement and not to making a return. The question is not free of authority. In
Mallan
v.
Lee
(1949) 80 C.L.R. 198
a company was charged under sec. 230 with knowingly and wilfully understating its income. Its public officer, who signed the return on behalf of the company, was charged under sec. 5
Crimes Act 1914-1946
that ``he by it was directly knowingly concerned in the commission of the offence''. It was submitted on behalf of the public officer who was the appellant that the prosecution against him was commenced beyond the limitation period provided in the
Crimes Act
. The High Court rejected this submission and held that the appellant was guilty of an offence against sec. 230 in respect of which the time for commencing prosecution was six years. It will be seen that this decision involves that an agent as well as the company commits an offence against sec. 230 if the agent knowingly and wilfully understates the company's income. While the decision does not directly extend to a tax agent it demonstrates that a person may commit an offence under sec. 230 by making a false statement in a return that is not his own. Dicta in the case strongly support the view that statements made in returns need not be made by persons authorised
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to make them on behalf of others to constitute an offence. At pp. 214-215 Dixon J. (as he then was) said:``A public officer cannot, I think, make his company responsible under the second part of the provision without himself becoming liable under the first part. The first part is not confined to a taxpayer making a return of his own income. This is designedly done because there are many cases in which persons may or must make returns of income in which they have no beneficial interest or which they do not derive... The expressions `any person' and `any income' in s. 230(1) were adopted so as to cover cases where the person making the return did so in a representative capacity and did not derive the income. The expression `any person' where it secondly occurs does not necessarily mean, or refer to, the same person as is designated by the expression where it first occurs...
It might be argued that the express provision made by s. 230(1) relating to the case of a company shows an intention on the part of the legislature to make the company and not the public officer director or servant of the company penally liable for a wilful understatement of income or misstatement, and that the wide words of the other part of the sub-section should not be interpreted as including the public officer director or servant making a return. Such an inference would in my opinion be mistaken. I understand the policy of the more general part of s. 230(1) to be to place upon all persons who make in a return a wilful understatement of income or misstatement, a penal responsibility whether they do so on behalf of themselves or of others.''
Latham C.J. said (at p. 211):
``I see no difficulty in accepting the proposition that, when a person or a company is guilty under s. 230 of an offence of understating income in a return, another person who, with knowledge of the relevant facts, prepared the return would be a person who had aided the person or company in committing the offence, with the result that such a person would, by reason of s. 5 of the Crimes Act, be `deemed to have committed that offence,' and be punishable accordingly. When under a statute a person is to be deemed to have done something which he has not in fact done the result is that he is to be treated by a court engaged in the interpretation and administration of the law as having incurred the consequences of that which he is deemed to have done for the purposes for which the `statutory fiction is to be resorted to'.''
His Honour later said (at p. 212):
``But I agree with my brother Dixon, for the reasons which he states, that s. 230 makes it an offence for any person to understate or misstate income in any income-tax return, whether his own or that of another person.''
A wider view of the operation of the section was adopted by
Gowans
J. in
Bell
v.
Canny
(1973) V.R. 156
. In that case a tax agent procured the signatures of four clients to blank return forms and instructed a typist employed by him to complete the returns by inserting various details of deductible expenditure which he knew to be false. When the returns were complete he signed them as tax agent. He was convicted by a magistrate of offences against sec. 230 and on the return of orders to review four propositions were submitted to
Gowans
J. as follows:
``1. No one can make a misstatement in a return except the taxpayer who signs the return or someone who signs the return on behalf of the taxpayer.
2. If anyone can make a misstatement in a return, other than the taxpayer, or a person signing it on his behalf, it can only be a person who physically inserts in the return some part of its contents.
3. A person who gives information to another person for insertion in the latter's return as part of its contents, cannot be held to make a statement in the return because it is not then his statement.
4. A person who authorises another to insert in the return part of its contents is in the same position as a person supplying information to another for the purpose of insertion as part of the contents and cannot be held to make a misstatement in the return.''
Gowans J. rejected these propositions. At pp. 159-160 he said:
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``I think it is reasonably clear that where a person physically preparing a return (albeit not his own) inserts in it matter which is false, and he inserts it knowingly and wilfully, it falls within the sub-section. And, in my view, where a person knowingly and wilfully supplies information which is false to another, and that other is his agent, for the insertion of that matter in the contents of the return, being authorized and directed to insert that matter in the return, then the person supplying the information and authorizing and directing it to be inserted in the return, commits an offence against the sub-section.''
Mr Castan submitted that the decision in Bell v. Canny is wrong and that we should not follow it. In my opinion it is correct. In the course of the argument before us various hypothetical cases were discussed (as they were before Gowans J.) which it was submitted demonstrated that the wider view of sec. 230 could lead to absurd results. But in my view the fact that the section requires that a person charged must -
- 1. in a return,
- 2. knowingly and wilfully,
- 3. understate income or make a misstatement,
will prevent such situations arising. The submission that by signing the returns the clients of a tax agent adopt the contents of them and that any understatements or misstatements become theirs and not the agent's must depend upon the proved facts of each case. In cases in which a tax agent, believing that his client must be able to claim certain deductions by reason of his occupation, or by reason of the source of his income makes what he believes to be a reasonable estimate and specifically draws the attention of his client to what he has done no doubt it may be cogently argued that any understatement or misstatement is no longer made by him if his client adopts what he has suggested and signs the return. But this will usually be because in such a case the element of ``knowingly and wilfully'' will be absent. If on the other hand the agent inserts expenses and deductions which are his own invention the signature of his client to the return will not suffice to put him outside the ambit of the section. He will then be in very much the same position as the defendant in
Mallan v. Lee (supra)
. Mr Castan referred to
McGovern (F.C. of T.)
v.
S.M. Chaplain
&
Ors
(1951) 9 A.T.D.351
and
Aoun
v.
D.F.C. of T.
82 ATC 4195
but in my opinion those decisions do not assist him.
Mr Castan next submitted that informations numbered 922, 923 and 924 which were the subject of orders to review 14A, 14B and 14C in their amended form do not disclose an offence. The three informations relate to the income tax returns prepared by the applicant for one Mansfield in respect of the years ended 30 June 1979, 1980 and 1981 respectively. In their original form the informations alleged that the applicant knowingly and wilfully made misstatements affecting the liability to tax of Mansfield and particularised various expenses claimed as deductions. Late in the proceedings before the magistrate, after very lengthy submissions by counsel, application was made and leave was given to amend the informations so as to allege that the applicant knowingly and wilfully understated the amount of the taxable income of Mansfield by overstating the amount allowable as deduction for the same expenses as were alleged in the original information. As I have previously mentioned informations numbered 919, 920, 925 and 926 were similarly amended but when the magistrate, again after lengthy submissions by counsel, found there was no case to answer in respect of these informations he gave leave to amend them back again and they reverted to their original form, namely alleging a misstatement. I confess that after reading the transcript I am still not confident that I fully comprehend the distinction that was drawn between the informations which were thus further amended and the informations relating to the returns of Mansfield which remained as first amended and alleged an understatement of taxable income by overstating deductions.
Mr Castan submitted that the three informations relating to the return of Mansfield in their amended, form did not disclose an offence. He submitted that the decision of
O'Bryan
J. in
McGovern
v.
Galt
(1947) V.L.R. 285
was wrong and should not be followed. In that case, which was a civil action brought by the Commissioner of Taxation which in part relied upon sec. 230 the statement of claim alleged an understatement of ``net income''.
O'Bryan
J. (at p. 291)said:
``Mr. Smith contended that the words `any income' in sec. 230 should be given a
ATC 4498
restricted meaning and one that does not include such a figure. He contended that income in that section means gross income or receipts by the taxpayer of money. The application of such a definition to the return of a taxpayer who is carrying on a business which involves the buying and selling of goods is very difficult and I can see no reason for limiting the word `income' in sec. 230. The word itself is a wide one and is preceded by the adjective `any'. If it is suggested that a person's taxable income may be a highly technical thing and only to be arrived at by one skilled in taxation law - that what are allowable deductions may be a highly disputable matter and that therefore it is unlikely that the statute was making it an offence to understate one's taxable income - the answer is quite apparent because no taxpayer is guilty of an offence under this section unless he has knowingly and wilfully understated the amount of his income. I see no reason to suppose that the act of knowingly and wilfully understating one's taxable income is not covered by this section. The result of holding otherwise would be that if a taxpayer truly stated his gross receipts from a business or from property, but wilfully and knowingly overstated allowable deductions therefrom (such, for example, as repairs or rates and taxes), so that his return of net income was understated he would be guilty of no offence under s. 230. That would appear to be an extraordinary result and a result which the language of the section does not require.''
I can see no reason why in the case postulated by his Honour the overstatement of allowable deductions would not amount to a knowing and wilful misstatement affecting the liability to tax or the amount of tax and so come within the section. With great respect to O'Bryan J. I take a different view of the section. It appears to me that it clearly distinguishes between an understatement of income on the one hand and misstatements affecting the liability of the person to tax or the amount of tax on the other hand. It follows in my opinion that a false exaggeration of deductions, although it may result in an understatement of net income, is correctly categorised for the purposes of sec. 230 as a misstatement affecting the liability to tax or the amount of tax.
Mr Burnside, who appeared for the respondent, submitted that if this Court should consider that the amended information did not disclose an offence we should permit the informations to be amended in the same way as the other informations were amended. He submitted that an amendment did not affect the essential facts or set up a different case against the applicant. Amendment of an information is however a matter of discretion and in my view it is now too late in the day, having regard to the protracted nature of the proceedings and the various amendments which were sought and allowed before the magistrate for this Court to allow further amendments. I would therefore favour making the orders nisi 14A, 14B and 14C absolute and quashing the convictions and fines imposed.
The next submission made by Mr Castan was that the evidence of the witness Harkin ought to have been excluded by the magistrate.
The relevant facts are as follows. Mr Harkin gave evidence that he was authorised under sec. 264(1)(b) to examine the applicant. The examination took place over three days. On the first two days the applicant was accompanied by his solicitor. Four officers from the Taxation Department attended and all joined in the proceedings which were tape recorded and a typed transcript was produced.
Mr Danos who appeared for the applicant before the magistrate submitted that the evidence should be excluded. After some discussion the magistrate decided that he would conduct a voire dire and an extensive examination of Mr Harkin then followed. At the conclusion of the voire dire the magistrate said that it had not been proved that the requirements of sec. 264 had been complied with. This apparently followed from the failure of the prosecution to produce either the original or a copy of the notice said to have been issued by the Commissioner under sec. 264 and in the absence of that notice the magistrate said that he could not be satisfied that Mr Harkin had been properly authorised to conduct the examination. Mr Danos submitted that in the absence of such proof the examination was illegal and that the statements of the applicant were not voluntary and further that in any event the evidence should be excluded as a matter of
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discretion upon the basis that the proceeding was unfair to the applicant. The magistrate held that the statements of the applicant were voluntary and that he was not persuaded that he should, in the exercise of his discretion, reject the evidence. The evidence was consequently admitted. In this Court Mr Castan pursued the submissions and referred to many authorities in particularBunning v. Cross (1977-1978) 141 C.L.R. 54 and
Cleland v. The Queen (1982) 57 A.L.J.R. 15 .
In my opinion there is no substance in Mr Castan's submissions. The magistrate carefully and fully investigated the circumstances in which the examination of the applicant was conducted. He showed that he was fully aware of the relevant principles of law which applied to the admission and exclusion of such evidence. Whether or not compliance with the provisions of sec. 264 had been proved the applicant attended the examination with his solicitor. He did not give any evidence on the voire dire and there was thus no evidence of any unfair pressure exercised upon him. There was no suggestion that he was given the impression that he was not at liberty to refuse to answer questions if he chose to do so. The fact that he attended with his solicitor strongly suggests that he was fully aware of his rights and it may be safely inferred, in my view, that his solicitor had advised him of his right to refuse to answer questions on the ground that he might incriminate himself. In my opinion the magistrate demonstrated that he was aware of the nature of the discretion that he had to exercise and he exercised it correctly. I therefore am of the view that there is no substance in this argument.
Mr Castan next submitted that the magistrate was in error in amending the four informations a second time so that they alleged misstatements. Mr Danos submitted to the magistrate that the informations as they then stood, namely, alleging understatement of taxable income did not disclose a defence. There was some discussion on the decision in McGovern v. Galt (supra) and it was suggested that sec. 230(1) may have been in a different form at the time of that decision. I have verified however that the section was then in precisely the same form and I have already indicated my view on the correctness of the statements in that case. In the discussion which followed the magistrate drew some distinction between a situation in which income was derived from the conduct of a business and therefore might properly be said to be that sum which resulted after taking away the costs of conducting the business from the gross receipts. As I understand the magistrate's comments he distinguished that type of case from the case in which a wage or salary earner received an income and was entitled to claim certain deductions. In this latter case the magistrate was of the view that the result of subtracting allowable deductions from income so as to produce taxable income was not within the scope of sec. 230 and he ruled accordingly that there was no case to answer in respect of informations 919, 920, 925 and 926. In relation to informations 922, 923 and 924 he held that his ruling in relation to taxable income did not apply. Mr Burnside thereupon applied for and was granted leave to make a further amendment to the other four informations.
In this Court Mr Castan submitted that the magistrate was in error in allowing this further amendment. He submitted that the first amendment involved an election on the part of the prosecution not to proceed with the original informations and that the prosecution was bound by such election and should not have been permitted to revert to them.
Section 239(1) provides:
``An objection shall not be taken or allowed to any information or summons for any alleged defect therein in substance or in form or for any variance between the information or summons and the evidence adduced at the hearing in support thereof, and the Court shall at all times make any amendment necessary to determine the real question in dispute or which may appear desirable.''
Although the situation was an extremely unusual one it does not appear to me that the magistrate was bound to refuse any further amendment. The amendment involved no theoretical or actual change in the nature of the acts alleged to have constituted the offences and nor was the applicant able to point to any prejudice arising out of the amendments being allowed. In my opinion this Court should not interfere with the magistrate's ruling and as a consequence I do not think that there is any substance in Mr Castan's submissions on this aspect of the case.
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Mr Castan finally submitted that in relation to the conviction recorded on information 960 this conviction was inconsistent with the magistrate's refusal to convict on information No. 921. By information No. 921 the applicant was charged with knowingly and wilfully making a misstatement affecting the liability to tax of Lisa Helene Ewer in that he overstated the amount claimed in respect of depreciation on furniture and furnishings and fittings in relation to rent or property. The magistrate dismissed this information but convicted the applicant under information No. 960 which was laid under sec. 228(1) of the Act. By this latter information the applicant was charged with making a false statement in that he signed an agent's certificate which was false in a particular way in that the return of Mrs Ewer was prepared by him otherwise than in accordance with the information supplied by the taxpayer. Upon proper analysis however there is no inconsistency between the dismissal of the information under sec. 230 in respect of Mrs Ewer's return and the conviction under sec. 228. As I read the transcript the magistrate was not satisfied beyond reasonable doubt that the estimates inserted for depreciation into Mrs Ewer's return by the applicant were false to the knowledge of the applicant. In my opinion the applicant was somewhat fortunate that the magistrate reached this conclusion. But there is nothing inconsistent in that finding with the finding that the applicant made a false statement on the return when he signed the agent's certificate stating that the return had been prepared by him in accordance with information supplied by Mrs Ewer. The evidence showed quite clearly that a good deal of the claims made in the return emanated from the applicant and not from any information supplied by Mrs Ewer. It follows that there is no substance in this ground of attack. In the result in my opinion the orders nisi to review Nos 14, 14D, 14E, 14F and 14G should be discharged. The decision of the magistrate on those informations should be confirmed including the order for costs which the magistrate imposed in relation to information No. 919.
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